TIDMAO.
RNS Number : 0348X
AO World plc
21 November 2017
AO WORLD PLC
INTERIM RESULTS FOR THE 6 MONTHSED 30 SEPTEMBER 2017
AO on track as it delivers continued revenue growth and further
strategic progress
AO World plc ("the Group" or "AO"), a leading European online
electrical retailer, today announces its unaudited interim
financial results for the six months ended 30 September 2017.
Financial Highlights(1)
-- Continued revenue growth with total revenue for the period
increasing by 13.3% to GBP368.0m (2016: GBP324.7m) as both UK and
Europe growth continued; UK growth continued to be resilient
against a backdrop of a weaker macro-economic environment and
strong comparables:
o AO website sales(2) for the UK(3) up 9.9% to GBP282.5m (2016:
GBP257.0m) with Q2 growth of 13.2%; Q1 up 6.2% against tough
comparable Q1 2016 sales which benefitted from changes to stamp
duty. Total UK revenue up 7.4% to GBP316.8m (2016: GBP295.1m).
o Europe(4) revenue for the period increased by 60.5% to
EUR58.1m (2016: EUR36.2m) (in GBP 2017: GBP51.2m; 2016: GBP29.6m)
despite minimal traditional marketing activity.
-- Group Adjusted EBITDA losses of GBP6.3m (2016: GBP1.5m profit).
o UK Adjusted EBITDA(5) of GBP7.4m (2016: GBP13.1m) impacted
mainly by increased marketing expenditure.
o Europe Adjusted EBITDA losses of EUR15.6m (2016: EUR14.3m) as
we continue to invest in European expansion and build scale (in GBP
2017: GBP13.7m loss; 2016: GBP11.6m loss - such losses further
compounded by unfavourable FX rates).
-- Group operating loss of GBP12.0m (2016: GBP2.8m loss)
following increased UK brand expenditure and, in line with
strategy, investment in Europe.
-- As at 30 September 2017 Group cash was GBP72.3m (2016:
GBP32.4m); net funds(6) GBP56.7m (2016; GBP21.3m).
-- Basic loss per share of 1.90p (2016: 0.11p earnings), which
includes foreign exchange gains from inter-group funding. Reversing
such foreign exchange gains gives adjusted loss per share of 2.23p
(2016: 0.92p loss). (7)
Strategic and Operational Highlights
-- Transactional mobile app successfully launched across all territories.
-- New categories rolled-out towards the end of the period with
the addition of mobile phones, gaming consoles, smart home and
cameras in the UK; small kitchen appliances in Germany and
audio-visual in The Netherlands.
-- Customer satisfaction remains exceptional in all territories.
AO's Net Promoter Score(8) (,) the key brand loyalty measure,
remains at high levels of c. 80, reflecting continued high levels
of customer satisfaction; as a result repeat purchase metrics
performed well across all territories.
-- Recycling facility fully operational in Telford processing
all AO WEEE(9) in the UK and now working with third-party
customers.
Steve Caunce, AO Chief Executive Officer, said:
"AO has made a good start to the year. We delivered further
steady progress against our 4Cs strategy - growing revenues across
all Countries, maintaining high Customer satisfaction levels and
adding even more Categories to our offer, all underpinned by our
unique Culture. We continued to improve and add to our customer
journey, including the launch of our transactional app. We are
broadly on track with our plans for the year as a whole - with the
positive impact of improving sales growth through the first half of
the year combined with the first half biased phasing of our
marketing spend - in spite of the challenging UK market
conditions.
Our European operations continue to perform in line with the
plan we've previously set out notwithstanding the adverse impact of
foreign exchange rates on our reported performance. The AO culture
is firmly embedding in Germany and The Netherlands and our
foundations for growth are fully established. We are also building
a number of exciting new vertically integrated capabilities under
the AO banner, including our state-of-the-art recycling facility in
Telford. This is another great example of how we have applied the
AO Way to an underinvested section of the market and it should make
an exciting contribution to the business in the future.
As AO continues to become the destination for consumer
electronics for more and more people, we will continue to evolve
our brand strategy, underpinned by our commitment to make things
easy for our customers because we simply care more. While we are
mindful of macro-economic factors we remain confident that we are
on track with our plans to be the best electrical retailer in
Europe."
Outlook
The improved sales momentum we saw in the second quarter against
the first has continued into the second half of the year as we head
towards our peak sales period. Whilst we continue to anticipate
uncertainty in the macro-economic environment, we remain focussed
on delivering value for all our stakeholders. We have a robust
business model with an unwavering commitment to making things easy
for all our customers with our "care more" culture. We are now
firmly-established in our new territories with huge growth
potential in these markets.
Our outlook for the full year remains within the range of market
expectations for Adjusted EBITDA towards the lower end, reflecting
the continuing momentum in our UK business despite challenging
market conditions and the adverse impact of foreign exchange rates
on the translation of our European operations' reported
performance.
Webcast details
A results presentation hosted by Steve Caunce and Mark Higgins
for analysts and investors will be held today, 21 November 2017 at
9:00am (GMT) at the London Stock Exchange, 10 Paternoster Square,
EC4M 7LS. Please register your attendance in advance with Tulchan
Communications using the contact details below.
A webcast of the presentation will be available to watch live
and later in the day at www.AO.com/corporate (10) where the results
presentation slides can also be viewed or the presentation can be
heard live by dialling in on +44 20 3713 5011 using access code
492-915-541.
For further information, please contact:
AO World plc Tel: +44(0) 1204
Steve Caunce 672400
Mark Higgins ir@ao.com
Tulchan Communications Tel: +44(0) 20
Susanna Voyle 7353 4200
Michelle Clarke ao@tulchangroup.com
About AO
AO World plc, headquartered in Bolton, is an online electrical
retailer. The business was founded in 2000 by John Roberts as
Appliances Online, rebranding as AO.com in 2013 and listing on the
London Stock Exchange in February 2014. AO's mission is to be the
best electrical retailer in Europe, by making things easy for our
customers because we care more.
AO's growth is down to its "AO Way" of retailing; offering a
simply better customer experience with an innovative website, a
huge range, unbeatable prices and market-leading customer
service.
In the UK, through www.ao.com AO operates in multiple
categories; Major Domestic Appliances "MDA" - its main and more
mature category, Small Domestic Appliances "SDA", Audio Visual "AV"
and computing, and more recently adding Gaming, Mobile, Smart Home
and Photographic devices and equipment to its ranges. AO operates
from one National Distribution Centre and twelve outbases in the
UK, with the vast majority of deliveries being undertaken through
Expert Logistics Limited (a group subsidiary).
In mainland Europe, AO operates in Germany and The Netherlands.
AO launched www.ao.de in Germany in October 2014 with MDA and
expanded its offering in February 2016 with the introduction of
Floorcare, and in October 2016 with the introduction of AV. AO's
international expansion strategy took a step further in February
2016 with the launch of MDA in The Netherlands and the recent
introduction of AV to www.ao.nl. The business has a new 35,000 sq.
metre Regional Distribution Centre in Bergheim which is now fully
operational, serving Germany and The Netherlands.
In 2015, AO invested in a majority equity stake in The Recycling
Group Limited (now renamed AO Recycling), its recycling partner,
securing a WEEE processing facility for the Group and giving AO
control in ensuring its waste is dealt with responsibly in the
UK.
______________________________
(1) The highlights are for the 6 month period ended 30 September
2017 and the comparative 2016 period. Certain financial data have
been rounded. As a result of this rounding, the totals of data
presented in this document may vary slightly from the actual
arithmetic totals of such data.
(2) This includes AO.com and the UK AO-branded eBay shop.
(3) UK is defined by the Group as entities operating within the
United Kingdom. (It excludes AO Deutschland Limited which is a
company registered in England but operates in Germany and therefore
is included in the Europe segment).
(4) Europe is defined by the Group as entities operating within
the European Union but excluding the UK and also includes
exploratory costs in other European territories.
(5) Adjusted EBITDA is defined by the Group as profit/ (loss)
before tax, depreciation, amortisation, profit on disposal of fixed
assets net finance income, "adjustments" and exceptional items.
Adjustments is defined by the Group as (i) set-up costs relating to
overseas expansion namely strategic post go-live costs incurred in
connection with our European expansion strategy of GBP0.1m (2017:
GBP0.4m) and (ii) share-based payment charges of GBP1.9m (2016:
GBP1.3m) attributable to the exceptional LTIP awards which the
Board considers one-off in nature.
(6) Net funds are defined by the Group as cash as per the
consolidated statement of financial position less borrowings
(7) Please refer to the loss per share paragraph on page 12 of
this announcement for further information.
(8) NPS is defined by the Group as Net Promoter Score which is
an industry measure of customer loyalty and satisfaction.
(9) WEEE means waste electrical and electronic equipment.
(10) The content of the AO.com website should not be considered
to form a part of or be incorporated into this announcement.
Alternative performance measures
One of the Group's key performance indictors is Adjusted EBITDA
and each segment is measured by the Chief Operating Decision Maker
on this basis. The use of this measure is also evidenced by
executive management bonus targets and Long Term Incentive Schemes
being measured in relation to adjusted EBITDA, amongst other
factors. As such, these measures are important and should be
considered alongside the IFRS measures.
Adjusted EBITDA is calculated by adding back those items of
income and expense defined at footnote 5 above which, because of
the nature and expected infrequency of events giving rise to them,
merit separate presentation to allow shareholders to better
understand the financial performance of the Group in the
period.
The adjustments are as follows:
-- Long Term Incentive Plan ("LTIP") awards were made to a
number of senior staff under the Employee Reward Plan (ERP) in July
2016. The Board considers that the magnitude and timing of these
awards are one-off in nature and so add-back any charge in arriving
at Adjusted EBITDA. AO Sharesave scheme charges and LTIP charges
relating to the LTIP awards which are not considered to be one-off
in nature are included in trading numbers.
-- Europe set-up costs are costs incurred in connection with our
European expansion strategy prior to the "go-live" of that
territory, namely the launch of AO.de and AO.nl and our continuing
research into other further countries along with strategic post
"go-live" costs.
Cautionary statement
This announcement contains certain forward-looking statements
(including beliefs or opinions) with respect to the operations,
performance and financial condition of the Group. These statements
are made in good faith and are based on current expectations or
beliefs, as well as assumptions about future events. By their
nature, future events and circumstances can cause results and
developments to differ materially from those anticipated. Except as
is required by the Listing Rules, Disclosure Guidance and
Transparency Rules and applicable laws, no undertaking is given to
update the forward-looking statements contained in this document,
whether as a result of new information, future events or otherwise.
Nothing in this document should be construed as a profit forecast
or an invitation to deal in the securities of the Company. This
announcement has been prepared for the Group as a whole and
therefore gives greater emphasis to those matters which are
significant to AO World plc and its subsidiary undertakings when
viewed as a whole.
PERFORMANCE AT A GLANCE
Summary Results(1)
6 months 30 September 30 September Change
ended (GBPm) 2017 2016
(restated)
(2)
---------------------- ----------------------------- ------------------------ -----------------------------------
UK Europe(3) Total UK Europe Total UK Europe Total
---------------------- -------- ---------- ------- ------ -------- ------ --------- ---------- ----------
Income Statement
---------------------- -------- ---------- ------- ------ -------- ------ --------- ---------- ------------
AO website
sales 282.5 51.1 333.6 257.0 29.6 286.6 9.9% 72.5% 16.4%
Third-party
website sales 21.3 0.1 21.4 23.6 - 23.6 (9.8%) n/a (9.4%)
Other Sales 13.0 - 13.0 14.5 - 14.5 (10.3%) n/a (10.3%)
---------------------- -------- ---------- ------- ------ -------- ------ --------- ---------- ------------
Revenue 316.8 51.2 368.0 295.1 29.6 324.7 7.4% 72.9% 13.3%
---------------------- -------- ---------- ------- ------ -------- ------ --------- ---------- ------------
Adjusted
EBITDA(4) 7.4 (13.7) (6.3) 13.1 (11.6) 1.5 (43.4%) 18.1% n/a
---------------------- -------- ---------- ------- ------ -------- ------ --------- ---------- ------------
Adjusted
EBITDA margin(5) 2.3% (26.8%) (1.7%) 4.4% (39.3%) 0.4% -2.1ppts +12.5ppts -2.1ppts
---------------------- -------- ---------- ------- ------ -------- ------ --------- ---------- ------------
Adjusted
operating
profit/(loss)(6) 4.5 (14.5) (10.0) 11.1 (12.2) (1.1) (59.1%) 18.7% 803.4%
---------------------- -------- ---------- ------- ------ -------- ------ --------- ---------- ------------
Adjustments(7)
Share-based
payment charge
attributable
to exceptional
LTIP awards(8) (1.9) - (1.9) (1.3) - (1.3) 44.2% n/a 44.2%
Europe set-up
costs(9) (0.1) - (0.1) (0.4) - (0.4) (62.5%) n/a (62.5%)
Operating
profit/(loss) 2.5 (14.5) (12.0) 9.4 (12.2) (2.8) (73.2%) 18.7% 327.2%
---------------------- -------- ---------- ------- ------ -------- ------ --------- ---------- ------------
(Loss)/earnings
per share(10)
---------------------- -------- ---------- ------- ------ -------- ------ --------- ---------- ------------
Basic (loss)/earnings
per share
(pence) (1.90) 0.11 n/a
---------------------- -------- ---------- ------- ------ -------- ------ --------- ---------- ------------
Diluted
(loss)/earnings
per share
(pence) (1.90) 0.11 n/a
---------------------- -------- ---------- ------- ------ -------- ------ --------- ---------- ------------
Cash flow
---------------------- -------- ---------- ------- ------ -------- ------ --------- ---------- ------------
Cash
(absorbed)/generated
from operating
activities (0.4) (0.3) (0.7) 3.6 (0.2) 3.4 n/a 32.4% n/a
---------------------- -------- ---------- ------- ------ -------- ------ --------- ---------- ------------
Cash generated/
(absorbed)
from operating
activities
before intercompany
funding(11) 16.9 (16.0) 0.9 15.7 (8.0) 7.7 7.6% 100.5% (88.9%)
---------------------- -------- ---------- ------- ------ -------- ------ --------- ---------- ------------
Period end
net funds/(debt)
position(12) 61.4 (4.7) 56.7 24.5 (3.2) 21.3 150.6% 48.9% 165.9%
---------------------- -------- ---------- ------- ------ -------- ------ --------- ---------- ------------
______________________________
(1) The highlights are for the 6 month period
ended 30 September 2017 and the comparative 2016
period. Certain financial data have been rounded.
As a result of this rounding, the totals of data
presented in this document may vary slightly from
the actual arithmetic totals of such data.
(2) In the annual financial statements for the
year ended 31 March 2017, revenue from recycling
was included in Other sales. In the published
interim statement for the 6 months to September
2016, this revenue was included in in AO website
sales. As the most appropriate treatment is that
adopted in the full year accounts, the comparative
has been restated. This has had an impact of moving
GBP2.4m out of AO website sales and moving GBP0.7m
to third party website sales and GBP1.7m to Other
sales.
(3) Europe is defined by the Group as entities
operating within the European Union but excluding
the UK and also includes exploratory costs in
other European territories.
(4) Adjusted EBITDA is defined by the Group as
profit/(loss) before tax, depreciation, amortisation,
profit on disposal of fixed assets, net finance
income, "adjustments" and exceptional items.
(5) Adjusted EBITDA margin is defined by the Group
as Adjusted EBITDA divided by revenue.
(6) Adjusted operating profit/(loss) is defined
by the Group as profit/(loss) before tax, net
finance income, "adjustments" and exceptional
items but after depreciation, amortisation and
profit on disposal of fixed assets.
(7) Adjustments is defined by the Group as (i)
set-up costs relating to overseas expansion namely
strategic post go-live costs incurred in connection
with our European expansion strategy of GBP0.1m
(2017: GBP0.4m) and (ii) share-based payment charges
of GBP1.9m (2016: GBP1.3m) attributable to exceptional
LTIP awards which the Board considers one-off
in nature.
(8) Share based payment charges attributable to
exceptional LTIP awards which the Board consider
one-off in nature.
(9) Relates to Europe set-up costs incurred by
Group entities in the UK and Europe.
(10) Please refer to the loss per share paragraph
on page 12 of this announcement for further information.
(11) This eliminates the intercompany funding
provided by the UK to Europe.
(12) Net funds/ (debt) are defined as cash as
per the consolidated statement of financial position
less borrowings.
CEO REVIEW
Overview
Despite a challenging UK market and economic uncertainty AO has
delivered further top line growth over the first half of the year
(with accelerated UK sales growth in the second quarter), continued
to invest in Europe and made further operational and strategic
progress.
Results and market backdrop
As previously reported, the UK trading environment in our first
quarter ("Q1") was particularly challenging. The core UK MDA market
saw overall lower volumes year-on-year as a result of a fall in
consumer confidence associated with the Brexit process. AO also
faced tough prior year comparables, driven in part by changes to
stamp duty on housing transactions at the end of March 2016.
Despite this backdrop, the business performed well. We increased UK
AO website sales in our first quarter by 6.2%. In our second
quarter ("Q2") we improved our sales growth rates and are pleased
to report sales growth levels of 13.2%, giving a 9.9% increase year
on year for AO website sales for the first half as a whole.
The losses reported for the first half of the year are largely a
reflection of a concentration and increase in our UK marketing
expenditure within Q1. We do not expect to continue with this level
of expenditure over the remainder of the year.
All economic indicators point to no respite in the challenging
market conditions in the short term and there are widespread
reports of a poor outlook in housing transactions. However,
historically, AO has fared well in more challenging trading
conditions as we offer excellent value for money and are insulated
to some extent by the proportion of MDA volume which is driven by
replacement "distressed" purchases (our core market). This,
together with our customer proposition strengths around price,
range, innovative online content, first class delivery and
exceptional customer service, sees us well-positioned to continue
to deliver in challenging economic times.
Europe continues to perform to plan with good revenue growth and
Adjusted EBITDA losses increasing, as expected, as we continue to
build scale. As we prepare our plans for the next financial year
and beyond, we expect to see these losses start to reduce and we
remain confident of achieving a profitable run rate during the
financial year ending 2021 as we set out at our capital markets day
earlier in the year. Until then we will continue broadly to
re-invest our UK profits in our businesses in other territories as
we execute our strategy to be the best electrical retailer in
Europe.
Strategic Progress
-- Brand & Culture
Building our brand awareness remains a significant challenge but
our greatest opportunity; once customers experience the AO Way they
tend to come back to us time and time again. Back in June 2017 we
outlined our intention to make AO a household name through
highlighting our difference and effectively communicating the
virtues of shopping with AO to new customers. Whilst we are making
good progress, we have much to do.
The levels of spontaneous and prompted brand awareness in the UK
continued to improve marginally during the six months to 30
September 2017. The rebranding of our delivery fleet to green AO
liveried vans continues with our target to achieve c80% of our 2
man deliveries to AO customers to be on green vans by the end of
our current financial year on track. New TV adverts, which aired
over the summer, have resonated well and focussed on highlighting
the ease with which customers can shop.
We are an innovative company operating in a rapidly developing
market. As such we are always testing new ways of connecting with
our customers and driving our brand to attract new consumers. The
sponsorship of ITV's Britain's Got Talent was undertaken in that
light and was designed to build brand awareness rather to directly
drive sales. While the initiative generated incremental traffic to
our site over the period, it fell short of our expectations.
Against that backdrop we will continue to evolve our brand strategy
to optimise communication channels and further build awareness
among existing and target customers.
Our growth in Europe has yet again been delivered with very
little investment in traditional marketing and we are pleased with
the awareness generated by customer recommendations. Launching our
proposition through market places with Amazon in Germany and
through Blokker in The Netherlands is giving our brand more
visibility and the opportunity to reach new customers.
Our culture in Europe has never been stronger and, following an
internal reorganisation, the team is well structured to deliver the
next stage of growth.
-- Customers
We have made many improvements to our customer proposition over
the reporting period which reflect our values, our "care-more"
culture and our focus on putting the customer first. Those
customers that use us again and again do so because we make the
experience a great one, from the website, to the products, to the
people - we just make it an easy choice to pick AO.
Every week thousands of new customers are discovering who we are
and what it means to shop with us, and we continue to evolve the
customer journey, adding more features and providing easier ways to
shop and get the most from our products and services.
Key developments in the UK include launching our transactional
app, which went live in the UK in June, the opening of a new
outbase in Bridgend which will help improve delivery availability
and services to our south-west customers (our outbase
infrastructure has increased from 4 in 2012 to 14 in 2017) and our
premium installation fleet has increased, improving lead times for
customers and doubling the uptake for the service. In Europe, we
have also launched the transactional app, rolled out the "help me
choose" function we have in the UK, and we now sell warranties in
The Netherlands, providing customers with new for old for life
protection for their products.
In all our territories, repeat purchase rates remain pleasing
and net promoter scores and review sites (Trustpilot in the UK and
The Netherlands and Trusted Shops in Germany) rank us far above our
competitors.
Our UK recycling facility became fully operational during the
first half of the year, building upon our vertically integrated
infrastructure and helping our environmental credentials as we move
towards a circular economy.
-- Categories
We have made lots of exciting progress in this area over the
last six months as we have bolted on new complementary categories
to our offering and expanded ranges within existing categories.
In the UK, we have added a second drop ship vendor to our
infrastructure, which has helped us to increase our computing range
and allowed us to bolt-on new categories to ao.com. We now retail
Gaming, Mobile and Smart Home devices and in recent weeks have
launched into Photography, adding key brand names such as xBox,
Playstation, Hive, Nest and Go Pro to our brand portfolio. In our
core major domestic appliances ("MDA") market we believe we have at
least maintained share, reflecting our approach to foreign exchange
driven price increases by manufacturers, where we sought to protect
our gross margins whilst still offering great value to our
customers. Whilst competition in the Audio-Visual ("AV") and
computing markets has been fierce, market share has been gained,
and our small domestic appliances ("SDA") category is performing
very well.
In Germany the SDA category now has a broader complement of
products with the addition of food preparation appliances and in
The Netherlands customers are now able to shop for AV products the
AO Way. Work is continuing with a German distributor as we look to
broaden our categories in our new territories much as we have in
the UK.
These developments give us more addressable markets, more
opportunities to cross-sell and more reasons for the customer to
come back to us quicker than before, helping to reinforce our brand
credentials and build trust and loyalty.
All in all, another busy six months for AOers and, as we enter
our peak trading period and the second half of our financial year,
we have good momentum in all our territories.
FINANCIAL REVIEW
Revenue
For the 6 months ended 30 September 2017 total Group revenue
increased by 13.3% to GBP368.0m (2016: GBP324.7m).
30 September 30 September Change
2017 2016
(restated)
--------------- -------------------- -------------------- -----------------------
6 months
ended
(GBPm)(1) UK Europe Total UK Europe Total UK Europe Total
--------------- ----- ------ ----- ----- ------ ----- ------ ------ -------
AO website
sales 282.5 51.1 333.6 257.0 29.6 286.6 9.9% 72.5% 16.4%
--------------- ----- ------ ----- ----- ------ ----- ------ ------ -------
Third-party
website sales
and trade
sales 21.3 0.1 21.4 23.6 - 23.6 (9.8%) n/a (9.4%)
--------------- ----- ------ ----- ----- ------ ----- ------ ------ -------
(10
Other sales 13.0 - 13.0 14.5 - 14.5 3%) n/a (10.3%)
--------------- ----- ------ ----- ----- ------ ----- ------ ------ -------
Revenue 316.8 51.2 368.0 295.1 29.6 324.7 7.4% 72.9% 13.3%
--------------- ----- ------ ----- ----- ------ ----- ------ ------ -------
(1) Certain financial data have been rounded. As a result of
this rounding, the totals of data presented in this document may
vary slightly from the actual arithmetic totals of such data.
In the UK, revenue growth was mainly attributable to "AO"
branded sales, driven by repeat purchases (in turn driven by
excellent customer service), increased brand awareness, TV
advertising and sales from new categories.
As anticipated, revenue from Third-party websites has reduced on
a like for like basis, continuing the previous trend, as we focus
on growing "own brand" revenue.
We have seen a reduction in Other sales, as expected, since the
prior period included revenue from a short-term logistics contract
which expired, with the reduction being partially offset by
increasing revenue from our recycling facility which is included in
this revenue stream for this year.
Sales from our German website, AO.de, and our Netherlands
website, AO.nl, were GBP51.1m (2016: GBP29.6m) driven by customer
recommendations and repeat purchases, with little above the line
investment.
Across the Group AO branded website sales now account for 90.7%
of total Group revenue (2016: 88.3%).
"AO website sales" and, for the UK, "Third-party website sales"
includes revenue earned from the sale of physical products and also
ancillary services such as delivery, the installation of products,
unpack, inspect, together with commission earned from the promotion
of Domestic and General's product protection plans and, in the UK,
customer finance. Revenue from such ancillary service sales in the
period achieved growth consistent with product sales representing
7.2% of total sales at GBP25.5m (2016: 7.3% GBP22.7m).
Gross margin
30 September 30 September Change
2017 2016
-------------------- -------------------- -------------------- ----------------------------
6 months
ended (GBPm)
(1) UK Europe Total UK Europe Total UK Europe Total
-------------------- ----- ------ ----- ----- ------ ----- -------- -------- --------
Gross profit/(loss) 70.5 (2.2) 68.3 66.5 (1.7) 64.8 6.0% 27.5% 5.4%
-------------------- ----- ------ ----- ----- ------ ----- -------- -------- --------
Gross margin 22.2% (4.2%) 18.6% 22.5% (5.6%) 20.0% -0.3ppts +1.4ppts -1.4ppts
-------------------- ----- ------ ----- ----- ------ ----- -------- -------- --------
(1) Certain financial data have been rounded. As a result of
this rounding, the totals of data presented in this document may
vary slightly from the actual arithmetic totals of such data.
Gross profit for the Group grew by 5.4% to GBP68.3m (2016:
GBP64.8m) with gross margin decreasing by 1.4ppts to 18.6% for the
reporting period (2016: 20.0%).
In the UK gross margin decreased slightly to 22.2% (2016: 22.5%)
due to supplier price increases following Brexit and tougher
trading conditions as a result of uncertain conditions in the UK
economy leading to increased competition in the market.
In Europe the gross loss of GBP2.2m (and a margin of -4.2%)
reflects the early growth phase of the operation with relatively
low product margins and high costs to deliver due to low drop
densities (2016: GBP1.7m loss). We have seen an improvement in
gross margin during the period mainly due to improved supplier
product margins and delivery efficiencies.
Selling, General & Administrative Expenses ("SG&A")
30 September 30 September 2016 Change %
2017
--------------- -------------------- --------------------- -----------------------------
6 months UK Europe Total UK Europe Total UK Europe Total
ended
(GBPm) (1)
--------------- ----- ------ ----- ------ ------ ----- -------- --------- --------
Advertising
and marketing 17.4 2.4 19.8 11.3 2.5 13.8 53.7% (4.5%) 43.2%
--------------- ----- ------ ----- ------ ------ ----- -------- --------- --------
% of revenue 5.5% 4.7% 5.4% 3.8% 8.6% 4.3% +1.7ppts -3.9ppts +1.1ppts
--------------- ----- ------ ----- ------ ------ ----- -------- --------- --------
Warehousing 15.1 2.1 17.2 13.3 1.9 15.2 13.8% 8.3% 13.3%
--------------- ----- ------ ----- ------ ------ ----- -------- --------- --------
% of revenue 4.8% 4.1% 4.7% 4.5% 6.5% 4.7% +0.3ppts -2.4ppts -
--------------- ----- ------ ----- ------ ------ ----- -------- --------- --------
Other admin 34.1 8.0 42.1 31.3 6.0 37.3 8.8% 34.2% 12.9%
--------------- ----- ------ ----- ------ ------ ----- -------- --------- --------
% of revenue 10.8% 15.7% 11.4% 10.6% 20.3% 11.5% +0.2ppts -4.6ppts -0.1ppts
--------------- ----- ------ ----- ------ ------ ----- -------- --------- --------
Adjustments(2) 2.0 - 2.0 1.7 - 1.7 19.1% n/a 19.1%
--------------- ----- ------ ----- ------ ------ ----- -------- --------- --------
% of revenue 0.6% - 0.6% 0.6% - 0.5% n/a n/a +0.1ppts
--------------- ----- ------ ----- ------ ------ ----- -------- --------- --------
Administrative
expenses 68.6 12.5 81.1 57.6 10.4 68.0 19.1% 19.6% 19.3%
--------------- ----- ------ ----- ------ ------ ----- -------- --------- --------
% of revenue 21.7% 24.5% 22.0% 19.5% 35.4% 21.0% +2.2ppts -10.9ppts +1.0ppts
--------------- ----- ------ ----- ------ ------ ----- -------- --------- --------
(1) Certain financial data have been rounded. As a result of
this rounding, the totals of data presented in this document may
vary slightly from the
actual arithmetic totals of such data. (2) Adjustments is
defined by the Group as (i) set-up costs relating to overseas
expansion namely strategic post go-live costs incurred in
connection with our European expansion strategy of GBP0.1m (2017:
GBP0.4m) and (ii) share-based payment charges of GBP1.9m (2016:
GBP1.3m) attributable to the exceptional LTIP awards which the
Board considers one-off in nature.
Total SG&A costs across the Group as a percentage of revenue
was slightly up year on year increasing from 21.0% to 22.0%.
In the UK, the advertising and marketing cost to revenue ratio
increased by 1.7ppts year on year reflecting our increased
marketing expenditure on the Britain's Got Talent sponsorship. The
warehousing cost to revenue ratio increased as the new recycling
plant in Telford became fully operational and the effect of new
outbases in Slough and Dundee. Other Admin costs have broadly
stayed in line with the prior year as a percentage of revenue as we
continue to strengthen our teams to build for future success.
In Europe our SG&A cost ratio, as a percentage of revenue,
continues to improve as we increase volume. For the period these
costs represented 24.5% of revenue (2016: 35.4%). Advertising and
marketing costs have broadly stayed in line with the prior period
as we continue with limited traditional marketing expenditure and
rely on customer recommendations and digital marketing to drive
traffic. Warehousing costs have increased slightly due to the
increased volumes going through our regional distribution centre in
Bergheim. Other admin costs have increased in line with
expectations as growth continues across our European
territories.
Operating loss and Adjusted EBITDA
Our operating loss for the period was GBP12.0m, with losses
increasing from GBP2.8m in the prior period.
However, when reviewing profitability, the Board of Directors
use an adjusted measure of EBITDA in order to give a meaningful
year on year comparison and it is a performance criteria for the
purposes of both the Executive management's annual bonus and recent
LTIP awards. Whilst we recognise that the measure is an alternative
(non Generally Accepted Account Practice ("non-GAAP") performance
measure which is also not defined within IFRS, this measure is
important and should be considered alongside the IFRS measures.
Group Adjusted EBITDA losses were GBP6.3m (2016: GBP1.5m profit)
after allowing for GBP13.7m of Europe Adjusted EBITDA losses (2016:
GBP11.6m loss). On a constant currency basis Europe Adjusted EBITDA
losses were EUR15.6m (2016: EUR14.3m).
UK Adjusted EBITDA for the 6 months to 30 September 2017 was
GBP7.4m (2016: GBP13.1m) representing a decrease of 43.4% against
the prior year. This decrease is primarily due to the increased
marketing expenditure in the period.
6 months ended 30 September 30 September Change
(1) 2017 2016
(GBPm) UK Europe Total UK Europe Total UK Europe Total
------------------------ ---- ------- ------ ----- ------- ----- -------- --------- --------
Operating profit/(loss) 2.5 (14.5) (12.0) 9.4 (12.2) (2.8) (73.2%) 18.7% 327.2%
------------------------ ---- ------- ------ ----- ------- ----- -------- --------- --------
Add adjustments:
Share-based
payment charge
attributable
to exceptional
LTIP award(2) 1.9 - 1.9 1.3 - 1.3 44.2% n/a 44.2%
Europe set-up
costs(3) 0.1 - 0.1 0.4 - 0.4 (62.5%) n/a (62.5%)
------------------------ ---- ------- ------ ----- ------- ----- -------- --------- --------
Adjusted operating
profit/(loss) 4.5 (14.5) (10.0) 11.1 (12.2) (1.1) (59.1%) 18.7% 803.4%
------------------------ ---- ------- ------ ----- ------- ----- -------- --------- --------
Add: Depreciation
and amortisation 2.9 0.7 3.6 2.1 0.6 2.7 36.4% 30.3% 35.0%
------------------------ ---- ------- ------ ----- ------- ----- -------- --------- --------
Less: Profit
on disposal - - - (0.1) - (0.1) n/a - n/a
------------------------ ---- ------- ------ ----- ------- ----- -------- --------- --------
Adjusted EBITDA 7.4 (13.7) (6.3) 13.1 (11.6) 1.5 (43.4%) 18.1% n/a
------------------------ ---- ------- ------ ----- ------- ----- -------- --------- --------
Adjusted EBITDA
as
% of revenue 2.3% (26.8%) (1.7%) 4.4% (39.3%) 0.4% -2.1ppts +12.5ppts -2.1ppts
------------------------ ---- ------- ------ ----- ------- ----- -------- --------- --------
(1) Certain financial data have been rounded. As a result of
this rounding, the totals of data presented in this document may
vary slightly from the actual arithmetic totals of such data.
(2) Certain LTIP awards of a significant magnitude were made to
a number of senior staff under the 2014 Performance Share Plan at
the time of the IPO and also under the 2016 Employee Reward Plan in
July 2016. The Board considers that the magnitude and timing of
these awards are one-off in nature and so add -back any charge
(3) Europe set-up costs are costs incurred in connection with
our European expansion strategy prior to the "go-live" of that
territory, namely the launch of AO.de and AO.nl and our continuing
research into other further countries.
Taxation
The tax charge is recognised based on management's best estimate
of the weighted--average annual income tax rate expected for the
full financial year multiplied by the pre--tax income of the
interim reporting period. The Group's tax credit for the period is
GBP0.9m (2016: GBP2.1m charge) as a result of the expected
effective tax rate for the year of 8.96% (2016: 80.2%). The
effective tax rate of 8.96% is lower than the UK corporation tax
rate for the period of 19%; this is due to the utilisation of
unrecognised brought forward losses within AO Recycling Limited,
share based payment charges, non-qualifying depreciation and a
non-taxable foreign exchange gain arising on intercompany balances.
The Group continues not to recognise a deferred tax asset on the
cumulative losses carried forward of GBP3.8m (2016: GBP2.3m).
Retained loss and (loss)/earnings per share
Retained loss for the period was GBP8.7m (2016: GBP0.2m
profit).
Basic loss per share was 1.90p (2016: 0.11p earnings) and
diluted earnings per share was 1.90p (2016: 0.11p earnings).
Basic (loss)/earnings per share is reconciled to adjusted basic
loss per share (after excluding the impact of FX differences) of
2.23p loss (2016: 0.92p loss) as follows.
6 months 6 months
ended ended
30 September 30 September
(GBPm) 2017 2016
--------------------------------------- -------------- --------------
(Loss)/earnings
(Loss)/earnings attributable
to owners of the parent company (8.7) 0.4
Foreign exchange gains on intra-group
loans (1.5) (4.3)
Adjusted earnings attributable
to owners of the parent company (10.2) (3.9)
--------------------------------------- -------------- --------------
Number of shares
Basic and adjusted weighted
average number of ordinary shares 458,788,480 421,052,631
--------------------------------------- -------------- --------------
(Loss)/earnings per share (in
pence)
Basic (loss)/earnings per share (1.90) 0.11
Adjusted basic loss per share (2.23) (0.92)
--------------------------------------- -------------- --------------
The foreign exchange gain has arisen as a result of the
significant movement in the exchange rate between Sterling and the
Euro in the period and prior period. This has impacted the value of
intra-group loans held in GBP in the European entities giving rise
to the GBP1.5m (2016: GBP4.3m) gain referenced above.
Cash resources and cash flow
At 30 September 2017, the Group's net funds position was
GBP56.7m (2016: GBP21.3m), as cash increased to GBP72.3m (2016:
GBP32.4m) principally reflecting the cash received from the share
placing offset by the trading losses incurred in Europe over the
period, while total borrowings (comprising asset finance and
equivalent) increased to GBP15.6m from GBP11.1m in 2016. Surplus
cash balances are held with UK-based banks, in line with the Group
Treasury Policy.
As previously reported, the Group has put in place a revolving
credit facility ("RCF") of GBP30m with Lloyds Bank plc and Barclays
Bank plc in order to fund UK working capital movements in future.
Since the end of the reporting period the Group has extended its
Revolving Credit Facility to GBP60m with Lloyds Bank plc and
Barclays Bank plc, adding HSBC Bank plc as an additional lender.
The RCF is for UK general corporate purposes.
At 30 September 2017 the amount available against the GBP30m
facility was GBP28.6m (2016: GBP29.5m)
Working Capital
30 September
2017 30 September 2016
-------------------- --------------- --------------------------------------
6 months ended
(1)
(GBPm) UK Europe Total UK Europe Total
-------------------- ------- ------ ------- ------- ------ -------
Inventories 42.7 13.2 55.9 35.0 6.9 41.9
-------------------- ------- ------ ------- ------- ------ -------
As % of Cost of
Goods Sold 17.3% 24.9% 18.7% 15.3% 22.0% 16.1%
-------------------- ------- ------ ------- ------- ------ -------
Trade and other
receivables 86.0 8.1 94.1 68.9 3.5 72.4
-------------------- ------- ------ ------- ------- ------ -------
As a % of revenue 27.2% 15.8% 25.6% 23.4% 11.6% 22.3%
-------------------- ------- ------ ------- ------- ------ -------
Trade and other
payables (152.0) (15.8) (167.8) (116.3) (8.2) (124.5)
-------------------- ------- ------ ------- ------- ------ -------
As a % of Cost
of Goods Sold 61.7% 29.7% 56.0% 50.9% 26.1% 47.9%
-------------------- ------- ------ ------- ------- ------ -------
Net working capital (23.3) 5.5 (17.8) (12.4) 2.2 (10.2)
-------------------- ------- ------ ------- ------- ------ -------
Change in net
working capital (10.9) 3.3 (7.6) (3.6) 2.1 (1.5)
-------------------- ------- ------ ------- ------- ------ -------
(1) Certain financial data have been rounded. As a result of
this rounding, the totals of data presented in this document may
vary slightly from the actual arithmetic totals of such data.
At 30 September 2017, the Group had net current assets of
GBP5.1m (30 September 2016: net current liabilities of GBP16.3m)
principally as a result of (i) extended credit terms /working
capital management with the Group's suppliers and (ii) an increase
in cash from the share placing during the period. As at 30
September 2017 UK inventories were GBP42.7m (2016: GBP35.0m)
reflecting an increase in sales volumes and an increase in our
stock-holding as we build up to peak trading in the last quarter of
the calendar year. As a result, UK average stock days increased to
35 days (2016: 30 days).
UK trade and other receivables (both non-current and current)
were GBP86.0m as at 30 September 2017 (2016: GBP68.9m) mainly
reflecting an increase in accrued income in respect of commissions
due on product protection plans as a result of the higher retail
volumes. UK trade and other payables increased to GBP152.0m (2016:
GBP116.3m) reflecting increased trade and manufacturers continuing
to extend credit on the higher volume of sales.
Capital Expenditure
Total capital expenditure for the six month period was GBP2.2m
(2016: GBP6.7m), attributable to further additions to our
infrastructure both in the UK and in Europe.
Steve Caunce Mark Higgins
CEO CFO
CONDENSED CONSOLIDATED INCOME
STATEMENT
For the 6 months ended 30 September
2017
6 months 6 months Year ended
ended ended 31 March
30 September 30 September 2017
2017 2016 GBPm
Note GBPm GBPm
Revenue 2 368.0 324.7 701.2
Cost of sales (299.7) (259.9) (572.0)
------------------------- ---- -------------- -------------- ------------
Gross profit 68.3 64.8 129.2
Administrative expenses (81.1) (68.0) (142.4)
Other operating income 0.8 0.4 1.2
------------------------- ---- -------------- -------------- ------------
Operating loss (12.0) (2.8) (12.0)
Finance income 4 2.9 5.7 6.8
Finance costs 5 (0.5) (0.6) (1.8)
------------------------- ---- -------------- -------------- ------------
(Loss)/profit before
tax (9.6) 2.3 (7.0)
Taxation credit/(charge) 0.9 (2.1) (0.4)
------------------------- ---- -------------- -------------- ------------
(Loss)/profit for
the period (8.7) 0.2 (7.4)
------------------------- ---- -------------- -------------- ------------
(Loss)/profit for
the period
attributable to:
Owners of the parent
company (8.7) 0.4 (6.6)
Non-controlling interest - (0.2) (0.8)
------------------------- ---- -------------- -------------- ------------
(8.7) 0.2 (7.4)
------------------------- ---- -------------- -------------- ------------
(Loss)/earnings per
share (pence)
Basic (loss)/earnings
per share 8 (1.90) 0.11 (1.56)
Diluted (loss)/earnings
per share 8 (1.90) 0.11 (1.55)
------------------------- ---- -------------- -------------- ------------
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 6 months ended 30 September 2017
6 months 6 months
ended 30 ended 30 Year ended
September September 31 March
2017 2016 2017
GBPm GBPm GBPm
(Loss)/profit for the period (8.7) 0.2 (7.4)
------------------------------------- ----------- ----------- ------------
Items that may be subsequently
recycled to Income Statement
Exchange differences on translation
of foreign operations (1.4) (3.5) (3.5)
------------------------------------- ----------- ----------- ------------
Total comprehensive loss for
the period (10.1) (3.3) (10.9)
------------------------------------- ----------- ----------- ------------
Loss for the period attributable
to:
Owners of the parent company (10.1) (3.1) (10.1)
Non-controlling interest - (0.2) (0.8)
------------------------------------- ----------- ----------- ------------
Total comprehensive loss for
the period (10.1) (3.3) (10.9)
------------------------------------- ----------- ----------- ------------
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 September 2017
At At At
30 September 30 September 31 March
2017 2016 2017
Note GBPm GBPm GBPm
--------------------------------- ---- ------------- ------------- ---------
Non-current assets
Goodwill 13.5 13.5 13.5
Other intangible assets 1.4 2.0 1.8
Property, plant and equipment 28.6 23.0 29.3
Trade and other receivables 6 45.2 33.5 39.8
Derivative financial
asset 1.3 0.8 1.3
Deferred tax asset 2.5 1.8 1.8
----------------------------------- ---- ------------- ------------- ---------
92.5 74.6 87.5
--------------------------------- ---- ------------- ------------- ---------
Current assets
Inventories 55.9 41.9 44.8
Trade and other receivables 6 48.9 38.8 41.1
Corporation tax receivable - - 0.2
Cash and cash equivalents 9 72.3 32.4 29.4
177.1 113.1 115.5
--------------------------------- ---- ------------- ------------- ---------
Total assets 269.6 187.7 203.0
----------------------------------- ---- ------------- ------------- ---------
Current liabilities
Trade and other payables 7 (167.8) (124.5) (140.2)
Corporation tax payable - (2.1) -
Borrowings 9 (4.0) (2.8) (3.7)
Provisions (0.2) - (0.1)
(172.0) (129.4) (144.0)
--------------------------------- ---- ------------- ------------- ---------
Net current assets/(liabilities) 5.1 (16.3) (28.5)
----------------------------------- ---- ------------- ------------- ---------
Non-current liabilities
Borrowings 9 (11.6) (8.3) (13.7)
Derivative financial
liability (3.6) (2.7) (3.4)
Provisions (1.5) (1.5) (1.4)
----------------------------------- ---- ------------- ------------- ---------
Total liabilities (188.7) (141.9) (162.5)
----------------------------------- ---- ------------- ------------- ---------
Net assets 80.9 45.8 40.5
----------------------------------- ---- ------------- ------------- ---------
Equity attributable to
owners of the parent
Share capital 10 1.2 1.1 1.1
Share premium account 103.7 55.7 55.7
Other reserves 2.0 2.0 1.0
Retained losses (24.3) (11.9) (15.6)
----------------------------------- ---- ------------- ------------- ---------
Total 82.6 46.9 42.2
----------------------------------- ---- ------------- ------------- ---------
Non-controlling interest (1.7) (1.1) (1.7)
----------------------------------- ---- ------------- ------------- ---------
Total equity 80.9 45.8 40.5
----------------------------------- ---- ------------- ------------- ---------
CONDENSED CONSOLIDATED STATEMENT OF CHANGE IN EQUITY
At 30 September 2017
Other reserves
-------------------------------------------------------
Share Capital Share-based
Share premium Merger redemption payment Translation Other Retained Non-controlling
capital account reserve reserve reserve reserve reserve losses Total interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- ------- ---------- ----------- ----------- -------- -------- ----- --------------- -----
Balance at 1
April
2017 1.1 55.7 4.4 0.5 3.8 (5.6) (2.1) (15.6) 42.2 (1.7) 40.5
-------------- ------- ------- ------- ---------- ----------- ----------- -------- -------- ----- --------------- -----
Loss for the
period - - - - - - - (8.7) (8.7) - (8.7)
Issue of share
capital (net
of
expenses) 0.1 48.0 - - - - - - 48.1 - 48.1
Foreign
currency
gains arising
on
consolidation - - - - - (1.5) - - (1.5) - (1.5)
Share-based
payments
charge net of
tax - - - - 2.5 - - - 2.5 - 2.5
Balance at 30
September
2017 1.2 103.7 4.4 0.5 6.3 (7.1) (2.1) (24.3) 82.6 (1.7) 80.9
-------------- ------- ------- ------- ---------- ----------- ----------- -------- -------- ----- --------------- -----
Other reserves
-------------------------------------------------------
Share Capital Share-based
Share premium Merger redemption payment Translation Other Retained Non-controlling
capital account reserve reserve reserve reserve reserve losses Total interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- ------- ---------- ----------- ----------- -------- -------- ----- --------------- -----
Balance at 1
April
2016 1.1 55.7 4.4 0.5 3.1 (2.1) (2.1) (12.3) 48.3 (0.9) 47.4
-------------- ------- ------- ------- ---------- ----------- ----------- -------- -------- ----- --------------- -----
Profit/(loss)
for the
period - - - - - - - 0.4 0.4 (0.2) 0.2
Foreign
currency
gains arising
on
consolidation - - - - - (3.5) - - (3.5) - (3.5)
Share-based
payments
charge net of
tax - - - - 1.7 - - - 1.7 - 1.7
Balance at 30
September
2016 1.1 55.7 4.4 0.5 4.8 (5.6) (2.1) (11.9) 46.9 (1.1) 45.8
-------------- ------- ------- ------- ---------- ----------- ----------- -------- -------- ----- --------------- -----
Other reserves
-------------------------------------------------------
Share Capital Share-based
Share premium Merger redemption payment Translation Other Retained Non-controlling
capital account reserve reserve reserve reserve reserve losses Total interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- ------- ---------- ----------- ----------- -------- -------- ----- --------------- -----
Balance at 1
April
2016 1.1 55.7 4.4 0.5 3.1 (2.1) (2.1) (12.3) 48.3 (0.9) 47.4
-------------- ------- ------- ------- ---------- ----------- ----------- -------- -------- ----- --------------- -----
Loss for the
year - - - - - - - (6.6) (6.6) (0.8) (7.4)
Share-based
payments
charge net of
tax - - - - 4.0 - - - 4.0 - 4.0
Foreign
currency
gains arising
on
consolidation - - - - - (3.5) - - (3.5) - (3.5)
Movement
between
reserves - - - - (3.3) - - 3.3 - - -
Balance at 31
March 2017 1.1 55.7 4.4 0.5 3.8 (5.6) (2.1) (15.6) 42.2 (1.7) 40.5
-------------- ------- ------- ------- ---------- ----------- ----------- -------- -------- ----- --------------- -----
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the 6 months ended 30 September 2017
6 months
ended 6 months ended Year ended
30 September 30 September 31 March
2017 2016 2017
GBPm GBPm GBPm
--------------------------------------- ------------- -------------- ----------
Cash flows from operating
activities
(Loss)/profit for the period (8.7) 0.2 (7.4)
Adjustments for:
Depreciation and amortisation 3.6 2.7 6.0
Finance income (2.9) (5.7) (6.8)
Finance costs 0.5 0.6 1.8
Profit on disposal of property,
plant and equipment - (0.1) (0.3)
Taxation (credit)/ charge (0.9) 2.1 0.4
Share-based payment charge 2.5 1.7 4.0
Increase in provisions 0.1 0.8 0.7
---------------------------------------- ------------- -------------- ----------
Net operating cash flows before
movement in working capital (5.8) 2.3 (1.6)
---------------------------------------- ------------- -------------- ----------
Increase in inventories (11.0) (7.4) (10.3)
Increase in trade and other
receivables (12.9) (7.5) (13.3)
Increase in trade and other
payables 28.7 15.3 28.9
Net movement in working capital 4.8 0.4 5.3
Taxation repayments/(paid) 0.3 0.7 (0.2)
---------------------------------------- ------------- -------------- ----------
Net cash (used in)/ from operating
activities (0.7) 3.4 3.5
---------------------------------------- ------------- -------------- ----------
Cash flows from investing
activities
Interest received - 0.1 0.2
Proceeds from sale of property,
plant and equipment - - 0.9
Acquisition of property,
plant and equipment (2.0) (6.6) (5.7)
Acquisition of intangible
assets (0.1) (0.1) (0.3)
---------------------------------------- ------------- -------------- ----------
Net cash used in investing
activities (2.1) (6.6) (4.9)
---------------------------------------- ------------- -------------- ----------
Cash flows from financing
activities
Interest paid (0.5) (0.6) (1.1)
New borrowings - 4.2 2.1
Repayment of borrowings (0.4) (0.1) (0.4)
Repayment of finance lease
liabilities (1.6) (1.4) (3.4)
Proceeds from share issue 50.0 - -
Costs relating to share issue (1.9) - -
Net cash from / (used in)
financing activities 45.6 2.1 (2.8)
---------------------------------------- ------------- -------------- ----------
Net increase/ (decrease) in
cash 42.8 (1.1) (4.2)
Cash and cash equivalents
at beginning of period 29.4 33.4 33.4
---------------------------------------- ------------- -------------- ----------
Exchange gains on cash & cash
equivalents 0.1 0.1 0.2
---------------------------------------- ------------- -------------- ----------
Cash and cash equivalents
at end of period 72.3 32.4 29.4
---------------------------------------- ------------- -------------- ----------
NOTES TO THE FINANCIAL INFORMATION0
1. Basis of preparation
The interim financial information was approved by the Board on
20 November 2017. The financial information for the 6 months ended
30 September 2017 has been reviewed by the Group's external
auditor. Their report is included within this announcement. The
financial information for the year ended 31 March 2017 is based on
information in the audited financial statements for that period
which are available online at
http://ao.com/corporate/investor-centre.
The comparative figures for the year ended 31 March 2017 are an
abridged version of the Group's full financial statements and,
together with other financial information contained in these
interim results, do not constitute statutory financial statements
of the Group as defined in section 434 of the Companies Act 2006. A
copy of the statutory accounts for the year ended 31 March 2017 has
been delivered to the Registrar of Companies. The auditors have
reported on those accounts: their report was unqualified, did not
draw attention to any matters by way of emphasis and did not
contain a statement under s498(2) or (3) of the Companies Act
2006.
Basis of preparation and accounting policies
The annual financial statements of AO World plc are prepared in
accordance with IFRSs as adopted by the European Union. The
unaudited condensed consolidated set of financial statements
included in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 'Interim
Financial Reporting', as adopted by the European Union. The same
accounting policies, presentation and methods of computation are
followed in the condensed set of interim financial information as
applied in the Group's latest annual audited financial
statements.
Standards issued but not yet effective
As of the date of authorisation of these condensed consolidated
interim financial statements, the following standards were in issue
but not yet effective:
-- IFRS 9 'Financial Instruments' was endorsed for adoption by
the EU in November 2016 and is effective for accounting periods
beginning on or after 1 January 2018. We intend to quantify the
impact of the changes (if any) no later than in the Annual Report
and Financial Statements for the year ended 31 March 2018.
-- IFRS 15 'Revenues from Contracts with Customers' is effective
for periods beginning on or after 1 January 2018. The Group is
finalising its assessment of the impact of IFRS 15, and expects to
quantify the impact of any changes (if any) in the Annual Report
and Financial Statements for the year ended 31 March 2018.
-- IFRS 16 'Leases' is effective for periods beginning on or
after 1 January 2019 subject to EU endorsement. IFRS 16 is expected
to have a significant impact on reported assets, liabilities and
income statement of the Group, as well as the classification of
cash flows relating to lease contracts. The Group continues to
collect the required lease information and progress work on systems
and policies to support transitioning to IFRS 16. It is not
practicable to provide a reasonable estimate of the effect of IFRS
16 until this detailed review is sufficiently progressed.
Going concern
The Directors have, at the time of approving the interim
financial information, a reasonable expectation that the Company
and the Group have adequate resources to continue in operational
existence for a period not less than 12 months. This takes into
consideration the available cash resources (including the proceeds
from the share placing), the forecasted cash flow of the Group and
the availability of a GBP60m Revolving Credit Facility. Thus they
continue to adopt the going concern basis of accounting in
preparing the interim financial information.
Significant accounting policies
As required by the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority, the condensed set of financial
statements has been prepared by the Group by applying the same
accounting policies and presentation that were applied in the
preparation of the Group's published consolidated financial
statements as at 31 March 2017.
Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies the
Directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other
factors that are considered to be relevant and are reviewed on an
on-going basis. Actual results could differ from these estimates
and any subsequent changes are accounted for with an effect on
income at the time such updated information becomes available.
The most critical accounting policies in determining the
financial condition and results of the Group are those requiring
the greatest degree of subjective or complex judgements. These
relate to the revenue recognition and recoverability of product
protection plans and commercial income as set out below.
Revenue recognition & recoverability of income from product
protection plans
Revenue recognised in respect of commissions receivable over the
lifetime of the plan for the sale of product protection plans is
recognised at fair value, when the Group obtains the right to
consideration as a result of performance of its contractual
obligations (acting as an agent for a third-party). Revenue in any
one year therefore represents the fair value of the commission due
on the plans sold, which management estimates reliably based upon a
number of assumptions including the length of the plans, the
commission rates payable and the historical rate of customer
attrition. Reliance on historical data assumes that current and
future experience will follow past trends. The Directors consider
that the quantity and quality of data available provides an
appropriate basis for making these estimates. Commission receivable
depends for certain transactions on customer behaviour after the
point of sale. Assumptions are therefore required, particularly in
relation to levels of customer default within the contract period,
expected levels of customer spend, and customer behaviour beyond
the initial contract period. Such assumptions are based on
extensive historical evidence, and provision is made for the risk
of potential changes in customer behaviour, but they are
nonetheless inherently uncertain. Changes in estimates recognised
as an increase or decrease to revenue may be made, where for
example more reliable information is available, and any such
changes are required to be recognised in the income statement. The
commission receivable balance at 30 September 2017 was GBP57.8m
(2016: GBP44.1m). The discount rate used to unwind the commission
receivable is 4.3% (2016: 4.3%).
Commercial income
Commercial income comes from two major sources: volume rebates
and strategic marketing investment funding.
Volume rebates are deducted from cost of sales in line with the
sale of the product to which the rebate is attributable.
Calculation of the volume rebate for the final month of the
financial year includes judgements for expected rebate values.
Volume rebates receivable at 30 September 2017 are GBP16.9m (2016:
GBP10.3m). At 31 October 2017 the balance outstanding was GBP6.8m
(2016: GBP4.7m).
Strategic marketing investment funding is recognised in revenue
and cost of sales. Where incremental third--party costs are
incurred as a result of marketing support, revenue is offset
against these costs. The remainder of the strategic marketing fund
is recognised in revenue as it represents part of the ordinary
activities of the business.
Calculation of the revenue recognised requires judgements to be
made which include forecasting expected total marketing funding and
third--party expected marketing spend. At 30 September 2017 GBP1.2m
remains as an outstanding receivable (2016: GBP0.8m). As at 30
September 2017 the Directors do not believe that there is a
material risk regarding the judgements made for the purposes of
calculating both volume rebates and the strategic marketing fund.
At 31 October 2017 the outstanding balance was GBP0.1m (2016:
GBPnil).
2. Revenue
An analysis of the Group's revenue is as follows:
6 months Year ended
ended 30
September
2017
6 months 31 March
ended 30
September
2016
(GBPm) (restated)* 2017
-------------------------- ---------- ------------- ----------
AO website sales 333.6 286.6 629.4
Third-party website sales
and trade sales 21.4 23.6 46.0
Other sales 13.0 14.5 25.8
-------------------------- ---------- ------------- ----------
368.0 324.7 701.2
-------------------------- ---------- ------------- ----------
*In the annual financial statements for the year ended 31 March
2017, revenue from the Group's recycling was included in both Other
sales and Third-party website sales and trade sales. In the
published interim statement for the 6 months to September 2016,
this revenue was included in AO website sales. As the most
appropriate treatment is that adopted in the full year accounts,
the comparative has been restated. This has had an impact of moving
GBP2.4m from AO website sales to Other sales (GBP1.7m) and
Third-party website and trade sales (GBP0.7m).
Revenue split between sale of goods and services:
6 months ended Year ended
30 September 6 months ended 31 March 2017
2017
30 September
2016
(GBPm) (restated)
--------- ----------------------- ----------------------- -----------------------
UK Europe Total UK Europe Total UK Europe Total
--------- ------ ------- ------ ------ ------- ------ ------ ------- ------
Product
sales 278.9 50.5 329.4 259.5 27.6 287.1 552.4 67.8 620.2
Service
sales 37.9 0.7 38.6 35.6 2.0 37.6 77.2 3.8 81.0
--------- ------ ------- ------ ------ ------- ------ ------ ------- ------
316.8 51.2 368.0 295.1 29.6 324.7 629.6 71.6 701.2
--------- ------ ------- ------ ------ ------- ------ ------ ------- ------
Product sales relate to the sale of electrical products through
our own website and for third-parties. Service sales relate to
ancillary services including delivery, connection and
disconnections, product protection plan commission, recycling
services, strategic marketing income and third-party logistics.
3. Segmental analysis
The Group has two reportable segments, online retailing of
domestic appliances to customers in the UK and online retailing of
domestic appliances to customers in Europe (excluding the UK).
Operating segments are determined by the internal reporting
regularly provided to the Group's Chief Operating Decision Maker.
The Chief Operating Decision Maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Executive Directors and they
have determined that the primary segmental reporting format of the
Group is geographical by customer location, based on the Group's
management and internal reporting structure.
Transactions between segments are undertaken on an arms-length
basis using appropriate transfer pricing policies.
The following is an analysis of the Group's revenue and results
by reportable segments.
6 months ended 6 months ended Year ended
(GBPm) 30 September 2017 30 September 2016 (restated) 31 March 2017
------------------------------- ------------------------ --------------------------------- ------------------------
UK Europe Total UK Europe Total UK Europe Total
------------------------------- ------- ------ ------- ------------ -------- --------- ------- ------ -------
AO website sales 282.5 51.1 333.6 257.0 29.6 286.6 557.9 71.5 629.4
Third-party website sales 21.3 0.1 21.4 23.6 - 23.6 46.0 - 46.0
Other sales 13.0 - 13.0 14.5 - 14.5 25.8 - 25.8
------------------------------- ------- ------ ------- ------------ -------- --------- ------- ------ -------
Total revenue 316.8 51.2 368.0 295.1 29.6 324.7 629.7 71.5 701.2
------------------------------- ------- ------ ------- ------------ -------- --------- ------- ------ -------
Cost of sales (246.3) (53.4) (299.7) (228.6) (31.3) (259.9) (496.5) (75.5) (572.0)
------------------------------- ------- ------ ------- ------------ -------- --------- ------- ------ -------
Gross profit/(loss) 70.5 (2.2) 68.3 66.5 (1.7) 64.8 133.2 (4.0) 129.2
------------------------------- ------- ------ ------- ------------ -------- --------- ------- ------ -------
Administrative expenses (68.6) (12.5) (81.1) (57.6) (10.4) (68.0) (118.6) (23.8) (142.4)
------------------------------- ------- ------ ------- ------------ -------- --------- ------- ------ -------
Other operating income 0.6 0.2 0.8 0.4 - 0.4 1.1 0.1 1.2
------------------------------- ------- ------ ------- ------------ -------- --------- ------- ------ -------
Operating profit/(loss) 2.5 (14.5) (12.0) 9.4 (12.2) (2.8) 15.6 (27.6) (12.0)
------------------------------- ------- ------ ------- ------------ -------- --------- ------- ------ -------
Finance income 1.6 1.3 2.9 1.4 4.3 5.7 3.3 3.5 6.8
------------------------------- ------- ------ ------- ------------ -------- --------- ------- ------ -------
Finance costs (0.5) - (0.5) (0.6) - (0.6) (1.7) (0.1) (1.8)
------------------------------- ------- ------ ------- ------------ -------- --------- ------- ------ -------
Profit/(loss) before tax 3.6 (13.2) (9.6) 10.2 (7.9) 2.3 17.2 (24.2) (7.0)
------------------------------- ------- ------ ------- ------------ -------- --------- ------- ------ -------
Tax credit/(charge) 0.9 - 0.9 (2.1) - (2.1) (0.5) 0.1 (0.4)
------------------------------- ------- ------ ------- ------------ -------- --------- ------- ------ -------
Profit/(loss) after tax 4.5 (13.2) (8.7) 8.1 (7.9) 0.2 16.7 (24.1) (7.4)
------------------------------- ------- ------ ------- ------------ -------- --------- ------- ------ -------
Adjusted EBITDA:
Operating profit/(loss) 2.5 (14.5) (12.0) 9.4 (12.2) (2.8) 15.6 (27.6) (12.0)
Depreciation 2.3 0.6 2.9 1.9 0.5 2.4 4.3 1.0 5.3
Amortisation 0.6 0.1 0.7 0.2 0.1 0.3 0.6 0.1 0.7
Profit on disposal of
non-current asset - - - (0.1) - (0.1) (0.3) - (0.3)
EBITDA 5.4 (13.7) (8.3) 11.4 (11.6) (0.2) 20.1 (26.5) (6.4)
------------------------------- ------- ------ ------- ------------ -------- --------- ------- ------ -------
Share-based payment charge
attributable to exceptional
LTIP awards 1.9 - 1.9 1.3 - 1.3 3.6 - 3.6
Europe set-up costs 0.1 - 0.1 0.4 - 0.4 0.7 - 0.7
------------------------------- ------- ------ ------- ------------ -------- --------- ------- ------ -------
Adjusted EBITDA 7.4 (13.7) (6.3) 13.1 (11.6) 1.5 24.4 (26.5) (2.1)
------------------------------- ------- ------ ------- ------------ -------- --------- ------- ------ -------
4. Finance income
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
(GBPm) 2017 2016 2017
--------------------------- -------------- -------------- ----------
Bank interest received - 0.1 0.2
Foreign exchange gains
on intra-group loans 1.5 4.3 4.4
Movement in valuation
of put and call option - - 0.5
Unwind of discounting
on long term receivables 1.4 1.3 1.7
--------------------------- -------------- -------------- ----------
2.9 5.7 6.8
--------------------------- -------------- -------------- ----------
5. Finance costs
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
(GBPm) 2017 2016 2017
------------------------- -------------- -------------- ----------
Interest on obligations
under finance leases 0.2 0.1 0.5
Other finance costs 0.1 0.5 0.6
Movement in valuation
of put and call option - - 0.7
Unwind of discount of
put option 0.2 - -
------------------------- -------------- -------------- ----------
0.5 0.6 1.8
------------------------- -------------- -------------- ----------
6. Trade and other receivables
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
(GBPm) 2017 2016 2017
----------------------- -------------- -------------- ----------
Trade receivables 7.7 9.3 6.3
Other receivables:
- Accrued income 58.1 44.5 51.4
- Prepayments 22.6 16.3 18.8
- Other 5.7 2.2 4.4
----------------------- -------------- -------------- ----------
94.1 72.3 80.9
----------------------- -------------- -------------- ----------
The trade and other receivables are classified as:
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
(GBPm) 2017 2016 2017
---------------------- -------------- -------------- ----------
Non-current assets -
Accrued income 45.2 33.5 39.8
Current assets 48.9 38.8 41.1
---------------------- -------------- -------------- ----------
94.1 72.3 80.9
---------------------- -------------- -------------- ----------
Accrued income
Reconciliation of opening and closing balances for accrued
income can be found in the table below:
6 months 6 months Year ended
ended ended 31 March
30 September 30 September 2017
2017 2016
--------------------------------- ------------- ------------- ----------
Balance brought forward 51.4 39.4 39.4
Commission earned, cash received
and revisions to estimates 5.5 3.9 10.2
Unwind of discounting on long
term receivables 1.4 1.3 1.7
Other accrued income (0.2) - 0.1
--------------------------------- ------------- ------------- ----------
Balance carried forward 58.1 44.6 51.4
--------------------------------- ------------- ------------- ----------
Accrued income principally represents the expected future
commission payments in respect of product protection plans. The
Group recognises revenue in relation to these plans when it obtains
the right to consideration as a result of performance of its
contractual obligations (acting as an agent for a 3(rd) party).
Revenue in any one year therefore represents the fair value of the
commission due on the plans sold. To calculate the fair value of
the revenue and hence the accrued income the Group uses historical
empirical data accumulated over 11 years based on over 1.4m plans
sold to date of which 0.6m plans are active.
The fair value calculation takes into consideration the
following level 3 unobservable data:
- length of individual plans with a range of c7-16 years included in the calculation;
- historical rate of customer attrition; and
- contractually agreed margins based on actual historical margins earned.
Expected future commission payments in respect of product
protection plans are discounted at 4.3% (2016: 4.3%).
7. Trade and other payables
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
(GBPm) 2017 2016 2017
------------------- -------------- -------------- ----------
Trade payables 119.5 92.6 105.9
Other payables:
- Accruals 30.7 17.8 17.8
- Deferred income 8.9 8.7 7.8
- Other 8.7 5.4 8.7
------------------- -------------- -------------- ----------
167.8 124.5 140.2
------------------- -------------- -------------- ----------
8. (Loss)/earnings per share
The calculation of the basic and diluted loss per share is based
on the following data:
6 months 6 months Year ended
ended ended 31 March
30 September 30 September 2017
(GBPm) 2017 2016
(Loss)/earnings for the
purposes of basic and diluted
loss per share being (loss)/profit
for the period (8.7) 0.4 (6.6)
------------------------------------- ------------- ------------- -------------
Number of shares
Basic weighted average
number of ordinary shares
in issue 458,788,480 421,052,631 421,052,631
Potentially dilutive share
options and shares - 1,644,977 1,337,071
Weighted average number
of diluted ordinary shares 458,788,480 422,697,608 422,389,702
(Loss)/earnings per share
(pence)
------------------------------------ ------------- ------------- -------------
Basic (loss)/earnings per
share (1.90) 0.11 (1.56)
Diluted (loss)/earnings
per share (1.90) 0.11 (1.55)
------------------------------------- ------------- ------------- -------------
The adjusted loss per share for the period was 2.23p (2016:
0.92p loss) (see page 12).
9. Net Funds
6 months 6 months Year ended
ended ended 31 March
30 September 30 September 2017
(GBPm) 2017 2016
--------------------------- -------------- -------------- -----------
Cash and cash equivalents 72.3 32.4 29.4
Borrowings - Repayable
within one year (4.0) (2.8) (3.7)
Borrowings - Repayable
after one year (11.6) (8.3) (13.7)
--------------------------- -------------- -------------- -----------
Net funds 56.7 21.3 12.0
--------------------------- -------------- -------------- -----------
Reconciliation of net cash flow to movement in net funds:
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
(GBPm) 2017 2016 2017
----------------------------------------------------------- -------------- -------------- ----------
Net increase/(decrease)
in cash and cash equivalents 42.8 (1.1) (4.0)
Net decrease/(increase)
of debt and lease financing 2.1 (2.8) 1.7
Non cash movements:
* Asset acquired under finance leases (0.1) (0.1) (10.9)
* Foreign exchange on cash and cash equivalents - 0.1 (0.2)
* Foreign exchange on bank borrowings (0.1) (0.2) -
-------------- --------------
Movement in net funds/(debt) 44.7 (4.1) (13.4)
-------------- --------------
Opening net funds 12.0 25.4 25.4
-------------- --------------
Net funds at the period end 56.7 21.3 12.0
-------------- --------------
At 30 September 2017, AO Limited and its two subsidiaries, AO
Retail Limited and Expert Logistics Limited, had access to a
Revolving Credit Facility.
At 30 September 2017 the amount available was GBP28.6m (2016:
GBP29.5m)
10. Share capital
On 3 April 2017 the Company completed a placing of new shares
(37,735,849 ordinary shares) to raise GBP50.0m to suitably
capitalise the business to support our continued growth and
increasing scale. Costs in relation to the placing have been
deducted from the share premium account.
11. Share-based payments
On 21 July 2017 the Group issued new options under the Long Term
Incentive Plan (LTIP) to Directors and key members of staff. The
number of share options awarded under the new LTIP was 3.7m.
The total charge in the Income Statement in relation to all
LTIPs was GBP2.3m (2016: GBP1.5m) and SAYE Schemes was GBP0.2m
(2016: GBP0.2m). The exceptional LTIP charge in relation to this
was GBP1.9m (2016: GBP1.3m).
12. Financial instruments
As detailed in the Group's most recent annual financial
statements, our principal financial instruments consist of a call
and put option, trade and other receivables, accrued income, cash
and cash equivalents, trade and other payables and borrowings. As
indicated in Note 1, there have been no changes to the accounting
policies for financial instruments, including fair value
measurement, from those disclosed in the Company's Annual Report at
31 March 2017. In addition, there have been no changes to the
categorisation or fair value hierarchy of our financial
instruments. The fair values of cash and cash equivalents, trade
and other receivables, accrued income, and trade and other payables
and borrowings are all deemed to approximate their carrying values
and these can be identified on the face of the Statement of
Financial Position and accompanying notes. The fair value and
carrying values of the put and call options are as disclosed in the
31 March 2017 Annual Report and there have been no movements since
that date except for the unwind of the discount on the put
option.
13. Related party transactions
Trading transactions
The Company is the ultimate parent entity of the Group.
Intercompany transactions with wholly owned subsidiaries have been
excluded from the consolidated figures.
6 months ended 30 September 6 months ended 30 September
(GBPm) 2017 2016 Year ended 31 March 2017
Sale of goods and services
AO Recycling Ltd 0.1 - -
WEEE Re-use It Limited - 0.2 0.2
Purchase of goods and services
AO Recycling Ltd 0.3 1.1 1.3
WEEE Re-use It Limited - - 0.2
Booker Limited - - 0.1
Recharges
AO Recycling Ltd 1.2 0.4 1.1
Transactions with Directors and key management personnel
On 3 April 2017 the Company completed a placing of new shares
(37,735,849) to raise GBP50m to suitably capitalise the business to
support continued growth.
Steve Caunce and John Roberts participated in the share placing
purchasing 1,509,433 shares each. Mark Higgins purchased 3,773
shares and Chris Hopkinson purchased 754,716 shares.
All are related as they are directors of AO World plc.
During the period the Group also issued new share options to
Directors and key members of staff (see note 11).
14. Post balance sheet event
On 16 November 2017, AO Limited (a direct subsidiary of AO World
plc), and its subsidiaries AO Retail Limited and Expert Logistics
Limited extended its existing Revolving Credit Facility from GBP30m
to GBP60m. The facility is provided by Barclays Bank plc, Lloyds
Bank plc and HSBC Bank plc and is for UK general corporate
purposes.
15. Principal risks and uncertainties
There are a number of potential risks and uncertainties which
could have a material impact on the Group's performance over the
remaining six months of the financial year and could cause actual
results to differ materially from expected or historical results.
The Directors do not consider that the principal risks and
uncertainties have changed materially since the publication of the
Annual Report for the year ended 31 March 2017, save as noted below
in relation to the status of product protection plans.
The principal risks as set out in the Annual Report are
summarised below and further information on these together with
information as to how the Group seeks to mitigate these risks is
set out on pages 40-44 of the Annual Report and Accounts 2017 which
can be found at www.AO.com/corporate:
-- Risk relating to the UK economy, in particular following the
outcome of the EU Referendum (Brexit) and the implications this may
have for the Group.
-- Risks relating to our European expansion.
-- Risk relating to IT systems resilience.
-- Risks of interruption to physical infrastructure.
-- Risks relating to legal and/or regulatory changes,
particularly with regard to the forthcoming General Data Protection
Regulation which poses potential challenges to marketing practices
and the increased scrutiny of the gig economy which may drive
changes to laws surrounding employment status.
-- Risks relating to brand recognition and damage.
-- Risks relating to our failure to maintain our culture as we
grow and dependence on members of the Group Executive and Senior
Management Teams.
-- Risks in relation to significant accounting matters including
revenue recognition, debtor recoverability and the status of
product protection plans.
Domestic & General Services Limited have recently announced
they are looking to enhance their product protection plans by
transitioning from a service-backed plan to maintenance service
plans and insurance-based warranties. Customers' current plans will
not be affected and will transfer on renewal (expected to start
mid-2018).
The directors are particularly mindful of the uncertainty in the
UK economy following the outcome of the EU Referendum (Brexit) and
the implications this may have for the Group. Uncertainty in the
economy has and may continue to reduce consumer confidence and
affect demand, particularly for the more "considered" (as opposed
to "distressed") purchase and may also have an effect on the
housing market, to which our MDA sales bear some correlation.
Further whilst all our product purchases are bought in local
currency (minimising the effects of the weakening of the pound
against the Euro and Dollar), the increase in our suppliers' supply
chain costs have in many cases been passed on to the Group and this
may continue. We need to remain competitive from a price point of
view and, if our competitors do not pass prices on (either because
they have longer term trade deals or decide to absorb some of the
price increases themselves), this may hamper our profitability in
the short-term.
Against such uncertainty we have some comfort that, in the UK,
the vast majority of our sales mix is MDA which tends to be more
resilient to unfavourable economic conditions due to being a
necessity rather than a luxury purchase. We also would expect that
price increases would be passed on to all our competitors and that
ultimately these will be passed on to consumers (at the risk of
reduced demand) and our trading teams are engaging with suppliers
to understand and manage any such repercussions. Importantly, given
our growth model and flexible cost base we are able to adjust
quickly to downturns in demand should this be required.
The Board continues to monitor the risks and uncertainties
associated with Brexit and the potential impact these may have on
the Group's results and financial position in both the short and
longer term.
16. Responsibility statement
Responsibility statement of the directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
-- The condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU
-- The interim management report includes a fair review of the information required by:
(a)DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b)DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
On behalf of the Board
Steve Caunce Mark Higgins
CEO CFO
21 November 2017 21 November 2017
INDEPENDENT REVIEW REPORT TO AO WORLD PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2017 which comprises a Condensed
Consolidated Income Statement, Condensed Consolidated Statement of
Comprehensive Income, Condensed Consolidated Statement of Financial
Position, Condensed Consolidated Statement of Changes in Equity,
Condensed Consolidated Statement of Cash Flows and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2017 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU and the Disclosure Guidance and Transparency Rules ("the
DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1 annual financial statements of the group
are prepared in accordance with International Financial Reporting
Standards as adopted by the EU. The directors are responsible for
preparing the condensed set of financial statements included in the
half-yearly financial report in accordance with IAS 34 as adopted
by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Mick Davies
For and on behalf of KPMG LLP
Chartered Accountants
1 St. Peter's Square
Manchester
M2 3AE
20 November 2017
This information is provided by RNS
The company news service from the London Stock Exchange
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