TIDMAO.
RNS Number : 2431G
AO World plc
24 November 2020
AO WORLD PLC
INTERIM RESULTS FOR THE 6 MONTHSED 30 SEPTEMBER 2020
PROFITABLE GROWTH THE AO WAY
AO World plc ("the Group" or "AO"), a leading European online
electrical retailer, today announces its unaudited interim
financial results for the six months ended 30 September 2020(1)
("HY21").
BUSINESS OVERVIEW
Financial performance
-- Strong revenue growth with total revenue for the period
increasing 53.2% to GBP717.0m (2019: GBP468.0m (2) ) demonstrating
our ability to deliver sustained growth in demand in the UK and
Germany
-- Increase in Group Adjusted EBITDA(3) to GBP28.8m (2019:
GBP1.0m); EBITDA margin increases to 4.0% (2019: 0.2%) reflecting
our ability to leverage efficiencies with scale
-- Group Profit Before Tax increased to GBP18.3m from a loss of
GBP5.9m in the prior year period
-- Cash generated during the period of GBP78.4m (2019: cash utilised of GBP5.3m)
Operational highlights
-- We continue to delight our customers in this period of step
change increases in volumes and Covid-19 operational challenges;
Net Promoter Scores at consistently high levels of over 80 in the
UK(5) and Germany
-- Resilient operational performance; ongoing significant
investment in our people and infrastructure ensures we are well
equipped to serve the step change in online penetration
-- AO Germany on track to achieving monthly profitability on an
adjusted EBITDA basis during our peak trading period and expect to
be profitable from FY22
-- Implementation of the One AO approach continues and will allow us to scale efficiently
-- AO Culture remains strong; ambitious Value Creation Plan
launched to all employees giving every AOer the chance to share in
exceptional growth
Financial Summary
GBP(m) HY21 HY20 % Mvmt
======= =======
UK(6) revenue 616.4 400.6 53.9%
======= ======= =======
Germany(6) revenue 100.6 54.3 85.2%
======= ======= =======
Total revenue (excluding impact of NL operations
in HY20) 717.0 454.9 57.6%
======= ======= =======
UK Adjusted EBITDA 32.6 13.6 140.1%
======= ======= =======
Germany Adjusted EBITDA (3.8) (9.9) 61.6%
======= ======= =======
Group Adjusted EDITDA (excluding impact of
NL operations in HY20) 28.8 3.7 686.1%
======= ======= =======
Group Operating profit / (loss) 16.8 (10.6) 259.8%
======= ======= =======
Profit before tax 18.3 (5.9) 417.1%
======= ======= =======
Basic earnings / (loss) per share (pence)(8) 3.45 (1.00) 442.8%
======= ======= =======
Cash generated / (utilised) 78.4 (5.3) 1,579%
======= ======= =======
Net debt(4) (20.7) (82.8) 75.0%
======= ======= =======
On a constant currency basis - EURm(9)
======= ======= =======
Germany Revenue 112.1 61.5 82.2%
======= ======= =======
Germany Adjusted EBITDA losses (4.2) (11.3) 62.4%
======= ======= =======
John Roberts, AO Founder and Chief Executive Officer, said:
AO Founder and Chief Executive, John Roberts, said: "This has
been a half year like no other. I believe our market has changed as
a result, forever. Online is now the dominant retail channel for
customers and manufacturers alike and I am delighted by how our
AOers have risen to the challenge of this structural shift in
behaviour.
"We have grown share across all categories and the results we're
announcing today give huge confidence that our business is well set
for the future to cement the changes. Our growth rates have
increased from Q2 to Q3 as we unlock capacity constraints.
"We have taken huge strides forward on our commitment to fix all
the fundamentals of our European business and we now have a
profitable platform from which to accelerate our growth in Germany
and beyond.
"I would like to thank all AOers and all our trading partners
for making such structural change possible in such a short period
of time. It has been an incredible team effort to serve customers,
existing and new, in their moments of need that I believe they will
repay us with loyal custom for years to come.
"Now really is our time and we are investing to win and cement
the change."
Webcast details
A webcast of our results presentation hosted by Geoff Cooper,
John Roberts and Mark Higgins for analysts and investors will be
available at AO World FY21 Half Year Results Webcast from 7am (BST)
today, 24 November 2020. A live Q&A session for analysts and
investors will also be held today at 9:30am (GMT). Please register
to join the Q&A session at AO World FY21 Half year Q&A .
Both the webcast and a playback of the Q&A session will be
available on AO's corporate website at ao-world.com(10) later
today.
For further information, please contact:
AO World plc Tel: +44(0) 1204 672400
John Roberts ir@ao.com
Mark Higgins
Tulchan Communications Tel: +44(0) 20 7353
Will Smith 4200
James Macey White ao@tulchangroup.com
William Booth
About AO
AO World plc, headquartered in Bolton and listed on the London
Stock Exchange, is an online electrical retailer, with a mission to
be the global destination for electricals. Our strategy is to
create value by focussing on being brilliant for our customers to
make AO the destination for everything they need, in the simplest
and easiest way, when buying electricals.
We sell major and small domestic appliances and a growing range
of electrical products in the UK and Germany, delivering them via
our in-house logistics business and carefully selected third
parties. We also provide ancillary services such as the
installation of new and collection of old products and offer
product protection plans and customer finance.
In the UK, AO operates in five main categories (Major Domestic
Appliances "MDA", Small Domestic Appliances "SDA", Audio Visual
"AV" and Consumer Electronics "CE"). Following the acquisition of
Mobile Phones Direct Limited in December 2018, AO has significantly
broadened its mobile phone category.
AO Business serves the B2B market in the UK, providing
electricals and installation services at scale.
AO launched in Germany in October 2014 with MDA and now sells
Floorcare, AV and SDA categories.
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) The highlights are for the six month period ended 30
September 2020 and the comparative 2019 period. Certain financial
data have been rounded. As a result of this rounding, the totals of
data presented in this document may vary slightly from the actual
arithmetic totals of such data.
(2) For the prior year comparative (i)) includes revenue
generated by AO.nl, our Netherlands website, which was closed
during the quarter ended 31 March 2020 and (ii) has been restated
see note 14.
(3) Adjusted EBITDA is defined by the Group as profit/(loss)
before tax, depreciation, amortisation, profit on disposal of fixed
assets net finance income and adjusting items. Adjusting items are
set out in the paragraph below entitled "Alternative Performance
Measures".
(4) Net debt is defined by the Group as borrowings and lease
liabilities (as set out in Note 11) minus cash.
(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) UK is defined by the Group as entities operating within the
United Kingdom. (It excludes AO Deutschland Limited which is a
company registered in England but operates in Germany and therefore
is included in the Europe segment).
(7) In the period to 30 September 2020 Europe is defined as
being entities operating in Germany. For previous periods Europe
was defined as entities operating in Germany and the Netherlands.
The Netherlands operation was closed in November 2019. Germany is
defined as entities operating within Germany only.
(8) Please refer to the loss per share paragraph later in this
announcement for further information.
(9) Where Euro amounts are disclosed they represent the actual
Euro revenue, cost or loss for the period. Providing this
information eliminates the impact of foreign exchange
movements.
(10) The content of the ao-world.com website should not be
considered to form part of or be incorporated into this
announcement.
(11) Source: GfK, 6 months to 30 September 2020.
(12) For the prior year comparative, excludes revenues generated
by AO.nl, our Netherlands website, which was closed during the
quarter ended 31 March 2020.
(13) Non-MDA categories are defined by the Group as small
domestic appliances, audio visual, computing and gaming.
(14) A customer is defined as an individual customer who has
purchased through us via ao.de
Cautionary statement
This announcement contains 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
Last year we concentrated on strengthening the fundamentals of
our business and refocusing on delighting customers with
operational excellence, driving innovation and creating growth. We
entered into this financial year as a stronger business with the
ability to leverage our "One AO" way of working whilst growing.
Response to Covid-19
This has been a period defined by the impact of Covid-19. It is
a period unlike any other we have experienced in the history of AO,
however one which we have responded to from our solid
foundations.
I am immensely proud of how our people reacted to such a
fast-moving external environment and I would like to thank each and
every AOer for their phenomenal efforts. It is thanks to them, and
the strength of our business model, that we have successfully
responded to a structural shift in consumer behaviour.
Our first priority remains the health and safety of our
colleagues, customers, suppliers and partners while remaining a
lifeline for customers across the UK and Germany. We took on
additional costs to comply with new social distancing measures and
enhanced cleaning protocols for our warehouse and delivery
colleagues, while AOers in office-based roles were mobilised to
work from home where effective. We continue to update our measures
in line with local Government guidelines.
Trading
Government lockdown measures created a unique set of
circumstances from the end of March through to the beginning of
June in the UK, and May in Germany. During this period consumers
remained at home, high street stores were closed and electricals
became an increasingly essential part of everyday life. We
experienced a strong increase in demand, delivered record volumes
to customers and made significant market share gains across many of
our key categories all the while maintaining the AO Way.
Encouragingly the material increases in demand and momentum
experienced in Q1 largely continued throughout Q2. Even as lockdown
measures were eased and competitors' bricks and mortar stores
reopened, we have seen little impact on demand with our revenue
capped by physical capacity. During HY21 the market for our core
MDA category performed particularly strongly with the value of the
UK MDA market increasing by 4.7%(11) compared to HY20. The UK
markets for non-MDA categories performed similarly well with AV,
SDA and computing total market values growing by circa 12%(11) ,
17%(11) and 43%(11) respectively versus the prior year comparable
period. While we remain watchful of the external consumer
environment, the sustained sales trend throughout HY21 and beyond
provides us with increased confidence that there has been a
permanent shift in demand for shopping our categories online,
accelerated by the impact of Covid-19, with UK MDA online market
penetration averaging c.70%(11) during HY21.
Cementing change
T he electricals market has increasingly moved online during the
past six months as customers continue to choose this channel to
make their purchases. In the UK, a s one of the market-leaders in
online electricals, we have focused on cementing the change in
consumer habits to ensure that AO is the destination of choice.
From a brand perspective, we have continued to invest in order to
grow visibility and recognition. We have taken advantage of cheaper
advertising slots and returned to TV via a targeted advertising
campaign, made by our own in-house production team. In addition, in
October, we launched our first trial store within a Tesco Extra
store with the aim of growing AO brand awareness. While the initial
response has been positive, this pilot remains in its very early
stages. In September we were also delighted to announce that we had
entered into a five year deal to be the headline sponsor of the
Manchester Arena, which has been officially renamed the "AO Arena".
This is the biggest indoor stadium of its type in the UK and is a
fantastic opportunity to further cement the AO brand into the minds
of customers.
In the half our focus was on fulfilling increased customer
demand in the core retail channel. As a consequence we delayed the
full integration of AO Mobile which is now planned for 2021. While
we remain confident in the long-term opportunity that mobile will
bring to AO, the latter part of HY21 saw a change in customer
behaviour, with increased cashback redemption rates and
cancellation of contracts which negatively impacted our gross
margin from mobile. Nonetheless, we acted quickly to address this
and amend our customer offer. More recently we have seen an
encouraging early positive impact on sales as a result of the
launch of the new iPhone12.
The investments we continue to make in infrastructure, expertise
of our teams and strong supplier relationships means that we have
successfully managed the increase in customer demand whilst
maintaining our extremely high levels of customer service,
delivering consistently high NPS scores. In the UK, we
significantly increased capacity in our logistics network with new
warehousing, outbases, vehicles and drivers.
Our recycling operations were temporarily scaled back during the
first lockdown but are now back to normal levels of operation and
consistently at full capacity. The prices we receive for output
materials however have been volatile and not generally favourable
since March. We are excited to be in discussions with a number of
manufacturers about cradle to cradle electricals, using raw
materials from our recycling plants to build new products, which
may also help to mitigate volatility in output material
pricing.
Continuity of service to our B2B customer throughout the
pandemic has served us well. We have experienced growth across our
differing customer bases and added new market segments as we
continue to build our partnerships, solving their supply chain
issues and providing them with high service levels and strong
levels of stock availability. In particular, we are seeing demand
for our services growing amongst housebuilders and their pipelines
continue to build. We are approved for 6 of the top 10 UK
housebuilders and are receiving a favourable response to the
majority of tenders.
In Germany, we have made considerable progress as a business and
have benefitted from implementing our 'One AO' approach, having
introduced our successful business protocols from the UK. In March
2019, we began to implement our plan to re-engineer the business
and its P&L dynamics on our path to profit and the management
restructure has now been completed. Meanwhile, the renegotiation of
all supplier terms leaves us well-set for future growth and
reflects improved relationships across our supplier base in
Germany.
Due to the proactive actions we took to remedy our German
business, we were well-placed ahead of Covid-19. Over the past six
months, we have seen the German market move online quickly, and we
have been delighted with the growth in customer numbers as our
brand becomes more recognised and trusted.
Outputs
We expect to see many of our new customers stick with AO and we
are working hard to enable us to continue to report world class Net
Promotor Scores.
For this financial year, we will:
- Be cash generative
- Create meaningful operational gearing through scale leverage
- Consume low amounts of capex relative to growth potential in our market
- Continue to refine the model and develop the underlying
systems to repeat easily with low capex into new markets
- Allow flexibility to in-source or out-source front line operations
Future growth
The shift to online is not just a UK phenomenon; it is across
the world. European online electrical markets are less mature than
the UK therefore presenting us with a significant opportunity on
which to capitalise. We have proven our capability in Germany,
investing c.GBP150m in our learnings, and we are refining our
proven model, ready to roll out further.
Summary
Group revenue growth in October was higher than the year-on-year
HY21 growth rate as we have benefitted from increased capacity,
stock availability and further efficiencies following the
continuing investments made in our infrastructure and people. As we
enter the traditional peak trading period, AO is positioned
strongly to capitalise on new opportunities and continue to deliver
for customers. Still, there are headwinds, not least in the
macroeconomic climate, including the threat of Covid-19-related
recessionary behaviour and Brexit from January 2021. The Board
remain confident that our customer offering, our business model and
the AO Way together will continue to offer our customers great
choice together with the service level our customers expect given
our One AO approach.
FINANCIAL REVIEW
Revenue
For the six months ended 30 September 2020 total Group revenue
increased by 53.2% to GBP717.0m (2019: GBP468.0m).
Table 1
6 months ended 6 months ended Better/Worse
(GBPm)(1) 30 September 2020 30 September 2019
------------------------------ --------------------- ---------------------- -----------------------
UK Germany Total UK Germany Total UK Germany Total
------------------------------ ----- ------- ----- ------ ------- ----- ----- -------- ------
Product revenue 505.3 98.3 603.6 311.2 52.1 363.3 62.4% 88.7% 66.2%
------------------------------ ----- ------- ----- ------ ------- ----- ----- -------- ------
Services revenue 25.8 1.9 27.6 16.1 2.0 18.1 60.3% (5.9%) 53.1%
------------------------------ ----- ------- ----- ------ ------- ----- ----- -------- ------
Commission revenue 70.6 0.1 70.7 59.7 0.1 59.8 18.2% 7.3% 18.2%
------------------------------ ----- ------- ----- ------ ------- ----- ----- -------- ------
Third-party logistics revenue 7.8 0.3 8.1 6.8 - 6.8 15.6% - 19.4%
------------------------------ ----- ------- ----- ------ ------- ----- ----- -------- ------
Recycling revenue 6.9 - 6.9 6.8 0.1 6.9 1.5% (100.0%) (0.5%)
------------------------------ ----- ------- ----- ------ ------- ----- ----- -------- ------
Total revenue 616.4 100.6 717.0 400.6 54.3 454.9 53.9% 85.2% 57.6%
------------------------------ ----- ------- ----- ------ ------- ----- ----- -------- ------
Total revenue
including NL * 616.4 100.6 717.0 400.6 67.4 468.0 53.9% 49.2% 53.2%
------------------------------ ----- ------- ----- ------ ------- ----- ----- -------- ------
*the majority of revenue generated in our Netherlands business
in the prior year was classified as Product revenue
Total UK revenue increased by 53.9% to GBP616.4m (2019:
GBP400.6m). Product revenue, comprising sales generated from
ao.com, marketplaces and third-party websites increased
significantly to GBP505.3m, with sales generated from ao.com
increasing by 69%. This represents a 62.4% increase in product
revenue as we experienced heightened levels of demand following the
migration to online in the wake of the implementation of Covid-19
restrictions.
We have seen significant and sustained growth across all
categories despite the easing of lockdown restrictions and the
reopening of competitor bricks and mortar stores. Our UK MDA sales
increased by 52% against a market that has increased by 4.7%(11)
over the period to 30 September 2020. We have worked hard with our
supply partners to maintain the availability of products with
fridges and freezers being of particularly high demand. Non-MDA
category sales (comprising small appliances, audio visual,
computing and gaming but excluding mobile) increased by c.112%
against the prior year, with the significant growth in some
categories attributable to the rise in home working.
Our Business to Business (B2B) proposition drove revenue growth
of 46% despite the impact of lockdown restrictions causing reduced
trading for its customers during April and May in particular. Sales
to insurance customers increased by around 60% as we gained market
share due to our stock availability and increased integration with
our partners enabling extended product ranges and AO services.
Despite the pause in offering installation services as
restrictions impacted access to customers houses during the first
quarter, UK Services revenue performed broadly in line with product
revenue increasing by 60.3% to GBP25.8m. The restrictions in
offering installation services were offset by a significant
increase in delivery income as we sought to manage levels of demand
through a matrix of pricing on delivery slots.
UK Commission revenue which includes revenues from commissions
generated by our mobile business from the Mobile Network Operators
for the procurement of connections to their networks and the
delivery of the handset to the end customer, and sales of our AO
Care products increased by 18.2% to GBP70.6m. Revenue associated
with our AO Care product increased by 82% in the period, ahead of
ao.com retail sales. In our mobile business, revenues from the
sales of post-pay contracts increased by 26% however this was
offset by increased constraint of variable consideration recognised
in relation to cashback redemption and commissions receivable (see
notes 1, 9 and 10 for further details). The combined effect of this
change in customer behaviour resulted in a reduction in revenue of
c.GBP9m in the period. Over the last few months we have
significantly reduced the number of cashback offers available in
order to reduce revenue volatility and improve customer
satisfaction levels.
Our distribution network remained open during the full lockdown
period, as we concentrated on the delivery of electrical products
and complied with social distancing working restrictions. We paused
the logistics services we provide to third-party clients for a
short period of time. Nonetheless in the period overall, we
experienced growth of 15.6% to GBP7.8m reflecting the increase in
volume from new third-party contracts won in the prior year.
Revenues in our UK Recycling business were broadly flat year on
year at GBP6.9m (2019: GBP6.8m). During Q1 our operations were
materially reduced following the decision by councils to close
household waste and recycling centres together with a reduced
collection from AO's customers impacting volumes. Although during
the reporting period processed volumes have increased overall year
on year, we have continued to suffer from a depressed market for
output materials and costs of using third parties.
In Germany, sales increased by 82.2% to EUR112.1m (2019:
EUR61.5m) (equating to GBP100.5m (2019: GBP54.3m). New
customers(14) grew by 41% in the six months to 30 September 2020
versus the comparable prior year period and over 1 million
customers(14) have now shopped with ao.de. As in the UK, this
market also experienced a shift to online as a result of Covid-19
restrictions which, combined with the actions taken in the prior
year helped us gain market share. These actions were to drive sales
in a sustainable way, by implementing techniques to drive customer
traffic and conversion rates that had been developed in the UK; to
improve margins through bringing our pricing policy in line with
the overall group and to continue to develop and improve the
overall customer experience.
Following the reporting period our German operations continue to
leverage volume efficiencies and we expect that in one or more
individual months, on an adjusted EBITDA basis the business will be
profitable in H2 21. We continue to expect that the German business
will be profitable overall in FY22.
Gross margin
Table 2
6 months 30 September 2020 30 September 2019 Better/(worse)
ended
-------------------- --------------------- --------------------- ----------------------------
(GBPm)(1) UK Germany Total UK Germany Total UK Germany Total
-------------------- ----- ------- ----- ----- ------- ----- -------- -------- --------
Gross profit/(loss) 122.3 7.4 129.7 76.8 (0.2) 76.6 59.2% 5,230.4% 69.1%
-------------------- ----- ------- ----- ----- ------- ----- -------- -------- --------
Gross margin 19.8% 7.3% 18.1% 19.2% (0.3%) 16.9% 0.6 ppts 7.6 ppts 1.2 ppts
-------------------- ----- ------- ----- ----- ------- ----- -------- -------- --------
Gross margin
including
NL 7.3% 18.1% (0.2%) 16.4% 7.5 ppts 1.7 ppts
-------------------- ----- ------- ----- ----- ------- ----- -------- -------- --------
On a like for like basis(12) , gross profit for the Group grew
by 69.1% to GBP129.7m (2019: GBP76.6m) with gross margin percentage
increasing by 1.2 ppts to 18.1% for the reporting period (2019:
16.9%).
In the UK gross margin percentage increased to 19.8% (2019:
19.2%) as we improved buying prices with manufacturers and saw less
pricing tension in the market. We achieved increases in product
margin in both our MDA and Non-MDA(13) categories, with
particularly pleasing growth in SDA and AV. We also benefitted from
increased sales of our AO Care products which were ahead of overall
product revenue growth and where we have achieved improved
conversion rates. These increases however were partially offset by
the impact of the changes in the mobile business as explained
above.
We achieved a gross profit of GBP7.4m in Germany compared to a
loss of GBP0.1m in the comparable prior year period reflecting
material improvements made in supplier terms which began to impact
towards the end of the 2020 financial year together with
efficiencies made in our logistics operations. Product margins in
Germany are now materially at the level we experience in the UK
albeit it we expect to some small further improvements.
Selling, General & Administrative Expenses ("SG&A")
Table 3
6 months ended 30 September 2020 30 September 2019 Better/(worse) %
(GBPm) UK Germany Total UK Germany Total UK Germany Total
------------------------- ----- ------- ----- ----- ------- ----- ---------- -------- --------
Advertising and
marketing 16.5 3.6 20.0 9.3 3.1 12.4 (76.3%) (16.5%) (61.%)
------------------------- ----- ------- ----- ----- ------- ----- ---------- -------- --------
% of revenue 2.7% 3.6% 2.8% 2.3% 5.6% 2.7% (0.3 ppts) 2.0 ppts 0.1 ppts
------------------------- ----- ------- ----- ----- ------- ----- ---------- -------- --------
Warehousing 24.0 3.3 27.3 17.8 2.2 20.0 (34.7%) (49.6%) (36.4%)
------------------------- ----- ------- ----- ----- ------- ----- ---------- -------- --------
% of revenue 3.9% 3.2% 3.8% 4.4% 4.0% 4.4% 6 ppts 8 ppts 6 ppts
------------------------- ----- ------- ----- ----- ------- ----- ---------- -------- --------
Research and development 5.8 - 5.8 4.5 - 4.5 30.6% - 30.6%
------------------------- ----- ------- ----- ----- ------- ----- ---------- -------- --------
% of revenue 0.9% - 0.8% 1.1% - 1.0% 2 ppts - 2 ppts
------------------------- ----- ------- ----- ----- ------- ----- ---------- -------- --------
Other admin 53.2 6.8 60.0 40.4 6.2 46.6 (31.5%) (10.5%) (28.7%)
------------------------- ----- ------- ----- ----- ------- ----- ---------- -------- --------
% of revenue 8.6% 6.8% 8.4% 10.1% 11.4% 10.2% 1.5 ppts 4.6 ppts 1.9 ppts
------------------------- ----- ------- ----- ----- ------- ----- ---------- -------- --------
Adjustments - 0.1 0.1 0.2 1.2 1.5 100.0% 91.9% 93.1%
------------------------- ----- ------- ----- ----- ------- ----- ---------- -------- --------
% of revenue - 0.1% 0.1% 0.1% 2.3% 0.3% 1 ppts 2.2 ppts 0.2 ppts
------------------------- ----- ------- ----- ----- ------- ----- ---------- -------- --------
Administrative
expenses 99.5 13.8 113.2 72.3 12.7 84.9 (37.7%) (8.7%) (33.3%)
------------------------- ----- ------- ----- ----- ------- ----- ---------- -------- --------
% of revenue 16.1% 13.7% 15.8% 18.0% 23.3% 18.7% 1.9 ppts 9.6 ppts 2.9 ppts
------------------------- ----- ------- ----- ----- ------- ----- ---------- -------- --------
Administrative
expenses including
NL 99.5 13.8 113.2 72.3 15.5 87.7
------------------------- ----- ------- ----- ----- ------- ----- ---------- -------- --------
% of revenue 16.1% 13.7% 15.8% 18.0% 23.0% 18.7%
------------------------- ----- ------- ----- ----- ------- ----- ---------- -------- --------
Total SG&A costs across the Group as a percentage of revenue
reduced during the period from 18.7% to 15.8%.
UK SG&A expenses reduced as a percentage of sales by 1.9
ppts to 16.1%. Advertising and marketing costs increased to
GBP16.5m (2019: GBP9.3m) and as a percentage of revenue increased
by 0.3 ppts with higher investment in acquisition costs in line
with increased volumes and as we took advantage of cheaper
advertising slots and returned to TV via a targeted advertising
campaign, compared to no TV advertising in the prior year
comparable period. We also increased our Mobile brand spend with
Google and invested in our marketing systems to improve our data
analytics tools and our customer engagement platforms.
To service increased demand during the period we made
significant investments in our warehousing capacity, the number of
outbases and recruited additional warehousing agency staff. These
costs, together with those arising from safer working practices,
resulted in a 35% increase in overall warehousing costs to
GBP24.0m. UK warehousing costs decreased as a percentage of revenue
to 3.9% in HY21 compared to 4.4% in the prior year as we have
leveraged our infrastructure to serve a significantly higher volume
of sales and been able to drive efficiency, despite the changes in
working practices introduced by Covid-19.
Research and development costs increased by GBP1.3m compared to
the prior period reflecting the continued investment in our
technology teams as we develop initiatives to support future
customer proposition.
In the UK, other admin costs increased by GBP12.7m to GBP53.2m
(2019: GBP40.4m). As a percentage of revenue, this is a decrease of
1.5 ppts to 8.6% as we gain efficiencies of scale with growth in
volumes, despite an increase in actual costs to support the
business following the significant increase in demand for our
products and services. We have significantly invested in our teams
across the business to ensure continued resilience and to maintain
our high levels of customer service as we look to cement the
current migration to online. IT costs have also increased as we
invest to support the growth in the business.
German SG&A expenses reduced significantly as a percentage
of sales by 1.9 ppts to 16.1%. Advertising and marketing costs
increased in absolute terms to GBP3.7m (2019: GBP3.1m) as we
increased customer acquisition expenditure but reduced as a
percentage of revenue to 3.7% (2019: 5.6%) as we gain efficiencies
of scale. Warehousing costs reduced to 3.2% of revenue compared to
4.0% in the prior year period demonstrating leverage from our
infrastructure as volume increases. Absolute warehousing costs
increased to GBP3.3m (2019: GBP2.2m) due to an increase in costs
arising from safe working practices and a significant increase in
volumes. Other admin costs reduced significantly by 4.6 ppts to
6.8% following the impact of the restructuring on headcount in the
prior year as we continue to leverage the skills and knowledge of
our people from the UK as part of our One AO approach and
strategy.
Operating profit and Adjusted EBITDA
Our operating profit for the period was GBP16.8m (2019:
GBP(10.6)m).
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.
During the six months to 30 September 2020 the following
adjustment ("Adjusting Items") was made:
-- Consistent with the treatment adopted in prior periods, the
full cost of an onerous marketing contract in Germany (which ends
in December 2020), have been added back in arriving at Adjusted
EBITDA. In the six months to 30 September 2020 these amounted to
GBP1m (2019: GBP0.5m) and have been added back due to their size,
timing and the onerous nature of the contract which management
consider to be exceptional.
During the six months to 30 September 2019, as well as the
matter noted above, the Adjusting Item was as follows:
-- Further to the actions disclosed in the 2019 financial
statements regarding a full review of the European business
following its unsatisfactory performance in the second half of
FY19, the Group undertook a restructure of its European business.
The cost of this restructure during the prior year comparable
period was GBP0.9m, which principally related to a reduction in
headcount, and was considered to be one-off in nature due to its
size and timing and has therefore was added back in arriving at
Adjusted EBITDA.
Adjusted EBITDA (excluding Netherlands)
As a consequence of the closure of the Group' s Netherlands
operations during the quarter ended 31 March 2020, management have
also disclosed the Group's Adjusted EBITDA, as defined above,
excluding the financial results of the Dutch business prior to its
closure as it is considered an appropriate measure of the
continuing Group.
The reconciliation of statutory operating profit/(loss) to
Adjusted EBITDA is as follows:
Table 4
6 months ended 30 September 2020 30 September 2019 Better/(worse)%
(GBPm) UK Europe Total UK Europe Total UK Europe Total
------------------------------------- ----- ------- ----- ----- -------- ------ ------- ------ --------
Operating profit
excluding Netherlands 23.1 (6.4) 16.8 4.9 (12.7) (7.8) 375.2% 49.8% 315.5%
Netherlands Operating loss - - - - (2.8) (2.8) - 100.0% 100.0%
------------------------------------- ----- ------- ----- ----- -------- ------ ------- ------ --------
Operating profit/(loss) 23.1 (6.4) 16.8 4.9 (15.5) (10.6)
Depreciation 8.1 1.6 9.7 7.5 1.6 9.1 (8.3%) 1.5% (6.6%)
Amortisation 1.3 - 1.3 1.0 - 1.0 (28.0%) - (28.0%)
EBITDA Excluding Netherlands 32.6 (4.8) 27.8 13.3 (11.1) 2.2 143.9% 57.1% 1,160.2%
Netherlands EBITDA - - - - (2.7) (2.7) - 100% 100%
------------------------------------- ----- ------- ----- ----- -------- ------ ------- ------ --------
EBITDA 32.6 (4.8) 27.8 13.3 (13.8) (0.5) 143.9% 65.7% 4,847.7%
------------------------------------- ----- ------- ----- ----- -------- ------ ------- ------ --------
Adjusting items
Adjusting items excluding Netherlands - 1.0 1.0 0.2 1.2 1.5 100.0% 21.0% 32.8%
Netherlands Adjusting items - - - - - - - - -
------------------------------------- ----- ------- ----- ----- -------- ------ ------- ------ --------
Total Adjusting Items - 1.0 1.0 0.2 1.2 1.5
------------------------------------- ----- ------- ----- ----- -------- ------ ------- ------ --------
Adjusted EBITDA
excluding Netherlands 32.6 (3.8) 28.8 13.6 (9.9) 3.7 140.1% 61.6% 686.1%
Netherlands Adjusted EBITDA - - - - (2.7) (2.7) - 100.0% 100.%
------------------------------------- ----- ------- ----- ----- -------- ------ ------- ------ --------
Adjusted EBITDA 32.6 (3.8) 28.8 13.6 (12.6) 1.0 56.0% 79.9% 2,060.6%
------------------------------------- ----- ------- ----- ----- -------- ------ ------- ------ --------
Adjusted EBITDA as % of Revenue 5.3% 3.8% 4.0% 3.4% 18.8% 0.2%
------------------------------------- ----- ------- ----- ----- -------- ------ ------- ----------------
Taxation
The tax charge is recognised based on management's best estimate
of the annual corporation tax rate expected for the full financial
year applied to the pre -- tax results of the interim reporting
period. The Group's tax charge for the period is GBP2.3m (2019:
GBP1.0m credit) as a result of the expected effective tax rate for
the year of 19.5% in entities taxable in the UK, before prior
period adjustments and discrete tax adjustments relating to the
period ended 30 September 2020 only. This results in a combined
effective tax rate for the period ended 30 September 2020 of 12.6%
(2019: 19.7%). The effective tax rate of 12.6% is lower than the UK
corporation tax rate for the period of 19%. The following items
were treated as discrete items on the basis that they impact the
period ended 30 September 2020 and explain why the rate is lower
than 19%; non-taxable foreign exchange gains arising on
intercompany balances and the share-based payment charge and the
associated relief when the share options were exercised in the
period. Deferred tax was previously recognised on the share options
but the change in the share price has resulted in higher tax relief
than was anticipated when the deferred tax was recognised. Other
non-discrete factors impacting the rate also include non-qualifying
depreciation. The Group continues not to recognise a deferred tax
asset on the cumulative losses carried forward of GBP6.5m (2019:
GBP6.7m) in the Netherlands and Belgium.
Retained profit/ (loss) and earnings/ (loss) per share
Retained profit for the period was GBP16.0m (2019: GBP4.8m
loss).
Basic earnings per share was 3.45p (2019: 1.01p loss) and
diluted earnings per share was 3.42p (2019: 1.01p loss). Basic
earnings per share is reconciled to adjusted basic loss per share
(after excluding the impact of foreign exchange differences) of
2.85p (2019: 1.98p loss) as follows:
Table 5
6 months ended 30 September 30 September
(GBPm) 2020 2019
----------------------------------------------- ------------- -------------
Earnings/(loss)
Profit/(loss) attributable to owners
of the parent company 16.4 (4.8)
Foreign exchange gains/(losses)
on intra-group loans (2.8) (4.6)
----------------------------------------------- ------------- -------------
Adjusted earnings/(loss) attributable
to owners of the parent company 13.6 (9.4)
----------------------------------------------- ------------- -------------
Number of shares
Basic and adjusted weighted average
number of ordinary shares 474,507,349 474,232,935
Potentially dilutive share options 3,980,331 5,000,403
----------------------------------------------- ------------- -------------
Diluted weighted average number
of shares 478,487,680 479,233,339
----------------------------------------------- ------------- -------------
Earnings/(loss) per share (in pence)
Basic earnings/(loss) per share 3.45 (1.01)
Diluted earnings/(loss) per share 3.42 (1.01)
Adjusted basic earnings/(loss) per
share 2.85 (1.98)
----------------------------------------------- ------------- -------------
The foreign exchange gain has arisen as a result of the
significant movement in the exchange rate between Sterling and the
Euro in the period and prior period. This has impacted the value of
intra-group loans held in GBP in the European entities giving rise
to the GBP2.8m gain (2019: GBP4.6m gain) referenced above.
Cash resources and cash flow
At 30 September 2020, the Group's net debt position was GBP20.7m
(31 March 2020: GBP82.8m). Net debt comprises cash balances less
borrowings and lease liabilities.
Cash balances at 30 September 2020 were GBP85.4m (31 March 2020:
GBP6.9m; 30 September 2019: - GBP23.4m). The increase in cash is
largely driven by the profit in the period and the inflow from
working capital (see below).
Borrowings, which comprises bank borrowings, reduced to GBP20.8m
(31 March 2020: - GBP21.9m: 30 September 2019: GBP35.4m) due to
debt repayments ad cash generation. As noted below, GBP20m of the
balance outstanding at 30 September 2020 was repaid on 6 October
2020.
Lease liabilities increased to GBP85.3m (31 March 2020:
GBP84.1m, 30 September 2019: GBP70.7m) reflecting new right of use
lease liabilities relating primarily to the growth in the Group's
logistics capacity net of lease payments in the period.
On 6 April 2020 the Group refinanced its debt facilities by
consolidating the existing GBP60m Revolving Credit Facility and the
GBP20m outstanding on the Term Loan into a new GBP80m RCF which
matures in April 2023. The new facility resulted in Natwest Bank
plc joining the existing banking syndicate, comprising HSBC Bank
plc, Lloyds Bank Plc and Barclays Bank Plc, as an additional
lender. The facility is available for general corporate purposes,
including UK working capital movements. The undrawn amount at 30
September 2020 was GBP56.1m. The amount utilised represents GBP20m
drawn in cash on the inception of the new facility to repay the
Term loan as well as letters of credit and payment guarantees. The
GBP20m cash drawing was repaid on 6 October 2020 and hence at that
date the amount available on the facility was GBP76.1m.
Working Capital
At 30 September 2020, the Group had net current liabilities of
GBP61.1m (31 March 2020: GBP53.8m) with the increase principally
due to the maturity profile of borrowings.
At 30 September 2020, UK inventories were GBP78.1m (31 March
2020: GBP61.7m) and UK stock days increased to 30 days (31 March
2020: 28 days). As we approach our peak trading period, and whilst
demand for products remains high as a result of the market shift
online, the business has sought to increase inventory levels to
support growth.
UK trade and other receivables (both non-current and current)
were GBP241.8m as at 30 September 2020 (31 March 2020: GBP216.3m)
mainly reflecting an increase in contract assets in respect of
commissions due on product protection plans (GBP96.4m at the
balance sheet date) driven by the increased revenue in the period
and the timing of rebates receivable.
UK trade and other payables at GBP354.9m have increased
significantly compared to GBP246.7m at 31 March 2020, with an
increase in trade payables driven by the higher level of activity
and an improvement in trade terms with several suppliers together
with an increase in deferred income as result of the continued high
sales volumes. Payables days at 30 September 2020 were 69 days (31
March 2020: 61 days) reflecting the increase in terms.
Net working capital increased from GBP9.7m to GBP10.4m in Europe
with all balances impacted principally by the significant increase
in activity in the period.
Table 6
6 months ended 30 September 2020 31 March 2020 30 September 2019
(GBPm) UK Germany Total UK Germany Total UK Germany Total
----------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Inventories 78.1 15.1 93.2 61.7 10.9 72.6 53.2 15.6 68.8
----------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Trade and other
receivables 241.8 17.3 259.1 216.3 9.1 225.4 190.5 13.3 203.8
----------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Trade and other
payables (354.9) (22.0) (376.9) (246.7) (10.3) (257.1) (232.2) (17.2) (249.4)
----------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net working
capital (35.0) 10.4 (24.6) 31.2 9.7 41.0 11.5 11.7 23.2
----------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Change in net
working capital (66.2) 0.7 (65.5) 19.7 (2.0) 17.8 (9.4) (0.4) (9.8)
----------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Capital Expenditure
Total cash capital expenditure for the six-month period was
GBP3.2m (2019: GBP5.4m), with the largest single item being the
completion of the plastics plant in our Recycling business (c
GBP1.5m) and fit out costs related to our additional logistics
capacity.
John Roberts Mark Higgins
CEO CFO
CONDENSED CONSOLIDATED INCOME STATEMENT
For the 6 months ended 30 September 2020
6 months ended 6 months ended Year ended
30 September 30 September 31 March
2020 2019
GBPm Note (Restated) 2020
---------------------------------------- ---- -------------- -------------- ----------
Continuing operations
---------------------------------------- ---- -------------- -------------- ----------
Revenue excluding Netherlands 717.0 454.9 1,026.9
Netherlands revenue - 13.1 19.3
---------------------------------------- ---- -------------- -------------- ----------
Total Revenue 2 717.0 468.0 1,046.2
Cost of sales (587.3) (391.4) (867.9)
---------------------------------------- ---- -------------- -------------- ----------
Gross profit 129.7 76.6 178.3
Administrative expenses (113.2) (87.7) (183.3)
Other operating income 0.4 0.5 1.2
---------------------------------------- ---- -------------- -------------- ----------
Operating profit/(loss)
excluding Netherlands 16.8 (7.8) 1.4
Netherlands operating loss - (2.8) (5.2)
---------------------------------------- ---- -------------- -------------- ----------
Total operating profit /
(loss) 16.8 (10.6) (3.8)
Finance income 4 4.8 7.5 10.9
Finance costs 5 (3.3) (2.8) (5.6)
---------------------------------------- ---- -------------- -------------- ----------
Profit/(loss) before tax 18.3 (5.9) 1.5
Taxation (charge)/credit (2.3) 1.0 (0.1)
---------------------------------------- ---- -------------- -------------- ----------
Profit/ (loss) after tax
excluding Netherlands 16.0 (2.4) 6.6
Netherlands loss after tax - (2.4) (5.2)
---------------------------------------- ---- -------------- -------------- ----------
Profit/(loss) after tax for
the period 16.0 (4.8) 1.4
---------------------------------------- ---- -------------- -------------- ----------
Profit/(loss) for the period
attributable to:
Owners of the parent company 16.4 (4.8) 1.7
Non-controlling interest (0.4) - (0.3)
---------------------------------------- ---- -------------- -------------- ----------
16.0 (4.8) 1.4
---------------------------------------- ---- -------------- -------------- ----------
Earnings/(Loss) per share
(pence)
Basic earnings/(loss) per
share 6 3.45 (1.01) 0.38
Diluted earnings/(loss) per
share 6 3.42 (1.01) 0.37
---------------------------------------- ---- -------------- -------------- ----------
The comparative numbers have been restated as set out in Note
14
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 6 months ended 30 September 2020
6 months ended 6 months ended Year ended
30 September 30 September 31 March
GBPm 2020 2019 2020
------------------------------------------ ---------------- ---------------- ----------
Profit/ (loss) for the period 16.0 (4.8) 1.4
Items that may be subsequently recycled
to Income Statement
Exchange differences on translation
of foreign operations (2.6) (4.0) (5.5)
------------------------------------------- ---------------- ---------------- ------------
Total comprehensive profit / (loss)
for the period 13.4 (8.8) (4.1)
------------------------------------------- ---------------- ---------------- ------------
Total comprehensive profit / (loss) for the period
attributable to:
Owners of the Company 13.8 (8.8) (3.8)
Non-controlling interests (0.4) - (0.3)
------------------------------------------- ---------------- ---------------- ------------
13.4 (8.8) (4.1)
------------------------------------------ ---------------- ---------------- ------------
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 September 2020
30 September 30 September 31 March
2020 2019 2020
GBPm Note (Restated)
------------------------------- --- --- ---- ------------ ------------ --------
Non-current assets
Goodwill 7 28.2 28.2 28.2
Other intangible assets 15.6 16.2 15.8
Property, plant and equipment 29.4 30.6 29.3
Right of use assets 8 67.7 59.5 64.7
Trade and other receivables 9 93.4 78.4 87.9
Derivative financial asset 13 0.6 0.8 0.6
Deferred tax asset 5.5 4.5 4.5
----------------------------------------- ---- ------------ ------------ --------
240.4 218.2 231.0
--------------------------------------- ---- ------------ ------------ --------
Current assets
Inventories 93.2 68.7 72.7
Trade and other receivables 9 165.7 125.3 137.4
Corporation tax receivable - 1.3 1.0
Cash and cash equivalents 11 85.4 23.4 6.9
344.3 218.7 218.0
--------------------------------------- ---- ------------ ------------ --------
Total assets 584.7 436.9 449.0
----------------------------------------- ---- ------------ ------------ --------
Current liabilities
Trade and other payables 10 (367.1) (240.5) (249.6)
Borrowings 11 (20.8) (13.4) (5.2)
Lease liabilities 11 (15.7) (11.4) (16.1)
Corporation tax payable (0.5) - -
Derivative financial liability 13 (0.4) (0.5) (0.2)
Provisions (0.9) - (0.7)
(405.4) (265.8) (271.8)
--------------------------------------- ---- ------------ ------------ --------
Net current liabilities (61.1) (47.1) (53.8)
----------------------------------------- ---- ------------ ------------ --------
Non-current liabilities
Borrowings 11 - (22.0) (16.7)
Lease liabilities 11 (69.6) (59.3) (68.0)
Trade and other payables 10 (9.8) (8.9) (7.5)
Derivative financial liability 13 (0.5) (2.6) (0.8)
Deferred tax liability (2.5) (2.3) (2.6)
Provisions (2.0) (1.9) (1.9)
----------------------------------------- ---- ------------ ------------ --------
(84.4) (97.0) (97.5)
--------------------------------------- ---- ------------ ------------ --------
Total liabilities (489.8) (362.8) (369.8)
----------------------------------------- ---- ------------ ------------ --------
Net assets 94.9 74.1 79.7
----------------------------------------- ---- ------------ ------------ --------
Equity attributable to owners
of the parent
Share capital 1.2 1.2 1.2
Share premium account 103.7 103.7 103.7
Other reserves 20.7 25.9 21.9
Retained losses (29.6) (56.0) (46.1)
----------------------------------------- ---- ------------ ------------ --------
Total 96.0 74.8 80.7
----------------------------------------- ---- ------------ ------------ --------
Non-controlling interest (1.1) (0.7) (1.0)
----------------------------------------- ---- ------------ ------------ --------
Total equity 94.9 74.1 79.7
----------------------------------------- ---- ------------ ------------ --------
The comparative numbers have been restated as set out in Note
14.
CONDENSED CONSOLIDATED STATEMENT OF CHANGE IN EQUITY
At 30 September 2020
Other reserves
-----------------------------------------------------------
Share Investment Share Merger Capital Share-based Translation Other Retained Total Non-controlling Total
capital in premium reserve redemption payment reserve reserve losses interest
own account reserve reserve
shares
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- ----------- -------- -------- ----------- ------------ ------------ -------- --------- ------ ---------------- ------
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
Profit for the
period - - - - - - - - 16.4 16.4 (0.4) 16.0
Acquisition of
minority
interest - - - - - - - (0.2) - (0.2) 0.4 0.2
Issue of share - - - - - - - - - - - -
capital
(net of expenses)
Foreign currency
gains arising on
consolidation - - - - - - (2.6) - - (2.6) - (2.6)
Share-based
payments
charge net of tax - - - - - 1.6 - - - 1.6 - 1.6
--------- ------
Balance at 30
September
2020 1.2 - 103.7 22.2 0.5 13.3 (12.3) (2.9) (29.6) 96.0 (1.1) 94.9
------------------ -------- ----------- -------- -------- ----------- ------------ ------------ -------- --------- ------ ---------------- ------
At 30 September 2019
Other reserves
-----------------------------------------------------------
Share Investment Share Merger Capital Share-based Translation Other Retained Total Non-controlling Total
capital in premium reserve redemption payment reserve reserve losses interest
own account reserve reserve
shares
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- ----------- -------- -------- ----------- ------------ ------------ -------- --------- ------ ---------------- ------
Balance at 1 April
2019 1.2 - 103.7 22.2 0.5 13.1 (4.2) (2.5) (51.2) 82.7 (0.9) 81.8
Loss for the
period - - - - - - - - (4.8) (4.8) - (4.8)
Acquisition of
minority
interest - - - - - - - (0.1) - (0.1) 0.2 0.1
Issue of share
capital
(net of expenses) - - - - - - - - - 0.0 - 0.0
Foreign currency
gains arising on
consolidation - - - - - - (4.0) - - (4.0) - (4.0)
Share-based
payments
charge net of tax - - - - - 1.0 - - - 1.0 - 1.0
--------- ------
Balance at 30
September
2019 1.2 - 103.7 22.2 0.5 14.1 (8.2) (2.6) (56.0) 74.8 (0.7) 74.1
------------------ -------- ----------- -------- -------- ----------- ------------ ------------ -------- --------- ------ ---------------- ------
CONDENSED CONSOLIDATED STATEMENT OF CHANGE IN EQUITY
(CONTINUED)
At 31 March 2020
Other reserves
-----------------------------------------------------------
Share Investment Share Merger Capital Share-based Translation Other Retained Total Non-controlling Total
capital in premium reserve redemption payment reserve reserve losses interest
own account reserve reserve
shares
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- ----------- -------- -------- ----------- ------------ ------------ -------- --------- ------ ---------------- ------
Balance at 1 April
2019 1.2 - 103.7 22.2 0.5 13.1 (4.2) (2.5) (51.2) 82.7 (0.9) 81.8
Profit for the
period - - - - - - - - 1.7 1.7 (0.3) 1.4
Acquisition of
minority
interest - - - - - - - (0.2) - (0.2) 0.2 -
Issue of share - - - - - - - - - - - -
capital
(net of expenses)
Foreign currency
gains arising on
consolidation - - - - - - (5.5) - - (5.5) - (5.5)
Share-based
payments
charge net of tax - - - - - 2.0 - - - 2.0 - 2.0
Movement between
reserves - - - - - (3.4) - - 3.4 - - -
--------- ------
Balance at 31
March
2020 1.2 - 103.7 22.2 0.5 11.7 (9.7) (2.7) (46.1) 80.7 (1.0) 79.7
------------------ -------- ----------- -------- -------- ----------- ------------ ------------ -------- --------- ------ ---------------- ------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the 6 months ended 30 September 2020
6 months ended 6 months ended Year ended
30 September 30 September 31 March
2020 2019 2020
GBPm (Restated)
--------------------------------------------------- --- -------------- -------------- ----------
Cash flows from operating activities
Profit /(loss) for the period 16.0 (4.8) 1.4
Adjustments for:
Depreciation and amortisation 11.0 10.1 21.1
Finance income (4.8) (7.5) (10.9)
Finance costs 3.3 2.8 5.6
Taxation charge / (charge) 2.3 (1.1) 0.1
Share-based payment charge 1.0 1.0 2.0
Increase / (Decrease) in provisions 0.3 (0.3) 0.4
-------------------------------------------------------- -------------- -------------- ----------
Operating cash flows before movement
in working capital 29.1 0.2 19.7
-------------------------------------------------------- -------------- -------------- ----------
(Increase) / Decrease in inventories (20.3) 8.0 4.0
Increase in trade and other receivables (31.1) (10.1) (29.5)
Increase in trade and other payables 119.5 15.4 19.7
Net movement in working capital 68.1 13.3 (5.8)
Taxation (paid) / received (1.0) 0.2 0.2
-------------------------------------------------------- -------------- -------------- ----------
Cash generated from operating activities 96.2 13.7 14.1
-------------------------------------------------------- -------------- -------------- ----------
Cash flows from investing activities
Interest received - - 0.1
Proceeds from sale of property, plant
and
equipment - 0.1 0.1
Acquisition of property, plant and
equipment (3.2) (5.4) (6.9)
Acquisition of intangible assets (1.0) (0.5) (1.1)
-------------------------------------------------------- -------------- -------------- ----------
Cash used in investing activities (4.2) (5.7) (7.9)
-------------------------------------------------------- -------------- -------------- ----------
Cash flows from financing activities
Acquisition of non controlling interest (0.1) (0.5) (0.5)
Interest paid on borrowings (1.9) (0.7) (1.5)
Interest paid on lease liabilities (1.8) (1.9) (3.7)
Repayment of borrowings (1.1) (2.5) (6.4)
Repayment of lease liabilities (8.5) (7.6) (16.2)
Net cash used in financing activities (13.5) (13.2) (28.2)
-------------------------------------------------------- -------------- -------------- ----------
Net increase / (decrease) in cash 78.4 (5.3) (22.1)
Cash and cash equivalents at beginning
of period 6.9 28.9 28.9
Exchange gains on cash & cash equivalents - (0.2) 0.1
-------------------------------------------------------- -------------- -------------- ----------
Cash and cash equivalents at end of
period 85.4 23.4 6.9
-------------------------------------------------------- -------------- -------------- ----------
The comparative numbers have been restated as set out in Note
14.
NOTES TO THE FINANCIAL INFORMATION
1. Basis of preparation
The interim financial information was approved by the Board on
23 November 2020. The financial information for the 6 months ended
30 September 2020 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 2020 is based on
information in the audited financial statements for that period
which are available online at
https://www.ao-world.com/investor-centre/ as restated for the matters included in note 14.
The comparative figures for the year ended 31 March 2020 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 2020 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 GBP61.1m as at 30
September 2020 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.
The Directors have prepared base and sensitised cash flow
forecasts for the period to March 2022 which indicate that the
Group and Company will remain compliant with its covenants and will
have sufficient funds through its existing cash balances and
availability of funds from the its GBP80m Revolving Credit Facility
(of which GBP76.1m is currently undrawn at the date of this report)
to meet its liabilities as they fall due for that period.
In assessing the going concern basis, the Directors have taken
into account reasonably possible downsides e.g., a reduction in
sales growth and a reduction in margin as a result of the continued
uncertainties in the wider economies relating to Covid-19 and
Brexit, including the potential impact on customer spending habits,
unemployment and market share, as well as considering potential
controllable mitigating factors. This analysis has included a
severe but plausible scenario whereby results revert to pre-Covid
19 trading levels to emulate the improbable outcome that the
increased online market share is not sustained post FY21.
Substantial headroom continues to be demonstrated in this
scenario.
Consequently, the Directors are confident that the Group and
Company will have sufficient funds to continue to meet its
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 financial statements on a going concern basis.
Basis of preparation and accounting policies
The annual financial statements of AO World plc are prepared in
accordance with IFRSs as adopted by the European Union. The
unaudited condensed consolidated set of financial statements
included in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 'Interim
Financial Reporting', as adopted by the European Union. The same
accounting policies, presentation and methods of computation are
followed in the condensed set of interim financial information as
applied in the Group's latest annual audited financial
statements.
Restatement of comparatives
The comparatives for the primary statements have been restated
following a number of presentational changes implemented in the
full year financial statements to 31 March 2020. These followed
further consideration of the definitions in IFRS 15 and its
practical application. The impact on the income statement,
statement of financial position and statement of cash flows as a
result of the restatements are presented in Note 14.
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
the prior year, the Group recognised goodwill of GBP14.8m.
Intangible assets including goodwill 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.
Whilst at 30 September 2020, the Directors have concluded that
the carrying value of the goodwill is appropriate changes in any of
these assumptions, which could be driven by the end customer
behaviour with the Mobile Network Operators, could give rise to an
impairment in the carrying value.
Revenue recognition for variable consideration
In addition to the specific area noted above, as a consequence
of the unprecedented changes seen during the period 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.
The historical information available to the Group prior to 31
March 2020 resulted in the application of estimates such that the
directors did not believe there to be a risk of a significant
reversal of revenue in future periods. However, the changes
observed, in particular in the second quarter of the current
financial year, have resulted in the directors reassessing the
estimates at the balance sheet date. Details of the changes in
estimates are included in notes 9 and 10.
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 which are set out in
more detail in note 9.
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 change in behaviour as a
result of Covid-19 and its impact 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 in
this area and, therefore, no adjustment to commissions is made for
future market trends and economic conditions. However the Directors
remain cognisant of the uncertainty created by Covid 19 which is
inherently difficult to estimate its ongoing impact.
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.
The commission receivable balance as at 30 September 2020 was
GBP92.7m (31 March 2020: GBP81.2m). The discount rate used to
unwind the commission receivable is 3.7% (2019: 4.7%).
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 which are set out in
more detail in note 9.
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 change in behaviour as a
result of Covid-19 and its impact on the wider economy. This has
been seen in the current period - see notes 9 and 10 which has
resulted in the Directors reassessing the estimates and
assumptions. 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 amount of revenue recognised also takes into account the
potential clawback of commission by the MNOs for which a reduction
to revenue is made based on historical experience. In addition,
revenue is constrained based on an estimate of potential cash-back
redemptions payable to the end customer calculated based on
historical redemption rates Historically, the Directors considered
that the quality and quantity of the data available from the MNOs
and that it holds internally was 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. However, due to the impacts on behaviour seen in
the period and the inherent uncertainty which remains for the wider
economy relating to Covid 19 the Directors now believe the level of
uncertainty has increased and therefore this source of revenue is
considered to be an area of estimation uncertainty. Further details
are provided in notes 9 and 10.
The commission receivable balance as at 30 September 2020 was
GBP84.7m (31 March 2020: GBP90.9m). The discount rate used to
unwind the commission receivable is 1.5% (2019: 2.75%).
2. Revenue
An analysis of the Group's revenue is as follows:
Major product/services lines
6 months ended 6 months ended Year ended
(GBPm) 30 September 2020 30 September 2019* 31 March 2020
------------------------------ --------------------- ---------------------- -----------------------
UK Europe Total UK Europe Total UK Europe Total
------------------------------ ------ ------ ----- ------ ------- ----- ----- ------- -------
Product revenue 505.3 98.3 603.6 311.2 65.2 376.4 692.8 140.7 833.5
Service revenue 25.8 1.9 27.6 16.1 2.0 18.1 35.0 3.4 38.3
Commission revenue 70.6 0.1 70.7 59.7 0.1 59.8 143.8 0.2 144.0
Third party logistics revenue 7.8 0.3 8.1 6.8 - 6.8 16.6 - 16.7
Recycling revenue 6.9 - 6.9 6.8 0.1 6.9 13.5 0.2 13.6
------------------------------ ------ ------ ----- ------ ------- ----- ----- ------- -------
Total revenue 616.4 100.6 717.0 400.6 67.4 468.0 901.6 144.5 1,046.2
------------------------------ ------ ------ ----- ------ ------- ----- ----- ------- -------
* The comparatives have been restated as set out in Note 14.
3. Segmental analysis
The Group has two reportable segments, online retailing of
domestic appliances to customers in the UK and online retailing of
domestic appliances 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 they
have 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.
Income statement
The following is an analysis of the Group's revenue and results
by reportable segments.
6 months ended 6 months ended Year ended
(GBPm) 30 September 2020 30 September 2019 * 31 March 2020
UK Europe Total UK Europe Total UK Europe Total
------------------------- ------- ------ -------- ------- ------ ------- ------- ------- -------
Total revenue 616.4 100. 6 717.0 400.6 67.4 468.0 901.6 144.5 1,046.2
Cost of sales (494.2) (93.1) (587.3) (323.7) (67.6) (391.4) (724.3) (143.6) (867.9)
------------------------- ------- ------ -------- ------- ------ ------- ------- ------- -------
Gross profit/(loss) 122.3 7.4 129.7 76.8 (0.2) 76.6 177.4 0.9 178.3
Administrative expenses (99.5) (13.8) (113.2 ) (72.3) (15.5) (87.7) (153.2) (30.1) (183.3)
Other o perating income 0.3 - 0.4 0.3 0.2 0.5 0.8 0.4 1.2
------------------------- ------- ------ -------- ------- ------ ------- ------- ------- -------
Operating profit/(loss) 23.1 (6.4) 16.8 4.9 (15.5) (10.6) 25.0 (28.8) (3.8)
Finance income 2.1 2.7 4.8 3.3 4.3 7.5 6.4 4.5 10.9
Finance costs (3.0) (0.3) (3.3) (2.5) (0.3) (2.8) (4.9) (0.7) (5.6)
------------------------- ------- ------ -------- ------- ------ ------- ------- ------- -------
Profit/(loss) before tax 22.2 (3.9) 18.3 5.7 (11.6) (5.9) 26.5 (25.0) 1.5
Tax (charge) / credit (2.3) - (2.3) 1.1 - 1.1 - (0.1) (0.1)
------------------------- ------- ------ -------- ------- ------ ------- ------- ------- -------
Profit/(loss) after tax 19.9 (3.9) 16.0 6.8 (11.6) (4.8) 26.5 (25.1) 1.4
------------------------- ------- ------ -------- ------- ------ ------- ------- ------- -------
* The comparatives have been restated as set out in Note 14.
The Group uses alternative performance measures which are not
defined within IFRS, as well as IFRS measures. One of these is
adjusted EBITDA.
The reconciliation of operating profit/(loss) to Adjusted EBITDA
is shown on page 11.
4. Finance income
6 months 6 months Year ended
ended 30 ended 30 31 March
September September 2020
(GBPm) 2020 2019
--------------------------------------- ----------- ----------- -----------
Foreign exchange gains on intra-group
loans 2.8 4.6 6.0
Movement in valuation of put and
call option - - 1.9
Unwind of discounting on non-current
contract assets 1.9 2.9 2.9
Other interest - - 0.1
--------------------------------------- ----------- ----------- -----------
Total 4.8 7.5 10.9
--------------------------------------- ----------- ----------- -----------
5. Finance costs
6 months ended 6 months Year ended
30 September ended 30 31 March
20202020 September 2020
(GBPm) 2019
------------------------------- --------------- ----------- -----------
Interest on lease liabilities 1.8 1.9 3.7
Interest on bank loans 0.4 0.3 0.6
Unwind of discounting on long
term payables - - 0.3
Movement in valuation of put
and call option 0.1 0.1 0.1
Other finance costs 0.9 0.4 0.9
------------------------------- --------------- ----------- -----------
Total 3.3 2.8 5.6
------------------------------- --------------- ----------- -----------
6. Earnings/(loss) per share
The calculation of the basic and diluted earnings/(loss) per
share is based on the following data:
6 months ended 6 months
30 September ended
2020 30 September Year ended
(GBPm) 2019 31 March 2020
----------------------------------------- ---------------- ---------------- ----------------
Earnings/(loss)
Profit/ (Loss) attributable
to owners of the parent
company 16.4 (4.8) 1.7
Reduction of foreign exchange
movements on intra-Group
loans (2.8) (4.6) (6.0)
----------------------------------------- ---------------- ---------------- ----------------
Adjusted loss attributable
to owners of the parent
company 13.6 (9.4) (4.3)
----------------------------------------- ---------------- ---------------- ----------------
Number of shares
Basic and adjusted weighted
average number of ordinary
shares 474,507,349 474,232,935 472,462,309
Potentially dilutive shares
options 3,980,331 5,000,403 4,857,812
----------------------------------------- ---------------- ---------------- ----------------
Diluted weighted average
number of ordinary shares 478,487,680 479,233,339 477,320,121
----------------------------------------- ---------------- ---------------- ----------------
Earnings/(loss) per share
(in pence)
Basic Earnings/(loss) per
share 3.45 (1.01) 0.38
Diluted Earnings/(loss)
per share 3.42 (1.01) 0.37
Adjusted earnings/(loss)
per share 2.85 (1.98) (0.91)
----------------------------------------- ---------------- ---------------- ----------------
7. Goodwill
GBPm
--------------------------------------------------- --------------
Carrying value as reported 30 September
2019 28.1
Adjustment in hindsight period 0.1
--------------------------------------------------- --------------
Carrying value as restated 30 September
2019 28.2
--------------------------------------------------- --------------
Carrying value as restated 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).
The adjustment in the hindsight period relates to the
finalisation of the purchase price allocation exercise for AO
Mobile Limited which was completed in the year ended 31 March 2020.
This resulted in an increase in goodwill of GBP0.1m with the
balance sheet at 30 September 2019 being restated as if the
increase had taken place at the date of acquisition.
Impairment of goodwill
UK CGU - GBP13.5m
At 30 September 2020, 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
2020 which showed there was significant headroom against the
carrying value. There have been no changes in the assumptions or
performance of the related businesses which would indicate an
impairment test is required at 30 September 2020.
Management do not believe that any reasonable possible
sensitivity would result in any impairment to this goodwill.
AO Mobile Limited - GBP14.8m
At 31 March 2020, The Group has assessed the goodwill arising on
the acquisition of AO Mobile Limited. This was performed based on a
value in use calculation in the same way as for the UK business
noted above but using a weighted average cost of capital
appropriate for MPD as a standalone business of 11.7% (2019:
13.4%).
The total recoverable amount in respect of goodwill for this CGU
was greater than the carrying value. The main assumptions
underlying the value in use calculation were revenue growth, gross
margin and the discount rate. The Directors performed sensitivity
analysis on the numbers included in the three year strategic plan
for the business in assessing the value in use. This showed that,
based on the sensitivities performed, the recoverable amount of the
goodwill was in excess of the carrying value, albeit with
significantly reduced headroom, principally as a result of
sensitivity applied to margin.
Due to changes in customer behaviour seen throughout the second
quarter of FY21, the amount of cashback redemptions and customer
contract cancellations has increased and as a result the financial
performance in the period has been significantly below
expectations. Management have reassessed the recoverable amount of
the goodwill based on this updated information and the recoverable
amount is still in excess of the carrying value and hence
management have concluded that there is no current impairment of
the goodwill.
8. Right of use assets
Land and buildings Motor Computer
GBPm vehicles Equipment Total
GBPm GBPm GBPm
--------------------------- -------------------- --------------- -------------- ----------------
Cost
At 1 April 2020 84.8 20.0 1.0 105.7
Additions 10.5 1.7 - 12.2
Disposals (4.2) - - (4.2)
Exchange differences 0.2 - - 0.2
--------------------------- -------------------- --------------- -------------- ----------------
At 30 September 2020 91.3 21.7 1.0 114.0
--------------------------- -------------------- --------------- -------------- ----------------
Accumulated depreciation
At 1 April 2020 (29.5) (11.1) (0.4) (41.0)
Charge for the year (3.9) (2.3) (0.1) (6.3)
Disposals 1.1 - - 1.1
--------------------------- -------------------- --------------- -------------- ----------------
At 30 September 2020 (32.4) (13.4) (0.5) (46.2)
--------------------------- -------------------- --------------- -------------- ----------------
Carrying amount
--------------------------- -------------------- --------------- -------------- ----------------
At 30 September 2020 58.9 8.3 0.5 67.7
--------------------------- -------------------- --------------- -------------- ----------------
At 30 September 2019 52.1 6.6 0.7 59.5
--------------------------- -------------------- --------------- -------------- ----------------
At 31 March 2020 55.3 8.9 0.6 64.7
--------------------------- -------------------- --------------- -------------- ----------------
Land and buildings Motor Computer
GBPm vehicles Equipment Total
GBPm GBPm GBPm
--------------------------- -------------------- --------------- -------------- ---------------
Cost
At 1 April 2019 77.4 14.8 1.0 93.2
Additions 1.7 - - 1.7
Exchange differences 0.3 0.1 - 0.4
--------------------------- -------------------- --------------- -------------- ---------------
At 30 September 2019 79.4 14.9 1.0 95.2
--------------------------- -------------------- --------------- -------------- ---------------
Accumulated depreciation
At 1 April 2019 (23.7) (6.2) (0.1) (30.0)
Charge for the year (3.6) (2.0) (0.1) (5.8)
At 30 September 2019 (27.3) (8.3) (0.2) (35.8)
--------------------------- -------------------- --------------- -------------- ---------------
Carrying amount
--------------------------- -------------------- --------------- -------------- ---------------
At 30 September 2019 52.1 6.6 0.7 59.5
--------------------------- -------------------- --------------- -------------- ---------------
9. Trade and other receivables
6 months
6 months ended ended 30 Year ended
30 September September 31 March
(GBPm) 2020 2019* 2020
-------------------------------- --------------- ----------- -----------
Trade receivables 23.4 15.6 20.5
Contract assets 177.4 148.5 172.1
Prepayments and accrued income 57.2 35.1 29.7
Other receivables 1.1 4.5 3.0
-------------------------------- --------------- ----------- -----------
Total 259.1 203.7 225.3
-------------------------------- --------------- ----------- -----------
* The comparatives have been restated as set out in Note 14.
The trade and other receivables are classified as:
6 months ended 6 months ended Year ended
30 September 30 September 31 March
(GBPm) 2020 2019 2020
-------------------- --------------- --------------- -----------
Non-current assets 93.4 78.4 87.9
Current assets 165.7 125.3 137.4
-------------------- --------------- --------------- -----------
Total 259.1 203.7 225.3
-------------------- --------------- --------------- -----------
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:
6 months ended 6 months ended Year ended
30 September 30 September 31 March
(GBPm) 2020 2019 2020
------------------------ -------------- -------------- ----------
Balance brought forward 172.1 151.1 151.1
Revenue recognised* 85.6 61.2 153.8
Cash received (77.6) (66.7) (134.7)
Revisions to estimates (4.6) - (0.7)
Unwind of discounting 1.9 2.9 2.6
Balance carried forward 177.4 148.5 172.1
------------------------ -------------- -------------- ----------
* 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 receivable on mobile phone connections is estimated
based on a number of assumptions. These include the customer
default rate, being the rate at which the customers disconnect from
the mobile network operators. The directors have historically
considered this not to be an area of significant estimate due to
relatively small fluctuations in the cash received compared to the
revenue recognised. However, during the second quarter of FY21,
there has been a significant change in customer behaviour resulting
in the tenure of contracts reducing as end customers have cancelled
contracts or have defaulted with the networks and accordingly the
estimated transaction price has been reconsidered.
Included in the total contract asset balance at 31 March 2020
was an amount of GBP4.0m in respect of variable consideration
recognised as revenue up to that date that has been reversed in the
six months ended 30 September 2020. This has been included in the
revision in estimates in the above table. Overall the estimated
transaction price recognised as revenue and contract assets up to
30 September 2020 in relation to mobile commission is constrained
by GBP19.6m (31 March: GBP11.7m).
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 plans based on information provided by D&G;
-- the discount rate using external market data - 3.7% (2019: 4.7%);
-- historic rate of customer attrition which 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 10.7% weighted average cancellation
by month);
-- the estimated length of the plan based on historical data
plus external assessments of the potential life of products (5 to
16 years); and
-- the estimate of profit share relating to the scheme as a
whole based on information provided by D&G.
The last three 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
13 years from circa 2.2 million plans which have been sold. Of
these, 0.9 million 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
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. There is therefore a risk that
changes in consumer behaviour 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.
The sensitivity analysis below is disclosed as we believe it
provides useful insight to the users of the financial statements
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.
Sensitivity Impact on contract Impact on revenue (GBPm)
asset (GBPm)
--------------------------- ------------------- -------------------------
25% reduction in terminal
drop off rate after
actual data available 1.8 1.8
Cancellations increase
by 2% (2.6) (2.6)
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 not changed
during the year albeit over the past year there has been a 25%
improvement in the terminal drop off rate. As the amount of data
beyond the period is limited, no adjustment has been to the
assumption in the model. However, we believe it is more likely that
there would be an improvement in the terminal drop off rate.
Cancellations
The number of cancellations and therefore the cancellation rate
can fluctuate based on a number of factors. These include macro
economic changes e.g. unemployment but will also reflect the change
in nature of the plan itself (insurance plan versus service plan).
The impact of reasonable potential changes are shown in the
sensitivities above and reflect the continued uncertainties arising
from Covid19.
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 - 1.5% (2019: 2.75%);
-- 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 (4% - 12.5%);
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. As
noted earlier, the impact of customer behaviour with regard to
contract cancellations and defaults due primarily to Covid 19 has
impacted previously recognised revenue in the current year with
revisions to estimates amounting to cGBP4m. The risk remains that
changes in consumer behaviour may continue and 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 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 financial statements 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.
Sensitivity Impact on contract Impact on revenue (GBPm)
asset (GBPm)
------------------------- ------------------- -------------------------
2% increase in consumer
default rate (3.9) (3.9)
1% increase in out
of contract revenue 2.3 2.3
Consumer default rate
The amount of revenue recognised at the point of sale uses an
estimate of the likely tenure of the end customers contracts which
determines the number of months commission that the Group would
receive. This takes into account historical disconnection rates
using information provided by the networks. As has been seen in the
current period, the disconnection rates can be impacted by the
customers behaviour after the point of sale driven by external
factors in the wider economy. The sensitivity above considers the
impact on the contract asset if the overall tenure of the
connection reduces by a further 2% compared to the levels of
consumer default rates included in the initial recognition
assumptions across all networks.
Out of Contract
Out of contract revenue is recognised when the Group has
sufficient historical data to estimate the behaviour of the end
customer outside of the normal terms of the contract. In the
majority of cases this revenue is recognised on the receipt of the
cash due to its variable nature. With certain MNO's as further
information is considered there is a reasonable probability that
this source of revenue may become more predictable and therefore
this sensitivity estimates the potential impact on average tenure
should OOC extend beyond the initial anticipated terms by 1%.
Prepayments and accrued income
At 30 September 2020, there is GBP20.4m (2019: GBP15.4m)
included in prepayments and accrued income in relation to volume
rebates receivable. The amounts are largely coterminous and are
mainly agreed in the month after recognition.
At 31 October 2020, the balance outstanding was GBP11.0m (2019:
GBP9.4m).
10. Trade and other payables
6 months
6 months ended ended 30 Year ended
30 September September 31 March
(GBPm) 2020 2019 2020
Trade payables 230.2 152.8 139.6
Accruals 38.4 24.1 23.1
Contract liabilities 63.7 45.5 61.5
Deferred income 29.9 13.1 15.2
Other payables 14.7 13.9 17.6
---------------------- --------------- ----------- -----------
Total 376.9 249.4 257.1
---------------------- --------------- ----------- -----------
The comparatives have been restated as set out in Note 14.
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases is 61 days (31 March 2020:
52 days; 30 September 2019 - 61 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.
Certain Mobile phone contracts include variable consideration
resulting from cash-back rights that a customer must claim
periodically. As explained in note 1, the Group constrains the
transaction price in relation to the cash back based on historical
information and did not consider that estimate to be significant in
prior periods. Historically, many customers have not fully claimed
cash back to which they are entitled.
During the second quarter, the Group saw an unprecedented
increase in the level of cashback redemptions which was
inconsistent withthe previous trend of redemptions reducing year on
year. Management believe that the financial impact of Covid19 has
contributed to the increased redemptions and as a consequence, the
Group has revised its estimate of the transaction price based on
current consumer behaviour.
Included in the total contract liability balance at 31 March
2020 was an amount of GBP4.9m (31 March 2019 GBPnil) in respect of
variable consideration recognised as revenue in prior years that
has been reversed in the six months ended 30 September 2020.
At 30 September 2020 a liability of GBP15.3m has been recognised
out of a maximum potential exposure of GBP39.7m. Taking into
consideration the revenue constraints required by IFRS15, the range
of the estimated liability is between GBP15.3m and GBPnil ((31
March 2020: GBP12.9m and GBPnil).
The trade and other payables are classified as:
6 months
6 months ended ended 30 Year ended
30 September September 31 March
(GBPm) 2020 2019 2020
----------------------- --------------- ----------- -----------
Current liabilities 367.1 240.5 249.6
Long-term liabilities 9.8 8.9 7.5
----------------------- --------------- ----------- -----------
376.9 249.4 257.1
----------------------- --------------- ----------- -----------
11. Net debt and movement in financial liabilities
6 months 6 months Year ended
ended 30 ended 30 31 March
September September 2020
(GBPm) 2020 2019
---------------------------------- ----------- ----------- -----------
Cash and cash equivalents 85.4 23.4 6.9
Borrowings - Repayable within
one year (20.8) (13.4) (5.2)
Borrowings - Repayable after one
year - (22.0) (16.7)
Lease liabilities - Repayable
within one year (15.7) (11.4) (16.1)
Lease liabilities - Repayable
after one year (69.6) (59.3) (68.0)
---------------------------------- ----------- ----------- -----------
Net debt (20.7) (82.8) (99.0)
---------------------------------- ----------- ----------- -----------
The movement in financial liabilities in the period ending 30
September 2020 was as follows:
Loans and borrowings Lease
(GBPm) 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 finance 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
---------------------------------- -------------------- ------------ -------
Loans and Lease
(GBPm) borrowings Liabilities Total
---------------------------------- ----------- ------------ -------
Balance at 1 April 2019 30.4 82.1 112.5
Changes from financing cash flows
Repayment of borrowings (2.5) - (2.5)
Repayment of lease liabilities - (7.6) (7.6)
Payment of interest (0.3) (1.9) (2.2)
Total changes from financing cash
flows (2.8) (9.5) (12.3)
---------------------------------- ----------- ------------ -------
Other changes
New finance leases - 3.5 3.5
Interest expense 0.3 1.9 2.2
Foreign exchange differences - 0.4 0.4
---------------------------------- ----------- ------------ -------
Total other changes 0.3 5.8 6.1
---------------------------------- ----------- ------------ -------
Balance at 30 September 2019 27.9 78.4 106.3
---------------------------------- ----------- ------------ -------
On 6 April 2020, AO Limited entered into a new Revolving Credit
Facility of GBP80m. This replaced the existing revolving credit
facility and the term loan. At 30 September 2020, AO Limited, a
direct subsidiary of AO World Plc, had undrawn amounts on its
Revolving Credit Facility of GBP56.1m (2019: GBP56.7m). The amount
drawn at the year end was in relation to a drawdown on the facility
(GBP20m), letters of credit (GBP2.9m) and payment guarantees
(GBP1.0m). The drawdown was repaid on 6 October 2020. 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.
12. Share-based payments
On 21 July 2020, the AO 2014 Performance Share Plan (2017 grant)
partially vested following the achievement of certain of the
performance criteria and, as a result, the Company issued 602,102
shares to an Employee Benefit Trust, to settle the relevant
options.
On 14 July 2020, following the measurement of the various
performance criteria relating to the AO 2018 Incentive Plan (2019
grant), 1,701,663 conditional deferred share awards were granted
which will vest subject to the relevant employees being in service
at 31 March 2023 and the remuneration committee of the Company
being satisfied with the underlying performance of the Group (the
performance underpin).
On 20 August 2020, the Company made awards to Participants under
the AO 2018 Incentive Plan (2020 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 2021.
The total charge in the Income Statement in relation to all
share plans was GBP0.7m (2019: GBP0.5m) and SAYE Schemes was
GBP0.3m (2019: GBP0.5m).
On 30 September 2020, the Company granted awards under the
Valuation Creation Plan to both executives and 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.
As the Deed of Grant was on the last day of the period, the charge
in the six months to 30 September 2020 is immaterial. The
anticipated annual charge for the scheme, based on an external fair
value exercise is expected to be cGBP1.7m.
13. 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 2020.
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.
During the period, the Group exercised the third option over
shares in AO Recycling Limited. As a result, the Company has
acquired a further 7.2% of the issued share capital of AO Recycling
Limited for consideration of GBP0.1m, taking its holding to 81.6%.
The movement in the put and call option in the period is as
follows:
(GBPm) Call Option Put Option
At 1 April 2020 0.6 1.1
Exercise of option - (0.3)
Unwind of discount - 0.1
---------------------- ------------ -----------
At 30 September 2020 0.6 0.9
---------------------- ------------ -----------
There has been no change in the valuation methodology from that
adopted at 31 March 2020 which utilised the Monte Carlo model for
the call option and the gross liability method for the put option.
The latter equates to an estimate of the amount payable over the
life of the option based on discounted future cashflows.
14. Restatement of comparatives
On the 1 April 2018 the Group adopted IFRS 15 'Revenue from
contracts with customers'. Following further consideration of the
definitions in IFRS15 and its practical application, the Group has
reconsidered and amended the presentation of certain balance sheet
amounts as described below. Comparative amounts have been restated
for consistency in line with a change in accounting policy, but the
changes in presentation have had no effect on net assets or profit
and loss for any period presented.
In the prior year, receivables in relation to commission from
product protection plans and mobile network operators were
classified as receivables at fair value through profit or loss on
the basis that the Group has no further obligations to undertake
after the point of sale when revenue is recognised and therefore
commissions receivable were only dependent on the passage of time
(albeit subject to the behaviour of the end customer). As a
consequence, amounts recognised as accrued income in the 30
September 2019 statement of financial position of GBP152.9m have
been presented as a contract asset under IFRS 15, reflecting the
variable nature of the commission receivable based on future
customer behaviour.
In the prior year, clawback provisions in relation to commission
from mobile network operators were classified as provisions. As the
clawback provision relates to commissions which could be returned
to the mobile network operators should a customer cancel a
contract, the amounts have now been included as a reduction in
contract assets to more appropriately reflect the net amount of
commission receivable. As a consequence, GBP3.0m has been
reclassified against the contract asset and the comparatives
changed accordingly. There is no impact on the income
statement.
In the prior year, cashback liabilities in respect of cashback
schemes operated by Mobile Phones Direct, which were calculated
based on historic redemption rates, were included within
provisions. Payments are expected to be made up to 23 months from
the year end. Having considered the requirements of IFRS 15,
because the company does not receive any goods or services in
relation to the cash paid to the end customer, management believe
it is appropriate to treat these as a reduction in revenue and a
contract liability. As a consequence GBP5.5m of provisions at 30
September 2019 have been reclassified as contract liabilities and
GBP2.1m has been reclassified from cost of sales to revenue.
In addition the balance sheet at 30 September 2019 has been
restated to reflect the final changes to the assets, liabilities
and subsequent goodwill arising from the acquisition of AO Mobile
Limited in December 2018. This has had the impact of reducing
contract assets by GBP0.1m and increasing goodwill by GBP0.1m.
The impact on the income statement, statement of financial
position and statement of cash flows as a result of the
restatements are presented below:
Income statement (including segmental analysis)
30 September 2019 Effect of IFRS15 30 September 2019
as reported reclassification as restated
GBPm UK Europe Total UK Europe Total UK Europe Total
Revenue 402.7 67.3 470.1 (2.1) - (2.1) 400.6 67.3 468.0
Cost of sales (325.8) (67.6) (393.5) 2.1 - 2.1 (323.7) (67.6) (391.4)
------------------ -------- ------- -------- ------ ------- ------ -------- ------- --------
Gross profit 76.8 (0.2) 76.6 - - - 76.8 (0.2) 76.6
Administrative
expenses (72.3) (15.5) (87.7) - - - (72.3) (15.5) (87.7)
Other operating
income 0.3 0.2 0.5 - - - 0.3 0.2 0.5
------------------ -------- ------- -------- ------ ------- ------ -------- ------- --------
Operating profit
/ (loss) 4.9 (15.5) (10.6) - - - 4.9 (15.5) (10.6)
Finance income 3.3 4.3 7.5 - - - 3.3 4.3 7.5
Finance costs (2.5) (0.3) (2.8) - - - (2.5) (0.3) (2.8)
------------------ -------- ------- -------- ------ ------- ------ -------- ------- --------
Profit / (Loss)
before tax 5.7 (11.6) (5.9) - - - 5.7 (11.6) (5.9)
Tax credit 1.1 - 1.1 - - - 1.1 - 1.1
Profit / (Loss)
for the year 6.8 (11.6) (4.8) - - - 6.8 (11.6) (4.8)
------------------ -------- ------- -------- ------ ------- ------ -------- ------- --------
Statement of financial position
Effect
At 30 September of Effect of At 30 September
GBPm 2019 reported IFRS 3 IFRS15 reclassification 2019 restated
-------------------------------- ---------------- --------- ------------------------- ----------------
Non current assets
Goodwill 28.1 0.1 - 28.2
Other intangible assets 16.2 - - 16.2
Property, plant and equipment 30.6 - - 30.6
Right of use assets 59.5 - - 59.5
Trade and other receivables 78.4 - - 78.4
Derivative financial asset 0.8 - - 0.8
Deferred tax asset 4.5 - - 4.5
218.1 0.1 - 218.2
-------------------------------- ---------------- --------- ------------------------- ----------------
Current assets
Inventories 68.7 - - 68.7
Trade and other receivables 128.4 (0.1) (3.0) 125.3
Corporation tax receivable 1.3 - - 1.3
Cash and cash equivalents 23.4 - - 23.4
221.8 (0.1) (3.0) 218.7
-------------------------------- ---------------- --------- ------------------------- ----------------
Total assets 439.9 - (3.0) 436.9
-------------------------------- ---------------- --------- ------------------------- ----------------
Current liabilities
Trade and other payables (236.3) - (4.2) (240.5)
Borrowings (13.4) - - (13.4)
Lease liabilities (11.4) - - (11.4)
Derivative financial liability (0.5) - - (0.5)
Provisions (7.2) - 7.2 -
(268.8) - 3.0 (265.8)
-------------------------------- ---------------- --------- ------------------------- ----------------
Net current liabilities (47.0) (0.1) - (47.1)
-------------------------------- ---------------- --------- ------------------------- ----------------
Non current liabilities
Trade and other payables (7.6) - (1.3) (8.9)
Borrowings (22.0) - - (22.0)
Lease liabilities (59.3) - - (59.3)
Derivative financial liability (2.6) - - (2.6)
Deferred tax liability (2.3) - - (2.3)
Provisions (3.2) - 1.3 (1.9)
(97.0) - - (97.0)
-------------------------------- ---------------- --------- ------------------------- ----------------
Total liabilities (365.8) - 3.0 (362.8)
-------------------------------- ---------------- --------- ------------------------- ----------------
Net assets 74.1 - - 74.1
-------------------------------- ---------------- --------- ------------------------- ----------------
Equity attributable owners of the parent
Share capital 1.2 - - 1.2
Share premium account 103.7 - - 103.7
Other reserves 25.9 - - 25.9
Retained losses (56.0) - - (56.0)
Total 74.8 - - 74.8
-------------------------------- ---------------- --------- ------------------------- ----------------
Non controlling interest (0.7) - - (0.7)
Total equity 74.1 - - 74.1
-------------------------------- ---------------- --------- ------------------------- ----------------
Statement of cash flows
6 months 6 months
ended 30 ended 30
September IFRS 15 September
GBPm 2019 reported Reclassification Reclassification 2019 restated
--------------------------------------- --------------- ----------------- ------------------ ---------------
Cashflows from operating activities
Loss for the period (4.8) - - (4.8)
Depreciation and amortisation 10.1 - - 10.1
Finance income (7.5) - - (7.5)
Finance costs 2.8 - - 2.8
Taxation credit (1.1) - - (1.1)
Share based payment charge 1.0 - - 1.0
Decrease in provisions (0.6) - 0.3 (0.3)
--------------------------------------- --------------- ----------------- ------------------ ---------------
Net operating cashflows before
movement in working capital (0.1) - 0.3 0.2
Decrease in inventories 8.0 - - 8.0
Increase in trade and other
receivables (10.3) - 0.2 (10.1)
Increase in trade and other
payables 15.9 - (0.5) 15.4
Net movement in working capital 13.6 - (0.3) 13.3
--------------------------------------- --------------- ----------------- ------------------ ---------------
Taxation received 0.2 - - 0.2
Net cash from operating activities 13.7 - - 13.7
--------------------------------------- --------------- ----------------- ------------------ ---------------
Cashflows from investing activities
Acquisition of non controlling
interest (0.5) 0.5 - -
Proceeds from sale of property,
plant and equipment 0.1 - - 0.1
Acquisition of property, plant
and equipment (5.4) - - (5.4)
Acquisition of intangible assets (0.5) - - (0.5)
Net cash used in investing activities (6.3) 0.5 - (5.8)
--------------------------------------- --------------- ----------------- ------------------ ---------------
Cashflows from financing activities
Acquisition of non controlling
interest - (0.5) - (0.5)
Interest paid on borrowings (0.7) - - (0.7)
Interest paid on lease liabilities (1.9) - - (1.9)
Repayment of borrowings (2.5) - - (2.5)
Repayment of lease liabilities (7.6) - - (7.6)
Net cash used in investing activities (12.7) (0.5) - (13.2)
--------------------------------------- --------------- ----------------- ------------------ ---------------
Net decrease in cash (5.3) - - (5.3)
--------------------------------------- --------------- ----------------- ------------------ ---------------
Cash and cash equivalents at
beginning of the period 28.9 - - 28.9
Exchange gains and losses (0.2) - - (0.2)
Cash and cash equivalents at
end of the period 23.4 - - 23.4
--------------------------------------- --------------- ----------------- ------------------ ---------------
15. 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 2020, 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 33-48 inclusive and 96 of the Annual Report and
Accounts 2020 which can be found at www.ao-world.com :
-- Risks relating to Brexit should there be a disorderly exit
from the membership of the European Union:
o Supply chain friction
o People
o Currency exposure
o UK electrical market / consumer demand
-- Risks relating to the impact of Covid-19:
o General disruption to operations including from Government
restrictions and the impact on the supply chain and people
availability
o Macroeconomic impacts to consumer confidence and demand
-- Risks relating to our culture and people.
-- Risk relating to IT systems resilience and agility.
-- Risks relating to compliance with laws and regulations.
-- 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, debtor recoverability and the status of
product protection plans, network commission receivable and the
carrying value of goodwill and intangible assets arising on the
acquisition of AO Mobile Ltd.
Given the improvements in both the financial performance and
operational model of the German business, together with increasing
confidence of profitability, the risk of a failure of our German
operations has significantly reduced to the extent that we do not
consider it to be a principal risk.
As mentioned in the Annual Report, we have ceased to consider
brand or reputational damage as a standalone risk, rather it now
forms part of the impact analysis when looking at how we assess
other principal risks.
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 by
the EU
-- The interim management report includes a fair review of the information required by
-- The condensed set of financial statements have been prepared
in accordance with ASB's 2007 Statement Half-Yearly Reports:
(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
23 November 2020 23 November 2020
INDEPENDENT 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 2020 which comprises a 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 2020 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU 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.
The impact of uncertainties due to the UK exiting the European
Union on our review
Uncertainties related to the effects of Brexit are relevant to
understanding our review of the condensed financial statements.
Brexit is one of the most significant economic events for the UK,
and at the date of this report its effects are subject to
unprecedented levels of uncertainty of outcomes, with the full
range of possible effects unknown. An interim review cannot be
expected to predict the unknowable factors or all possible future
implications for a company and this is particularly the case in
relation to Brexit.
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 annual financial statements of the group
are prepared in accordance with International Financial Reporting
Standards as adopted by the EU. 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
by the EU.
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
23 November 2020
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