TIDMAO.
RNS Number : 8178T
AO World plc
19 November 2019
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR IMMEDIATE
RELEASE
AO WORLD PLC
INTERIM RESULTS FOR THE 6 MONTHSED 30 SEPTEMBER 2019
On track with our plans for sustainable growth
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 2019
("HY20").
John Roberts, AO Founder and Chief Executive Officer, said:
"These results were achieved during a period of significant
change for the business where we were focused on laying the
foundation for disciplined, long-term growth. There are encouraging
green shoots of profitable growth across our UK business, including
within our core MDA offer and we will continue to invest to drive
this further.
"Our relentless focus to accelerate profitability in Europe
continues and as part of this, we have today announced the closure
of our Netherlands operation. This will enable us to concentrate on
the transformation of our German business, where we have increased
confidence in, and visibility of, the three core drivers of the
business model that will put us on the path to profitability.
"We have also kept a clear focus on cash generation, and we
expect to be cash generative at a group level as we enter the new
financial year.
"Our ecosystem of complementary products and services continues
to strengthen, providing us with the belief that these can be
leveraged to underpin future growth and profitability in the UK.
Overall, I am pleased with the operational progress that we have
made in this period and would like to thank AOers across the
business for their continued commitment."
Financial Highlights(1)
-- Continued revenue growth with total revenue for the period
increasing by 16.3% to GBP470.1m (2018: GBP404.2m) (up 3.2% on a
like for like basis excluding revenues from AO Mobile(2) ):
- Total UK(3) revenue up 20.3% to GBP402.7m (2018: GBP334.8m)
(up 4.5% on a like for like basis excluding revenues from our
acquired mobile phones business)
- Europe(4) revenue for the period decreased by 3.4% to EUR75.7m
(2018: EUR78.4m) (in GBP 2019: GBP67.4m; 2018: GBP69.4m) as we
re-aligned our European operating model with our UK policy
-- Pre-IFRS 16 Group Adjusted EBITDA(5) losses increased to
GBP6.2m (2018: GBP5.4m); profit growth in the UK impacted by
European performance
- UK Pre-IFRS16 Adjusted EBITDA of GBP7.8m (2018: GBP6.9m)
- Europe Pre-IFRS16 Adjusted EBITDA losses increase to EUR15.9m
(2018: EUR13.8 m) with the impact of the actions highlighted above
implemented towards the end of reporting period (in GBP 2019:
GBP14.0m loss; 2018: GBP12.2m loss).
-- Statutory Group operating losses flat at GBP10.6m (2018: GBP10.6m loss)
-- As at 30 September 2019:
- Group cash was GBP23.4m (31 March 2019: GBP28.9m, 30 September 2018: GBP36.6m)
- Net debt(6) was GBP12.0m (31 March 2019: net debt GBP9.0m; 30
September 2018: net funds GBP23.9m)
- The Group continues to have significant liquidity headroom of
GBP80.1m at the balance sheet date including available funds and
undrawn RCF
-- Basic loss per share of 1.01p (2018: 2.31p), which includes
foreign exchange gains from inter-group funding. Reversing such
foreign exchange gains gives an adjusted loss per share of 1.98p
(2018: 2.63p loss).(7)
Strategic and Operational Highlights
-- UK and German NPS(8) scores maintained at over 80
UK Growth
-- UK product revenue grew by 6.8% during HY20
-- UK MDA sales up 5.5% against the comparable prior year period
in a market that declined at 3.7%(9) over the same period
-- Launched AO Finance to offer customers additional purchasing flexibility
-- Developed an AO branded mobile proposition ahead of planned
timescale, building on the foundations of MobilePhonesDirect.co.uk,
and secured a new long-term partnership with Vodafone
-- Completed the transition from serviced warranty to a hybrid
insurance product; providing customers with a truly digital
experience that builds relationships and generates repeat
business
-- Continued investment in the customer journey such as the
development and implementation of market leading personalisation
and our chatbot which are expected to go-live during FY21
Europe
-- Full review of Europe business model undertaken during HY20
-- Deepened relationships with suppliers gaining a renewed
commitment to AO as a leading pureplay retailer
-- Increased confidence in establishing a growing profitable
German business through more efficient customer traffic acquisition
and the centralisation into the UK of core disciplines including
eCommerce and marketing
-- Commitment to focus resources and energy on German business
resulting in decision to close operations in the Netherlands(11)
during H2; closure expected to cost cGBP3m and become effective by
the end of the current financial year. The Netherlands operation
made an adjusted EBITDA loss of GBP2.8m in the six months to 30
September 2019.
Leverage our eco-system
-- Continued development of eco-system to compound the benefits
within the AO group. For example, launch of next day and nationwide
seven-day delivery proposition for housebuilders has generated
commitments for over 3,000 plots
-- Leveraging our capabilities externally, added new third-party
logistics clients Aldi and Simba
-- Development of plastics plant continues to plan; expected to
be operational during the second half of FY20
Webcast details
A results presentation hosted by Geoff Cooper, John Roberts and
Mark Higgins for analysts and investors will be held today, 19
November 2019 at 9:00am (GMT) at Numis Securities Limited, 10
Paternoster Square, London EC4M 7LT. Please register your
attendance in advance with Tulchan Communications using the contact
details below.
A live audio webcast will be available for analysts and
investors who are unable to attend the presentation at:
https://webcasting.brrmedia.co.uk/broadcast/5db9b68434a3cf1389e81537
and will be available for playback on AO's corporate website at
ao-world.com(10) later today. The presentation can also be heard
live via a conference line facility by dialling 44 (0)330 336 9411
and using confirmation code 9981443.
The person making this notification on behalf of AO World plc is
Mark Higgins, Chief Financial Officer.
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 simple
mission: to have the happiest customers by relentlessly striving
for a better way. We create value by providing electrical products
and related services to our customers, offering a huge range, a
price-match promise and market-leading customer service.
We sell major and small domestic appliances and consumer
electronics in the UK, Germany and the Netherlands and deliver 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 four main categories (Major Domestic
Appliances "MDA", Small Domestic Appliances "SDA", Audio Visual
"AV" and Computing) and more recently added Gaming, Mobile, Smart
Home and Photographic devices and equipment to its ranges.
Following the acquisition of Mobile Phones Direct Limited in
December 2018, AO has significantly broadened its mobile phone
offering.
AO launched in Germany in October 2014 with MDA and now sells
Floorcare, AV and SDA categories. AO's international expansion
strategy took a step further in February 2016 with the launch of
MDA in the Netherlands, which has also expanded to include SDA and
AV. In December 2018, AO acquired Mobile Phones Direct making AO
the UK's largest pureplay mobile phone retailer.
AO also has a majority equity stake in AO Recycling, a WEEE
processing facility, allowing AO to ensure its customers' waste is
dealt with responsibly in the UK.
______________________________
(1) The highlights are for the 6 month period ended 30 September
2019 and the comparative 2018 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) Mobile Phones Direct Limited (acquired in December 2018) has
been renamed AO Mobile Limited. This entity includes the
MobilePhonesDirect brand and the AO Mobile brand launched in August
2019.
(3) 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).
(4) Europe is defined by the Group as entities operating within
the European Union but excluding the UK.
(5) Pre IFRS Adjusted EBITDA is defined by the Group as
profit/(loss) before tax, depreciation, amortisation, profit on
disposal of fixed assets net finance income, "adjustments", and the
impact of adopting IFRS16. Adjustments is defined by the Group (i)
share-based payment charges of GBPnil (2018: GBP1.4m) attributable
to exceptional LTIP awards which the Board considers one-off in
nature, (ii) exceptional professional fees of GBPnil (2018:
GBP1.4m),(iii) onerous contract costs in relation to a marketing
contract in Germany of GBP0.5m and, (iv) restructuring costs of
GBP0.9m. See paragraph entitled "Reconciliation of operating profit
to Adjusted EBITDA" for further details
(6) Net (debt)/ funds are defined by the Group as cash as per
the consolidated statement of financial position less borrowings
less overdrafts.
(7) Please refer to the loss per share paragraph later in this
announcement for further information.
(8) NPS is defined by the Group as Net Promoter Score which is
an industry measure of customer loyalty and satisfaction.
(9) Source: GfK data for six months to 28 September 2019 versus
six months to 29 September 2018
(10) The content of the ao-world.com website should not be
considered to form part of or be incorporated into this
announcement.
(11) Subject to necessary legal consultations.
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.
PERFORMANCE AT A GLANCE
Summary Results
6 months ended 30 September 2019 30 September Better/(worse)
2018(*)
(GBPm)(1) UK Europe Total UK Europe Total UK Europe Total
------------------------ ------- -------- ------- ------ -------- ------- --------- -------- ----------
Income Statement
Product revenue 311.2 65.2 376.4 291.5 68.4 359.9 6.8% (4.8%) 4.6%
Services revenue 16.1 2.0 18.1 14.1 0.8 14.9 13.9% 155.2% 21.3%
Commission revenue 61.8 0.1 61.9 14.5 0.1 14.6 326.0% (16.6%) 323.0.%
Logistics revenue 6.8 - 6.8 7.3 - 7.3 (7.1%) - (7.1%)
Recycling revenue 6.8 0.1 6.9 7.4 0.1 7.5 (8.2%) 56.4% (7.8%)
------------------------ ------- -------- ------- ------ -------- ------- --------- -------- ----------
Total Revenue 402.7 67.4 470.1 334.8 69.4 404.2 20.3% (3.0%) 16.3%
------------------------ ------- -------- ------- ------ -------- ------- --------- -------- ----------
Adjusted EBITDA/(loss)
post IFRS16(2) 13.6 (12.6) 1.0 11.9 (11.0) 0.9 14.0% (14.4%) 8.7%
------------------------ ------- -------- ------- ------ -------- ------- --------- -------- ----------
Adjusted EBITDA/(loss)
pre IFRS16 7.8 (14.0) (6.2) 6.9 (12.3) (5.4) 13.6% (14.1%) (14.8%)
------------------------ ------- -------- ------- ------ -------- ------- --------- -------- ----------
Adjusted EBITDA
post IFRS16 (0.2 (2.9
margin(3) 3.4% (18.8%) 0.2% 3.6% (15.9%) 0.2% ppts) ppts) 0.0 ppts
------------------------ ------- -------- ------- ------ -------- ------- --------- -------- ----------
Adjusted operating
profit/(loss)(4) 5.1 (14.2) (9.1) 4.9 (12.6) (7.7) 4.9% (13.0%) (12.3%)
------------------------ ------- -------- ------- ------ -------- ------- --------- -------- ----------
Adjustments(5)
Share-based
payment charge
attributable
to exceptional
LTIP awards - - - (1.4) - (1.4)
Exceptional
professional
fees(8) - - - (1.4) - (1.4)
Onerous contract
costs - (0.5) (0.5) - - -
Restructuring
costs (0.2) (0.7) (0.9) - - -
Operating profit/(loss) 4.9 (15.5) (10.6) 2.1 (12.6) (10.6) 139.8% (22.8%) -%
------------------------ ------- -------- ------- ------ -------- ------- --------- -------- ----------
(Loss) per share
------------------------ ------- -------- ------- ------ -------- ------- --------- -------- ----------
Basic Loss per
share (pence) (1.01) (2.31) 56.3%
------------------------ ------- -------- ------- ------ -------- ------- --------- -------- ----------
Diluted Loss
per share (pence) (1.01) (2.31) 56.3%
------------------------ ------- -------- ------- ------ -------- ------- --------- -------- ----------
Cash flow
------------------------ ------- -------- ------- ------ -------- ------- --------- -------- ----------
Period end net
(debt)/funds(6) (10.1) (1.9) (12.0) 29.3 (5.4) 23.9 (134.4%) 63.7% (150.4%)
------------------------ ------- -------- ------- ------ -------- ------- --------- -------- ----------
(*) Financial data is for the 6 month period ended 30 September
2019 and the comparative 2018 period. 2018 comparatives have
been restated to reflect the adoption of IFRS 16.
______________________
(1) 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) Adjusted EBITDA post IFRS 16 is defined by the Group as profit/(loss)
before tax, depreciation, amortisation, profit on disposal of
fixed assets, net finance income and "adjustments".
Adjusted EBITDA pre IFRS 16 is defined as Adjusted EBITDA post
IFRS16 before the impact of adopting IFRS16.
(3) Adjusted EBITDA margin is defined by the Group as Adjusted
EBITDA divided by revenue.
(4) Adjusted operating profit/(loss) is defined by the Group
as profit/(loss) before tax, net finance income, "adjustments"
and exceptional items but after depreciation, amortisation and
profit on disposal of fixed assets.
(5) Adjustments is defined by the Group as (i) share-based payment
charges of GBPnil (2018: GBP1.4m) attributable to exceptional
LTIP awards which the Board considers one-off in nature, (ii)
exceptional professional fees of GBPnil (2018: GBP1.4m),(iii)
onerous contract costs in relation to a marketing contract in
Germany of GBP0.5m and, (v) restructuring costs of GBP0.9m.
(6) Net (debt)/funds are defined as cash as per the consolidated
statement of financial position less borrowings (excluding Right
of use liabilities).
CEO REVIEW
When I returned as CEO in February, I highlighted the four key
priorities that I wanted our team to focus on. They were to grow
our UK profitably, to accelerate our journey to profitability in
Europe, to leverage the assets and capabilities we already have,
and while doing this, rekindle one of our most important
attributes; our growth mindset. I have now carried out a thorough
review of all of the companies' activities, plans and most
importantly our culture and am hugely reassured by what I have
found. Our amazing customer service is still just as amazing as
shown by our industry leading NPS scores. The AO culture which is
something I have always been very passionate about and which has
been the key ingredient in our success, is also in great shape. Our
execution is, by and large excellent. Yes, we have some challenges
in Europe which I will come onto, but particularly in the UK we
continue to be world class.
UK profitable growth
During HY20 our UK product revenue grew by 6.8% and growth in
our core MDA category increased 5.5%, against the prior year and in
a market that declined by 3.7% over the same period. In recent
periods our MDA growth - the heart of the UK business, has slowed.
A key focus for us has been to return this category to growth and
to deliver profit from that growth. Our ambition remains to achieve
double-digit MDA growth driven by investment in our proposition and
expanding our offering into new customer markets.
The foundation of our UK business is providing a combination of
world leading customer service with best-in-class propositional
execution. The cultural DNA of treating customers like our grans
and making mums proud is deeply ingrained throughout AO, and is
demonstrated by our 5 Star Trustpilot rating and consistently high
NPS scores during the period.
Although MDA growth is key to short term increases in UK
profitability, the market opportunity in our newer categories
remains huge and these performed well during the period,
contributing to overall growth. These categories provide us with
more brand touch points with our customers reinforcing the service
and proposition that we have to offer.
In particular, our future growth will be defined by the
investments we make in continuing to improve the breadth and
usability of our overall retail experience. For example, in August
we launched "AO Finance", a market leading rolling credit facility
operated in partnership with NewDay giving more customers access to
essential products and us a larger share of wallet, through
affordable finance. We have also developed our AO branded mobile
proposition, building on the foundations of the MobilePhonesDirect
business. As of today we have a strong mobile platform in place
which we remain excited about it's potential in our ever-connected
world. The strategic partnership we recently entered into with
Vodafone is a further sign of confidence from the Mobile Network
Operators in AO as an important provider in this market.
As we look forward to growth in future periods, we are investing
today in further propositional developments. As an example, in the
last six months we have been developing personalisation
functionality which we believe will drive conversion and loyalty in
the future. We have also commenced the development of a chatbot
sales assistant, aimed at improving customer service and creating
group efficiencies. We believe these initiatives and others in the
pipeline will help us create structural and sustainable advantage
over our competitors now and in the longer term.
The product manufacturers make significant investment in R&D
and product development every year, and they continue to recognise
AO as an ideal partner to bring those innovations to life; online
is the best place to explain products to customers and that is now
being recognised more clearly by manufacturers. We are jointly
investing with our brand partners in even more initiatives to make
the online journey even better, increasingly with our content as
the destination of choice for the best product information. Going
forward we will work to recalibrate our overhead structure and will
disclose our R&D investment to illustrate the investment in
initiatives we are developing.
Accelerate our journey to profitability in Europe
At the time of our results in June we explained that our number
one priority was to accelerate the journey to profitability in
Europe and we remain committed to this. Over the reporting period
we have undertaken a full appraisal of our German and Netherlands
operations and are implementing a number of key changes.
We have concluded that we do not have the bandwidth to make the
necessary turnaround in both the German and Netherlands territories
at the same time. The foundation of our European business is
Germany therefore this is our priority and focus and we have taken
the difficult decision to close our operations in the
Netherlands.
Our operations in the Netherlands currently make a loss of
c.EUR6m per annum and we estimate it will cost c.EUR3m for us to
close it with the closure effective by the end of the current
financial year. It is important to highlight that our decision to
close these operations is not a reflection on our team in the
Netherlands but a result of the reality of the current status of
our European business. Their commitment and dedication have been
unwavering and they are a credit to AO.
Notwithstanding our decision to close the Netherlands, we remain
fully committed to the scale of the opportunity, the model and
strategy in our German business. We remain committed to building
German operations that will be a profitable business at around
EUR250m run rate of revenue.
Six months ago I said that we needed to behave as one business
with one North Star and I believe this even more today. We are
calling this approach "One AO". As part of this we have aligned our
methods of acquiring traffic, attracting and converting customers
in Germany to the methods that we have proven in the UK. In fact
across all our key disciplines we are leveraging our core
intelligence so that we behave as One AO.
One of the most important changes this approach has brought
about is a fundamental review of our pricing policy. Where we had
previously deployed a strategy to drive sales through discounting
prices at the expense of margins we are now focusing on profit. Our
relationship with product manufacturers in our German business is
critical to the success of this initiative, and we are encouraged
by their support for our change in strategy. We are also
restructuring our buying terms with the majority of our suppliers
which will largely take effect from January. We expect this to
represent a step change in the contribution to overheads in our
German operations which will become positive going forwards; a
vastly improved and sustainable platform to drive profitable growth
into the future.
At the same time, we have been applying the UK lessons and
systems to the logistics operation and believe we can make further
progress during the final quarter of the financial year in reducing
the unit cost to deliver. The work completed so far and modelling
moving forwards gives us the confidence to maintain our belief of
profitability in the German business at EUR250m of revenue.
We continue to be totally committed to the scale of the
opportunity, the model and strategy in Germany and have real
conviction that it will succeed. There are however a number of
outcomes from the actions that we have taken that will not
materialise until early 2020; if we are wrong in our conviction it
will be clear to us by at the very latest summer 2020 and in a
worst case scenario we believe the cost of closure is cGBP20m.
Leverage our eco-system
In the UK we have built assets, systems and processes that we
can leverage to third parties to address additional revenue and
profit opportunities outside of our core retail business. We are
also able to link up these capabilities within the group, for
example using our logistics operations to collect and feed old
appliances into a contract won by our recycling business.
The commissioning of our plastics plant which is ongoing, allows
us to refine the plastics output from our existing recycling plant
and sourced from third parties to a quality suitable to re-enter
the manufacturing process. Ultimately creating the potential to
make new fridges from the old; a real sustainability story.
The development of our rental proposition would not be possible
without AO's buying power; our reputation (which provides trust)
and the ability of our logistics to deliver it at lowest possible
cost. We can take a long-term approach to this market and
understand it with low cost. We are continuing with a limited
volume trial working with Housing Associations to fully understand
the dynamics of the market and make any necessary adaptations to
our model.
Our Business to Business solution means that housebuilders are
able to benefit from a next day, seven-days a week national
delivery proposition that is available as a result of our core
retail MDA offer. This service will take time to gain traction into
the new build pipeline, but we have already generated commitments
for over 3,000 plots in the last few months.
Our third-party logistics operation is once again winning new
clients as a result of the excellent service delivered to end
customers. We have recently secured contracts to deliver for Aldi
and Simba to deliver products on their behalf and look to continue
to win new clients.
Conclusion
There has been a huge amount of change and transition in the
first half of the financial year, during which we have been making
investments that we are confident will pay back in the new
financial year and thereafter.
We are entering our peak trading period fully focused on driving
profitable growth, but mindful of macro-economic uncertainty and
the potential impact of Brexit. Despite this we still expect to
deliver results within the range of analysts' expectations.
Cashflow is a key focus for our business and is driven by our
growth and profit performance. The mindset of our people also plays
a crucial part in how we think about generating and using cash; we
are making good progress. We are focused on generating cash from
operations as we move through the balance of the year and beyond.
It is our ambition that the Group will be cash generative on an
Adjusted EBITDA less debt repayment, interest, taxes and monthly
share of annualised capex by the end of the March 2020 financial
year and on a run rate basis going forward.
FINANCIAL REVIEW
These interim results are the first AO World plc accounts
prepared under IFRS 16, the new financial reporting standard on
accounting for leases. All comparative figures included within this
announcement have been restated for IFRS 16 and as previously
indicated, we have adopted the standard fully retrospectively.
Further detail on this can be found in Note 1 with the impact of
the restatement shown in Note 13.
Revenue
For the six months ended 30 September 2019 total Group revenue
increased by 16.3% to GBP470.1m (2018: GBP404.2m).
6 months ended 6 months ended Year ended
(GBPm)(1) 30 September 2019 30 September 2018 31 March 2019
------------------- --------------------- ------------------- ----------------------------
UK Europe Total UK Europe Total UK Europe Total
------------------- ------ ------ ----- -------- --------- ----- ----- ------- -----
Product revenue 311.2 65.2 376.4 291.5 68.4 359.9 628.4 151.1 779.5
Services revenue 16.1 2.0 18.1 14.1 0.8 14.9 30.1 1.6 31.8
Commission revenue 61.8 0.1 61.9 14.5 0.1 14.6 61.2 0.3 61.5
Logistics revenue 6.8 - 6.8 7.3 - 7.3 15.3 - 15.3
Recycling revenue 6.8 0.1 6.9 7.4 0.1 7.5 14.3 0.1 14.5
------------------- ------ ------ ----- -------- --------- ----- ----- ------- -----
Total revenue 402.7 67.4 470.1 334.8 69.4 404.2 749.3 153.2 902.5
------------------- ------ ------ ----- -------- --------- ----- ----- ------- -----
Overall revenue in the UK increased by 20.3% to GBP402.7m (2018:
GBP334.8m), up 4.5% on a like-for-like basis i.e. excluding the
impact of the acquired Mobile Phones Direct Limited which was
acquired in December 2018 (since renamed "AO Mobile Limited").
Product revenue from our retail websites comprising ao.com,
marketplaces and third-party websites, increased by 6.8% to
GBP311.2m largely driven by a good performance in MDA product
sales. Growth in marketplace channels such as Amazon and eBay has
been particularly strong during the period. We believe these are
new customers to the Group and do not cannibalise traffic that
would otherwise shop with ao.com. In addition, we continue to focus
on our AO Business offering and this has been a key driver of our
growth in the MDA category.
Service revenue increased by 13.9% to GBP16.1m which continues
to reflect improvements to our customer propositions which have
resonated well with our customers, for example service bundles,
installing tv's on walls and delivery time slots.
Growth in commission revenue is largely attributable to the
acquisition of AO Mobile Limited in December 2018 which generates
the majority of its revenue as commission from the Mobile Network
Operators. We continue to integrate this business into the wider AO
Group, and we see a number of opportunities for growth following
the launch of the ao-mobile.com in August and the signing of a new
commercial agreement with Vodafone in October.
As previously reported, in the second half of the year to March
2019, service plan customers of ao.com migrated from a warranty
product to AO Care, a hybrid insurance product offering greater
regulatory protection. This migration and base contact exercise
caused a spike of cancellations of products which was at a level we
had anticipated. Following this one-off event we expect to see a
lower level of cancellations on a monthly basis going forward.
Should this not happen we will need to revisit the assumptions
underlying our valuation of those future cash flows.
The reduction of third-party logistics revenue year on year
reflects the loss of the contract to deliver goods on behalf of
Argos albeit this has partially been offset by the part year effect
of new contracts with The Cotswold Company, Aldi and Simba.
Revenues in our Recycling business decreased slightly during the
reporting period as we began to feel the impacts of downward
pressure on metal prices and as the processing of stock built up in
FY19 was offset by a reduction in volumes from third-parties during
the period. The development of our plastics plant continues to
plan, and we expect this to be operational during the second half
of FY20. The new plant will provide us with the capability to sort
waste plastics from our fridge plants allowing us to reuse or
resell this plastic and to create an additional sustainable revenue
stream.
In Europe sales generated from our German website AO.de and our
Netherlands website AO.nl reduced by 3.4% to EUR75.7m (2018:
EUR78.4m) which equates to GBP67.4m (2018: GBP69.4m). As previously
reported, the trajectory of losses in the second half of FY19 did
not meet our expectations. We commenced an appraisal of our
European business and business model to ensure that we are able to
generate long-term sustainable and profitable growth (and reducing
losses in the shorter term). This entailed a review of our pricing
policy (where we had previously deployed a strategy to drive sales
through discounting prices at the expense of margin) and an
evaluation of traffic channels (particularly marketplaces) where
cost to acquire traffic is in excess of our traditional website
acquisition costs. The outcome of this appraisal has resulted in a
significant change to our European pricing policy which has now
been brought in line with our UK model. As a consequence, although
revenues have reduced year on year, these have been delivered at an
improved margin compared to H2 FY19 and importantly this is a
policy that we think will receive support from suppliers.
Gross margin
6 months ended 30 September 2019 30 September 2018* Better/(worse)
-------------------- --------------------- ---------------------- ------------------------------
(GBPm)(1) UK Europe Total UK Europe Total UK Europe Total
-------------------- ------ ------ ----- ------ ------- ----- ---------- ---------- ------
Gross profit/(loss) 76.8 (0.2) 76.6 70.9 0.3 71.2 8.3% (165.5%) 7.6%
-------------------- ------ ------ ----- ------ ------- ----- ---------- ---------- ------
(1.3
Gross margin 19.1% (0.3%) 16.3% 21.2% 0.4% 17.6% (2.1 ppts) (0.7 ppts) ppts)
-------------------- ------ ------ ----- ------ ------- ----- ---------- ---------- ------
Gross profit for the Group grew by 7.6% to GBP76.6m (2018:
GBP71.2m) with gross margin percentage decreasing by 1.3ppts to
16.3% for the reporting period (2018: 17.6%).
In the UK gross margin percentage decreased to 19.1% (2018:
21.2%) primarily as result of the dilutive impact of the AO Mobile
Limited business acquired in December 2018. Excluding the impact of
AO Mobile Limited, gross margin was flat year on year.
In Europe, although the pricing strategy has now been brought in
line with the UK thus significantly reducing the level of price
discounting, improvements in supplier terms is, as expected, taking
longer to achieve. However, management are encouraged with the
initial progress made in Germany where gross margin significantly
improved to 0.5% during the reporting period versus a gross loss of
2% in the second half of FY19. Negotiations are ongoing with
suppliers with expected improvements in terms from the start of
calendar year 2020. Management continue to look at driving
efficiencies in the logistics operation which has been impacted by
the lower volumes in the period.
Selling, General & Administrative Expenses ("SG&A")
6 months ended 30 September 2019 30 September 2018* Better/(worse) %
(GBPm) (1) UK Europe Total UK Europe Total UK Europe Total
------------------------- ------ ------ ----- ------ ------- ----- --------- ------- ---------
Advertising and
marketing 9.3 3.9 13.2 12.4 3.2 15.6 24.6% (22.0%) 15.1%
------------------------- ------ ------ ----- ------ ------- ----- --------- ------- ---------
(1.2
% of revenue 2.3% 5.8% 2.8% 3.7% 4.6% 3.9% 1.4 ppts ppts) 1.1 ppts
------------------------- ------ ------ ----- ------ ------- ----- --------- ------- ---------
Warehousing 17.8 2.6 20.5 16.0 2.4 18.4 (11.6%) (8.3%) (11.2%)
------------------------- ------ ------ ----- ------ ------- ----- --------- ------- ---------
(0.4 (0.2
% of revenue 4.4% 3.9% 4.3% 4.8% 3.5% 4.6% 0.4 ppts ppts) ppts)
------------------------- ------ ------ ----- ------ ------- ----- --------- ------- ---------
Research and development 4.4 - 4.4 3.4 - 3.4 (26.5%) - (26.5%)
------------------------- ------ ------ ----- ------ ------- ----- --------- ------- ---------
% of revenue 1.1% - 0.9% 1.0% - 0.8% (0.1ppts) - (0.1ppts)
------------------------- ------ ------ ----- ------ ------- ----- --------- ------- ---------
Other admin 40.5 7.7 48.2 34.7 7.6 42.2 (16.7%) (1.8%) (14.2%)
------------------------- ------ ------ ----- ------ ------- ----- --------- ------- ---------
(0.5
% of revenue 10.1% 11.4% 10.3% 10.4% 10.9% 10.4% 0.2 ppts ppts) 0.1 ppts
------------------------- ------ ------ ----- ------ ------- ----- --------- ------- ---------
Adjustments 0.2 1.2 1.5 2.9 - 2.9 92.6% 100.0% 50.5%%
------------------------- ------ ------ ----- ------ ------- ----- --------- ------- ---------
(1.8
% of revenue 0.1% 1.8% 0.3% 0.9% - 0.7% 0.8 ppts ppts) 0.4 ppts
------------------------- ------ ------ ----- ------ ------- ----- --------- ------- ---------
Administrative
expenses 72.3 15.5 87.7 69.3 13.2 82.5 (4.2%) (17.3%) (6.3%)
------------------------- ------ ------ ----- ------ ------- ----- --------- ------- ---------
(4.0
% of revenue 17.9% 23.0% 18.7% 20.7% 19.0% 20.7% 2.8 ppts ppts) 2.0 ppts
------------------------- ------ ------ ----- ------ ------- ----- --------- ------- ---------
Total SG&A costs across the Group as a percentage of revenue
reduced during the period from 20.7% to 18.7%.
In the UK, advertising and marketing costs as a percentage of
revenue reduced by 1.4ppts as the comparable period year period
included the costs to the launch the "Delivering Tomorrow"
creative. Our current expectation is that traditional TV
advertising costs will be minimal as we look to other advertising
channels such as social media to promote the AO brand.
Warehousing costs have increased with continued investment in
the out-base network driving overall efficiencies, benefitting
gross margin. They have reduced as a percentage of revenue to 4.4%
in HY20 compared to 4.8% previously as they serve a higher volume
of sales.
Research and development costs increased by GBP1.1m compared to
the prior period reflecting the investment in our technology teams
as we develop initiatives to support future customer
proposition.
Other admin costs as a percentage of revenue have reduced by
0.2ppts (reducing by 0.9ppts excluding the impact of AO Mobile
Limited) as we start to leverage our cost base with scale.
In Europe, advertising and marketing costs increased by 1.2ppts
as a percentage of revenue with higher investment in acquisition
costs to drive revenue following the change in pricing strategy in
the period. Due to the predominantly fixed nature of the costs in
warehousing, the reduction in revenue has led to a slight increase
in costs as a percentage of revenue. However, this is anticipated
to be temporary as the output of the actions required to drive
growth gain traction and costs are leveraged. Other admin costs
increased by 0.5ppts on the prior year. We expect these costs to
continue to reduce following the impact of the restructuring on
headcount as we leverage the skills and knowledge of our people
from the UK.
Operating loss and Adjusted EBITDA
Our operating loss for the period was GBP10.6m (2018: GBP10.6m
loss).
However, when reviewing profitability, the Board of Directors
use an adjusted measure of EBITDA in order to give a meaningful
year on year comparison and it is a performance criteria for the
purposes of both the Executive management's annual bonus and LTIP
awards and, more recently, the single incentive award. Whilst we
recognise that the measure is an alternative (non-Generally
Accepted Account Practice ("non-GAAP")) performance measure, which
is also not defined within IFRS, this measure is important and
should be considered alongside the IFRS measures. These financial
statements disclose both a pre and post IFRS16 adjusted measure of
EBITDA to aid comparability with prior years. The pre-IFRS16
measure has historically been used as both a measure of performance
under the Group's incentive schemes and as a guide for analysts
when calculating forecasts.
Group Adjusted EBITDA losses pre IFRS16 were GBP6.2m (2018:
GBP5.4m) after allowing for GBP14.0m of Europe Adjusted EBITDA
losses (2018: GBP12.2m loss).
UK Adjusted EBITDA pre IFRS16 for the 6 months to 30 September
2019 was GBP7.8m (2018: GBP6.9m) representing an increase of 13.0%
against the prior year. The increase reflects a lower level of
advertising spend in the period offsetting a reduction in gross
margin percentage predominantly driven by category mix.
Post IFRS16 Group Adjusted EBITDA is GBP1.0m compared to GBP0.9m
in 2018.
Alternative performance measures
One of the Group's key performance indictors is Adjusted EBITDA
and each segment is measured by the Chief Operating Decision Maker
on this basis. The use of this measure is also evidenced by
executive management bonus targets and Long-Term Incentive Schemes
being measured in relation to Adjusted EBITDA, amongst other
factors. As such, these measures are important and should be
considered alongside the IFRS measures.
Adjusted EBITDA is calculated by adding back those items of
income and expense defined which, because of the nature and
expected infrequency of events giving rise to them, merit separate
presentation to allow shareholders to better understand the
financial performance of the Group in the period.
During the six months to 30 September 2019 the following
adjustments were made:
-- In December 2017, the Group entered into a marketing contract
in Germany which was anticipated to generate significant additional
revenue. In the prior and current financial years, the performance
of this contract has been re-assessed due to significant losses
being incurred and the benefits expected from the contract not
materialising. The Group is however committed to the contract until
December 2020 and whilst management are continuing to explore
routes to re-negotiate the contract, it is clear that the cost of
fulfilling the contract over its life will significantly exceed any
benefit gained from it. As a consequence, due to its size, timing
and the onerous nature of the contract, management consider this to
be exceptional and, in line with the treatment in FY19, have added
back the full cost in the current period of GBP0.5m in arriving at
Adjusted EBITDA.
-- 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 has undertaken a restructure of its European
business. The cost of this restructure is GBP0.9m, which
principally relates to a reduction in headcount, is considered to
be one-off in nature due to its size and timing and has therefore
been added back in arriving at Adjusted EBITDA.
The adjustments in the comparator periods were as follows:
-- Long Term Incentive Plan ("LTIP") awards were made to a
number of senior staff under the Employee Reward Plan (ERP) in July
2016. The Board considered that the magnitude and timing of these
awards were one-off in nature and so add-back any charge in
arriving at Adjusted EBITDA. AO Sharesave scheme charges and LTIP
charges relating to the LTIP awards which are not considered to be
one-off in nature are included in trading numbers. There is no cost
in the current period as the period over with the Performance
Conditions were measured ceased at 31 March 2019.
-- Costs accrued in relation to the acquisition of Mobile Phones
Direct Limited as at 30 September 2018 were GBP1.4m. Due to the
magnitude of the costs, and the fact that the acquisition was one
off in nature, the costs were added back in arriving at Adjusted
EBITDA.
The table below reconciles operating profit to Adjusted
EBITDA:
Reconciliation of Operating Profit to Adjusted EBITDA
6 months ended 30 September 2019 30 September 2018* Better/(Worse)
(GBPm)(1) UK Europe Total UK Europe Total UK Europe Total
----------------------- ----- ------- ------ ------ ------- ------ -------------- ------- -------
Operating profit/(loss) 4.9 (15.5) (10.6) 2.0 (12.6) (10.6) 139.6% (22.8%) -%
Depreciation 7.5 1.6 9.1 6.7 1.6 8.3 10.6% 2.3% 9.1%
Amortisation 1.0 - 1.0 0.3 - 0.3 238.0% - 238.0%
----------------------- ----- ------- ------ ------ ------- ------ -------------- ------- -------
EBITDA 13.3 (13.9) (0.5) 9.1 (11.0) (2.1) 47.0% (25.6%) 74.5%
Impact of IFRS 16 (5.8) (1.3) (7.1) (5.1) (1.2) (6.3) (14.6%) (11.1%) (13.9%)
EBITDA (Pre IFRS 16) 7.6 (15.2) (7.6) 4.0 (12.2) (8.3) 87.8% (24.2%) 8.0%
Share-based payment
charge attributable to
exceptional LTIP
awards - - - 1.4 - 1.4
Fees incurred on
acquisition of
subsidiary - - - 1.4 - 1.4
Onerous contract costs - 0.5 0.5 - - -
Restructuring costs 0.2 0.7 0.9 - - -
----------------------- ----- ------- ------ ------ ------- ------ -------------- ------- -------
Adjusted EBITDA (Pre
IFRS 16) 7.8 (14.0) (6.2) 6.9 (12.2) (5.4) 13.2% (14.1%) (13.1%)
Impact of IFRS 16 5.8 1.3 7.1 5.1 1.2 6.3 14.6% 11.1% 13.9%
----------------------- ----- ------- ------ ------ ------- ------ -------------- ------- -------
Adjusted EBITDA (Post
IFRS 16) 13.6 (12.6) 1.0 11.9 (11.0) 0.9 13.8% (14.4%) 19.8%
----------------------- ----- ------- ------ ------ ------- ------ -------------- ------- -------
Adjusted EBITDA (Pre
IFRS16) as % of
Revenue 1.9% (20.7%) (1.3%) 2.0% (17.6%) (1.4%)
----------------------- ----- ------- ------ ------ ------- ------ -------------- ------- -------
Taxation
The tax charge is recognised based on management's best estimate
of the weighted--average, by region, of the annual corporation tax
rate expected for the full financial year multiplied by the
pre--tax results of the interim reporting period. The Group's tax
credit for the period is GBP1.1m (2018: GBP0.5m) as a result of the
expected effective tax rate, before prior period adjustments, for
the year of 22.65% in entities taxable in the UK and 0% in the
Netherlands. This results in a combined effective tax rate for the
period ended 30 September 2019 of 19.73% (2018: 4.21%). The
effective tax rate of 19.73% is similar to the UK corporation tax
rate for the period of 19%. This is due to a non-taxable foreign
exchange gain arising on intercompany balances, losses in the
Netherlands that have been carried forward but where no deferred
tax asset has been recognised, the share-based payment charges and
associated tax relief and non-qualifying depreciation. The Group
continues not to recognise a deferred tax asset on the cumulative
losses carried forward of GBP6.7m (2018: GBP5.3m) in the
Netherlands and Belgium.
Retained loss and loss per share
Retained loss for the period was GBP4.8m (2018: GBP10.4m loss).
Basic loss per share was 1.01p (2018: 2.31p) and diluted loss per
share was 1.01p (2018: 2.31p). Basic loss per share is reconciled
to adjusted basic loss per share (after excluding the impact of
foreign exchange differences) of 1.98p loss (2018: 2.63p) as
follows.
6 months ended 30 September 30 September
(GBPm)(1) 2019 2018*
----------------------------------------------- ------------- -------------
Loss
Loss attributable to owners of the parent
company (4.8) (10.6)
Foreign exchange gains on intra-group
loans (4.6) (1.5)
----------------------------------------------- ------------- -------------
Adjusted earnings attributable to owners
of the parent company (9.4) (12.1)
----------------------------------------------- ------------- -------------
Number of shares
Basic and adjusted weighted average
number of ordinary shares 474,232,935 458,788,480
----------------------------------------------- ------------- -------------
Loss per share (in pence)
Basic loss per share (1.01) (2.31)
Adjusted basic loss per share (1.98) (2.63)
----------------------------------------------- ------------- -------------
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 GBP4.6m (2018: GBP1.5m) gain referenced above.
Cash resources and cash flow
At 30 September 2019, the Group's net debt position was GBP12.0m
(31 March 2019: -net debt GBP9.0m).
During the six months to September 2019, the Group had a net
cash outflow of GBP5.3m primarily as a result of the loss for the
period, capital expenditure and the repayment of borrowings only
being partly offset by an inflow from working capital. The
reduction in borrowings principally reflects the relevant repayment
obligations. Surplus cash balances are held with UK-based banks, in
line with the Group Treasury Policy.
The Group, through its main UK subsidiaries, continues to have
available a revolving credit facility ("RCF") of GBP60m with Lloyds
Bank, Barclays Bank and HSBC Bank. The RCF is for UK general
corporate purposes including the funding of UK working capital
movements as required. At 30 September 2019, the amount available
against the GBP60m facility was GBP56.7m (31 March 2019 - GBP56.1m)
with the balance drawn being against letters of credit and
short-term guarantees.
In addition, the Group has a Term Loan Facility of GBP24m which
was used to fund the AO Mobile Limited acquisition. This is being
repaid in quarterly instalments of GBP1m.
Both the RCF and the Term loan have a maturity date of June
2021.
As at 30 September 2019, the Group continues to have significant
liquidity headroom of GBP80.1 million.
Working Capital
6 months ended 30 September 2019 31 March 2019 *(11) 30 September 2018
*
(GBPm) (1) UK Europe Total UK Europe Total UK Europe Total
-------------------- ------- ------ ------- ------- ------ ------- ------- ------ -------
Inventories 53.2 15.6 68.7 60.7 15.6 76.3 40.9 12.7 53.5
-------------------- ------- ------ ------- ------- ------ ------- ------- ------ -------
As % of Cost 15.5
of Goods Sold 16.3% 23.1% 17.5% 10.2% 10.0% 10.2% % 18.3% 16.1%
-------------------- ------- ------ ------- ------- ------ ------- ------- ------ -------
Trade and other
receivables 193.5 13.3 206.8 188.6 9.5 198.1 102.5 14.4 117.0
-------------------- ------- ------ ------- ------- ------ ------- ------- ------ -------
As a % of revenue 48.1% 19.8% 44.0% 25.1% 6.2% 21.9% 30.6% 20.8% 28.9%
-------------------- ------- ------ ------- ------- ------ ------- ------- ------ -------
Trade and other
payables (226.7) (17.2) (243.9) (219.4) (13.2) (232.6) (143.4) (14.4) (157.8)
-------------------- ------- ------ ------- ------- ------ ------- ------- ------ -------
As a % of Cost
of Goods Sold 69.6% 25.5% 62.0% 36.9% 8.5% 31.0% 54.3% 20.8% 47.4%
-------------------- ------- ------ ------- ------- ------ ------- ------- ------ -------
Net working capital 20.0 11.7 31.7 29.9 11.9 41.8 0.0 12.7 12.7
-------------------- ------- ------ ------- ------- ------ ------- ------- ------ -------
Change in net
working capital (9.9) (0.2) (10.1) 29.9 (0.8) 29.1 23.3 7.2 30.5
-------------------- ------- ------ ------- ------- ------ ------- ------- ------ -------
(11) As AO Mobile Limited was acquired in December 2018, the
most appropriate comparatives are those as at 31 March 2019 and
therefore the commentary below compares absolute values at
September 2019 with March 2019.
At 30 September 2019, the Group had net current liabilities of
GBP47.0m (31 March 2019: GBP33.7m) principally due to the cash
outflow from the operating losses in the period, capital
expenditure and the repayment of borrowings.
At 30 September 2019, UK inventories were GBP53.2m (31 March
2019: GBP60.7m) and UK stock days decreased to 29 days (31 March
2019: 36 days). Stock days have reduced following a build up at 31
March 2019 which was to mitigate any friction in the supply chain
that the original Brexit date may have had. Inventories in
September were at more normal levels although in the short-term
they will increase as we go through the peak trading period.
UK trade and other receivables (both non-current and current)
were GBP193.5m as at 30 September 2019 (31 March 2019: GBP188.6m)
mainly reflecting an increase in accrued income in respect of
commissions due on product protection plans and the timing of
rebates receivable offset by a reduction in accrued commission
income in respect of mobile commissions. UK trade and other
payables at GBP226.7m have remained broadly in line with the year
end (31 March 2019: GBP219.4m).
Net working capital decreased from GBP11.9m to GBP11.7m in
Europe with the timing of rebates receivable offset by an increase
in trade payables as inventories are built for the peak period.
Capital Expenditure
Total cash capital expenditure for the six month period was
GBP5.4m (2018: GBP1.2m), largely attributable to the investment in
our new plastic recycling facility as well as our Logistics
operations where we invested in new out-base fit-out costs and
improved technology.
John Roberts Mark Higgins
CEO CFO
CONDENSED CONSOLIDATED INCOME STATEMENT
For the 6 months ended 30 September
2019
6 months 6 months Year ended
ended ended 31 March
30 September 30 September 2019*
2019 2018*
GBPm
Note GBPm GBPm
Revenue 2 470.1 404.2 902.5
Cost of sales (393.5) (333.0) (750.0)
----------------------------- ---- ------------- ------------- ----------
Gross profit 76.6 71.2 152.5
Administrative expenses (87.7) (82.4) (166.6)
Other operating income 0.5 0.6 1.1
----------------------------- ---- ------------- ------------- ----------
Operating loss (10.6) (10.6) (13.0)
Finance income 4 7.5 2.1 2.6
Finance costs 5 (2.8) (2.4) (9.7)
----------------------------- ---- ------------- ------------- ----------
Loss before tax (5.9) (10.9) (20.2)
Taxation credit 1.1 0.5 2.1
----------------------------- ---- ------------- ------------- ----------
Loss for the period (4.8) (10.4) (18.1)
----------------------------- ---- ------------- ------------- ----------
Loss for the period
attributable to:
Owners of the parent company (4.8) (10.6) (18.5)
Non-controlling interest - 0.2 0.5
----------------------------- ---- ------------- ------------- ----------
(4.8) (10.4) (18.1)
----------------------------- ---- ------------- ------------- ----------
Loss per share (pence)
Basic loss per share 8 (1.01) (2.31) (4.00)
Diluted loss per share 8 (1.01) (2.31) (4.00)
----------------------------- ---- ------------- ------------- ----------
* The comparative numbers have been restated following the
adoption of IFRS 16 as explained in Note 13.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 6 months ended 30 September 2019
6 months ended 6 months ended Year ended
30 September 30 September 31 March
2019 2018* 2019*
GBPm GBPm GBPm
Loss for the period (4.8) (10.4) (18.1)
------------------------------------------- ---------------- ---------------- ------------
Items that may be subsequently recycled
to Income Statement (4.8) (10.4) (18.1)
Exchange differences on translation
of foreign operations (4.0) (1.5) 2.4
------------------------------------------- ---------------- ---------------- ------------
Total comprehensive loss for the period (8.8) (11.9) (15.7)
------------------------------------------- ---------------- ---------------- ------------
Loss for the period attributable to:
Owners of the parent company (8.8) (12.1) (16.1)
Non-controlling interest - 0.2 0.5
------------------------------------------- ---------------- ---------------- ------------
Total comprehensive loss for the period (8.8) (11.9) (15.7)
------------------------------------------- ---------------- ---------------- ------------
* The comparative numbers have been restated following the
adoption of IFRS 16 as explained in Note 13.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 September 30 September 31 March
2019 2018* 2019*
Note GBPm GBPm GBPm
------------------------------- ---- ------------ ------------ --------
Non-current assets
Goodwill 28.1 13.5 28.1
Other intangible assets 16.2 0.9 16.9
Property, plant and equipment 30.6 26.3 26.5
Right of use assets 59.5 64.8 63.2
Trade and other receivables 6 78.4 52.8 79.4
Derivative financial asset 11 0.8 1.9 0.8
Deferred tax asset 4.5 3.1 4.6
--------------------------------- ---- ------------ ------------ --------
218.1 163.3 219.4
------------------------------- ---- ------------ ------------ --------
Current assets
Inventories 68.7 53.5 76.3
Trade and other receivables 6 128.4 64.1 118.7
Derivative financial asset 11 - 0.3 -
Corporation tax receivable 1.3 - 0.6
Cash and cash equivalents 9 23.4 41.1 28.9
221.8 159.0 224.5
------------------------------- ---- ------------ ------------ --------
Total assets 439.9 322.3 443.9
--------------------------------- ---- ------------ ------------ --------
Current liabilities
Bank overdraft - (4.5) -
Trade and other payables 7 (236.3) (157.8) (225.6)
Borrowings 9 (13.4) (4.0) (12.2)
Right of use lease liabilities (11.4) (10.9) (11.5)
Derivative financial liability 11 (0.5) (0.9) (0.6)
Provisions (7.2) (0.1) (8.3)
Corporation tax - (0.1) -
(268.8) (178.4) (258.2)
------------------------------- ---- ------------ ------------ --------
Net current liabilities (47.0) (19.4) (33.7)
--------------------------------- ---- ------------ ------------ --------
Non-current liabilities
Borrowings 9 (22.0) (8.7) (25.7)
Right of use lease liabilities (59.3) (65.0) (63.0)
Trade and other payables 7 (7.6) - (7.0)
Derivative financial liability 11 (2.6) (2.6) (2.9)
Deferred tax (2.3) - (2.7)
Provisions (3.2) (1.6) (2.6)
--------------------------------- ---- ------------ ------------ --------
(97.0) (77.9) (104.0)
------------------------------- ---- ------------ ------------ --------
Net assets 74.1 66.0 81.8
--------------------------------- ---- ------------ ------------ --------
Equity attributable to owners
of the parent
Share capital 1.2 1.1 1.2
Investment in own shares (0.0) - -
Share premium account 103.7 103.7 103.7
Other reserves 25.9 5.5 29.0
Retained losses (56.0) (43.1) (51.2)
--------------------------------- ---- ------------ ------------ --------
Total 74.8 67.2 82.8
--------------------------------- ---- ------------ ------------ --------
Non-controlling interest (0.7) (1.2) (0.9)
--------------------------------- ---- ------------ ------------ --------
Total equity 74.1 66.0 81.8
--------------------------------- ---- ------------ ------------ --------
* The comparative numbers have been restated following the
adoption of IFRS 16 and, in relation to the year ended 31 March
2019 only, final adjustments in relation to the acquisition of AO
Mobile Limited
CONDENSED CONSOLIDATED STATEMENT OF CHANGE IN EQUITY
At 30 September 2019
Other reserves
---------------------------------------------
Share Share Merger Capital Share-based Translation Other Retained Total Non-controlling Total
capital premium reserve redemption payment reserve reserve losses interest
account reserve reserve
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) (46.4) 87.5 (0.9) 86.6
(Previously reported)
Cumulative adjustment
to opening reserves
from application
of IFRS 16 (net of
tax) - - - - - - - (4.8) (4.8) - (4.8)
----------------------- ------- ------- ------- ---------- ----------- ----------- ------- -------- ----- --------------- -----
Balance at 1 April
2019 1.2 103.7 22.2 0.5 13.1 (4.2) (2.5) (51.2) 82.8 (0.9) 81.9
Loss for the period - - - - - - - (4.8) (4.8) 0.0 (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 - 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
----------------------- ------- ------- ------- ---------- ----------- ----------- ------- -------- ----- --------------- -----
Other reserves
---------------------------------------------
Share Share Merger Capital Share-based Translation Other Retained Total Non-controlling Total
capital premium reserve redemption payment reserve reserve losses interest
account reserve reserve
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- -----
Balance at 1 April
2018 1.1 103.7 4.4 0.5 9.1 (6.6) (2.1) (28.9) 81.2 (1.6) 79.6
(Previously reported)
Cumulative adjustment
to opening reserves
from application
of IFRS 16 (net of
tax) - - - - - - - (3.7) (3.7) - (3.7)
----------------------- ------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- -----
Balance at 1 April
2018 1.1 103.7 4.4 0.5 9.1 (6.6) (2.1) (32.6) 77.5 (1.6) 75.9
Loss for the period
(As previously
reported) - - - - - - - (10.1) (10.1) 0.2 (9.9)
IFRS 16 adjustment
to loss for the period - - - - - - - (0.5) (0.5) - (0.5)
Acquisition of minority
interest - - - - - - (0.4) - (0.4) 0.3 (0.1)
Foreign currency
losses arising on
consolidation - - - - - (1.5) - - (1.5) - (1.5)
Share-based payments
charge net of tax - - - - 2.1 - - - 2.1 - 2.1
----------------------- ------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- -----
Balance at 30 September
2018 1.1 103.7 4.4 0.5 11.3 (8.1) (2.5) (43.1) 67.2 (1.2) 66.0
----------------------- ------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- -----
CONDENSED CONSOLIDATED STATEMENT OF CHANGE IN EQUITY
(Continued)
At 30 September 2019
Other reserves
---------------------------------------------
Share Capital Share-based
Share premium Merger redemption payment Translation Other Retained Non-controlling
capital account reserve reserve reserve reserve reserve losses Total interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- ------
Balance at 1 April
2018 1.1 103.7 4.4 0.5 9.1 (6.6) (2.1) (28.9) 81.2 (1.6) 79.6
(Previously reported)
Cumulative adjustment
to opening reserves
from application
of IFRS 16 (net of
tax) - - - - - - - (3.7) (3.7) - (3.7)
----------------------- ------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- ------
Balance at 1 April
2018 1.1 103.7 4.4 0.5 9.1 (6.6) (2.1) (32.6) 77.5 (1.6) 75.9
Loss for the year
(as previously
reported) - - - - - - - (17.5) (17.5) 0.5 (17.0)
IFRS 16 adjustment
to loss for the year - - - - - - - (1.1) (1.1) - (1.1)
Acquisition of minority
interest - - - - - - (0.4) - (0.4) 0.3 (0.1)
Foreign currency
gains arising on
consolidation - - - - - 2.4 - - 2.4 - 2.4
Share-based payments
charge net of tax - - - - 4.0 - - - 4.0 - 4.0
Issue of shares net
of expenses 0.0 0.0 17.8 - - - - - 17.8 - 17.8
Balance at 31 March
2019 1.2 103.7 22.2 0.5 13.1 (4.2) (2.5) (51.3) 82.8 (0.9) 81.9
----------------------- ------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- ------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the 6 months ended 30 September 2019
6 months ended 6 months ended Year ended
30 September 30 September 31 March
2019 2018* 2019*
GBPm GBPm GBPm
--------------------------------------------------------- -------------- -------------- ----------
Cash flows from operating activities
Loss for the period (4.8) (10.4) (18.1)
Adjustments for:
Depreciation and amortisation 10.1 8.7 18.5
Finance income (7.5) (2.1) (2.6)
Finance costs 2.8 2.4 9.7
Taxation credit (1.1) (0.5) (2.1)
Share-based payment charge 1.0 2.1 4.0
(Decrease)/Increase in provisions (0.6) (0.1) 0.1
---------------------------------------------------------- -------------- -------------- ----------
Net operating cash flows before movement
in working capital (0.1) 0.0 9.5
---------------------------------------------------------- -------------- -------------- ----------
Decrease/(Increase) in inventories 8.0 (0.2) (16.3)
(Increase) in trade and other receivables (10.3) (15.3) (10.2)
Increase/(Decrease) in trade and other
payables 15.9 9.9 (4.7)
Net movement in working capital 13.6 (5.6) (31.2)
Taxation recovered 0.2 0.2 0.8
---------------------------------------------------------- -------------- -------------- ----------
Net cash generated from/(used in) operating
activities 13.7 (5.4) (20.8)
---------------------------------------------------------- -------------- -------------- ----------
Cash flows from investing activities
Acquisition of subsidiary - - (5.9)
Acquisition of non controlling interest (0.5) (0.4) (0.4)
Interest on the sub lease of Right
of Use assets 0.0 0.0 0.1
Proceeds from sale of property, plant
and equipment 0.1 - -
Acquisition of property, plant and
equipment (5.4) (1.2) (4.2)
Acquisition of intangible assets (0.5) - (0.5)
---------------------------------------------------------- -------------- -------------- ----------
Net cash used in investing activities (6.3) (1.6) (10.9)
---------------------------------------------------------- -------------- -------------- ----------
Cash flows from financing activities
Movement in bank overdraft - 1.4 (3.1)
Interest paid (0.9) (0.5) (0.9)
New borrowings - - 27.0
Repayment of borrowings (2.5) (0.6) (1.2)
Repayment of finance lease liabilities (1.8) (1.6) (3.1)
Repayment of Right of Use asset liabilities (7.5) (6.6) (14.1)
Net cash (used in) / from financing
activities (12.7) (7.9) 4.6
---------------------------------------------------------- -------------- -------------- ----------
Net decrease in cash (5.3) (14.9) (27.0)
Cash and cash equivalents at beginning
of period 28.9 56.0 56.0
---------------------------------------------------------- -------------- -------------- ----------
Exchange gains on cash & cash equivalents (0.2) - -
---------------------------------------------------------- -------------- -------------- ----------
Cash and cash equivalents at end of
period 23.4 41.1 28.9
---------------------------------------------------------- -------------- -------------- ----------
* The comparative numbers have been restated following the
adoption of IFRS 16 as explained in Note 13.
NOTES TO THE FINANCIAL INFORMATION
1. Basis of preparation
The interim financial information was approved by the Board on
18 November 2019. The financial information for the 6 months ended
30 September 2019 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 2019 is based on
information in the audited financial statements for that period
which are available online at
https://www.ao-world.com/investor-centre/.
The comparative figures for the year ended 31 March 2019 (used
in note 13 as the starting point for the restatements due to the
adoption of IFRS16 - Leases) 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 2019 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 GBP47.0m as at 30
September 2019,a loss for the six month period then ended of
GBP4.8m and a decrease in cash in the period of GBP5.5m, the
interim financial information has been prepared on a going concern
basis which the directors consider to be appropriate for the
following reasons.
The Directors have prepared cash flow forecasts for a period of
12 months from the date of approval of these financial statements
which indicate that, taking into account of reasonably possible
downsides including any potential impact from Brexit e.g. a
reduction in sales growth, a reduction in margin and effects on
stock levels, together with a reduction in trade payables (due to
further tightening of credit insurers) and the impact of the
closure of the Netherlands and, as noted on page 7, the worse case
scenario of the potential closure of Germany and considering
potential mitigating actions, the Company will have sufficient
funds, through its existing cash balances and the Revolving Credit
Facility ("RCF") of GBP56.7m (which is net of letters of credit of
GBP3.3m) to meet its liabilities as they fall due for that period.
The RCF matures in June 2021.
Consequently, the Directors are confident that the Company will
have sufficient funds to meet its liabilities as they fall due for
at least 12 months from the date of approval of the interim
financial information and have therefore prepared these 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
except for changes required following the adoption of IFRS16 which
are set out below.
Significant changes in accounting policies
Adoption of IFRS16
The Group has applied IFRS16 in these interim statements. The
standard replaces IAS17 and sets out the principles for the
recognition, measurement, presentation and disclosure of leases.
The standard is mandatory for the accounting period beginning on 1
April 2019 and the Group has opted to apply the new standard using
the full retrospective approach utilising the practical expedient
to not reassess whether a contract contains a lease.
As such, the comparative figures in the interim statement for
the financial year ending 31 March 2019 and the six months ended 30
September 2018 have been restated as if IFRS16 had been applied at
1 April 2018.
The main effect on the Group is that IFRS16 introduces a single
lessee accounting model and requires a lessee to recognise assets
and liabilities for almost all leases.
In addition, the two capitalisation exemptions proposed by the
standard - lease contracts with a lease term of less than 12 months
and lease contracts for which the underlying asset has a low value
(on acquisition) - have been taken by the Company. The payments for
such leases will be recognized in the income statement on a
straight-line basis over the lease term.
The adoption of IFRS 16 has no impact on the operational
performance of the business and has no impact on the groups cash
and banking facilities (Including any covenants attached to its
revolving credit facility).
AO World plc as a lessee
At inception, the Group assesses whether a contract is or
contains a lease. This assessment involves the exercise of
judgement about whether it depends on a specified asset, whether
the Group obtains substantially all the economic benefits from the
use of that asset and whether the Group has the right to direct the
use of the asset.
The Company recognises a right-of-use (ROU) asset and a lease
liability at the lease commencement date. The ROU asset is
initially measured based on the present value of lease payments
plus any initial direct costs incurred and the costs of obligations
to refurbish the asset, less any incentives received. The ROU asset
is subsequently depreciated using the straight-line method over the
shorter of the lease term or the useful life of the underlying
asset. In addition, the ROU asset is subject to testing for
impairment if there is any indication of impairment.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Company's incremental
borrowing rate. Generally, the Company uses its incremental
borrowing rate as the discount rate.
The lease liability generally includes fixed payments and
variable payments that depend on an index (such as an inflation
index). When the lease contains an extension or purchase option
that the Group considers reasonably certain to be exercised, the
cost of the extension or option is included in the lease
payments.
ROU assets are separately disclosed as a line in the balance
sheet. The corresponding lease liability is separately disclosed as
"lease liabilities" in both Current and Non-current liabilities.
The Company has classified the principal portion of lease payments,
as well as the interest portion, within financing activities. Lease
payments for short-term leases, lease payments for leases of
low-value assets and variable lease payments not included in the
measurement of the lease liability are classified as cash flows
from operating activities.
AO World plc as lessor
Where the Company is an intermediate lessor, it accounts for its
interests in the head lease and the sublease separately. It
assesses the lease classification of a sublease with reference to
the right-of-use asset arising from the head lease, not with
reference to the underlying asset. If a head lease is a short-term
lease, then it classifies the sublease as an operating lease. The
Company recognizes lease payments received under operating leases
as income on a straight-line basis over the lease term as Other
Operating Income. The Company has classified cash flows from
operating leases as operating activities.
As a result of the adoption of IFRS 16 the comparative financial
information has been restated. The effect of the restatement is set
out in detail in note 13.
Restatement of comparatives - AO Mobile Limited acquisition
In accordance with IFRS3, the Group has finalised the fair value
exercise in relation to the acquisition of AO Mobile Limited during
the period. Adjustments to the assets and liabilities acquired
result in a reduction in assets of GBP0.5m with a corresponding
increase in goodwill.
In line with the requirements of IFRS3, the comparative amounts
at 31 March 2019 have been restated as if the changes had happened
at the acquisition date. There is no impact on cash or the result
for the prior year as a result of the changes.
The effect of the restatement is included in note 12.
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
on-going 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.
The most critical accounting policies in determining the
financial condition and results of the Group are those requiring
the greatest degree of subjective or complex judgements and
estimation. These relate to the revenue recognition and
recoverability of product protection plan income and network
commission income, commercial income receivable and the recognition
of and recoverability of intangible fixed assets acquired on a
business contribution, all of which contain estimates, as set out
below.
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 at fair value, 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 the fair value of the commission due
on the plans sold, which management estimate reliably based upon a
number of assumptions, including the length of the policies, the
commission rates receivable and the historical rate of customer
attrition. Reliance on historical data assumes that current and
future experience will follow past trends. The Directors consider
that the quantity and quality of data available provides an
appropriate basis for making these estimates.
For plans sold prior to 1 December 2016, the commission rates
receivable are assumed at 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.
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
provision is made for the risk of potential changes in customer
behaviour, but they are nonetheless inherently uncertain. Changes
in estimates recognised as an increase or decrease to revenue may
be made, where for example more reliable information is available,
and any such changes are required to be recognised in the income
statement. The commission receivable balance as at 30 September
2019 was GBP79.2m (2018: GBP67.5m). The discount rate used to
unwind the commission receivable is 3.9% (2018: 4.9%).
Revenue recognition and recoverability of income in relation to
network commissions
For certain transactions with the Mobile Network Operators
("MNOs"), commission receivable on mobile phone connections depends
on customer behaviour after the point of sale.
The Company considers the following areas with regards to
revenue recognition:
-- Revenue share percentage - the percentage of the consumer's
spend (to MNOs) to which AO Mobile Ltd is entitled;
-- Minimum contract period - the length of contract entered into by the consumer;
-- Consumer default rate - rate at which the consumers disconnect from MNOs;
-- Out of Bundle spend - additional spend by the consumer
measured as a percentage of total spend (which currently AO Mobile
Ltd considers can be measured reliably in advance for certain
MNOs); and
-- Spend beyond the initial contract period - period of time the
consumer remains connected to the MNOs after the initial contract
term (which currently AO Mobile Ltd consider can be measured
reliably in advance for certain MNOs).
Under certain arrangements with the MNOs, the commission
receivable for the monthly consumer connections to the MNOs depends
on consumer behaviour after the point of connection. The fair value
of the revenue 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. Subsequently, network commission receivables are measured
at the present value of the estimated future cash flows. This also
takes into account likely clawback of commission by the MNOs for
which provision is made.
The Directors consider that the quality and quantity of the data
available from the MNOs is appropriate for making the
estimates.
The commission receivable balance as at 30 September 2019 was
GBP73.1m (2018: GBPnil). The discount rate used to unwind the
commission receivable is 2.75% (2018: 2.75%).
Commercial income receivable
Commercial income comes from two major sources: volume rebates
and strategic marketing investment funding.
Volume rebates are deducted from cost of sales in line with the
sale of the product to which the rebate is attributable.
Calculation of the volume rebate for the final month of the
financial year includes judgements for expected rebates receivable.
Volume rebates receivable at 30 September 2019 are GBP15.4m (2018:
GBP16.5m). At 31 October 2019, the balance outstanding was GBP9.4m
(2018: GBP2.5m).
Strategic marketing investment funding is recognised in revenue,
cost of sales and marketing expenses. Where incremental third-party
costs are incurred as a result of marketing support, revenue is
offset against these costs. The remainder of the strategic
marketing fund is recognised in revenue as it represents part of
the ordinary activities of the business.
Calculation of the revenue recognised requires judgements to be
made which include forecasting expected total marketing funding and
third-party expected marketing spend. At 30 September 2019, GBP4.6m
remains as an outstanding receivable (2018: GBP1.8m). At 31 October
2019, the outstanding balance was GBP4.1m (2018: GBP0.4m).
2. Revenue
The Group's revenue is derived from contracts with
customers.
As required by IFRS15, the Group has disaggregated its revenue,
and the table below shows the split of revenue between geographical
market (the Group's primary segment) and the major business areas.
All revenue is accounted for at a point in time as the Group has
satisfied its performance obligations on the sale of its
products/services.
Primary geographical markets and source of revenue
6 months ended 6 months ended Year ended
(GBPm) 30 September 2019 30 September 2018* 31 March 2019
------------------- --------------------- -------------------- ----------------------------
UK Europe Total UK Europe Total UK Europe Total
------------------- ------ ------ ----- --------- --------- ----- ----- ------- -----
Product revenue 311.2 65.2 376.4 291.5 68.4 359.9 628.4 151.1 779.5
Services revenue 16.1 2.0 18.1 14.1 0.8 14.9 30.1 1.6 31.8
Commission revenue 61.8 0.1 61.9 14.5 0.1 14.6 61.2 0.3 61.5
Logistics revenue 6.8 - 6.8 7.3 - 7.3 15.3 - 15.3
Recycling revenue 6.8 0.1 6.9 7.4 0.1 7.5 14.3 0.1 14.5
------------------- ------ ------ ----- --------- --------- ----- ----- ------- -----
Total revenue 402.7 67.4 470.1 334.8 69.4 404.2 749.3 153.2 902.5
------------------- ------ ------ ----- --------- --------- ----- ----- ------- -----
*The comparatives for the six months ended 30 September 2018
have been restated to re-align the revenue analysis with that shown
in the Group's full year results to 31 March 2019. There is no
impact on the overall amount of revenue.
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 Europe (excluding the UK).
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.
Transactions between segments are undertaken on an arms-length
basis using appropriate transfer pricing policies.
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 2019 30 September 2018* 31 March 2019*
UK Europe Total UK Europe Total UK Europe Total
------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
Total revenue 402.7 67.4 470.1 334.8 69.4 404.2 749.3 153.2 902.5
Cost of sales (325.8) (67.6) (393.5) (263.9) (69.1) (333.0) (594.3) (155.7) (750.0)
------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
Gross profit/(loss) 76.8 (0.2) 76.6 70.9 0.3 71.2 155.0 (2.6) 152.4
Administrative expenses (72.3) (15.5) (87.7) (69.2) (13.2) (82.4) (139.0) (27.5) (166.5)
Other operating income 0.3 0.2 0.5 0.3 0.3 0.6 0.6 0.5 1.1
------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
Operating profit/(loss) 4.9 (15.5) (10.6) 2.0 (12.6) (10.7) 16.6 (29.6) (13.0)
Finance income 3.3 4.3 7.5 0.8 1.3 2.1 2.6 - 2.6
Finance costs (2.5) (0.3) (2.8) (2.1) (0.4) (2.4) (6.2) (3.5) (9.7)
------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
Profit/(loss) before tax 5.7 (11.6) (5.9) 0.8 (11.7) (10.9) 12.9 (33.1) (20.2)
Tax credit 1.1 - 1.1 0.5 - 0.5 1.7 0.5 2.2
------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
Profit/(loss) after tax 6.8 (11.6) (4.8) 1.3 (11.7) (10.4) 14.6 (32.6) (18.1)
------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
* The comparative numbers have been restated following the
adoption of IFRS 16 as explained in Note 13.
As described earlier, one of the Group's key performance
indicators is Adjusted EBITDA. When reviewing profitability, the
Directors use an adjusted measure of EBITDA in order to give a
meaningful year on year comparison and it is a performance criteria
for the purposes of the bonuses and certain LTIP awards.
Whilst we recognise that the measure is an alternative
(Non-Generally Accepted Accounting Principle ("Non-GAAP"))
performance measure which is not defined within IFRS, the measure
is important and should be considered alongside IFRS measures.
The table below sets out the reconciliation of statutory
operating profit to Adjusted EBITDA:
Reconciliation of Operating Profit to Adjusted EBITDA
6 months ended 6 months ended Year ended
(GBPm) 30 September 2019 30 September 2018* 31 March 2019*
UK Europe Total UK Europe Total UK Europe Total
----------------------------------------------- ----- ------ ------ ------ ------ ------ ------ ------ ------
Operating profit/(loss) 4.9 (15.5) (10.6) 2.0 (12.6) (10.6) 16.6 (29.6) (13.0)
Depreciation 7.5 1.6 9.1 6.7 1.6 8.3 14.2 3.2 17.4
Amortisation 1.0 0.0 1.0 0.3 - 0.3 1.1 - 1.1
----------------------------------------------- ----- ------ ------ ------ ------ ------ ------ ------ ------
EBITDA 13.3 (13.9) (0.5) 9.0 (11.0) (2.0) 31.9 (26.4) 5.5
Impact of IFRS 16 (5.8) (1.3) (7.1) (5.1) (1.2) (6.3) (10.7) (2.5) (13.2)
EBITDA (Pre IFRS 16) 7.6 (15.2) (7.6) 4.0 (12.2) (8.2) 21.2 (28.9) (7.7)
Share-based payment charge attributable to
exceptional LTIP awards - - - 1.4 - 1.4 2.3 - 2.3
Fees incurred on acquisition of subsidiary - - - 1.4 - 1.4 2.6 - 2.6
Onerous contract costs - 0.5 0.5 - - - - 1.2 1.2
Restructuring costs 0.2 0.7 0.9 - - - 1.1 - 1.1
----------------------------------------------- ----- ------ ------ ------ ------ ------ ------ ------ ------
Adjusted EBITDA (Pre IFRS 16) 7.8 (14.0) (6.2) 6.9 (12.2) (5.4) 27.3 (27.7) (0.4)
Impact of IFRS 16 5.8 1.3 7.1 5.1 1.2 6.3 10.7 2.5 13.2
----------------------------------------------- ----- ------ ------ ------ ------ ------ ------ ------ ------
Adjusted EBITDA (Post IFRS 16) 13.6 (12.6) 1.0 11.9 (11.0) 0.9 38.0 (25.3) 12.8
----------------------------------------------- ----- ------ ------ ------ ------ ------ ------ ------ ------
* The comparative numbers have been restated following the
adoption of IFRS 16 as explained in Note 13.
4. Finance income
6 months ended 6 months Year ended
30 September ended 30 31 March
2019 September 2019
(GBPm) 2018
--------------------------------------- --------------- ----------- -----------
Foreign exchange gains on intra-group
loans 4.6 1.5 -
Movement in valuation of put
and call option - - 0.2
Unwind of discounting on long
term receivables 2.9 0.6 2.3
Interest received on sub lease
of Right of Use assets 0.0 0.0 0.1
--------------------------------------- --------------- ----------- -----------
7.5 2.1 2.6
--------------------------------------- --------------- ----------- -----------
5. Finance costs
6 months ended 6 months Year ended
30 September ended 30 31 March
2019 September 2019*
(GBPm) 2018*
Interest on obligations under
finance leases 0.2 0.2 0.7
Interest on Right of use asset
liabilities 1.7 1.7 3.5
Interest on bank loans 0.3 - 0.2
Foreign exchange losses on intra-group
loans - - 3.0
Unwind of discounting on long
term payables - - 0.2
Movement in valuation of put
and call option 0.1 0.2 1.8
Other finance costs 0.4 0.3 0.3
---------------------------------------- --------------- ----------- -----------
2.8 2.4 9.7
---------------------------------------- --------------- ----------- -----------
* The comparative numbers have been restated following the
adoption of IFRS 16 as explained in Note 13.
6. Trade and other receivables
6 months
6 months ended ended 30 Year ended
30 September September 31 March
(GBPm) 2019 2018 2019
------------------------------ --------------- ----------- -----------
Trade receivables 15.6 12.4 12.9
Other receivables:
- Accrued income 152.9 67.6 154.9
- Prepayments and other 38.4 36.9 30.3
------------------------------ --------------- ----------- -----------
206.8 116.9 198.1
------------------------------ --------------- ----------- -----------
The trade and other receivables are classified as:
6 months ended 6 months ended Year ended
30 September 30 September 31 March
(GBPm) 2019 2018 2019
------------------------------ --------------- --------------- -----------
Non-current assets - Accrued
income 78.4 52.8 79.4
Current assets 128.4 64.1 118.7
------------------------------ --------------- --------------- -----------
206.8 116.9 198.1
------------------------------ --------------- --------------- -----------
Accrued income
A reconciliation of opening and closing balances for accrued
income can be found in the table below:
6 months ended 6 months ended Year ended
30 September 30 September 31 March
(GBPm) 2019 2018 2019
------------------------------------- -------------- -------------- ----------
Balance brought forward 154.9 61.9 61.9
Acquisition of subsidiary - - 80.8
Commission earned, cash received and
revisions to estimates (4.8) 5.2 10.6
Unwind of discounting on long term
receivables 2.9 0.6 2.3
Other accrued income (0.1) (0.1) (0.7)
------------------------------------- -------------- -------------- ----------
Balance carried forward 152.9 67.6 154.9
------------------------------------- -------------- -------------- ----------
Accrued income principally represents the expected future
commission receivable in respect of product protection plans and
mobile phone connections. As set out in Note 1, 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 fair value of the
commission due on the plans sold or connections made.
Protection plans
To calculate the fair value of the revenue and hence the accrued
income for product protection plans, the Group uses historical
empirical data accumulated over 12 years based on 1.8m plans sold
to date of which 0.8m plans are active.
The fair value calculation for product protection plans takes
into consideration the following level three unobservable data:
-- length of individual plans with a range of c.7-16 years included in the calculation;
-- Historical rate of customer attrition; and
-- Contractually agreed margins based on actual historical
margins earned and an estimate of the future profitability of the
scheme.
Given the wide range of attrition rates and margins applicable
to the plans, the data relating to these areas has not been
quantified above.
Expected future commission payments in respect of product
protection plans are discounted at 3.9% (2018: 4.9%).
There has been no change to the fair valuation methodology
adopted in the period.
Sensitivity analysis has been conducted to assess the effect on
the accrued income balance:
Sensitivity Impact on Accrued Income (GBPm)
----------------------------- --------------------------------
Cancellation rate increases
by 5% (3.3)
Cancellation rate decreases
by 5% 3.3
Margin decreases by 5% (3.2)
Margin increases by 5% 3.2
A sensitivity on plan life has not been included as it is
considered to be covered by the changes in cancellation rates
above.
Network commissions
The fair value calculation for mobile phone commission takes
into consideration the following level three unobservable data:
-- length of individual connections including estimates in
relation to the period out-of-contract;
-- Historical rates of customer disconnection; and
-- Contractually agreed margins with the MNOs based on actual historical margins.
Expected future commissions are discounted at 2.75% due the
relative short time period under which they unwind.
Reasonable sensitivities (a 5% increase/decrease) to customer
spend including the potential impact of early disconnection could
increase/decrease accrued income on network commission by
GBP3.7m.
Other accrued income relates to revenue from third parties not
invoiced at 30 September 2019 of GBP0.5m (2018: GBP0.1m).
Prepayments and other
At 30 September 2019, there is GBP20.0m (2018: GBP18.3m)
included in prepayments and other in relation to commercial
income.
At 31 October 2019, the balance outstanding was GBP13.5m (2018:
GBP2.9m).
7. Trade and other payables
6 months
6 months ended ended 30 Year ended
30 September September 31 March
(GBPm) 2019 2018* 2019*
Trade payables 152.8 120.7 142.2
Other payables:
- Accruals 24.1 20.3 17.9
- Payments on account 40.0 - 49.9
- Deferred income 13.1 7.3 8.2
- Other 13.9 9.4 14.3
----------------------- --------------- ----------- -----------
243.9 157.8 232.5
----------------------- --------------- ----------- -----------
The trade and other payables are classified as:
6 months ended 6 months ended Year ended
30 September 30 September 31 March
(GBPm) 2019 2018 2019
------------------------------- --------------- --------------- -----------
Non-current assets - Payments
on account 7.6 - 7.0
Current assets 236.3 157.8 225.6
------------------------------- --------------- --------------- -----------
243.9 157.8 232.5
------------------------------- --------------- --------------- -----------
* The comparative numbers have been restated following the
adoption of IFRS 16 as explained in Note 13.
8. Loss per share
The calculation of the basic and diluted loss per share is based
on the following data:
6 months 6 months ended Year ended
ended 30 30 September 31 March
September 2018* 2019*
(GBPm) 2019
Loss for the purposes of basic
and diluted loss per share being
loss for the period (4.8) (10.6) (18.5)
---------------------------------------------- ----------- -------------- -----------
Number of shares
Basic weighted average number of
ordinary shares
in issue 474,232,935 458,788,480 463,153,515
Potentially dilutive share options
and shares 5,000,403 352,868 6,447,240
Weighted average number of diluted
ordinary shares 479,233,339 459,141,348 469,600,755
Loss per share (pence)
--------------------------------------------- ----------- -------------- -----------
Basic loss per share (1.01) (2.31) (4.00)
Diluted loss per share (1.01) (2.31) (4.00)
---------------------------------------------- ----------- -------------- -----------
* The comparative numbers have been restated following the
adoption of IFRS 16 as explained in Note 13.
As the potentially dilutive shares do not result in a reduction
in the loss per share, the diluted loss per share has been
restricted to the basic loss per share. The adjusted loss per share
for the period was 1.98p (2018: 2.63p loss).
9. Net Funds and movement in financial liabilities
6 months 6 months Year ended
ended 30 ended 30 31 March
September September 2019*
(GBPm) 2019 2018*
----------------------------------------- ----------- -----------
Cash and cash equivalents 23.4 41.1 28.9
Bank overdraft - (4.5) -
Borrowings - Repayable within
one year (13.4) (4.0) (12.2)
Borrowings - Repayable after one
year (22.0) (8.7) (25.7)
Net (debt)/funds excluding ROU
asset liabilities (12.0) 23.9 (9.0)
Right of use asset liabilities
- Repayable within one year (11.4) (10.9) (11.5)
Right of use asset liabilities
- Repayable after one year (59.3) (65.0) (63.0)
Net debt including ROU asset liabilities (82.8) (52.1) (83.5)
The movement in financial liabilities in the period ending 30
September 2019 was as follows:
Loans and Finance lease Right of use
borrowings liabilities asset Total
(GBPm) Liabilities
Balance at 1 April 2019
(*) 30.4 7.6 74.5 112.5
Changes from financing
cash flows
Repayment of borrowings (2.5) - - (2.5)
Repayment of finance lease
liabilities - (1.8) - (1.8)
Repayment of Right of
use asset liabilities - - (5.8) (5.8)
Payment of interest (0.3) (0.2) (1.7) (2.2)
Total changes from financing
cash flows (2.9) (2.0) (7.5) (12.3)
Other changes
New finance leases - 1.9 1.6 3.5
Interest expense 0.3 0.2 1.7 2.2
Foreign exchange differences - - 0.4 0.4
Total other changes 0.3 2.1 3.7 6.1
Balance at 30 September
2019 27.9 7.7 70.7 106.3
Loans and Finance lease Right of use
borrowings liabilities asset Total
(GBPm) Liabilities
Balance at 1 April 2018
(*) 4.6 10.1 75.3 90.0
Changes from financing
cash flows
Repayment of borrowings (0.6) - - (0.6)
Repayment of finance lease
liabilities - (1.6) - (1.6)
Repayment of Right of
use asset liabilities - - (4.9) (4.9)
Payment of interest - (0.2) (1.7) (1.9)
Total changes from financing
cash flows (0.6) (1.8) (6.6) (9.0)
Other changes
New finance leases - 0.1 5.4 5.5
Interest expense - 0.2 1.7 1.9
Foreign exchange differences - - 0.2 0.2
Total other changes - 0.3 7.3 7.6
Balance at 30 September
2018 4.0 8.7 76.0 88.7
* The comparative numbers have been restated following the
adoption of IFRS 16 as explained in Note 13.
At 30 September 2019, AO Limited and its subsidiaries, AO Retail
Limited, Expert Logistics Limited and AO Mobile Limited, had access
to a Revolving Credit Facility. At 30 September 2019 the amount
available was GBP56.7m (2018: GBP57.7m) with the amounts drawn
being in relation to letters of credit and short-term
guarantees.
10. Share-based payments
On 17 July 2019, the Company made awards to Participants under
the AO 2018 Incentive Plan (the 'Plan') in which the Directors and
key members of staff participate. The Plan combines an annual bonus
element and a conditional 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
share awards will initially be calculated based on the performance
criteria for the year ending 31 March 2020.
On 21 July 2019, the Employer Reward Plan and LTIP 2016 both
vested and as a result the company issued 6,055,370 shares into an
Employee Benefit Trust, representing the number of shares subject
to option following confirmation of the achievement of various
performance criteria.
The total charge in the Income Statement in relation to all
LTIPs was GBP0.5m (2018: GBP1.8m) and SAYE Schemes was GBP0.5m
(2018: GBP0.3m). The exceptional LTIP charge included in the above
is GBPnil (2018: GBP1.4m).
11. 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 2019 other than from the
adoption of IFRS16 - Leases.
There have been no changes to the categorisation or fair value
hierarchy 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 second 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 GBP0.5m, taking its holding to 74.4%.
The movement in the put and call option in the period is as
follows:
(GBPm) Call Option Put Option
At 1 April 2019 0.7 (3.6)
Exercise of option - 0.6
Unwind of discount - (0.1)
At 30 September 2019 0.7 (3.1)
There has been no change in the valuation methodology from that
adopted at 31 March 2019 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.
12. Acquisition of AO Mobile Limited (Mobile Phones Direct
Limited)
In the prior year, the Company acquired the whole of the issued
share capital of AO Mobile Limited (formerly Mobile Phones Direct
Limited) for total consideration of GBP39.6m.
At 31 March 2019, the fair value adjustments had been determined
on a provisional basis and in line with relevant accounting
standards had to be finalised in the 12 month period following the
acquisition. During the period ended 30 September 2019, the company
has finalised the fair value adjustments with adjustments in the
period totalling GBP0.5m mainly in relation to provisions against
the recoverability of network commissions. In line with IFRS3, the
comparative numbers at 31 March 2019 have been restated as if these
final adjustments had been made on the date of acquisition.
13. Restatement of comparatives
As described in note 1- Accounting Policies, September 2018 and
March 2019 comparatives have been restated following the adoption
of IFRS16 - Leases. In addition, the final acquisition adjustments
relating to AO Mobile Limited have been made in the period and the
comparatives at 31 March 2019 have been restated accordingly. 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 2018 as Effect of IFRS16 30 September 2018
reported adoption as restated
GBPm UK Europe Total UK Europe Total UK Europe Total
Revenue 334.8 69.4 404.2 - - - 334.8 69.4 404.2
Cost of sales (264.0) (69.1) (333.1) 0.1 - 0.1 (263.9) (69.1) (333.0)
Gross profit 70.8 0.3 71.1 0.1 - 0.1 70.9 0.3 71.2
Administrative
expenses (70.2) (13.4) (83.6) 1.0 0.2 1.2 (69.2) (13.2) (82.4)
Other operating
income 0.5 0.3 0.8 (0.2) - (0.2) 0.3 0.3 0.6
Operating
loss 1.1 (12.8) (11.7) 0.9 0.2 1.1 2.0 (12.6) (10.6)
Finance income 0.8 1.3 2.1 0.0 - 0.0 0.8 1.3 2.1
Finance costs (0.7) 0.0 (0.7) (1.4) (0.4) (1.7) (2.1) (0.4) (2.4)
Loss before
tax 1.2 (11.5) (10.3) (0.4) (0.2) (0.6) 0.8 (11.7) (10.9)
Tax credit 0.4 0.0 0.4 0.1 - 0.1 0.5 - 0.5
Loss for the
year 1.6 (11.5) (9.9) (0.3) (0.2) (0.5) 1.3 (11.7) (10.4)
The reconciliation of statutory operating
profit to Adjusted EBITDA is as follows:
30 September 2018 as Effect of IFRS16 30 September 2018
reported adoption as restated
GBPm UK Europe Total UK Europe Total UK Europe Total
Operating
loss 1.1 (12.8) (11.7) 0.9 0.2 1.1 2.0 (12.6) (10.6)
Depreciation 2.6 0.6 3.2 4.1 1.0 5.2 6.7 1.6 8.3
Amortisation 0.3 - 0.3 - - - 0.3 - 0.3
EBITDA 4.0 (12.3) (8.2) 5.1 1.2 6.3 9.1 (11.0) (2.0)
Share based
payment charges
attributable
to exceptional
LTIP awards 1.4 - 1.4 - - - 1.4 - 1.4
Fees incurred
on acquisition
of subsidiary 1.4 - 1.4 - - - 1.4 - 1.4
Adjusted EBITDA 6.9 (12.3) (5.4) 5.1 1.2 6.3 11.9 (11.0) 0.9
Effect of IFRS16 31 March 2019 as
31 March 2019 as reported adoption restated
GBPm UK Europe Total UK Europe Total UK Europe Total
Revenue 749.3 153.2 902.5 - - - 749.3 153.2 902.5
Cost of sales (594.5) (155.7) (750.2) 0.2 - 0.2 (594.3) (155.7) (750.0)
Gross profit 154.9 (2.6) 152.2 0.2 - 0.2 155.0 (2.6) 152.5
Administrative
expenses (141.0) (27.9) (168.9) 2.0 0.4 2.4 (139.0) (27.5) (166.5)
Other operating
income 1.0 0.5 1.5 (0.4) - (0.4) 0.6 0.5 1.1
Operating
loss 14.9 (30.1) (15.2) 1.8 0.4 2.2 16.6 (29.6) (13.0)
Finance income 2.5 0.0 2.5 0.1 - 0.1 2.6 0.0 2.6
Finance costs (3.4) (2.8) (6.2) (2.8) (0.7) (3.5) (6.2) (3.5) (9.7)
Loss before
tax 14.0 (32.9) (18.9) (1.0) (0.3) (1.3) 12.9 (33.1) (20.2)
Tax credit 1.5 0.4 1.9 0.2 0.1 0.2 1.7 0.5 2.1
Loss for the
year 15.5 (32.5) (17.0) (0.8) (0.3) (1.1) 14.6 (32.6) (18.0)
The reconciliation of statutory operating
profit to Adjusted EBITDA is as follows:
Effect of IFRS16 31 March 2019 as
31 March 2019 as reported adoption restated
GBPm UK Europe Total UK Europe Total UK Europe Total
Operating
loss 14.9 (30.1) (15.2) 1.8 0.4 2.2 16.6 (29.6) (13.0)
Depreciation 5.3 1.1 6.4 8.9 2.1 11.0 14.2 3.2 17.4
Amortisation 1.1 - 1.1 - - - 1.1 0.0 1.1
EBITDA 21.3 (29.0) (7.7) 10.7 2.5 13.2 32.0 (26.5) 5.5
Share based
payment charges
attributable
to exceptional
LTIP awards 2.3 - 2.3 - - - 2.3 - 2.3
Fees incurred
on acquisition
of subsidiary 2.6 - 2.6 - - - 2.6 - 2.6
Onerous contract
costs - 1.2 1.2 - - - - 1.2 1.2
Restructuring
costs 1.2 - 1.2 - - - 1.2 - 1.2
Adjusted EBITDA 27.4 (27.8) (0.4) 10.7 2.5 13.2 38.1 (25.3) 12.8
The restatements principally relate to the removal of the rental
charge from cost of sales and administrative expenses in relation
to assets acquired previously under operating leases which are
replaced with a depreciation charge on the new Right of Use asset
(in cost of sales and administrative expenses) and an interest
charge in relation to the related lease liability.
Statement of financial position
Effect Effect Effect At 31
At 30 of At 30 At 31 of of March
September IFRS16 September March IFRS IFRS16 2019
GBPm 2018 reported adoption 2018 restated 2019 reported 3 adoption restated
Non current assets
Goodwill 13.5 - 13.5 27.6 0.5 - 28.1
Other intangible
assets 0.9 - 0.9 16.9 - - 16.9
Property, plant
and equipment 26.3 - 26.3 26.8 - (0.3) 26.5
Right of use
asset - 64.8 64.8 - - 63.2 63.2
Trade and other
receivables 52.8 - 52.8 79.4 - - 79.4
Deferred tax
asset 2.2 0.9 3.1 3.6 - 1.0 4.6
Derivative financial
asset 1.9 - 1.9 0.8 - - 0.8
97.6 65.7 163.3 155.0 0.5 63.9 219.4
Current assets
Inventories 53.5 - 53.5 76.3 - - 76.3
Trade and other
receivables 62.8 1.3 64.1 118.0 (0.4) 1.1 118.7
Derivative financial
asset 0.3 - 0.3 - - - -
Corporation tax
receivable - - - 0.6 - - 0.6
Cash and cash
equivalents 41.1 - 41.1 28.9 - - 28.9
157.7 1.3 159.0 223.8 (0.4) 1.1 224.5
Total assets 255.3 67.0 322.3 378.8 0.1 65.0 443.9
Current liabilities
Bank overdraft (4.5) - (4.5) - - - -
Trade and other
payables (162.6) 4.8 (157.8) (230.1) (0.1) 4.7 (225.6)
Borrowings (4.0) - (4.0) (12.2) - - (12.2)
Lease liabilities - (10.9) (10.9) - - (11.5) (11.5)
Derivative financial
liability (0.9) - (0.9) (0.6) - - (0.6)
Provisions (0.1) - (0.1) (8.3) - - (8.3)
Corporation tax
payable (0.1) - (0.1) - - - -
(172.2) (6.2) (178.4) (251.3) (0.1) (6.8) (258.2)
Net current
(liabilities)/assets (14.5) (4.9) (19.4) (27.5) (0.5) (5.7) (33.7)
Non current
liabilities
Borrowings (8.7) - (8.7) (25.7) - - (25.7)
Lease liabilities - (65.0) (65.0) - - (63.0) (63.0)
Trade and other
payables - - - (7.0) - - (7.0)
Derivative financial
liability (2.6) - (2.6) (2.9) - - (2.9)
Deferred tax
liability - - - (2.7) - - (2.7)
Provisions (1.6) - (1.6) (2.6) - - (2.6)
(12.9) (65.0) (77.9) (41.0) - (63.0) (104.0)
Total liabilities (185.1) (71.2) (256.3) (292.2) (0.1) (69.8) (362.1)
Net assets 70.2 (4.2) 66.0 86.6 - (4.8) 81.8
Equity attributable to
the owners of the parent
Share capital 1.1 - 1.1 1.2 - - 1.2
Share premium
account 103.7 - 103.7 103.7 - - 103.7
Other reserves 5.5 - 5.5 29.0 - - 29.0
Retained losses (38.9) (4.2) (43.1) (46.4) - (4.8) (51.2)
Total 71.4 (4.2) 67.2 87.5 - (4.8) 82.7
Non controlling
interest (1.2) - (1.2) (0.9) - - (0.9)
Total equity 70.2 (4.2) 66.0 86.6 - (4.8) 81.8
The restatement principally reflects the recognition of Right of
Use assets in relation to assets previously financed through
operating leases and the related lease liability. The difference is
recognised as a movement in equity. The movement in payables
relates to the reversal of rent free periods in relation to certain
properties as these are now built into the value of the Right of
Use asset and associated lease liability.
In addition, as set out in note 12, the balance sheet at 31
March 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 accrued income by GBP0.4m, trade receivables by
GBP0.1m and increasing goodwill by GBP0.5m.
Statement of cash flows
6 months Year Year
ended 6 months ended Effect ended
30 September Effect ended 31 March of 31 March
2018 of IFRS16 30 September 2019 IFRS16 2019
GBPm reported adoption 2018 restated reported adoption restated
Cashflows from
operating
activities
Loss for the
period (9.9) (0.5) (10.4) (17.0) (1.1) (18.1)
Depreciation and
amortisation 3.5 5.2 8.7 7.5 11.0 18.5
Finance income (2.1) - (2.1) (2.5) (0.1) (2.6)
Finance costs 0.7 1.7 2.4 6.2 3.5 9.7
Taxation credit (0.4) (0.1) (0.5) (1.9) (0.2) (2.1)
Share based
payment charge 2.1 - 2.1 4.0 - 4.0
Increase in
provisions (0.1) - (0.1) 0.1 - 0.1
Net operating
cashflows before
movement in
working capital (6.2) 6.3 0.1 (3.6) 13.2 9.6
Increase in
inventories (0.2) - (0.2) (16.3) - (16.3)
Increase in trade
and other
receivables (15.3) - (15.3) (10.2) - (10.2)
Increase in trade
and other
payables 9.5 0.3 9.8 (5.2) 0.5 (4.7)
Net movement in
working capital (6.0) 0.3 (5.7) (31.7) 0.5 (31.2)
Taxation received 0.2 - 0.2 0.8 - 0.8
Net cash used
in/from operating
activities (12.0) 6.6 (5.4) (34.5) 13.8 (20.7)
Cashflows from
investing
activities
Acquisition of
subsidiary (net
of cash acquired) - - - (5.9) - (5.9)
Acquisition of
minority interest (0.4) - (0.4) (0.4) - (0.4)
Interest received
on sub lease
of Right of Use
assets - 0.0 0.0 - 0.1 0.1
Acquisition of
property, plant
and equipment (1.2) - (1.2) (4.5) 0.3 (4.2)
Acquisition of
intangible assets - - - (0.5) - (0.5)
Net cash used in
investing
activities (1.6) - (1.6) (11.2) 0.3 (11.0)
Cashflows from
financing
activities
Movement in bank
overdraft 1.4 - 1.4 (3.1) - (3.1)
Interest paid (0.5) - (0.5) (0.9) - (0.9)
New borrowings - - - 27.0 - 27.0
Repayment of
borrowings (0.6) - (0.6) (1.2) - (1.2)
Repayment of lease
liabilities (1.6) - (1.6) (3.1) - (3.1)
Repayment of Right
of use asset
liabilities - (6.6) (6.6) - (14.1) (14.1)
Net cash used
in/from investing
activities (1.3) (6.6) (7.9) 18.6 (14.1) 4.5
Net
decrease/increase
in cash (14.9) - (14.9) (27.0) (0.0) (27.1)
Cash and cash
equivalents at
beginning of the
period 56.0 - 56.0 56.0 - 56.0
Exchange gains and
losses 0.0 0.00 0.00 (0.1) 0.0 (0.0)
Cash and cash
equivalents at
end of the period 41.1 - 41.1 28.9 - 28.9
The restatement principally relates to operating lease payments
previously recognised under IAS17 being removed from the loss for
the period to be replaced by a depreciation charge and a repayment
of lease liabilities, the latter shown within financing
activities.
14. Post Balance Sheet Event
On 18 November 2019, the Board approved a plan to close the
entire operations of its business in the Netherlands.
The closure is expected to be completed by the end of the
current financial year.
There is no material impact on the value of the assets and
liabilities of the Netherlands business at 30 September 2019 as a
result of this decision.
In the six months ended 30 September 2019, the Netherlands
business increased Group revenue by EUR14.7m (GBP13.1m) and
increased Group Adjusted EBITDA losses by EUR3.1m (GBP2.8m).
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 2019.
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 37-44 inclusive and 73 of the Annual Report and
Accounts 2019 which can be found at www.ao-world.com:
-- Risks relating to our failure to maintain our culture as we
grow and dependence on members of the Group Executive and
Leadership Teams.
-- Risks relating to our European expansion.
-- Risks relating to brand recognition and damage.
-- Risk relating to IT systems resilience and agility.
-- Risks relating to legal and/or regulatory changes,
particularly with regard to the continuing scrutiny of the gig
economy which may drive changes to laws surrounding employment
status.
-- Risks of interruption to physical infrastructure.
-- Risk relating to Brexit and 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, commercial income arrangements, Mobile
Phones Direct Acquisition Accounting and Network Commission
Receivable.
The Board continues to monitor the risks and uncertainties
associated with Brexit and the potential impact these may have on
the Group's results and financial position in both the short and
longer term.
16. 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:
(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
18 November 2019 18 November 2019
INDEPENT REVIEW REPORT TO AO WORLD PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2019 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 2019 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.
Mick Davies
For and on behalf of KPMG LLP
Chartered Accountants
1 St. Peter's Square
Manchester
M2 3AE
18 November 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR GGGWCGUPBPGR
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