TIDMAO.
RNS Number : 4456W
AO World plc
18 August 2022
18 August 2022
AO WORLD PLC
FINAL RESULTS FOR THE YEARED 31 MARCH 2022
RESILIENT REVENUE PERFORMANCE AGAINST CHALLENGING BACKDROP
CONFIDENCE IN LONG-TERM GROWTH OPPORTUNITIES FOR AO IN THE
UK
OVER 4 MILLION NEW CUSTOMERS ADDED IN THE PAST TWO YEARS
ADDRESSABLE MARKET IN THE UK NOW GBP23.4BN AS A RESULT OF
EXTENSION INTO NEW CATEGORIES
AO World plc ("the Group" or "AO"), a leading online electrical
retailer, today announces its audited financial results for the
year ended 31 March 2022 ("FY22").
Given the exceptional operating environment over the past 24
months, our performance in the comparable period in FY20 provides a
more meaningful overview of our business performance than a simple
comparison with FY21. Financial results for both the one-year and
the two-year results are presented below.
GBP(m) FY22 FY21 FY20(1) 1 YoY % 2 YoY %
Mvmt Mvmt
======== ====== ======== ========
Total Group revenue 1,557 1,661 1,026 (6%) 52%
======== ====== ======== ======== ========
UK revenue 1,368 1,435 901 (5%) 52%
======== ====== ======== ======== ========
Germany revenue GBPm 189 226 125 (16%) 51%
======== ====== ======== ======== ========
Group Adjusted EBITDA(2) 8.5 64.4 22 (87%) (62%)
======== ====== ======== ======== ========
Group Operating profit/(loss) (32) 30 1 NM(4) NM (4)
======== ====== ======== ======== ========
Statutory (loss)/ profit
before tax (37) 20 1 NM(4) NM(4)
======== ====== ======== ======== ========
Basic (loss)/ earnings
per share (6.33)p 3.73p 0.21p NM (4) NM (4)
======== ====== ======== ======== ========
Net (debt) / funds(3) (33) 58 (23) NM (4) (40%)
======== ====== ======== ======== ========
Financial highlights
-- Group revenue growth of 52% over two-year period since FY20;
resilient performance in our UK business with a one YoY decline of
5% against an extraordinary comparative performance during Covid in
FY21
-- Group EBITDA of GBP8.5m impacted by increased staff costs
added during Covid in H2 FY21 as well as increased marketing and
logistics costs
-- Statutory loss before tax of GBP37m (FY21 : profit of GBP20m)
-- Overall liquidity of GBP50m (FY21: GBP143m) at 31 March 2022
with net debt(3) of GBP33m (31 March 2021: GBP58m net funds)
-- Capital-raising post year-end successfully secured additional
liquidity of GBP40m with GBP80m revolving credit facility extended
until April 2024
Operational highlights
-- Over four million new customers(6) experienced AO's brilliant
customer service (FY20-FY22), with repeat purchase rates continuing
to outperform pre-Covid levels
-- Over 350,000 Trustpilot ratings, averaging an "Excellent"
4.6/5 stars and Net Promoter Scores averaging a market-leading
86(7) New agreement with Homebase to supply appliances and
installation and recycling services to Homebase's customers where
Homebase agrees to purchase exclusively from AO their MDA and
audio-visual appliances over an initial five-year term
-- Following a strategic review, decision taken post year-end to
close German business; orderly closure of the business in progress;
simplification of business model and cost base to focus on the UK
market in progress
-- Over five million appliances, including two million fridges,
have now been recycled at our AO Recycling facility. With overall
Recycling revenues growing 36% year-on-year, we are now working
with manufacturers to use our recycled plastic in new products
-- AO remains a UK market leader in MDA with an 18% market share
and 32% overall online market share
Outlook
The new financial year marks a period of realignment for the
business as we execute a strategic pivot to focus on cash and
profit generation. Our plans and outlook, which were set out in
July alongside the equity placing are as follows:
- We now estimate the closure cash costs of our German business
will be no more than GBP5m, at the lower end of our original
estimate of nil to GBP15m.
- The GBP40m of equity raised in July strengthens our balance
sheet and provides the flexibility to capitalise on significant
long term growth opportunities in the UK
- Our addressable market in the UK has grown to GBP23.4bn as it
extends into new categories such as televisions, laptops, audio
visual and small domestic appliances ("SDA"). The online segment of
the market in those categories remains AO's key opportunity as the
long-term structural migration to online retailing continues.
- We are successfully leveraging our logistics and recycling
platform and have signed a new five-year contract with Homebase to
supply appliances and installation and recycling service to its
customers, including, on an exclusive basis, MDA and audio-visual
appliances. We are discussing similar partnerships with other
kitchen retailers.
- We continue to rationalise, simplify and refocus our UK
operations which entails exiting some lines of business that do not
fit our model. This, combined with driving operational efficiencies
and overhead reduction, is estimated to generate significant
economic benefits by FY25 to help underpin margin expansion
- Trading through the first quarter of FY23 has remained broadly
in-line with the Board's expectations for FY23, with revenues in
the approximate range of GBP1bn to GBP1.25bn and Group adjusted
EBITDA for the full year in the range of GBP20m - GBP30m, with the
usual weighting towards the second half of the year.
- In the short term, we expect our strategic pivot and business
realignment will reduce both sales and costs, but in the medium
term our ambition is to deliver average revenue growth of 10+% per
annum with an EBITDA margin of 5+% and improved cash
generation.
AO's Founder and Chief Executive, John Roberts, said:
"AO was founded on the belief that online is a better way to buy
electricals. That belief is as strong as ever, even - and
especially - as we go through one of the most challenging operating
environments we've weathered as a company.
"The past 12 months has been a turbulent time for business and
for retail in particular, and AO hasn't been immune to those
effects. Looking ahead, we certainly have more volatility to
navigate, but the core fundamentals of our business remain strong.
We entered the new financial year with a period of strategic
realignment, and a focus on cash and profit generation.
"AO has become the destination for electricals for millions of
customers through our absolute obsession with amazing service, and
that will remain our guiding star. I'd like to thank the AO team,
our Chair and the Board, as well as our committed investors and
stakeholders, for their continued support and passion in helping us
deliver for our customers."
Enquiries
AO World plc Tel: +44(0)7525 147
John Roberts, Founder & CEO 877
Mark Higgins, CFO ir@ao.com
Cynthia Alers, Director of Investor
Relations
Powerscourt Tel: +44(0) 20 7250
Rob Greening 1446
Nick Hayns ao@powerscourt-group.com
Elizabeth Kittle
Webcast details
A results presentation will be held for analysts and investors
at 08.30 am BST, today, 18 August 2022. Please register to join the
presentation and live Q&A at
https://stream.brrmedia.co.uk/broadcast/62d02e960485375c36e3e7a6
A live Q&A session for analysts and investors will
immediately follow the presentation with questions accepted during
the live stream. A playback of the presentation will be available
on AO World's investor website at www.ao-world.com later that
day.
About AO
AO World plc, headquartered in Bolton and listed on the London
Stock Exchange, is an online electrical retailer, with a mission to
be the destination for electricals. Our strategy is to create value
by offering our customers brilliant customer service and making AO
World the destination for everything they need, in the simplest and
easiest way, when buying electricals. We offer major and small
domestic appliances and a growing range of mobile phones, AV,
consumer electricals and laptops. We also provide ancillary
services such as the installation of new and collection of old
products and offer product protection plans and customer finance.
AO World Business serves the B2B market in the UK, providing
electricals and installation services at scale. AO World also has a
majority equity stake in AO World Recycling, a WEEE processing
facility, allowing AO World to ensure its customers' electronic
waste is dealt with responsibly.
(1) The FY20 comparative excludes revenue and losses generated
by AO.nl, our Netherlands website, which was closed during the
third quarter of the year ended 31 March 2020
(2) Group Adjusted EBITDA is defined as profit/(loss) before
tax, depreciation, amortisation, net finance costs, profit/loss on
disposal of fixed assets, and other adjusting items. The FY20
comparative excludes losses generated by AO.nl.
(3) Net debt is defined as cash less borrowings less owned asset
lease Liabilities but excluding right of use asset lease
liabilities.
(4) Where comparison change is a swing from positive to
negative, this is judged to be a non-meaningful ("NM")
comparison.
(5) A customer is defined as an individual customer who has
purchased via ao.com or ao.de.
(6) Net Promoter Score or "NPS" is an industry measure of
customer loyalty and satisfaction. UK NPS comprises ao.com and
mobilephonesdirect.com and is calculated on a revenue weighted
average basis. Trustpilot scores sourced from their website, June
2022.
Cautionary statement
This announcement may contain certain forward-looking statements
(including beliefs or opinions) with respect to the operations,
performance and financial condition of the Group. These statements
are made in good faith and are based on current expectations or
beliefs, as well as assumptions about future events. By their
nature, future events and circumstances can cause results and
developments to differ materially from those anticipated. Except as
is required by the Listing Rules, Disclosure Guidance and
Transparency Rules and applicable laws, no undertaking is given to
update the forward-looking statements contained in this document,
whether as a result of new information, future events or otherwise.
Nothing in this document should be construed as a profit forecast
or an invitation to deal in the securities of the Company. This
announcement has been prepared for the Group as a whole and
therefore gives greater emphasis to those matters which are
significant to AO World plc and its subsidiary undertakings when
viewed as a whole.
OPERATING & STRATEGIC REVIEW
This has been a tumultuous year for business, and for the retail
sector in general. The Covid restrictions during 2020 and most of
2021 curtailed consumer spending in traditional shops and
accelerated the longer-term trend to online shopping. We invested
significantly and boldly to meet consumer demand and capture new
customers, which brought new pressures for our business in
logistics, warehousing, staffing levels, inventory and delivery but
enabled us to expand our category reach and to introduce over four
million new customers to the brilliant AO service since the
pandemic started in 2019.
We entered the year with optimism but as the year progressed,
our business faced increasing macroeconomic headwinds including
global supply chain disruption, labour shortages and a
well-documented growing cost of living crisis for consumers. In
Germany, as Covid restrictions were lifted, customers returned to
pre-pandemic behaviours to a greater degree than we anticipated. As
a result of this combination of global factors, our markets
weakened considerably as the year progressed.
Despite the market challenges, our UK business showed
resilience, with reported revenues of GBP1.37 billion which
decreased by 4.6% from FY21 at the height of the Covid pandemic but
increased 52% on a two year like-for-like pre-Covid basis. We have
an exceptionally strong customer base, adding four million
customers in the past two years alone and achieving market-leading
customer satisfaction scores on NPS and Trustpilot. We also
retained our market share, both online and of the total market, and
remain one of the leaders in the retail of major domestic
appliances ("MDA") with a 32% online market share in the UK, even
as customers returned to traditional bricks and mortar stores to a
greater degree than was originally anticipated. Opportunities to
leverage this customer base underpin our business and our future
strategy.
Like many businesses, we faced a number of challenges as we
emerged from the Covid lockdown. Global supply chains have
struggled to cope as the global economy emerged from Covid
restrictions, which led to component shortages and hugely increased
container shipping rates. As a result, product and range
availability was constrained for certain lines although, as one of
the market leaders, we were still able to offer a wider range than
many other electrical retailers. This was compounded by
inflationary pressures in other costs right across our business,
from staffing to vehicles, energy and fuel.
Our flexible and agile operating model meant that we could
respond rapidly to the shortage of delivery drivers in the second
quarter of FY22 which temporarily impacted our service levels.
Through a mixture of flexing our model of self-employed drivers,
temporarily introducing a limited employed model and leveraging our
apprenticeship programmes, we successfully met these challenges,
although at a higher ongoing operating cost. Crucially, despite
these challenges, the quality of our customer service throughout
the period never wavered.
We anticipate that the UK consumer will continue to be
challenged by cost-of-living pressures in the near term, but that
our strong market position and customer proposition will continue
to underpin our resilience and our market position.
Germany closure
Following a significant migration to online shopping during the
pandemic, German customers returned to traditional channels as
Covid restrictions lifted to a much greater extent than we
expected. However, the strong performance of the online channel
through this period prompted traditional retailers to create and
promote online customer acquisition models. This resulted in a huge
increase in the cost of customer acquisition, as competition for
online sales intensified, with the extra capacity of the online
channel created through the pandemic competing for pre-pandemic
levels of sales.
These factors unfortunately outweighed the economies of scale
that we had achieved. After six months of intense competition, we
undertook a strategic review of the business which resulted in the
eventual decision to close our German business. We sincerely thank
all our employees in Germany who worked so hard to build the
business. We are continuing to carry out an orderly closure of the
business and expect the total cash costs to be between nil to GBP5m
in FY23.
Employees are at the heart of our success
Our dedicated and talented employees are the face of AO to our
customers, and they are the reason that we consistently win
market-leading customer satisfaction ratings. Our AO culture is how
we deliver for our customers which is what sets us apart as a
business. Behind every happy customer are around 3,600 AOers,
making our customers' lives easier by helping them brilliantly. Our
AOers have lived our values to make their mums proud, and we thank
each and every one of them for their hard work, this year and every
year.
We are acutely aware that our people have continued to deliver
brilliant service whilst dealing with enormous change and
uncertainty. We are determined to repay their professionalism,
dedication and resilience, and we look forward to further
engagement.
Outlook
The new financial year marks a period of realignment for the
business as we undertake a strategic pivot to focus on cash and
profit generation.
In June, following a strategic review of our German business, we
announced the decision to close that operation with estimated cash
costs in FY23 of nil to GBP5m, a significant improvement on our
original estimate of nil to GBP15m.
In July, to strengthen the balance sheet and increase liquidity
back to historical levels relative to revenue, we conducted a
placing of new ordinary shares, raising c.GBP40m of capital. This
also provides the flexibility to capitalise on significant long
term growth opportunities in the UK. Our addressable market in the
UK has grown to GBP23.4bn as it extends into new categories, and
the online segment of the market in those categories remains AO's
key opportunity as the migration to online retailing continues. We
are also successfully leveraging our logistics expertise and have
signed an extendable five-year contract with Homebase to supply
appliances and installation and recycling service to Homebase's
customers, including, on an exclusive basis, MDA and audio-visual
appliances. We are discussing similar partnerships with other
kitchen retailers.
As the business focusses on the significant opportunity, we see
in the UK, the process of simplifying operations and optimising our
cost base is already underway. We continue to rationalise, simplify
and refocus our UK operations, exiting some lines of business that
do not fit our model and driving operational efficiencies and
overhead reduction which, in aggregate, is estimated to generate
significant economic benefits by FY25. In the short term, we expect
our strategic pivot and business realignment will reduce both sales
and costs, but in the medium term it is our ambition to deliver
average revenue growth of 10+% per annum with an EBITDA margin of
5+% and improved cash generation.
This is an unprecedented environment for business planning as
the post-pandemic retail environment is substantially shifting,
which presents both challenges and opportunities for AO as a
leading online electricals retailer. Trading through the first
quarter of FY23 has remained broadly in-line with the Board's
expectations for FY23 revenues in the approximate range of GBP1bn
to GBP1.25bn and Group adjusted EBITDA for the full year in the
range of GBP20m - GBP30m with the usual weighting towards the
second half of the year.
FINANCIAL REVIEW
At the start of our financial year in April 2021, we planned for
the continuation of the elevated growth trends that we experienced
during the Covid pandemic. We therefore invested in our business to
build upon the foundations of expansion as well as to address some
of the operational strains rapid growth had put on our
infrastructure and people over the prior year. The strategy to
impress as many new customers as possible proved successful, with
over four million new customers experiencing the AO way since
FY20.
As the year progressed, however, macroeconomic headwinds,
including rising interest rates and higher fuel and utility costs
impacted customer behaviour as cost-of-living pressures increased.
Where the first half of the year was impacted by driver shortages
and global supply chain inefficiencies, the second half experienced
progressively weaker customer demand across the sector, affecting
both revenue growth and profits.
In Germany, as companies invested in building their online
proposition and customers simultaneously returned to pre-Covid
behaviour, our German business experienced increasingly intense
competition. Despite building a competitive platform that achieved
breakeven in the prior year, our German business remained subscale
in the wider market. As a result, in January we started a strategic
review of our business in Germany which resulted in the
announcement of its closure in June 2022. As we progress with an
orderly wind down of the business, we expect the total cash costs
of closure in FY23 to be nil to GBP5m.
After the financial year end, in July 2022 we undertook a share
placing to strengthen the balance sheet and increase liquidity back
to historical levels (relative to revenue base), as well as
providing the flexibility to capitalise on future market
opportunities. This was strongly supported by shareholders and
raised gross proceeds of approximately GBP40 million. During the
year we also extended our GBP80m revolving credit facility which is
now due to expire in April 2024. The current financial year marks a
period of realignment for the business as we undertake a strategic
pivot to focus on cash and profit generation. The process of
simplifying operations and optimising our cost base is already
underway. AO remains a market leader in MDA in the UK with an 18%
market share and 32% overall online share, providing us with a
strong and resilient market position. The actions we have taken,
both to optimise our cost base and strengthen our balance sheet,
will allow us to invest prudently in our business, seize market
opportunities and leverage our significant customer base. This is a
prudent approach given the difficulty of predicting the near-term
market dynamics.
Revenue
Table 1
12 months ended 31 March 2022 31 March 2021 % change
GBPm
------------------------------ ------------------------- ------------------------- ------------------------
UK Germany Total UK Germany Total UK Germany Total
------------------------------ ------- ------- ------- ------- ------- ------- ------ -------- ------
Product revenue 1,114.4 181.7 1,296.1 1,200.3 220.9 1,421.2 (7.2%) (17.8%) (8.8%)
------------------------------ ------- ------- ------- ------- ------- ------- ------ -------- ------
Services revenue 50.3 3.0 53.3 54.0 4.0 58.0 (6.8%) (23.3%) (8.1%)
------------------------------ ------- ------- ------- ------- ------- ------- ------ -------- ------
Commission revenue 156.8 0.7 157.5 146.0 0.3 146.3 7.4% 175.6% 7.6%
------------------------------ ------- ------- ------- ------- ------- ------- ------ -------- ------
Third-party logistics revenue 22.7 3.6 26.3 16.5 1.2 17.7 37.7% 202.1% 48.9%
------------------------------ ------- ------- ------- ------- ------- ------- ------ -------- ------
Recycling revenue 24.1 - 24.1 17.7 - 17.7 35.8% - 35.8%
------------------------------ ------- ------- ------- ------- ------- ------- ------ -------- ------
Total revenue 1,368.3 189.0 1,557.3 1,434.5 226.4 1,660.9 (4.6%) (16.5%) (6.2%)
------------------------------ ------- ------- ------- ------- ------- ------- ------ -------- ------
For the 12 months ended 31 March 2022, total Group revenue
decreased by 6.2% to GBP1,557.3m (2021: GBP1,660.9m).
In the UK, total revenues decreased by 4.6% as shortages in key
product components and driver availability in H1 impacted on our
ability to deliver our traditional full product range and our
delivery proposition. This decline was somewhat offset by higher
average product value. The lower product sales also fed through to
services revenues due to reduced installations and delivery
charges.
In Germany, total revenues declined 16.5% against a strong
performance in the prior year during Covid restrictions on
traditional in-store retailers and the effect of changes in
consumer behaviour and intense competition.
Product revenue
Total product revenue, comprising sales generated from ao.com,
ao.de, marketplaces and third-party websites, decreased by 8.8% as
the overall market in the UK for consumer discretionary purchases
weakened considerably in H2. In Germany, the lifting of Covid
restrictions resulted in consumers returning to traditional bricks
and mortar shops to a greater degree than anticipated. This was
exacerbated by the o ngoing supply chain disruption and a global
shortage of components at manufacturers' facilities resulted in
reduced product ranges across our industry.
In the UK, MDA revenue decreased by 7.3% as consumer demand
weakened in H2, compounded by challenges in our logistics
operations in H1, with the wide-spread shortage of drivers and
skilled installers. Non-MDA revenues, comprising SDA, computing and
gaming but excluding AV, declined by 10.9% in part due to shortages
of gaming products. AV revenue, which includes televisions and
audio visual, saw a decline of 22.0% over the comparable period
last year, which was inflated by Covid lockdown purchases and the
televised European football championships in the summer of 2021.
B2B recorded strong growth across all its routes to market, albeit
from a modest base, as we continue to gain market share and build
further capabilities, winning attractive contracts.
Product revenue in Germany declined by 17.8% (a decline of 13.9%
in Euros). Revenue was impacted by highly competitive market
conditions and unsustainably high customer acquisition costs, as
traditional retailers sought to expand their online capability. We
therefore took the short-term decision to reduce our online
marketing efforts in Germany which impacted sales growth.
Services
Services revenues, include fees for delivery, recycling,
installation and related services, declined in line with the
reduction in product revenue as well as being affected by a
shortage of qualified fitters in the UK during H1. In Germany, the
decline in services revenues reflected the decline in product
sales.
Commission
Commission revenue, which includes commissions generated by
network connections in our Mobile business and from AO Care
warranties, showed an improvement of 7.6% against prior year
revenues. Overall, commissions from the sale of warranties remained
broadly flat against the prior year. The number of plans sold in
FY22 reduced from the highs seen in FY21 although the prior year
was impacted by a c.GBP8m reduction of previously recognised
revenue due to a significant change in customer behaviour. The
business also recorded slightly elevated but temporary levels of
customer cancellations in Q4, primarily due to the initial reaction
from consumers to the cost-of-living crisis, similar to that we
experienced at the start of the Covid pandemic. Post period end
cancellations have returned to a more normalised level as customers
adjusted.
In Mobile, following adjustments to our customer proposition and
the removal of the redemption cashback offer, the average life of
new contracts has continued to improve and with the RPI increases
imposed by the networks, revenue has increased in the year.
Third Party Logistics
Third-party logistics performed well, increasing 48.9%, albeit
off a modest base. Our expertise in complex two-person delivery is
highly valued in our industry, and we undertake a number of
deliveries on behalf of third-party clients i n the UK including
Hisense and, Simba. The shortage of delivery drivers during the
year resulted in some limits being put on our ability to accept
incremental third-party business, but overall, we were able to
satisfy partner demand and build on the number of entities we
service. We continue to develop this revenue opportunity as it
leverages our operational gearing.
Recycling
Recycling revenues performed well, increasing 36% over the year.
Operations recovered from the periodic closures during the prior
year whilst operating under Covid restrictions when councils closed
household waste and recycling centres. Processed volumes have
increased overall year on year and the business benefitted from a
strong recovery in output prices for recycled materials.
Gross margin
Table 2
12 months ended
GBPm 31 March 2022 31 March 2021 Better / (worse)
---------------- --------------------- --------------------- -------------------------
UK Germany Total UK Germany Total UK Germany Total
---------------- ----- ------- ----- ----- ------- ----- ------ -------- -------
Gross profit 263.4 6.2 296.6 273.0 19.5 292.5 (3.5%) (59.5%) (7.9%)
---------------- ----- ------- ----- ----- ------- ----- ------ -------- -------
Gross margin 19.3% 3.2% 17.3% 19.0% 8.6% 17.6% +3ppts (54ppts) (3ppts)
---------------- ----- ------- ----- ----- ------- ----- ------ -------- -------
Gross margin for the Group remained broadly stable as a
percentage of revenues but decreased in absolute terms due to the
dilutive effect of reduced product volumes in Germany. In the UK,
gross margin reflected the increased costs in fuel and driver
rates, but, as an overall percentage of revenue, improved slightly
due to increased product pricing. These inflationary cost increases
were largely offset by an improvement in our Mobile business
profitability which in the prior year had been impacted by changes
in consumer behaviour.
In Germany, gross margin reduced to 3.2% as competition in the
market impacted on pricing and the reduced volumes resulted in
inefficiencies within delivery costs. Gross margin was also
impacted by a GBP6.9m charge relating to the impairment of certain
assets in the business.
Selling, General & Administrative Expenses ("SG&A")
Table 3
12 months ended 31 March 2022 31 March 2021 Increase / (Decrease)
GBPm %
------------------------- --------------------- --------------------- -------------------------
UK Germany Total UK Germany Total UK Germany Total
------------------------- ----- ------- ----- ----- ------- ----- ------- -------- ------
Advertising and
marketing 46.1 9.6 55.7 43.3 7.2 50.4 6.5% 34.6% 10.5%
------------------------- ----- ------- ----- ----- ------- ----- ------- -------- ------
% of revenue 3.4% 5.1% 3.6% 3.0% 3.2% 3.0%
------------------------- ----- ------- ----- ----- ------- ----- ------- -------- ------
Warehousing 69.6 7.3 76.9 58.7 6.9 65.6 18.5% 6.6% 17.2%
------------------------- ----- ------- ----- ----- ------- ----- ------- -------- ------
% of revenue 5.1% 3.9% 4.9% 4.1% 3.0% 3.9%
------------------------- ----- ------- ----- ----- ------- ----- ------- -------- ------
Research and development 17.5 - 17.5 15.4 - 15.4 13.6% - 13.6%
------------------------- ----- ------- ----- ----- ------- ----- ------- -------- ------
% of revenue 1.3% - 1.1% 1.1% - 0.9%
------------------------- ----- ------- ----- ----- ------- ----- ------- -------- ------
Other admin 138.6 13.5 152.1 118.2 13.9 132.1 17.3% (2.9%) 15.1%
------------------------- ----- ------- ----- ----- ------- ----- ------- -------- ------
% of revenue 10.1% 7.2% 9.8% 8.2% 6.2% 8.0%
------------------------- ----- ------- ----- ----- ------- ----- ------- -------- ------
Adjustments 0.9 0.4 1.3 - - - 100.0% 100.0% 100.0%
------------------------- ----- ------- ----- ----- ------- ----- ------- -------- ------
% of revenue 0.1% 0.2% 0.1% - - -
------------------------- ----- ------- ----- ----- ------- ----- ------- -------- ------
Administrative
expenses 272.7 30.5 303.2 235.6 28.0 263.6 15.7% 10.5% 15.2%
------------------------- ----- ------- ----- ----- ------- ----- ------- -------- ------
% of revenue 19.9% 16.3% 19.5% 16.4% 12.4% 15.9%
------------------------- ----- ------- ----- ----- ------- ----- ------- -------- ------
Group SG&A costs as a percentage of revenue increased during
the period to GBP303.4m (2021: GBP263.6m), or as a percent of
revenues from 15.9% to 19.5%. The largest increases were in
warehousing and other administrative costs, mainly in response to
Covid pressures.
In the UK, SG&A costs increased to GBP272.7m (2021:
GBP235.6m), or as a percent of revenues from 16.4% to 19.9%. The
largest cost increase was in warehousing, which increased to
GBP69.6m (2021: GBP58.7m), or as a percentage of revenues from 4.1%
to 5.1%. The drop in sales volumes impacted on the recovery of the
full year costs of new property leases entered into in the previous
year to manage additional warehouse capacity during the pandemic.
Wage inflation also contributed to cost rises. We are currently
reviewing and rationalising our warehousing footprint in view of
the changing demand dynamics.
Advertising and marketing costs in the UK increased to GBP46.1m
(2021: GBP43.3m), or as a percent of revenues from 3.0% to 3.6% due
to increased spending on brand awareness and customer acquisition
post Covid. This was offset by a reduction in television
advertising as the business changed to more targeted social media
channels.
Other admin costs in the UK increased to GBP138.6m (2021:
GBP118.2m), or as a percentage of revenues from 8.2% to 10.1%. This
primarily reflects the investment in people made in the business in
the second half of FY21 to support the significantly increased
growth, particularly in our Retail business and in IT. In reaction
to the slowdown seen in the market in H2, the Group has undertaken
a right-sizing exercise across a number of areas to align costs
with a reduced level of activities and, therefore, costs are
expected to reduce as we move into FY23. Other areas of increase
include insurance premiums and costs related to re-opening office
premises following the Covid-related restrictions in the prior
year.
In Germany, although shoppers returned to traditional retailers
to a greater degree than anticipated, companies continued to build
their online presence. Competition in the online space therefore
intensified, which also drove up marketing costs as the cost per
clicks, in some cases, up more than 100%. Warehousing and other
admin increased as a percentage of sales primarily as result of
lower volumes with absolute levels of spend being broadly
equivalent to the prior period.
Operating loss and Adjusted EBITDA
As a result of the above, our operating loss for the period was
GBP32.3m (2021: GBP29.7m profit).
Alternative Performance Measures
The Group tracks a number of alternative performance measures in
managing its business. These are not defined or specified under the
requirements of IFRS because they exclude amounts that are included
in, or include amounts that are excluded from, the most directly
comparable measure calculated and presented in accordance with IFRS
or are calculated using financial measures that are not calculated
in accordance with IFRS. The Group believes that these alternative
performance measures, which are not considered to be a substitute
for, or superior to IFRS measures, provide stakeholders with
additional helpful information on the performance of the business.
These alternative performance measures are consistent with how the
business performance is planned and reported within the internal
management reporting to the Board. Some of these alternative
performance measures are also used for the purpose of setting
remuneration targets. These alternative performance measures should
be viewed as supplemental to, but not as a substitute for, measures
presented in the consolidated financial statements relating to the
Group, which are prepared in accordance with IFRS. The Group
believes that these alternative performance measures are useful
indicators of its performance.
EBITDA
EBITDA is defined by the Group as earnings before interest, tax,
depreciation, amortisation and profit/loss on the disposal of fixed
assets.
Adjusted EBITDA
Adjusted EBITDA is calculated by adding back or deducting
Adjusting Items to EBITDA. Adjusting Items are those items which
the Group excludes in order to present a further measure of the
Group's performance. Each of these items, costs or incomes, is
considered to be significant in nature and/or quantum or are
consistent with items treated as adjusting in prior periods.
Excluding these items from profit metrics provides readers with
helpful additional information on the performance of the business
across periods because it is consistent with how the business
performance is planned by, and reported to, the Board and the Chief
Operating Decision Maker.
The Adjusting Items for the current year are:
-- Due to the continued losses in the German business, the Group
has undertaken a strategic review during the year. As a result of
these losses and the subsequent decision to close that business,
management have performed a full impairment review of the assets at
31 March 2022. As a consequence, management have made impairment
provisions of GBP7.3m at 31 March 2022 of which GBP1.2m relates to
inventory and GBP6.1m relates to Right of use assets and other
property, plant and equipment. In addition, legal advice and other
costs of the review totalled GBP0.9m as at the year-end resulting
in a total of GBP8.2m of impairment and other charges in the income
statement. Given the nature of these costs, they have been added
back in arriving at adjusted EBITDA.
The additional Adjusting Items for the prior year were:
-- In FY21, management reassessed the impact on future expected
cancellation rates as a result of an increase in cancellations seen
through the second half of the year. As a result, revenue for FY21
was constrained by GBP8.1m with a corresponding reduction in the
contract asset. Given the size and nature of the adjustment, the
amount was added back in arriving at Adjusted EBITDA for FY21
comparison.
-- In December 2017, the Group entered into a marketing contract
in Germany which was anticipated to generate significant additional
revenue. In subsequent years, the performance of this contract was
reassessed due to significant losses being incurred and the
benefits expected from the contract not materialising. The Group
renegotiated the contract with new terms taking effect from April
2021. However, the existing terms up to 31 March 2021 resulted in
the cost of fulfilling the contract over its life exceeding any
benefit gained from it and therefore management added back the full
cost in the prior period of GBP2.2m.
The reconciliation of statutory operating (loss)/ profit to
Adjusted EBITDA is as follows:
Table 4
12 months ended 31 March 2022 31 March 2021 Change %
GBPm
---------------------------------------- ---------------------- -------------------- ----------------------------
UK Germany Total UK Germany Total UK Germany Total
---------------------------------------- ----- ------- ------ ---- ------- ----- -------- -------- --------
Operating (loss)/profit (7.5) (24.8) (32.3) 38.1 (8.4) 29.7 (119.6%) (195.1%) (208.7%)
Depreciation 24.9 3.6 28.5 18.6 3.2 21.8 33.7% 13.9% 30.8%
Amortisation 3.8 - 3.8 2.8 - 2.8 33.6% - 33.6%
Loss / (Profit) on disposal of
non-current assets 0.4 (0.1) 0.3 - - - 100.0% 100.0% 100.0%
EBITDA 21.6 (21.3) 0.3 59.4 (5.2) 54.2 (63.6%) (307.3%) (99.3%)
---------------------------------------- ----- ------- ------ ---- ------- ----- -------- -------- --------
Adjusting items 0.9 7.3 8.2 8.1 2.2 10.3 (88.9%) (233.9%) 20.7%
Adjusted EBITDA 22.5 (14.0) 8.5 67.5 (3.0) 64.4 (66.7%) (359.6%) (86.8%)
---------------------------------------- ----- ------- ------ ---- ------- ----- -------- -------- --------
Adjusted EBITDA
as % of Revenue 1.6% (7.4%) 0.5% 4.7% (1.3%) 3.9%
---------------------------------------- ----- ------- ------ ---- ------- ----- -------- -------- --------
Taxation
The tax credit for the year was GBP7.1m (2021: tax charge of
GBP3.1m), resulting in an effective rate of tax for the year of
19.0%.
The Group is subject to taxes in the UK and Germany. The Group
continued to be able to offset its German losses against profits
within the UK through its registered branch structure in Germany.
No overseas tax is attributable to Germany in the year due to its
trading results.
A prior period adjustment to deferred tax of GBP0.6m had been
recognised in the period due to an increase in carried forward
losses.
Our tax strategy can be found at
www.ao-world.com/responsibility/group-tax-strategy .
Retained loss and loss per share
Retained loss for the period was GBP30.1m (2021: GBP17.1m
profit).
Basic loss per share was 6.33p (2021: 3.73p profit) and diluted
loss per share was 6.33p (2021: 3.68p earnings). Basic loss per
share is reconciled to adjusted basic loss per share (after
excluding the impact of foreign exchange differences) of 6.10p
(2021: 5.15p earnings) as follows:
Table 5
12 months ended 31 March 31 March
GBPm 2022 2021
(Loss) / earnings
(Loss) / Profit attributable to owners
of the parent Company (30.4) 17.7
Add back of foreign exchange movements
on intra-Group loans 1.1 6.8
----------------------------------------------------- ------------ ------------
Adjusted (loss) / earnings attributable
to owners of the parent Company (29.3) 24.5
Number of shares
Weighted average shares in issue for the
purposes of basic loss per share 478,558,948 475,626,353
Potentially dilutive share options 7,028,898 6,337,186
----------------------------------------------------- ------------ ------------
Diluted weighted average number of shares 485,587,846 481,963,539
----------------------------------------------------- ------------ ------------
(Loss) / earnings per share (in pence)
Basic (loss) /earnings per share (6.33) 3.73
Diluted (loss) / earnings per share (6.33) 3.68
Adjusted basic (loss) / earnings per share (6.10) 5.15
----------------------------------------------------- ------------ ------------
The diluted loss per share has been restricted to the basic loss
per share for the 12 months ended 31 March 2022 to prevent having
an anti-dilutive effect.
Foreign exchange differences are deducted to arrive at adjusted
(loss) / earnings. The loss of GBP1.1m (2021: GBP6.8m) relates to
the impact of the Euro/Sterling exchange rate on the value of
intra-group loans held in GBP in Germany.
Cash resources and cash flow
At 31 March 2022, the Group's net debt was GBP32.7m (31 March
2021: GBP57.5m net funds). Net debt comprises cash balances less
borrowings and owned asset lease liabilities. At 31 March 2022, the
Group's Total net debt, being net debt less right of use asset
lease liabilities, was GBP134.1m (31 March 2021: GBP28.2m).
Cash balances at 31 March 2022 were GBP19.5m (31 March 2021:
GBP67.1m). The decrease in cash since 31 March 2021 is largely
driven by the outflow from working capital (see below), capital
expenditure and the repayment of lease liabilities offset by
drawdown on the Group's revolving credit facility.
Borrowings of GBP45.0m (31 March 2021: GBPnil;) relate to short
term funding drawn from the Group's revolving credit facility.
Lease liabilities increased by GBP13.4m to GBP108.6m (31 March
2021: GBP95.2m) reflecting new right of use lease liabilities of
GBP45.4m and the downward reassessment of lease terms net of lease
payments in the period. The new leases in the year principally
relate to an additional warehouse in Crewe, four new out-bases, the
new London creative studio and delivery fleets in both the UK and
Germany.
During the year, the Group extended the term of its GBP80m
revolving credit facility by 12 months and this now expires in
April 2024. At 31 March 2022, the Group had GBP30.1m available on
this facility. The amount utilised represents GBP45.0m of cash
borrowings (see above) and GBP4.9m of letters of
credit/guarantees.
Working Capital
At 31 March 2022, the Group had net current liabilities of
GBP91.5m (31 March 2021: GBP59.0m).
At 31 March 2022, UK inventories were GBP82.0m (31 March 2021:
GBP115.0m) and UK stock days were 34 days (31 March 2021: 39 days).
Inventory levels were high at the end of the previous year in
response to the ongoing impact of the pandemic and to ensure that
we could respond to customers with our excellent AO customer
service. As traditional retailing started to open in FY22, stock
levels returned to more normal levels and, as the overall market
remained soft throughout H2, we further realigned inventory levels
to reduced levels of sales.
UK trade and other receivables (both non-current and current)
were GBP243.9m as at 31 March 2022 (31 March 2021: GBP230.4m)
reflecting an increase in trade with our B2B customers, which are
on longer working capital cycles, and the timing of supplier
marketing commissions.
UK trade and other payables were GBP296.9m at 31 March 2022 (31
March 2021: GBP391.7m). Investment in inventory at the end of FY21
drove up payables at the prior period end with the working capital
benefit unwinding as purchasing patterns returned to more normal
levels during FY22. Trade payables days at 31 March 2022 were 47
days (31 March 2021: 52 days).
Net working capital decreased from GBP17.8m to GBP9.8m in
Germany, driven primarily by a significant reduction in inventory
levels from the abnormal levels seen at the prior year end as well
as reduction to align with the lower level of sales seen during the
latter part of FY22.
Table 6
As at 31 March 2022 31 March 2021
GBPm
---------------------------- ------------------------- -------------------------
UK Germany Total UK Germany Total
---------------------------- ------- ------- ------- ------- ------- -------
Inventories 82.0 15.0 97.0 115.0 24.5 139.5
---------------------------- ------- ------- ------- ------- ------- -------
Trade and other receivables 243.9 18.2 262.1 230.4 21.0 251.4
---------------------------- ------- ------- ------- ------- ------- -------
Trade and other payables (296.9) (23.3) (320.3) (391.7) (27.6) (419.3)
---------------------------- ------- ------- ------- ------- ------- -------
Net working capital 29.0 9.8 38.8 (46.3) 17.8 (28.4)
---------------------------- ------- ------- ------- ------- ------- -------
Change in net working
capital 75.2 (8.0) 67.2 (66.2) 8.1 (58.2)
---------------------------- ------- ------- ------- ------- ------- -------
Capital Expenditure
Total cash capital expenditure for the 12-month period was
GBP7.6m (2021: GBP6.3m), largely related to ongoing investment in
our recycling facility, new out-base fit out costs and investment
in our new creative studio in London.
Post balance sheet event
During FY22, the Group's German business incurred losses EBITDA
losses of GBP21.3m. A strategic review was started in Q4 FY22 and
on 9 June 2022 it was announced that the Group had taken the
decision to close the business.
As a consequence of the losses and the post year end decision to
close, management have reviewed the carrying value of that
businesses assets. This has been performed using third party
information regarding fixed assets, including ROU assets, together
with an assessment of the realisable value of any remaining
inventory.
As a result, provisions of GBP7.3m have been made at 31 March
2022 to impair the relevant assets and this, together with GBP0.9m
of adviser costs accrued prior to 31 March 2022, have been included
as "Adjusting" items in note 6 to the financial statements.
The closure process is expected to be completed during FY23.On
11 July 2022 the Company completed a Capital Raise through the
issue of 93,801,251 new ordinary shares of 0.25p each in the
Company raising GBP40.3million (before expenses). The net proceeds
of the Capital Raise will strengthen the balance sheet and increase
liquidity back to historic levels (relative to revenue base) and
provide the flexibility to capitalise on market opportunities.
CONDENSED CONSOLIDATED INCOME STATEMENT
For the 12 months ended 31 March 2022
Year Year
ended ended
31 March 31 March
GBPm Note 2022 2021
---------------------------------- ---- --------- ---------
Revenue 2,3 1,557.3 1,660.9
---------------------------------- ---- --------- ---------
Cost of sales (1,281.0) (1,368.4)
Impairment of German assets (6.9) -
---------------------------------- ---- --------- ---------
Cost of sales (1,287.9) (1,368.4)
---------------------------------- ---- --------- ---------
Gross profit 269.4 292.5
---------------------------------- ---- --------- ---------
Administrative expenses (302.3) (263.6)
Impairment of German assets/costs of
Strategic review (1.3) -
---------------------------------------- --------- ---------
Administrative expenses (303.6) (263.6)
Other operating income 1.9 0.8
---------------------------------- ---- --------- ---------
Operating (loss) / profit (32.3) 29.7
Finance income 4 2.6 4.3
Finance costs 5 (7.5) (13.8)
---------------------------------- ---- --------- ---------
(Loss) / profit before tax (37.2) 20.2
Taxation credit / (charge) 6 7.1 (3.1)
---------------------------------- ---- --------- ---------
(Loss) / profit after tax
for the year (30.1) 17.1
---------------------------------- ---- --------- ---------
(Loss) / profit for the year attributable to:
Owners of the parent company (30.4) 17.7
Non-controlling interest 0.3 (0.6)
---------------------------------- ---- --------- ---------
(30.1) 17.1
---------------------------------- ---- --------- ---------
(Loss) / earnings per share (pence)
Basic (loss) / earnings per
share 7 (6.33) 3.73
Diluted (loss) / earnings
per share 7 (6.33) 3.68
---------------------------------- ---- --------- ---------
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 12 months ended 31 March 2022
Year ended Year ended
GBPm 31 March 2022 31 March 2021
---------------------------------------------------- -------------- --------------
(Loss) / profit for the year (30.1) 17.1
Items that may be subsequently recycled to income statement
Exchange differences on translation of foreign
operations 1.0 5.8
----------------------------------------------------- -------------- --------------
Total comprehensive (loss) / profit for
the year (29.1) 22.9
----------------------------------------------------- -------------- --------------
Total comprehensive (loss) / profit for the year attributable
to:
Owners of the Company (29.4) 23.5
Non-controlling interests 0.3 (0.6)
----------------------------------------------------- -------------- --------------
(29.1) 22.9
---------------------------------------------------- -------------- --------------
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March 22
Year Year
ended ended
31 March 31 March
GBPm Note 2022 2021
------------------------------ ---- --------- ---------
Non-current assets
Goodwill 8 28.2 28.2
Other intangible assets 12.2 15.6
Property, plant and equipment 32.7 32.8
Right of use assets 86.6 74.3
Trade and other receivables 9 92.4 85.3
Deferred tax 9.0 5.6
-------------------------------- ---- --------- ---------
261.1 241.8
------------------------------ ---- --------- ---------
Current assets
Inventories 97.0 139.6
Trade and other receivables 9 169.7 166.2
Corporation tax receivable 1.9 1.0
Cash and cash equivalents 19.5 67.1
288.1 373.9
------------------------------ ---- --------- ---------
Total assets 549.2 615.7
-------------------------------- ---- --------- ---------
Current liabilities
Trade and other payables 10 (313.9) (411.4)
Borrowings 11 (45.0) -
Lease liabilities 11 (20.3) (21.4)
Provisions (0.4) (0.1)
(379.6) (432.9)
------------------------------ ---- --------- ---------
Net current liabilities (91.5) (59.0)
-------------------------------- ---- --------- ---------
Non-current liabilities
Trade and other payables 10 (6.4) (7.9)
Lease liabilities 11 (88.3) (73.9)
Deferred tax - (2.3)
Provisions (2.5) (2.3)
-------------------------------- ---- --------- ---------
(97.2) (86.4)
------------------------------ ---- --------- ---------
Total liabilities (476.8) (519.3)
-------------------------------- ---- --------- ---------
Net assets 72.4 96.4
-------------------------------- ---- --------- ---------
Equity attributable to owners
of the parent
Share capital 1.2 1.2
Investment in own shares - -
Share premium account 104.4 104.3
Other reserves 28.5 25.3
Retained losses (60.7) (33.1)
-------------------------------- ---- --------- ---------
Total 73.4 97.7
-------------------------------- ---- --------- ---------
Non-controlling interest (1.0) (1.3)
-------------------------------- ---- --------- ---------
Total equity 72.4 96.4
-------------------------------- ---- --------- ---------
CONDENSED CONSOLIDATED STATEMENT OF CHANGE IN EQUITY
At 31 March 2022
Other reserves
-----------------------------------------------------------
Share Investment Share Merger Capital Share-based Translation Other Retained Total Non-controlling Total
capital in premium reserve redemption payment reserve reserve losses interest
own account reserve reserve
shares
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- ----------- -------- -------- ----------- ------------ ------------ -------- --------- ------ ---------------- ------
Balance at 31
March
2020 1.2 - 103.7 22.2 0.5 11.7 (9.7) (2.7) (57.1) 69.7 (1.0) 68.6
Profit / (loss)
for
the period - - - - - - - - 17.7 17.7 (0.6) 17.1
Share-based
payment
charge (net of
tax) - - - - - 4.2 - - - 4.2 - 4.2
Issue of shares
(net of expenses) - - 0.6 - - - - - - 0.6 - 0.6
Foreign currency
gain arising on
consolidation - - - - - - 5.8 - - 5.8 - 5.8
Acquisition of
minority
interest - - - - - - - (0.3) - (0.3) 0.4 0.1
Movement between
reserves - - - - - (6.3) - - 6.3 - - -
--------- ------
Balance at 31
March
2021 1.2 - 104.3 22.2 0.5 9.6 (4.0) (3.0) (33.1) 97.7 (1.3) 96.4
------------------ -------- ----------- -------- -------- ----------- ------------ ------------ -------- --------- ------ ---------------- ------
(Loss) / Profit
for
the period - - - - - - - - (30.4) (30.4) 0.3 (30.1)
Share-based
payment
charge (net of
tax) - - - - - 5.0 - - - 5.0 - 5.0
Issue of shares
(net of expenses) - - 0.1 - - - - - - 0.1 - 0.1
Foreign currency
gain arising on
consolidation - - - - - - 1.0 - - 1.0 - 1.0
Movement between
reserves - - - - - (2.7) - - 2.7 - - -
------------------ -------- ----------- -------- -------- ----------- ------------ ------------ -------- --------- ------ ---------------- ------
Balance at 31
March
2022 1.2 - 104.4 22.2 0.5 11.8 (3.0) (3.0) (60.7) 73.4 (1.0) 72.4
------------------ -------- ----------- -------- -------- ----------- ------------ ------------ -------- --------- ------ ---------------- ------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the 12 months ended 31 March 2022
Year Year
ended ended
GBPm 31 March 31 March
2022 2021
------------------------------------------------------------- --------- ---------
Cash flows from operating activities
(Loss) / Profit for the period (30.1) 17.1
Adjustments for:
Depreciation and amortisation 32.2 24.6
Loss on disposal of property, plant and equipment 0.3 -
Impairment of German assets / Costs of Strategic
review 8.1 -
Finance income (2.6) (4.3)
Finance costs 7.5 13.8
Taxation (credit)/charge (7.1) 3.1
Share-based payment charge 5.8 3.3
Increase in provisions 0.6 0.9
-------------------------------------------------------------- --------- ---------
Operating cash flows before movement in working
capital 14.8 58.5
-------------------------------------------------------------- --------- ---------
Decrease / (increase) in inventories 41.2 (67.6)
Increase in trade and other receivables (8.3) (35.9)
(Decrease) / increase in trade and other payables (101.8) 162.0
Net movement in working capital (68.9) 58.5
Taxation refunded / (paid) 1.7 (2.4)
-------------------------------------------------------------- --------- ---------
Cash (used in) / generated from operating activities (52.4) 114.6
-------------------------------------------------------------- --------- ---------
Cash flows from investing activities
Acquisition of Right of use assets (1.0) -
Acquisition of property, plant and equipment (7.6) (6.3)
Acquisition of intangible assets (1.0) (2.8)
-------------------------------------------------------------- --------- ---------
Cash used in investing activities (9.6) (9.1)
-------------------------------------------------------------- --------- ---------
Cash flows from financing activities
Proceeds from issue of ordinary share capital 0.1 0.6
Acquisition of non-controlling interest - (0.1)
New borrowings 45.0 -
Interest paid on borrowings (1.6) (2.3)
Interest paid on lease liabilities (4.8) (4.0)
Repayments of borrowings - (21.9)
Repayment of lease liabilities (24.3) (17.6)
Net cash generated from / (used in) financing
activities 14.4 (45.3)
-------------------------------------------------------------- --------- ---------
Net (decrease) / increase in cash (47.6) 60.2
-------------------------------------------------------------- --------- ---------
Cash and cash equivalents at beginning of period 67.1 6.9
Exchange gains on cash & cash equivalents - -
------------------------------------------------------------- --------- ---------
Cash and cash equivalents at end of period 19.5 67.1
-------------------------------------------------------------- --------- ---------
NOTES TO THE FINANCIAL INFORMATION
1. Basis of preparation
This financial information has been prepared and approved by the
Directors in accordance with UK adopted International Accounting
Standards ("UK adopted IFRS").
Whilst the financial information included in this preliminary
announcement has been prepared in accordance with the recognition
and measurement criteria of International Financial Reporting
Standards (IFRSs), this announcement does not itself contain
sufficient information to comply with IFRSs.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 March 2022 or
2021 but is derived from those accounts. Statutory accounts for
2021 have been delivered to the Registrar of Companies and those
for 2022 will be delivered following the Company's Annual General
Meeting. The auditor has reported on those accounts; the report was
unqualified, did not draw attention to any matters by way of
emphasis and did not contain statements under section 498(2) or (3)
Companies Act 2006.
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.
Adoption of new and revised standards
The accounting policies set out in Note 3 of the financial
statements have been applied in preparing this financial
information.
New accounting standards in issue but not yet effective
New standards and interpretations that are in issue but not yet
effective are listed below:
-- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
'Interest Rate Benchmark Reform' - phase 2
-- Annual Improvements to IFRS Standards 2018 - 2020
The Group continues to monitor the potential impact of other new
standards and interpretations which may be endorsed and require
adoption by the Group in future reporting periods. The Group does
not consider that any other standards, amendments or
interpretations issued by the IASB, but not yet applicable, will
have a significant impact on the financial statements.
Going concern
Notwithstanding net current liabilities of GBP91.5m as at 31
March 2022, a cash outflow of GBP47.6m, and an increase in net debt
of GBP105.9m in the year ended 31 March 2022, the financial
statements have been prepared on a going concern basis which the
Directors consider to be appropriate for the following reasons:
The Group meets its day-to-day working capital requirements from
its cash balances and the availability of its GBP80m revolving
credit facility (which was extended by 12 months to now expire in
April 2024). At the date of approval of these financial statements
total liquidity amounted to GBP60.7m.
The Directors have prepared base and sensitised cash flow
forecasts for the Group covering a period of at least 12 months
from the date of approval of these financial statements ("the going
concern period") which indicate that the Group will remain
compliant with its covenants and will have sufficient funds through
its existing cash balances and availability of funds from Revolving
Credit Facility to meet its liabilities as they fall due for that
period. The forecasts take account of current trading, management's
view on future performance and their assessment of the impact of
market uncertainty and volatility.
In assessing the going concern basis, the Directors have taken
into account severe but plausible downsides to sensitise its base
case and have run these in combination. These primarily
include:
-- a downside of negative growth in the financial year 2023 and
in the subsequent periods to account for how the overall electrical
online market could be impacted by the continuing macro-economic
factors exacerbated by the conflict in Ukraine, such as inflation,
consumer confidence, interest rate increases.
-- the cost of exit from Germany and potential volatility in the
timing and amount of cash inflows as a result of this exit;
-- product protection plan cancellation increases as a result of macroeconomic trends;
-- cost inflation being higher than anticipated particularly in relation to wages; and
-- a tightening of credit terms with suppliers as a result of
potential withdrawals or reductions of credit insurance which could
in turn, result in a reduction in trade creditor days. The severe
but plausible downside has been considered at a reduction of 34% on
the cumulative average trade creditor days over the previous five
years.
Under this severe but plausible downside scenario the Group
continues to demonstrate headroom on its banking facilities and
remains compliant with quarterly covenants which are linked to
interest cover, dividend cover and leverage and its annual covenant
linked to net assets.
Consequently, the Directors are confident that the Group and
Company will have sufficient funds to continue to meet its
liabilities as they fall due for at least 12 months from the date
of approval of the financial statements and therefore have prepared
the financial statements on a going concern basis.
Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, the
Directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other
factors that are considered to be relevant and are reviewed on an
ongoing basis. Actual results could differ from these estimates and
any subsequent changes are accounted for with an effect on income
at the time such updated information becomes available.
Accounting standards require the Directors to disclose those
areas of critical accounting judgement and key sources of
estimation uncertainty which carry a significant risk of causing
material adjustment to the carrying value of assets and liabilities
within the next 12 months. These are discussed below:
Impairment of intangible assets and goodwill
As part of the acquisition of Mobile Phones Direct Limited in
2018, the Group recognised amounts totalling GBP16.3m in relation
to the valuation of the intangible assets and GBP14.7m in relation
to residual goodwill. At 31 March 2022 these amounted to
GBP25.1m.
Intangible assets are reviewed for impairment if events or
changes in circumstances indicate that the carrying amount may not
be recoverable. Goodwill is reviewed for impairment on an annual
basis. When a review for impairment is conducted, the recoverable
amount is determined based on the higher of value in use and fair
value less costs to sell. The value in use method requires the
Group to determine appropriate assumptions (which are sources of
estimation uncertainty) in relation to the cash flow projections
over the three-year strategic plan period, the long-term growth
rate to be applied beyond this three-year period and the
risk-adjusted pre-tax discount rate used to discount the assumed
cash flows to present value.
Whilst at 31 March 2022, the Directors have concluded that the
carrying value of the intangibles and goodwill is appropriate
(after considering certain sensitivities which are set out in Note
8), changes in any of these assumptions, which could be driven by
the end customer behaviour with the Mobile Network Operators, could
give rise to an impairment in the carrying value.
Revenue recognition and recoverability of income from product
protection plans
Revenue recognised in respect of commissions receivable over the
lifetime of the plan for the sale of product protection plans is
recognised in line with the principles of IFRS 15, when the Group
obtains the right to consideration as a result of performance of
its contractual obligations (acting as an agent for a third
party).
Revenue in any one year therefore represents an estimate of the
commission due on the plans sold, which management estimate
reliably based upon a number of key inputs, including:
-- the contractual agreed margins;
-- the number of live plans;
-- the discount rate;
-- the estimated length of the plan;
-- the estimated historic rate of attrition; and
-- the estimated 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
attrition within the contract period, expected levels of customer
spend, and customer behaviour beyond the initial contract period.
Such assumptions are based on extensive historical evidence, and
adjustment to the amount of revenue recognised is made for the risk
of potential changes in customer behaviour, but they are
nonetheless inherently uncertain e.g., changes seen in the previous
year as a result of Covid-19.
Reliance on historical data assumes that current and future
experience will follow past trends. The Directors believe that the
quantity and quality of historical data available provides an
appropriate proxy for current and future trends. Any information
about future market trends, or economic conditions that we believe
suggests historical experience would need to be adjusted, is taken
into account when finalising our assumptions each year. Our
experience over the last decade, which has been a turbulent period
for the UK economy as a whole, is that variations in economic
conditions have not had a material impact on consumer behaviour
and, therefore, no adjustment to commissions is made for future
market trends and economic conditions.
In assessing how consistent our observations have been, we
compare cash received in a period versus the forecast expectation
for that period as we believe this is the most appropriate check on
revenue recognised. Small variations in this measure support the
assumptions made.
For plans sold prior to 1 December 2016, the commission rates
receivable are based on pre-determined rates. For plans sold after
that date, base-assumed commissions will continue to be earned on
pre-determined rates but overall commissions now include a variable
element based on the future overall performance of the scheme.
Changes in estimates recognised as an increase or decrease to
revenue may be made, where for example, more reliable information
is available, and any such changes are required to be recognised in
the income statement. During the year, management have refined the
estimations in relation to claims (which impacts profit share)
based on more granular information from Domestic & General
regarding the claims performance of specific cohorts. This has
resulted in an increase in revenue recognised of GBP2.7m. As with
all years, other small refinements have been made but have had an
immaterial impact on the revenue recognised.
The commission receivable balance as at 31 March 2022 was
GBP90.7m (2021: GBP80.7m). The rate used to discount the revenue
for the FY22 cohort is 3.54% (2021: 3.55%). The weighted average of
discount rates used in the years prior to FY22 was 4.12% (2021:
4.63%).
Revenue recognition and recoverability of income in relation to
network commissions
Revenue in respect of commissions receivable from Mobile Network
Operators ("MNOs") for the brokerage of network contracts is
recognised in line with the principles of IFRS 15, when the Group
obtains the right to consideration as a result of performance of
its contractual obligations (acting as an agent for a third
party).
Revenue in any one year therefore represents an estimate of the
commission due on the contracts sold, which management estimates
reliably based upon a number of key inputs, including:
-- The contractually agreed revenue share percentage - the
percentage of the consumer's spend (to MNOs) to which the Group is
entitled;
-- The discount rate using external market data (including risk
free rate and counter party credit risk) - 0.53% (2021: 0.1%);
-- The length of contract entered into by the consumer (12 - 24 months); and
-- The estimated consumer average tenure which takes account of
both the default rate during the contract period and the
expectations that some customers will continue beyond the initial
contract period and generate out of contract ("OOC") revenue
(c4%).
The commission receivable on mobile phone connections can
therefore depend on customer behaviour after the point of sale. The
revenue recognised and associated receivable in the month of
connection is estimated based on all future cash flows that will be
received from the MNOs and these are discounted based on the timing
of receipt.
This also takes into account the potential clawback of
commission by the MNOs and any additional churn expected as a
result of recent price increases announced and applied by the
MNO's, for which a reduction to revenue is made based on historical
experience. The Directors consider that the quality and quantity of
the data available from the MNOs is appropriate for making these
estimates and, as the contracts are primarily for 24 months, the
period over which the amounts are estimated is relatively short. As
with commissions recognised on the sale of product protection
plans, the Directors compare the cash received to the initial
amount recognised in assessing the appropriateness of the
assumptions used.
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. During the year, management have refined the
estimations in relation to the assumed collection of commissions
utilising more recent trends (and ignoring the unusual factors seen
during FY21). This has resulted in an increase in revenue
recognised of GBP1.4m. Other small refinements have been made which
have had an immaterial impact on the revenue recognised.
The commission receivable balance as at 31 March 2022 was
GBP83.4m (2021: GBP91.5m). The rate used to discount the current
year revenue is 0.53% (2021: 0.10%).
Impairment of assets in AO Deutschland
Due to the continued losses in Germany, pre-year end management
commenced a strategic review of the operations in the country. Post
year end, a decision was taken to close that business which
indicated the assets were impaired at 31 March 2022. An impairment
assessment as at 31 March 2022 was undertaken and this has resulted
in the write down of certain assets at the year-end. A judgement
was taken to assess whether there were conditions in existence at
the year end.
These write downs include:
-- A one-off provision of GBP1.2m against unsold inventory which
is considered as outside normal provision policies.
-- An impairment provision of GBP6.1m against rights of use
property and other assets after considering the recoverable value
being whether the company is able to either return the assets back
to the landlord or sublet the assets. To the extent that management
can negotiate the exit from the leases, there is the possibility
that the overall rights of use asset may in part be recovered,
however this is uncertainty and therefore an impairment provision
is recorded.
Negotiations are ongoing with suppliers with regards to the
amount due to or from the German business with regards to trading
balances including returned stock, payables and rebates. At 31
March 2022, the amounts included in the balance sheet regarding
suppliers are either contractually due or payable. Management
however note that discussion are ongoing with suppliers and until
these discussions are concluded it may not be possible to determine
how much will be settled.
The above may not be finalised until later in FY23 and therefore
are included to ensure the uncertainties are properly
disclosed.
Recoverability of Deferred tax assets
At 31 March 2022, the Group has UK tax losses of GBP39.7m and
accordingly has recognised a deferred tax asset of GBP8.0m.
In recognising the asset, management have taken account of the
historic profitability of the UK business together with its
forecasts (utilising the same information as in the going concern
and viability statement). In recent years, other than FY22, the UK
business has been profitable. The unprecedented circumstances which
have affected the post Covid trading period have been the prime
reason for the result in FY22 and management have taken actions to
mitigate the impacts of the current cost of living squeeze and
difficult macro-economic conditions. The business therefore expects
to be profitable in the future and therefore has assessed that
utilising the losses is probable and as such the asset has been
recognised.
Management acknowledge that the economic environment is
providing a difficult backdrop on which to forecast but believes
that its forecasts reflect the impact of the current challenges.
However, as a consequence of the significance of the asset, this is
disclosed as a significant area of accounting judgement.
2. Revenue
The table below shows the Group's revenue by main geographical
area and major business area. All revenue is accounted for at a
point in time as the Group has satisfied its performance
obligations on the sale of its products / services.
Major product / services lines
Year ended Year ended
GBPm 31 March 2022 31 March 2021
------------------------------ ------------------------- -------------------------
UK Germany Total UK Germany Total
------------------------------ ------- ------- ------- ------- ------- -------
Product revenue 1,114.4 181.7 1,296.1 1,200.3 220.9 1,421.2
Service revenue 50.3 3.0 53.3 54.0 4.0 58.0
Commission revenue 156.8 0.7 157.5 146.0 0.3 146.3
Third party logistics revenue 22.7 3.6 26.3 16.5 1.2 17.7
Recycling revenue 24.1 - 24.1 17.7 - 17.7
------------------------------ ------- ------- ------- ------- ------- -------
Total revenue 1,368.3 189.0 1,557.3 1,434.5 226.4 1,660.9
------------------------------ ------- ------- ------- ------- ------- -------
3. Segmental analysis
The Group has two reportable segments, online retailing of
domestic appliances and ancillary services to customers in the UK,
and online retailing of domestic appliances and ancillary services
to customers in Germany.
Operating segments are determined by the internal reporting
regularly provided to the Group's Chief Operating Decision Maker.
The Chief Operating Decision Maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Executive Directors and has
determined that the primary segmental reporting format of the Group
is geographical by customer location, based on the Group's
management and internal reporting structure. Transactions between
segments are undertaken on an arm's length basis using appropriate
transfer pricing policies.
The following is an analysis of the Group's revenue and results
by reportable segments.
GBPm Year ended Year ended
31 March 2022 31 March 2021
UK Germany Total UK Germany Total
------------------------------------------------------ --------- ------- --------- --------- ------- ---------
Revenue 1,368.3 189.0 1,557.3 1,434.5 226.4 1,660.9
------------------------------------------------------ --------- ------- --------- --------- ------- ---------
Cost of sales (1,104.9) (176.1) (1,281.0) (1,161.6) (206.8) (1,368.4)
Impairment of German assets - (6.9) (6.9) - - -
------------------------------------------------------ --------- ------- --------- --------- ------- ---------
Cost of sales (1,104.9) (183.0) (1,287.9) (1,161.6) (206.8) (1,368.4)
------------------------------------------------------ --------- ------- --------- --------- ------- ---------
Gross profit 263.4 6.2 269.6 273.0 19.5 292.5
------------------------------------------------------ --------- ------- --------- --------- ------- ---------
Administrative expenses (271.8) (30.5) (302.3) (235.6) (27.9) (263.6)
Impairment of German assets/costs of Strategic review (0.9) (0.4) (1.3) - - -
------------------------------------------------------ --------- ------- --------- --------- ------- ---------
Administrative expenses (272.7) (30.9) (303.6) (235.6) (27.9) (263.6)
Other o perating income 1.8 0.1 1.9 0.8 - 0.8
------------------------------------------------------ --------- ------- --------- --------- ------- ---------
Operating (loss) / profit (7.5) (24.8) (32.3) 38.1 (8.4) 29.7
Finance income 2.6 - 2.6 4.3 - 4.3
Finance costs (5.6) (1.9) (7.5) (6.9) (6.9) (13.8)
------------------------------------------------------ --------- ------- --------- --------- ------- ---------
(Loss) / Profit before tax (10.5) (26.7) (37.2) 35.4 (15.3) 20.2
Tax credit 7.2 (0.1) 7.1 (3.1) - (3.1)
------------------------------------------------------ --------- ------- --------- --------- ------- ---------
(Loss) / Profit after tax (3.3) (26.8) (30.1) 32.3 (15.3) 17.1
------------------------------------------------------ --------- ------- --------- --------- ------- ---------
4. Finance income
Year ended Year ended
31 March 31 March
GBPm 2022 2021
--------------------------------------- ----------- -----------
Movement in valuation of put and call
option - 0.8
Unwind of discounting on non-current
contract assets 2.6 3.4
Total 2.6 4.3
--------------------------------------- ----------- -----------
5. Finance costs
Year ended Year ended
31 March 31 March
GBPm 2022 2021
------------------------------------------------- ----------- -----------
Interest on lease liabilities 4.8 4.0
Interest on bank loans 0.6 0.4
Other finance costs 1.0 1.9
Non-cash foreign exchange losses on intra-Group
loans 1.1 6.8
Unwind of discounting on long term payables - 0.1
Movement in valuation of put and call
option - 0.6
Total 7.5 13.8
------------------------------------------------- ----------- -----------
6. Taxation
Year ended Year ended
31 March 31 March
GBPm 2022 2021
--------------------------------------- ---------- ----------
Corporation tax
Current year (0.3) 3.4
Adjustments in respect of prior years (0.3) -
--------------------------------------- ---------- ----------
(0.6) 3.4
Deferred tax
Current year (5.9) (0.1)
Adjustments in relation to prior years (0.6) (0.3)
--------------------------------------- ---------- ----------
(6.5) (0.4)
--------------------------------------- ---------- ----------
Total tax (credit) / charge (7.1) 3.1
--------------------------------------- ---------- ----------
The expected corporation tax charge for the year is calculated
at the UK corporation tax rate of 19% (2021: 19%) on the (loss) /
profit before tax for the year. Taxation for other jurisdictions is
calculated at the rates prevailing in the respective jurisdictions
in which the Group operates.
The (credit) / charge for the year can be reconciled to the
(loss) / profit in the statement of comprehensive income as
follows:
Year ended Year ended
31 March 31 March
GBPm 2022 2021
--------------------------------------------- ---------- ----------
(Loss) / Profit before tax on continuing
operations (37.2) 20.2
Tax at the UK corporation tax rate of 19%
(2021: 19%) (7.1) 3.8
Ineligible expenses 0.4 1.7
Impact of difference in current and deferred
tax rates (1.2) -
Income not taxable (0.1) (0.1)
Share-based payments 1.7 (2.0)
Prior period adjustments (0.9) (0.3)
--------------------------------------------- ---------- ----------
Tax (credit) / charge for the year (7.1) 3.1
--------------------------------------------- ---------- ----------
An increase in the UK corporation rate from 19% to 25%
(effective 1 April 2023) was substantively enacted on 24 May 2021.
The impact of the rate change has been considered when recognising
the deferred tax in relation to UK companies, and where there is a
material difference between deferred tax recognition at 25% and
deferred tax recognition at 19%, the deferred tax has been
recognised at the rate in which it is expected to unwind.
7. (Loss) / Earnings per share
The calculation of the basic and diluted (loss) / earnings per
share is based on the following data:
Year Year
ended ended
31 March 31 March
GBPm 2022 2021
(Loss) / Profit for the purposes of basic
and diluted earnings per share being profit
attributable to owners
of the parent Company (30.4) 17.7
---------------------------------------------- ------------ ------------
Number of shares
Weighted average shares in issue for the
purposes of basic loss per share 478,558,948 475,626,353
Potentially dilutive shares options 7,028,898 6,337,186
---------------------------------------------- ------------ ------------
Weighted average number of diluted ordinary
shares 485,587,846 481,963,539
---------------------------------------------- ------------ ------------
(Loss) / Earnings per share (pence per
share)
Basic (loss) / earnings per share (6.33) 3.73
Diluted (loss) / earnings per share (6.33) 3.68
The diluted loss per share has been restricted to the basic loss
per share to prevent having an anti-dilutive effect.
The basic (loss) / earnings per share is affected by significant
non-cash foreign exchange movements arising from intra-Group
funding arrangements. Management have therefore presented an
adjusted (loss) / earnings per share which is based on an adjusted
(loss) / earnings attributable to the owners of the parent company
and the diluted weighted average number of shares as they believe
it provides helpful additional information for stakeholders in
assessing the performance of the business. The foreign exchange
movement has arisen as a result of the change in the exchange rate
between sterling and the euro in the period.
Year Year
ended ended
31 March 31 March
GBPm 2022 2021
(Loss) / Profit attributable to owners
of the parent company (30.4) 17.7
Adjustment for foreign exchange movements
on intra-Group loans 1.1 6.8
----------------------------------------------------- ----------------- ---------------
Adjusted (loss) / profit attributable
to owners of the parent company (29.3) 24.5
----------------------------------------------------- ----------------- ---------------
Number of shares
Weighted average shares in issue for the
purposes of basic loss per share 478,558,948 475,626,353
Potentially dilutive shares options 7,028,898 6,337,186
----------------------------------------------------- ----------------- ---------------
Diluted weighted average number of ordinary
shares 485,587,846 481,963,539
----------------------------------------------------- ----------------- ---------------
(Loss) / Earnings per share (in pence)
Basic (loss) / earnings per share (6.33) 3.73
Diluted (loss) / earnings per share (6.33) 3.68
Adjusted (loss) / earnings per share (6.10) 5.15
8. Goodwill
GBPm
---------------------------------------- -----
Carrying value at 31 March 2021 and 31
March 2022 28.2
---------------------------------------- -----
Goodwill relates to purchase of Expert Logistics Limited, the
purchase by DRL Holdings Limited (now AO World PLC) of DRL Limited
(now AO Retail Limited), the acquisition of AO Recycling Limited
(formerly The Recycling Group Limited) and the acquisition of
Mobile Phones Direct Limited (now AO Mobile Limited) by AO
Limited.
Impairment of goodwill
UK CGU - GBP13.5m
At 31 March 2022, goodwill acquired through UK business
combinations (excluding Mobile Phones Direct Limited) was allocated
to the UK cash-generating unit ("CGU") which is also the UK
operating segment.
This represents the lowest level within the Group at which
goodwill is monitored for internal management purposes.
The Group performed its annual impairment test as at 31 March
2022. The recoverable amount of the CGU has been determined based
on the value in use calculations. The Group prepares cash flow
forecasts derived from the most recent financial budget and
financial plan for three years, and extrapolates cash flows for the
following years, up until year five, based on an estimated growth
rate of 1%. This rate does not exceed the average long term growth
rate for the market. The final year cash flow is used to calculate
a terminal value.
Management estimate discount rates using pre-tax rates that
reflect current market assessments of the time value of money and
the risks specific to this CGU. In arriving at the appropriate
discount rate to use, we adjust the CGU's post-tax weighted average
cost of capital to reflect the impact of risks and tax effects
specific to the cash flows. The weighted average pre-tax discount
rate we used was approximately 9.7% (2021: 9.1%).
The key assumptions, which take account of historic trends, upon
which management have based their cash flow projections are sales
growth rates, selling prices and product margin.
Management do not believe that any reasonable possible
sensitivity would result in any impairment to this goodwill.
Mobile Phones Direct Limited - GBP14.7m
The Group has assessed the goodwill arising on the acquisition
of Mobile Phones Direct Limited in December 2018. This was
performed based on a value in use calculation in the same way as
for the UK business noted previously but using a pre-tax weighted
average cost of capital appropriate for Mobile Phones Direct
Limited as a standalone business of 14.8% (2021: 14.2%).
The total recoverable amount in respect of goodwill for this CGU
is greater than its carrying value by GBP0.7m in management's base
case.
The main assumptions underlying the value in use calculation are
the volume of mobile connections (and hence revenue) where growth
is forecast at 3% per annum per year, EBITDA margin that is assumed
to stay flat at c.2% and the discount rate.
The Directors have performed sensitivity analysis on the numbers
included in the three-year strategic plan for the business in
assessing the value in use. Management believe that the key
assumptions are revenue, margin and the discount rate. If revenue
growth was 4% lower than forecast, it would have an impact of
GBP(0.8)m on the amount of headroom. If margin reduced by 2% this
would have an impact of GBP(0.7)m on the amount of headroom
(without management taking any mitigating action). If the discount
rate increased by 5% it would have a GBP(0.8)m impact on the amount
of headroom assuming all other factors remained the same.
However, management believe that based on the range of possible
outcomes noted above, whilst the value in use is broadly equivalent
to the carrying value, there is no current impairment. If the key
assumptions were to move by more than the sensitivities identified
above, there is a possible upside to the forecast relating to
contractual inflationary price increases as disclosed in note
9.
Further details of this area of estimation uncertainty are set
out in Note 4 of the annual report.
9. Trade and other receivables
Year ended Year ended
31 March 31 March
GBPm 2022 2021
-------------------------------- ----------- -----------
Trade receivables 25.8 19.8
Contract assets 174.1 172.2
Prepayments and accrued income 50.0 46.8
Other receivables 12.2 12.7
-------------------------------- ----------- -----------
Total 262.1 251.5
-------------------------------- ----------- -----------
The trade and other receivables are classified as:
Year ended Year ended
31 March 31 March
GBPm 2022 2021
-------------------- ----------- -----------
Non-current assets 92.4 85.3
Current assets 169.7 166.2
-------------------- ----------- -----------
Total 262.1 251.5
-------------------- ----------- -----------
All of the amounts classified as non-current assets relate to
contract assets.
Contract assets
Contract assets represent the expected future commissions
receivable in respect of product protection plans and mobile phone
connections. The Group recognises revenue in relation to these
plans and connections when it obtains the right to consideration as
a result of performance of its contractual obligations (acting as
an agent for a third party). Revenue in any one year therefore
represents the estimate of the commission due on the plans sold or
connections made.
The reconciliation of opening and closing balances for contract
assets is shown below:
Year Year
ended 31 ended 31
March March
GBPm 2022 2021
----------------------------------------- --------- ---------
Balance brought forward as reported 172.2 160.9
Revenue recognised* 145.9 174.0
Cash received (151.0) (153.0)
Revisions to estimates - adjusting items - (8.1)
Revisions to estimates - other 4.4 (5.0)
Unwind of discounting 2.6 3.4
Balance carried forward 174.1 172.2
----------------------------------------- --------- ---------
* Revenue recognised is gross, that is excluding the deduction
of cashback payments, which are deducted from revenue in the Income
statement but are shown as contract liabilities in the Statement of
Financial Position.
Included in the contract asset balance in relation to product
protection plans at 31 March 2021 is an amount of GBP0.4m in
relation to variable consideration recognised as revenue up to that
date which has reversed in the year ended 31 March 2022. This is
included in the revisions to estimates above.
Included in the contract asset balance in relation to network
commissions at 31 March 2021 was an amount of GBP4.8m in relation
to previously constrained revenue which has now been recognised in
the year ended 31 March 2022. This is included in the revisions to
estimates above.
The Group still recognises that there is inherent risk in the
amount of revenue recognised as it is dependent on future customer
behaviour which is outside of the Group's control and therefore at
31 March 2022 an amount of GBP8.9m has been constrained in relation
to revenue recognised.
Product protection plans
Under our arrangement with Domestic & General ("D&G"),
the Group receives commission in relation to its role as agent for
introducing its customers to D&G and recognises revenue at the
point of sale as it has no future obligations following this
introduction. A discounted cash flow methodology is used to measure
the estimated value of the revenue and contract assets in the month
of sale of the relevant plan, by estimating all future cash flows
that will be received from D&G and discounting these based on
the expected timing of receipt. Subsequently, the contract asset is
measured at the present value of the estimated future cash flows.
The key inputs into the model which forms the base case for
management's considerations are:
-- the contractually agreed margins, which differ for each
individual product covered by the plan as is included in the
agreement with D&G;
-- the number of live plans based on information provided by D&G;
-- the discount rate for plans sold in the year using external market data - 3.54% (2021: 3.55%);
-- the estimate of profit share relating to the scheme as a
whole based on information provided by D&G;
-- historic rate of customer attrition that uses actual
cancellation data for each month since the start of the plans in
2008 to form an estimate of the cancellation rates to use by month
going forward (range of 0% to 9.1% weighted average cancellation by
month); and
-- the estimated length of the plan based on historical data
plus external assessments of the potential life of products (5 to
16 years).
The last two inputs are estimated based on extensive historical
evidence obtained from our own records and from D&G. The Group
has accumulated historical empirical data over the last 13 years
from c.2.8m plans that have been sold. Of these, c.1.05m are live.
Applying all the information above, management calculate their
initial estimate of commission receivable. Consideration is then
given to other factors outside of the historical data noted above
that could impact the valuation. This primarily considers the
reliance on historical data as this assumes that current and future
experience will follow past trends. There is, therefore, a risk
that changes in consumer behaviour could reduce or increase the
total cash flows ultimately realised over the forecast period.
Management makes a regular assessment of the data and assumptions
with a detailed review at half year and full year to ensure this
continues to reflect the best estimate of expected future
trends.
As set out in Note 2, the Directors do not believe there is a
significant risk of a material adjustment to the revenue recognised
in relation to these plans over the next 12 months. The sensitivity
analysis below is disclosed as we believe it provides useful
insight to the users of the financial statements into the factors
taken into account when calculating the revenue to be recognised.
The table shows the sensitivity of the carrying value of the
commission receivables and revenue to a reasonably possible change
in inputs to the discounted cash flow model over the next 12
months.
Impact on
contract
asset and
revenue
Sensitivity GBPm
------------------------------------------- ----------
Cancellations increase by 2% (1.8)
Cancellation rate reduces by 2% 1.8
Profit share increases or decreases by 10% 1.0/(1.0)
------------------------------------------- ----------
Cancellations
The number of cancellations and therefore the cancellation rate
can fluctuate based on a number of factors. These include
macroeconomic changes e.g., unemployment, but will also reflect the
change in nature of the plan itself (insurance plan vs service
plan). The impact of reasonable potential changes is shown in the
sensitivities above.
Profit share
The profit share attaching to the overall scheme is dependent on
factors such as the price of the plan, the cost of claims and the
administration of the scheme itself. Given changes in
macro-economic conditions, there is an increased risk that claims
cost could increase but also the possibility that to counter any
increase in cost that D&G could (with agreement from AO)
increase the price per plan. The above sensitivity considers what
any reasonable change in either of these could mean to the overall
profit share.
Network commissions
The Group operates under contracts with a number of Mobile
Network Operators ("MNOs"). Over the life of these contracts, the
service provided by the Group to each MNO is the procurement of
connections to the MNO's networks. The individual consumer enters
into a contract with the MNO for the MNO to supply the ongoing
airtime over that contract period. The Group earns a commission for
the service provided to each MNO. Revenue is recognised at the
point the individual consumer signs a contract and is connected
with the MNO. Consideration from the MNO becomes receivable over
the course of the contract between the MNO and the consumer. The
Group has determined that the number and value of consumers
provided to each MNO in any given month represents the measure of
satisfaction of each performance obligation under the contract. A
discounted cash flow methodology is used to measure the estimated
value of the revenue and contract assets in the month of
connection, by estimating all future cash flows that will be
received from the MNOs and discounting these based on the expected
timing of receipt. Subsequently, the contract asset is measured at
the present value of the estimated future cash flows.
The key inputs to management's base case model are:
-- revenue share percentage, i.e., the percentage of the
consumer's spend (to the MNO) to which the Group is entitled;
-- the discount rate using external market data - 0.53% (2021: 0.10%);
-- the length of contract entered into by the consumer (12 - 24 months); and
-- consumer average tenure that takes account of both the
default rate during the contract period and the expectations that
some customers will continue beyond the initial contract period and
generate out of contract revenue.
The last two input is estimated based on extensive historical
evidence obtained from the networks, and adjustment is made for the
risk of potential changes in consumer behaviour. Applying all the
information above, management calculate their initial estimate of
commission receivable. Consideration is then given to other factors
outside of the historical data noted above which could impact the
valuation. This primarily considers the reliance on historical data
as this assumes that current and future experience will follow past
trends.
The risk remains that changes in consumer behaviour may continue
and could reduce or increase the total cash flows ultimately
realised over the forecast period. Management make a regular
assessment of the data and assumptions with a detailed review at
half year and full year to ensure this continues to reflect the
best estimate of expected future trends and appropriate revisions
are made to the estimates. The sensitivity analysis below is
disclosed as we believe it provides useful insight to the users of
the financial statements by giving insight into the factors taken
into account when calculating the revenue to be recognised. The
table shows the sensitivity of the carrying value of the commission
receivables and revenue to a reasonably possible change in inputs
to the discounted cash flow model over the next 12 months, having
taken account of the changes in behaviour experienced in the
period.
Impact on
contract
asset and
revenue
Sensitivity GBPm
---------------------------------------- -----------
2% increase in cancellations (1.6)
2% decrease in cancellations 1.6
6% Increase in contractual entitlement 0.9
---------------------------------------- -----------
Cancellations
The number of cancellations and therefore the cancellation rate
can fluctuate based on a number of factors. These include
macroeconomic changes e.g., unemployment, interest rates and
inflation. The impact of reasonable potential changes is shown in
the sensitivities above.
Contractual entitlement
The entitlement from the MNO's is based on our percentage share
of the customers spend. As monthly spend may increase given prices
are linked to RPI the Group's potential share of spend could
increase. Countering this, any increase in prices may result in
increased churn and therefore the above sensitivity aims to provide
a reasonable estimate of what any further change in RPI (primarily
from April 2023) could have on our contractual entitlement.
Prepayments and accrued income
At 31 March 2022, there is GBP19.0m (2021: GBP18.2m) included in
prepayments and accrued income in relation to volume rebates
receivable. The amounts are largely coterminous and are mainly
agreed in the month after recognition.
At 30 June 2022, the balance outstanding was GBP3.3m (31 May
2021: GBP4.1m).
10. Trade and other payables
Year ended Year ended
31 March 31 March
GBPm 2022 2021
Trade payables 205.0 273.8
Accruals 28.9 36.8
Contract liabilities 44.1 63.0
Deferred income 18.1 27.4
Other payables 24.2 18.3
---------------------- ----------- -----------
Total 320.3 419.3
---------------------- ----------- -----------
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases is 47 days (2021: 52 days),
the reduction reflecting the conclusion of certain extended term
agreements during the prior year.
Contract liabilities includes payments on account from Mobile
Network Operators where there is no right of set off with the
contract asset and cashback liabilities due to the end customer
within the mobile business.
Historically, certain mobile phone contracts included variable
consideration resulting from cash back rights that a customer must
claim periodically and as a consequence the Group have constrained
the transaction price in relation to the potential cashback
redemptions based on historical data. As a result of a change in
the sales proposition, from Q4 of FY21 cashback incentives were not
offered and therefore during the current year no amounts have been
added to the liability which amounted to GBP8.2m at 31 March 2021.
Redemptions have taken place against the liability and at 31 March
2022 the liability now amounts to GBP0.1m compared to a total
maximum liability of GBP0.2m. During the year there has been no
reversal of amounts recognised in prior periods (2021:
GBP7.2m).
Trade and other payables are classified as:
Year ended Year ended
31 March 31 March
GBPm 2022 2021
----------------------- ----------- -----------
Current liabilities 313.9 411.4
Long-term liabilities 6.4 7.9
----------------------- ----------- -----------
320.3 419.3
----------------------- ----------- -----------
11. Net debt and movement in financial liabilities
Year ended Year ended
31 March 31 March
GBPm 2022 2021
-------------------------------------------------- ----------- -----------
Cash and cash equivalents at year end 19.5 67.1
Borrowings - Repayable within one year (45.0) -
Owned asset lease liabilities - Repayable
within one year (2.0) (4.0)
Owned asset lease liabilities - Repayable
after one year (5.3) (5.6)
-------------------------------------------------- ----------- -----------
Net (debt) / funds (excluding leases relating
to Right of use assets) (32.8) 57.5
Right of use asset lease liabilities - Repayable
within one year (18.3) (17.4)
Right of use asset lease liabilities - Repayable
after one year (83.0) (68.3)
-------------------------------------------------- ----------- -----------
Net debt (134.1) (28.2)
-------------------------------------------------- ----------- -----------
Whilst not required by IAS 1 Presentation of Financial
Statements, the Group has elected to disclose its Lease liabilities
split by the nature of the asset that they relate to. This is to
give the users of these Financial Statements additional information
that the director's feel will be useful to the readers
understanding of the business.
Movement in financial liabilities in the year was as
follows:
Lease
GBPm Borrowings Liabilities
---------------------------------------- ---------- ------------
Balance at 1 April 2021 - 95.3
Changes from financing cash flows
Payment of interest (0.6) (4.8)
Repayment of lease liabilities - (24.3)
Total changes from financing cash flows (0.6) (29.1)
---------------------------------------- ---------- ------------
Other changes
New Borrowing 45.0 -
New lease liabilities - 45.4
Reassessment of lease term - (7.8)
Interest expense 0.6 4.8
---------------------------------------- ---------- ------------
Total other changes 45.6 42.4
---------------------------------------- ---------- ------------
Balance at 31 March 2022 45.0 108.6
---------------------------------------- ---------- ------------
Lease
GBPm Borrowings Liabilities
---------------------------------------- ---------- ------------
Balance at 1 April 2020 21.9 84.1
Changes from financing cash flows
Repayment of borrowings (21.9) -
Payment of interest (0.4) (4.0)
Repayment of lease liabilities - (17.6)
Total changes from financing cash flows (22.3) (21.6)
---------------------------------------- ---------- ------------
Other changes
New lease liabilities - 32.8
Reassessment of lease terms - (3.5)
Interest expense 0.4 4.0
Exchange differences - (0.5)
---------------------------------------- ---------- ------------
Total other changes 0.4 32.8
---------------------------------------- ---------- ------------
Balance at 31 March 2021 - 95.3
---------------------------------------- ---------- ------------
On 6 April 2020, AO Limited, a direct subsidiary of AO World PLC
entered into an GBP80m revolving credit facility. The facility is
secured by a debenture over the assets of the companies party to
the agreement, a charge over the relevant company shares and a
charge over the AO.com domain name. During the year, the facility
expiry date was extended to 6 April 2024. The amount drawn at 31
March 2022 was GBP49.9m and represented GBP45m of cash drawings
plus GBP4.9m of letters of credit (2021: GBP3.9m of letters of
credit).
New leases in the year represent new outbases, a new warehouse
in Crewe, our new creative studio in London together with additions
to our delivery fleet.
The reassessment of leases reflects a review of the Group's
leased property portfolio and aligning the future lease liability
with the Group's current intention particularly with reference to
lease break periods.
12. Share-based payments
AO Incentive Plan
On 1 July 2021, the Company made awards to participants under
the AO 2018 Incentive Plan (2021 grant) in which the Directors and
key members of staff participate. The Plan combines an annual bonus
element and a conditional deferred share award based on various
financial and non-financial performance criteria as well as the
continuing employment of the individuals. The bonus and number of
conditional deferred share awards will be calculated based on the
performance criteria for the year ending 31 March 2022. The bonus
and number of conditional deferred share awards have been
calculated based on the performance criteria for the year ending 31
March 2022. The Remuneration Committee has determined that 15% of
the award should vest with one-third delivered in cash the other
two thirds will be delivered in the form of a conditional deferred
share award calculated by reference to the average closing share
price for the five days followin g.
On 8 July 2021, following the measurement of the various
performance criteria at 31 March 2021 relating to the AO 2018
Incentive Plan (2020 grant), 2,399,913 conditional deferred share
awards were issued which will vest subject to the relevant
employees being in service at 31 March 2024 and the remuneration
committee of the Company being satisfied with the underlying
performance of the Group (the performance underpin).
In relation to the grant of awards made on 19 July 2018 (2018
grant), and the subsequent issue of conditional deferred share
awards in July 2019, the Remuneration Committee has determined that
the performance underpin has been met and that accordingly, the
share awards will be released in full; this will result in the
release (and issue) of 1,551,198 shares.
Value Creation Plan
On 1 July 2021 and 22 November 2021, the Company granted 23,288
and 26,007 awards under the Value Creation Plan to employees. The
awards are conditional and will vest at certain measurement dates
from 31 March 2025 to 31 March 2027 dependent on continued
employment as well as meeting a share price performance
condition.
SAYE
During the year ended 31 March 2022, options over 3,981,372
shares were granted on 23 December 2021.
Income Statement
The total charge in the Income Statement in relation to the AO
Incentive Plan and the Value Creation Plan, was GBP4.3m (2021:
GBP3.0m) and SAYE Schemes was GBP1.5m (2021: GBP0.3m).
13. Post Balance sheets events
On 9 June 2022, the Company announced the decision to close its
operations in Germany. The closure process is expected to be
completed during FY23 and any estimated impairments of assets at 31
March 2022 as a consequence of the ongoing losses and subsequent
closure have been included in the financial statements for the year
ended 31 March 2022.
It has since ceased trading on ao.de and is winding down
operations in an orderly manner with estimated cash costs in FY23
of nil to GBP5m .
On 11 July 2022 the Company completed a Capital Raise through
the issue of 93,801,251 new ordinary shares of 0.25p each in the
Company raising GBP40.3million (before expenses). The net proceeds
of the Capital Raise will strengthen the balance sheet and increase
liquidity back to historic levels (relative to revenue base) and
provide the flexibility to capitalise on market opportunities.
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END
FR GPUGWRUPPUAR
(END) Dow Jones Newswires
August 18, 2022 02:00 ET (06:00 GMT)
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