TIDMAO.
RNS Number : 7501D
AO World plc
01 July 2021
AO WORLD PLC
FINAL RESULTS FOR THE YEARED 31 MARCH 2021
A year of significant strategic, operational and financial
progress
AO World plc ("the Group" or "AO"), a leading European online
electrical retailer, today announces its audited financial results
for the year ended 31 March 2021 ("FY21").
GBP(m) FY21 FY20(1) % Mvmt
Total Group revenue 1,661 1,026 62%
====== ======== =======
UK revenue 1,435 901 59%
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Germany revenue 226 125 81%
====== ======== =======
Group Adjusted EBITDA (2) 64 22 191%
====== ======== =======
Group Operating profit/(loss) 30 (4) 850%
====== ======== =======
Profit before tax 20 1 1,900%
====== ======== =======
Basic earnings per share 3.73p 0.21p 1,676%
====== ======== =======
Cash generated/(utilised) 60 (22) 372%
====== ======== =======
Net debt(3) (28) (99) (71)%
====== ======== =======
Financial highlights
-- Group revenue increased 62% to GBP1,661m (2020 (6) :
GBP1,026m (1) ) driven by the continued shift to online
shopping
-- Germany gross margin improved from negative 2% in 2019 to 9%
with increased scale in logistics
-- Group Adjusted EBITDA(2) increased 191% to GBP64m (2020 (6) :
GBP22m(1) ) driven by strong product sales
-- Group Adjusted EBITDA(2) margin doubled to 4% reflecting the
strong scale efficiencies in our business model
-- Group operating profit increased to GBP30m (2020: GBP(4)m loss )
-- Cash generation of GBP60m and reduction of net debt(3) to
GBP28m (2020: GBP99m). Total liquidity headroom of GBP143m.
Operational highlights
-- In the UK, Major Domestic Appliances ("MDA") grew 61%, driven
by demand for larger fridges, chest freezers and other home
appliances
-- Small Domestic Appliances ("SDA") grew 103%; other home
entertainment categories all grew strongly, including AV (109%),
consumer electronics (126%) and gaming (127%)
-- Over 2m new customers(4) were welcomed to "The AO Way" during the year
-- O ver 1,200 new roles created across the business
-- Net Promoter Score(5) ("NPS") remains World Class ranked at 85 in the UK and 89 in Germany
-- Strategic investment in expanded capacity in warehousing,
vehicles and people to respond to the accelerated move to the
digital environment
-- Ambitious Value Creation Plan ("VCP") launched to all
employees, giving every AOer the chance to share in exceptional
growth
AO's Founder and Chief Executive, John Roberts, said : "It's
been a step change year for AO in which we've achieved significant
strategic, operational and financial progress. The early and bold
investments we made in capacity, infrastructure and people returned
increased revenues by 62%, and grew Adjusted EBITDA by 191% across
the Group. Most importantly, we rose to the challenge for the
people who matter most, our customers, and we relished the
opportunity to impress two million more of them in the period.
"Delivering brilliantly for customers is at the heart of our
mission to become the global destination for electricals. We firmly
believe that once people experience a better way to buy
electricals, they are unlikely to return to old ways of shopping.
Our vertically integrated business model offers substantial
operational leverage which means all incremental growth feeds our
flywheel, generating cash to invest back into our business for
customers.
"Coming out of the pandemic, the direction of travel is firmly
with AO, and our proven ability to build scale and drive growth
gives us confidence to look towards further European expansion over
the next five years. We'll continue to make choices that create
long-term value for our share owners, as well as make our mums
proud.
"I would like to thank all our AOers for living The AO Way
during the year and our trading partners who shared our desire to
use these testing times as a chance to deepen relationships."
Enquiries
Tel: +44(0)7525 147
AO World plc 877
John Roberts, Founder & CEO ir@ao.com
Mark Higgins, CFO
Cynthia Alers, Director of Investor
Relations
Powerscourt Tel: +44(0) 20 7250
Rob Greening 1443
Lisa Kavanagh ao@powerscourt-group.com
Sam Austrums
Webcast details
A results presentation will be held for analysts and investors
at 09.00 BST, today, 1 July 2021. Please register to join at
Investor Centre | AO World (ao-world.com) . The broadcast will be
available at https://brrmedia.news/ttw9cs from 08.45 (BST) today, 1
July 2021. A live Q&A session for analysts and investors will
immediately follow the presentation. Both the presentation and a
playback of the Q&A session will be available on AO World's
investor website at www.ao-world.com later today. Please dial into
the conference call for live Q&A at +44 (0)330 336 9125,
Confirmation Code: 5262821.
About AO
AO World plc, headquartered in Bolton and listed on the London
Stock Exchange, is an online electrical retailer, with a mission to
be the global destination for electricals. Our strategy is to
create value by focussing on being brilliant for our customers to
make AO the destination for everything they need, in the simplest
and easiest way, when buying electricals.
We sell major and small domestic appliances and a growing range
of electrical products in the UK and Germany, delivering them via
our in-house logistics business and carefully selected third
parties. We also provide ancillary services such as the
installation of new and collection of old products and offer
product protection plans and customer finance.
In the UK, AO operates in five main categories (Major Domestic
Appliances "MDA", Small Domestic Appliances "SDA", Audio Visual
"AV" and Consumer Electronics "CE"). Following the acquisition of
Mobile Phones Direct Limited in December 2018, AO has significantly
broadened its mobile phone category.
AO Business serves the B2B market in the UK, providing
electricals and installation services at scale.
AO launched in Germany in October 2014 with MDA and now also
sells Floorcare, AV and SDA categories.
AO also has a majority equity stake in AO Recycling, a WEEE
processing facility, allowing AO to ensure its customers'
electronic waste is dealt with responsibly in the UK and has
recently added a state-of-the-art plastics refinement facility to
its recycling capability.
______________________________
(1) The prior year comparative excludes revenue and losses
generated by AO.nl, our Netherlands website, which was closed
during the quarter ended 31 March 2020. Prior year numbers have
been restated as set out in note 11.
(2) Please refer to the discussion on our alternative
performance measures later in this announcement.
(3) Net debt is defined as cash less borrowings less Lease
Liabilities less overdrafts as per the consolidated statement of
financial position.
(4) A customer is defined as an individual customer who has
purchased via ao.com or ao.de.
(5) Net Promoter Score or "NPS" is an industry measure of
customer loyalty and satisfaction. UK NPS comprises ao.com and
mobilephonesdirect.com and is calculated on a revenue weighted
average basis.
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 year like no other for our business, our
employees, our customers and our business partners, with
significant strategic, operational and financial progress over the
year. We believe that the structural changes we have experienced
this year prove the continued shift to the online market for
electrical retailing which favours our unique and well-established
business model.
The Covid-related restrictions over the past year presented both
a challenge and an opportunity for all online retailers, and AO was
no exception. The demand for AO's products increased significantly
at the start of the first lockdown period, as bricks and mortar
stores closed and almost 100% of the market for most goods migrated
online overnight. Whilst we inevitably benefited from the shift to
online shopping and the change in customer lifestyles, AOers have
had to work hard under challenging conditions to satisfy a
significant increase in demand and maintain the outstandingly high
levels of customer service for which AO is known. Through their
dedication, adaptiveness and innovation, we continued to deliver
for all our customers, providing the essential electrical products
that they needed throughout the pandemic. Our people worked swiftly
to ensure that safety was never compromised for all colleagues,
customers and partners. We are hugely grateful to them for their
hard work, this year and every year, as we strive to ever improve
our brilliant customer experience.
This year has also been one of uncertainty for all areas of life
and business. We focused on the opportunity to serve customers when
they needed us and welcomed over two million new customers to The
AO Way. As a vertically integrated company, we were able to manage
our Logistics operations to cope with the demand peaks. Our
Recycling operations first had to deal with supply shortages due to
the closure of local authority waste sites and then significant
increases in volumes once sites were reopened. Strong partner
relationships with all our stakeholders enabled us to work
collaboratively to keep products flowing to our customers despite
these challenges. We invested early and boldly in our capacity,
capability and infrastructure to enable us to serve our customers
through such unpredictable periods. Since the onset of the
pandemic, we have nearly doubled our warehousing capacity to 1.8m
sq. ft. to create the capacity for both increased customer demand
and supply chain disruption. Over 1,200 new roles were created to
support our growth with capacity and new skills.
Our UK business had an exceptionally strong year, increasing
market share in MDA by 8 ppts to 23%, making us one of the market
leaders in our category. We have also accelerated our growth in
newer categories, with our online market share in SDA rising to 5%.
Our market share in televisions and audio visual also showed strong
growth, achieving total market shares of 6% and 4%, respectively.
These are significant milestones in our strategy as a global
electricals retailer.
The refocused team in Germany responded brilliantly to the same
challenges as in the UK, increasing sales by 81% and improving its
Gross Margin from a negative 2% in 2019 to a positive 9% this year,
illustrating the operating leverage inherent in our business model.
Based on Germany's sales performance during the peak period, on an
Adjusted EBITDA basis, the business achieved breakeven in the third
quarter, another strategic milestone.
In recent years, we have significantly enhanced our business
with new products, services, acquisitions and additions to our
business model, so this year we have also spent time considering
the depth and strength of our management teams, our structure and
our ways of working. We have invested in our teams, processes and
people development; we will continue to do so as we grow.
This year we fully opened our new plastics recycling plant which
added new capabilities to our existing world class recycling
operations. Playing a responsible role in improving our environment
is a commitment we take very seriously, and we will continue to
invest in the circular economy by recycling plastics and other
parts
into new components where possible. We recycled over 1.3m appliances during FY21.
AO Business, which sells to housebuilders, housing associations
and other large volume purchasers, grew 69% over the year, and we
are confident that we have found a unique segment that has not been
accustomed to our vision of customer service. We also launched a
trial of our "store within a store" in partnership with Tesco where
we are exploring new ways of reaching customers and extending our
brand recognition.
Our logistics operations, which serve both AO and third parties,
have been challenged by restrictions on social distancing and
entering people's home, but will again play a fundamental role in
delivering our products with our brilliant customer experience as
restrictions ease. Our first priority will continue to be keeping
our customers and all our people safe.
These are all exciting new initiatives that drive our growth and
expand our flywheel, which is the key to our success. By obsessing
about customers and making our service ever better for them by
innovating and investing bravely, we increase sales at strong
growth rates in each of our markets. This allows us to grow repeat
and recommendation business to build lifetime value, while also
enabling us to reach even more customers. Through the sales growth,
we achieve operational gearing, scalability, and improved
efficiencies, and because we are vertically integrated, the
flywheel starts to turn faster and makes the business more
profitable and gives us new opportunities and strategic
choices.
Although this has been a strong year for AO, there have been
some headwinds with which we had to cope. Manufacturers have faced
unprecedented challenges in their supply chains and to after sales
service. We have been there, shoulder to shoulder with our
suppliers, to navigate together in the best way possible with a
laser focus on our mutual customers rather than cost. This has also
allowed us to deepen these key strategic relationships, but it did
lead to elevated inventory levels as well as the increased costs on
many levels to comply with Covid restrictions.
Outlook
This has been an exceptional year for our businesses. We remain
firmly focused on growing our revenues and taking market share,
responsibly reinvesting the benefits of operational leverage in
growth and broadly maintaining the current level of profits. Our
scale and cash generation will support this acceleration of our
ambitions. In the UK, we will manage investment opportunities
within a tolerance of 1% of revenue. In Germany, we will continue
to grow our business as quickly as we can at roughly EBITDA break
even, plus or minus 2 %.
Our partners and suppliers recognise that customers now see
digital as a great way to shop. To build on this continuing channel
shift and to realise our continued growth ambitions, we plan to
make significant investment in further enhancing our customer
experience, with a GBP30m incremental investment in marketing and
digital content in the coming year. We also plan to upgrade our
support systems with GBP30m of incremental investment in FY22. This
will provide a solid foundation to our strategic ambitions, as we
expand into new areas of growth. Our Recycling facilities are the
cornerstone of our strong ESG credentials and vertically integrated
business model. We are evaluating further expansion of our
capacity, with the possibility of a second recycling facility in
the next 18 months with a further GBP20m investment.
Longer term, our ambitions are to continue to expand our model
into new products and new geographies, and we expect to be
operating in five countries within the next five years, including
our existing markets of the UK and Germany. The investments we are
making this year underpin those ambitions and ensure that our
businesses are fit for continued growth, with a view to more than
doubling the size of the Group in that time period.
Our firm view is that the shift to online retail, accelerated by
Covid restrictions, is continuing. We have a strong business model
built up over 20 years which is underpinned by our vertical
integration, our One AO centres of expertise and our clear vision
for high growth potential in newer categories. We are increasingly
recognised by customers as one of the online leaders in electricals
in the UK, and this is giving us real scale and driving our
flywheel.
Our markets remain robust and attractive; however, we are
conscious that forecasting the next 18 months will remain
difficult. We have started the new financial year well and remain
prudently optimistic that we will be able to deliver double digit
growth as we lap the strong Covid performance comparatives. The
choices we make in future will create incredible long-term value
for our shareholders, our people and our partners. It really has
been an incredible journey over the last 20 years and we're only
just getting started.
FINANCIAL REVIEW
We are pleased to report another strong financial performance
despite the challenges and opportunities in a year dominated by
Covid related events. The continued shift to online shopping,
accelerated by Covid restrictions, created a strong sales momentum
which was reflected in our results for the year, as was the
operational leverage inherent in our vertically integrated model.
As a result, our business achieved an operating profit of GBP30m
compared to an operating loss in FY20.
In our January Q3 trading statement and in our April post-close
trading statement, we referred to an increase in warranty plan
cancellations and announced our intention to conduct a full review
of the customer base. This review has resulted in a cumulative
adjustment to reserves of GBP11.1m. This change is discussed in
more detail below in Note 11.
The Group has made considerable progress against its strategic
objectives, with good cash generation, strong growth in our UK
business and Germany achieving break even sales performance during
the peak period, on an Adjusted EBITDA basis. We increased
capacities in our warehousing space as supply chain disruption
caused a rise in inventories, and we invested in additional stock
to meet the surge in customer demand. Whilst this helped drive
considerable volume growth , we incurred increased costs in
assuring the safety of both our customers and staff. The Covid
related lockdowns also forced us to pause our installation services
at certain times. In addition, our store trials with Tesco were
closed for much of the year and our Recycling facilities were
affected by regular closures and social distancing measures.
Revenue
Table 1
Revenue 12 months to 12 months to
GBPm(2) 31 March 2021 31 March 2020 (restated) % change
---------------------- --------------------- ---------------------------- --------------------
UK Germany Total UK Germany Total UK Germany Total
---------------------- ----- ------- ----- ----- ----------- -------- ---- ------- -----
Product revenue 1,200 221 1,421 693 122 814 73% 82% 75%
====================== ===== ======= ===== ===== =========== ======== ==== ======= =====
Service revenue 54 4 58 35 3 38 54% 17% 51%
====================== ===== ======= ===== ===== =========== ======== ==== ======= =====
Commission revenue 146 - 146 143 - 143 2% 28% 2%
====================== ===== ======= ===== ===== =========== ======== ==== ======= =====
Third party logistics 17 1 18 17 - 17 (1)% 2,019% 6%
====================== ===== ======= ===== ===== =========== ======== ==== ======= =====
Recycling 18 - 18 14 - 14 32 % - 32%
---------------------- ----- ------- ----- ----- ----------- -------- ---- ------- -----
Total revenue 1,435 226 1,661 901 125 1,026 59% 81% 62%
---------------------- ----- ------- ----- ----- ----------- -------- ---- ------- -----
Total revenue
including NL (1) 1,435 226 1,661 901 145 1,046 59% 57% 59%
---------------------- ----- ------- ----- ----- ----------- -------- ---- ------- -----
(1) The majority of revenue generated in our Netherlands
business in the prior year was classified as Product revenue.
(2) Totals may vary due to effects of rounding.
Total Group revenue (excluding the Netherlands) grew 62% to
GBP1,661m (2020: GBP1,026m) with both the UK and Germany recording
considerable growth. UK revenues grew 59% to GBP1,435 (2020:
GBP901m). Revenues in Germany grew 81% to GBP226m (2020:
GBP125m).
Product revenue
Total revenue growth was primarily driven by the increase in our
product sales. As Covid restrictions resulted in most retail
outlets closing for much of the year, most non-essential retailing
gravitated online, accelerating structural shifts towards the
digital environment.
In the UK, product revenue increased 73% to GBP1,200m (2020:
GBP693m). MDA grew 61% as demand for larger fridges, chest freezers
and other home appliances soared during lockdown. We also enjoyed
growth in our SDA category of over 100% albeit from a smaller base
and increasing our market share. Additional categories relating to
home entertainment all grew strongly during the Covid restrictions,
including AV (109%), consumer electronics (126%) and Gaming (127%).
Our AO Business, which sells to housebuilders and other large
volume businesses, continued to build momentum, growing 69%
year-on-year.
Our business in Germany experienced robust growth from a smaller
base. Due to Covid-related restrictions on store openings, the
online MDA market almost doubled over the year, with our market
share growing by 1.3ppts to 3.2% and product revenue growing 82% to
GBP221m (2020: GBP122m).
Service revenue
Service revenue comprises service bundles, such as gas
installations through our premier fleet, installing televisions on
walls and timed delivery slots.
UK Service revenue increased 54% to GBP54m compared to GBP35m
for the same period last year. Covid restrictions on social
distancing resulted in the pausing of many of our normal services
propositions, although customer demand remained strong outside the
lockdown period. Services therefore reported good growth overall,
albeit at a lower rate than our headline revenue growth.
Germany experienced a similar market experience; however, the
German market was under heavier restrictions than the UK and,
consequently, many of our normal services were constrained for
longer periods than in the UK, although overall service revenue
growth was 17%.
Other Revenue
Revenue from Commissions comprises revenues from the Mobile
Network Operators ("MNO") for the procurement of connections to the
MNO's network and the delivery of the handset to the end customer.
It also includes the revenue from selling our AO Care branded
insurance plans where we act as agent for D&G. During the year,
our commissions revenue from the MNOs grew by 2% with our AO Care
plan income increasing by 34%.
As reported at the half year, we experienced a shift in customer
behaviour in the mobile business with increased cashback redemption
rates and cancellation of contracts, which management believe was
mainly Covid related. We consequently reviewed the estimates and
judgements used in assessing previously recognised revenue which
resulted in a revenue reduction of GBP10.8m in the reporting
period. We reacted quickly to these shifts in customer behaviour,
moving our propositions to more upfront cash deals which reduced
the monthly recurring charge (MRC) for the consumer but also
improved the customer journey with simpler, customer-friendly
offers. As a result, our Mobile business continued to grow in a
Mobile contract market that declined 5% year-on-year, whilst also
achieving an improved NPS.
Our AO Care insurance offering is a regulated product which
provides customers with the security that their new product can be
repaired or replaced if required. Revenue from AO Care grew in line
with product revenue during the year and, as more customers were at
home during the pandemic, conversion rates for AO Care products
increased modestly. However, as a result of the restatement of
comparatives, this performance was partly offset by the impact of
the reassessment of estimates and judgements relating to previously
recognised revenue, as set out later in this document. As a result,
revenue in the period was constrained by GBP8.1m.
In the UK, revenues from third party logistics were broadly
flat, as we focused on utilising capacity for our ao.com and
existing third-party customers. Deliveries were also constrained by
certain products being classified as non-essential under UK
Government Covid guidelines. Third party logistics services
performed well in Germany as a new service.
Despite Covid restrictions, which meant recycling centres were
closed for long periods under Government guidelines, recycling
revenue grew 32%, driven mainly from increased volumes from both
our own collections from our AO customers and from local authority
clients. We are also pleased that our new plastics centre became
fully operational during the year which meant we have generated our
first revenues from selling recycled plastics.
Gross margins
Table 2
Gross Profit 12 months to 12 months to
GBPm(1) 31 March 2021 31 March 2020 (restated) % change
-------------- ------------------- ---------------------------- -----------------------
UK Germany Total UK Germany Total UK Germany Total
-------------- --- ------- ----- ----- ----------- -------- ----- ------- -------
Gross profit 273 20 293 177 2 179 54% 1,011% 63%
-------------- --- ------- ----- ----- ----------- -------- ----- ------- -------
(0.6)
Gross margin 19% 9% 18% 20% 1% 17% ppts 7.2ppts 0.2ppts
-------------- --- ------- ----- ----- ----------- -------- ----- ------- -------
Gross margin (0.6)
including NL 19% 9% 18% 20% 0.6% 17% ppts 8.0ppts 0.6ppts
-------------- --- ------- ----- ----- ----------- -------- ----- ------- -------
(1) Totals may vary due to effects of rounding.
Total Gross profit for the Group, which includes product
margins, delivery costs, commissions from selling insurance plans
and network connections and other ancillaries, increased 63% to
GBP293m (2020: GBP179m). Gross margin increased slightly as a
percentage of revenue from 17.4% to 17.6%.
UK Gross profit grew by 54% to GBP273m (2020 restated: GBP177m).
Gross Margin was broadly unchanged but was impacted by the changes
to estimates and judgements in both Mobile and Aftercare as
discussed above. Excluding the impact of the changes above our
Gross margin remained broadly flat at 19.0% (2020: 19.6%).
We anticipate that UK Gross Margin will reduce slightly in the
near term as we grow our share in new product categories in line
with our strategy of being the global destination for electricals.
Efficiency gains in logistics for these products will help offset
the dilutive effect on margins.
In Germany, Gross Margin improved strongly to 9% from 1%, and
further improving from 2019, when gross margin was negative 2%.
This reflects the operational leverage in our business, our
achievement in bringing pricing in line with that of the UK and
negotiation of more favourable supplier terms. Increased product
sales also drove efficiencies in our logistics operation. Gross
Profit grew strongly to GBP20m (2020: GBP2m).
Selling, General & Administrative Expenses ("SG&A")
Table 3
SG&A costs 12 months to 12 months to
GBPm(1) 31 March 2021 31 March 2020 % change
-------------------- ------------------- ------------------- --------------------
UK Germany Total UK Germany Total UK Germany Total
-------------------- --- ------- ----- --- ------- ----- --- ------- ------
Advertising
and marketing 43 7 50 22 7 29 98% 7% 76%
--------------------- --- ------- ----- --- ------- ----- --- ------- ------
% of revenue 3% 3% 3% 2% 5% 3%
--------------------- --- ------- ----- --- ------- ----- --- ------- ------
Warehousing 59 7 66 38 4 42 56% 65% 57%
--------------------- --- ------- ----- --- ------- ----- --- ------- ------
% of revenue 4% 3% 4% 4% 3% 4%
--------------------- --- ------- ----- --- ------- ----- --- ------- ------
Research and
development 15 - 15 9 - 9 66% - 66%
--------------------- --- ------- ----- --- ------- ----- --- ------- ------
% of revenue 1% - 1% 1% - 1%
--------------------- --- ------- ----- --- ------- ----- --- ------- ------
Other admin 118 14 132 84 13 97 41% 6% 36%
--------------------- --- ------- ----- --- ------- ----- --- ------- ------
% of revenue 8% 6% 8% 9% 11% 10%
--------------------- --- ------- ----- --- ------- ----- --- ------- ------
Adjustments - - - - 1 1 - (100)% (100)%
--------------------- --- ------- ----- --- ------- ----- --- ------- ------
% of revenue - - - 0% 1% 0.1%
--------------------- --- ------- ----- --- ------- ----- --- ------- ------
Administrative
expenses 236 28 264 153 25 178 54% 12% 48%
--------------------- --- ------- ----- --- ------- ----- --- ------- ------
% of revenue 16% 12% 16% 17% 20% 17%
--------------------- --- ------- ----- --- ------- ----- --- ------- ------
Administrative
expenses including
NL 236 28 264 153 30 183 54% (7)% 44%
--------------------- --- ------- ----- --- ------- ----- --- ------- ------
% of revenue 16% 12% 16% 17% 24% 18%
--------------------- --- ------- ----- --- ------- ----- --- ------- ------
(1) Totals may vary due to effects of rounding.
Total SG&A costs increased over the year but as a percentage
of revenue decreased to 16% (2020: 18%). SG&A costs for the
Group increased to GBP264m (2020: GBP183m) as we invested in our
logistics infrastructure, IT systems and additional people to
manage the increase in customer demand and people with specific
technical skills.
In the UK, SG&A costs increased 54% to GBP236m (2020:
GBP153m), although as a percentage of revenue, this was a decrease
of 0.6ppts. During the year we invested in our warehousing, near
doubling our capacity as we anticipated the likely disruption in
our supply chain during Covid restrictions. This helped us to
strengthen our supplier relationships as we were able to absorb
additional product stock when retail stores closed and as a result,
we were able to satisfy customer demand when product availability
was curtailed as well as building supplier credibility.
We also took the strategic decision to invest in marketing and
brand advertising to support our revenue growth, running several
successful marketing campaigns across television and social media
and sponsored several sporting events, taking advantage of
competitive rates during Covid lockdowns. These activities helped
drive a total of 1.9m new customers to our UK website during the
year and increased website traffic by 83%.
UK other administration expenses increased to GBP118m (2020:
GBP84m) although as a percentage of revenue this was a decrease of
0.9ppts. Expenditure included costs associated with the start of
our investment to transform our IT infrastructure and the
procurement of the necessary skills required to support the next
phase of our growth.
In Germany, we increased our SG&A expenditure to GBP28m
(2020: GBP25m), although it reduced as a percentage of revenue by
8ppts. This level is now below that of the UK as we further
leverage our One AO platform together with improving efficiencies
in our local logistics and admin operations.
Advertising and marketing costs in Germany decreased as a
percentage of revenue by 2 ppts, as similarly to the UK, customer
demand outstripped supply in certain categories in the early part
of the reporting year. Warehousing as a percentage of revenue
improved slightly by 0.3ppts as we leveraged our scale with the
increased volumes. We have seen substantial efficiency gains in
Germany which reduced Other Administration expenses by 5 ppts. This
is a result of the continuation of the work we commenced during
FY20 in restructuring our operations and leveraging our skills and
knowledge in the UK as part of the One AO platform.
Operating profit and Adjusted EBITDA
We are pleased to report a substantial increase in operating
profit for the period to GBP30m (2020: GBP(4)m loss).
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 profit/(loss) before interest,
tax, depreciation, amortisation and profit/loss on the disposal of
fixed assets.
Adjusted EBITDA
T he reconciliation of statutory operating profit to Adjusted
EBITDA is as follows:
Table 4
Operating Income and
Adjusted EBITDA 12 months to 12 months to
GBPm(1) 31 March 2021 31 March 2020 (restated) % change
------------------------- ------------------ ---------------------------- ---------------------
UK Germany Total UK Germany Total UK Germany Total
------------------------- ------- ----- ----- ----------- -------- ---- ------- ------
Operating profit/
(loss)
excluding Netherlands 38 (8) 30 25 (24) 1 55% 64% 3,052%
Netherlands Operating
loss - - - - (5) (5) - (100)% (100)%
------------------------ ------- ----- ----- ----------- -------- ---- ------- ------
Operating profit/(loss) 38 (8) 30 25 (29) (4) 55% (71)% (791)%
Depreciation 19 3 22 16 3 19 18% 2% 16%
Amortisation 3 - 3 2 - 2 24% - 24%
EBITDA Excluding
Netherlands 59 (5) 54 43 (20) 22 41% 74% 147%
Netherlands EBITDA - - - - (5) (5) - 100% 100%
------------------------ ------- ----- ----- ----------- -------- ---- ------- ------
EBITDA 59 (5) 54 43 (26) 17 41% 80% 223%
------------------------ ------- ----- ----- ----------- -------- ---- ------- ------
Adjusting items
Adjusting items
excluding Netherlands 8 2 10 (2) 2 - 500% - 4,708%
Netherlands Adjusting
items - - - - 2 2 - (100)% (100)%
------------------------ ------- ----- ----- ----------- -------- ---- ------- ------
Total Adjusting Items 8 2 10 (2) 4 2 502% (51%) 331%
------------------------ ------- ----- ----- ----------- -------- ---- ------- ------
Adjusted EBITDA
excluding Netherlands 67 (3) 64 41 (18) 22 68% 83% 191%
Netherlands Adjusted
EBITDA - - - - (3) (3) - 100% 100%
------------------------ ------- ----- ----- ----------- -------- ---- ------- ------
Adjusted EBITDA 67 (3) 64 41 (21) 19 68% 86% 237%
------------------------ ------- ----- ----- ----------- -------- ---- ------- ------
Adjusted EBITDA as
% of Revenue 5% (1)% 4% 5% 17% 2%
------------------------ ------- ----- ----- ----------- -------- ---- ------- --------
(1) Totals may vary due to effects of rounding.
Adjusted EBITDA is calculated by adding back or deducting
Adjusting Items to EBITDA. Adjusting Items are those items which
the Group excludes to present a further measure of the Group's
performance. Each of these items, costs or income, is considered to
be significant in nature and/or quantum or is consistent with items
treated as adjusting in prior periods. Excluding these items from
profit metrics provides readers with helpful additional information
on the performance of the business across periods because it is
consistent with how the business performance is planned by, and
reported to, the Board and the Chief Operating Decision Maker.
During the 12 months to 31 March 2021, the following adjustments
("Adjusting Items") were made:
-- Management have 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 has been
further constrained by GBP8.1m with a corresponding reduction in
the contract asset. Given the size and nature of the adjustment and
its link to the prior period adjustment, the amount has been added
back in arriving at Adjusted EBITDA.
-- Consistent with the treatment adopted in prior periods, the
full cost of an onerous marketing contract in Germany (which ended
in December 2020) has been added back in arriving at Adjusted
EBITDA. In the 12 months to 31 March 2021, this amounted to GBP2.2m
(2020: GBP1.3m) and have been added back due to their size, timing
and the onerous nature of the contract which we consider to be
exceptional.
During the 12 months to 31 March 2020, as well as the matter
noted above on marketing costs, the Adjusting Items were as
follows:
-- Closure costs of our Netherlands operations: At the time of
the publication of our interim results in November 2019, the Group
announced its intention to close its operations in the Netherlands.
On 9 December 2019, the website was closed, and, after that date,
we worked with suppliers, staff and the authorities to ensure an
orderly closure of the companies which completed at 31 March 2020.
Costs of GBP2.5m incurred between 9 December 2019 and 31 March 2020
have been treated as the cost of closure of these operations and
include the write-off of unsold stock, redundancy payments for all
staff, and legal costs.
-- Following the closure of the Netherlands business, the Group
restructured its European business, with additional costs of
GBP0.9m incurred relating to the closure, principally headcount
reduction in Germany.
-- Following the signing of a new longer term contract with
Vodafone in October 2019, certain historic claims against AO Mobile
Limited were discharged and, consequently, provisions of GBP2.3m
were released to the income statement. As the provisions had been
created as part of the purchase price allocation exercise on the
acquisition of AO Mobile Limited, the charge for these claims had
never been recognised in the Group income statement.
Taxation
The tax charge for the year was GBP3.1m (2020 restated: GBP0.1m
credit), resulting in an effective rate of tax for the year of
15.4% (2020: 5.8%), which is lower than the UK corporation tax rate
for the period of 19% due to the corporation tax relief claimed on
the share exercises that have occurred in the current year. In
addition, the following permanent adjustments also impact on the
effective tax rate: non-deductible foreign exchange losses arising
on intercompany balances, the share-based payment charges, and
non-qualifying depreciation.
The Group is subject to taxes in the UK, Germany, Netherlands
and Belgium. The Group continues 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
due to its current trading results.
Operations in the Netherlands ceased in December 2019. The Dutch
entities are in the process of being of liquidated and therefore
there are no longer any brought forward losses in these entities
that can be utilised in the Netherlands.
A prior period adjustment to deferred tax of GBP0.1m credit has
also been recognised in the period due to an increase in carried
forward losses.
Tax losses in Germany from prior years remain as carried forward
losses for UK tax purposes. To the extent that those losses arose
before April 2017, deferred tax has not recognised on these losses.
However, following the change in the Group relief rules in the UK
from April 2017, losses arising after this date have been
recognised for deferred tax purposes.
Our tax strategy can be found at
www.ao-world.com/responsibility/group-tax-strategy .
Retained profit for the year and earnings per share
Retained profit for the year was GBP17.1m (2020 restated:
GBP0.7m). The improvement in operating profit noted above has been
partly offset by net interest paid, taxation and movements in
non-cash financing items which include the exchange movement on
intra-group loans (resulting in a loss of GBP6.8m) and the unwind
of discounting on long term contract assets.
Basic earnings per share was 3.73p (2020 restated: 0.21p) and
diluted earnings per share was 3.68p (2020 restated: 0.21p). Basic
earnings per share is reconciled to adjusted basic loss per share
(after excluding the impact of foreign exchange differences - see
above) of 5.15p (2020 restated: (1.08)p loss) as shown below:
Table 5
12 months to 12 months to
31 March 2021 31 March 2020
Retained Profit and Earnings per share (Restated)
======================================= ============== ==============
(GBPm)
======================================= ============== ==============
Earnings
======================================= ============== ==============
Profit attributable to owners of the
parent company 18 1
Foreign exchange losses/(gains) on
intra-Group loans 7 (6)
--------------------------------------- -------------- --------------
Adjusted profit/(loss) attributable
to owners of the parent company 25 (5)
======================================= ============== ==============
Number of shares
======================================= ============== ==============
Weighted average number of ordinary
shares 475,626,353 472,462,309
Potentially dilutive share options 6,337,186 4,857,812
--------------------------------------- -------------- --------------
Diluted weighted average number of
shares 481,963,539 477,320,121
======================================= ============== ==============
Earnings/(Loss) per share (in pence)
======================================= ============== ==============
Basic earnings per share 3.73 0.21
======================================= ============== ==============
Diluted earnings profit per share 3.68 0.21
======================================= ============== ==============
Adjusted basic earnings/(loss) per
share 5.15 (1.08)
--------------------------------------- -------------- --------------
(1) Totals may vary due to effects of rounding.
Restatement of comparatives
In conducting a reconciliation of its customer base with the
Group's insurance plan partner, D&G, the Group discovered that
a number of plans which were treated as live on the Group's
database had actually been cancelled. In addition, a number of live
plans had not been reported to the Group. These arose primarily as
a result of the misinterpretation of data received from the third
party and related to the period 2008 to 2020. As a consequence,
revenue, finance income and the associated contract asset have been
overstated in these past periods. The errors have been corrected by
restating each of the affected financial statement line items for
prior periods, resulting in a cumulative adjustment to reserves of
GBP11.1m. Further detail is provided in Note 11.
Cash resources and cash flow
Cash balances as at 31 March 2021 were GBP 67m (2019: GBP7m).
The increase in cash was largely driven by the strong operating
performance discussed above and a working capital inflow resulting
from the operating leverage inherent in our business. This was
partly offset by the repayment of borrowings and lease liabilities
of GBP40m and capital expenditure of GBP6m.
Borrowings, which comprises bank borrowings and lease
liabilities, decreased to GBP95m (2020: GBP106m) with the repayment
of the Group's term debt of GBP20m. This was partly offset by the
recognition of the new right of use lease liabilities as the Group
invested in its infrastructure.
On 6 April 2020, the Group refinanced its debt facilities by
consolidating the existing GBP60m Revolving Credit Facility and the
GBP20m outstanding balance on the Term Loan into a new GBP80m RCF
which matures in April 2023 through a banking facility with HSBC
Bank plc, Lloyds Bank Plc (subsequently replaced by Uni-Credit AG),
Barclays Bank Plc and NatWest Bank plc. The facility is available
for general corporate purposes, including UK working capital
movements. This results in total liquidity headroom of GBP143m at
the period end with an undrawn amount at 31 March 2021of GBP76m.
The amount utilised relates to letters of credit and payment
guarantees.
Working capital
Table 6
12 months to 31
March 2020
12 months to 31 March
2021 (restated)
Working capital
GBPm UK Europe Total UK Europe Total
======= ======== ====== ===== ====== =====
Inventories 115 25 140 62 11 73
============================== ======= ======== ====== ===== ====== =====
As % of cost of goods sold 10% 12% 10% 9% 8% 8%
============================== ======= ======== ====== ===== ====== =====
Trade and other receivables 230 21 251 205 9 214
============================== ======= ======== ====== ===== ====== =====
As a % of revenue 16% 9% 15% 24% 6% 22%
============================== ======= ======== ====== ===== ====== =====
Trade and other payables (392) (28) (419) (247) (10) (257)
============================== ======= ======== ====== ===== ====== =====
As % of cost of goods sold 34% 13% 31% 34% 7% 30%
============================== ======= ======== ====== ===== ====== =====
Net working capital (46) 18 (28) 20 10 30
============================== ======= ======== ====== ===== ====== =====
Change in net working capital (66) 8 (58) (3) (2) (6)
============================== ======= ======== ====== ===== ====== =====
(1) Totals may vary due to effects of rounding.
At 31 March 2021, the Group had net current liabilities of
GBP59m (2020 restated: GBP56m).
UK inventories increased over the period, and at 31 March 2021
stood at GBP115m (2020: GBP62m) due to Covid-related inefficiencies
in the supply chain and increased customer demand stimulated by
Covid restrictions. We anticipate that inventory levels will remain
higher than normal when normally inventories tend to adjust to
sales growth.
UK average stock days remained broadly consistent against the
prior year at 29 days (2020: 27 days).
UK trade and other receivables (both non-current and current)
totalled GBP230m as at 31 March 2021 (2020 restated: GBP205m),
principally reflecting an increase in commercial income receivable
such as rebates as a result of the significant increase in
trading.
UK trade and other payables increased to GBP 392m (2020:
GBP247m) reflecting the significant increase in trade which has
increased both trade payables and deferred income.
At 31 March 2021, Germany's inventories increased to GBP25m
(2020: GBP11m), reflecting similar increases as seen in the UK in
response to the Covid-related restrictions. Trade and other
receivables increased to GBP21m (2020: GBP9m) due to the uplift in
revenue in the year and an increase in commercial income
receivable.
Trade and other payables increased to GBP28m (2020: GBP10m), due
to the significantly higher stock levels.
Capital expenditure
Total cash capital expenditure in the year was GBP6.3m (2020:
GBP6.9m). This mainly comprised investment in IT equipment partly
as a result of the change in working arrangements during the
pandemic, continued investment in our plastics plant/recycling
facility and outbases and initial costs of the fit out of stores in
our trial with Tesco.
In the prior year expenditure principally comprised costs in
relation to the construction of the new plastics plant in our
Recycling business, continued investment in our existing WEEE
recycling plant, investment in restructuring our outbase network
and investment in technology and software particularly in our
logistics operations but also across the Group.
CONSOLIDATED INCOME STATEMENT
For the year ended 31 March 2021
2020
GBPm
2021 Restated
Note GBPm (See note 11)
---------------------------------------- ---- --------- ---------------
Continuing operations
---------------------------------------- ---- --------- ---------------
Revenue excluding Netherlands 1,660.9 1,026.4
Netherlands revenue - 19.3
---------------------------------------- ---- --------- ---------------
Total revenue 2 1,660.9 1,045.7
Cost of sales (1,368.4) (867.9)
Gross profit 292.5 177.8
Administrative expenses (263.6) (183.3)
Other operating income 0.8 1.2
Operating profit excluding Netherlands 29.7 0.9
Netherlands operating loss - (5.2)
---------------------------------------- ---- --------- ---------------
Total operating profit/ (loss) 29.7 (4.3)
Finance income 4 4.3 10.5
Finance costs 5 (13.8) (5.6)
Profit before tax 20.2 0.6
Tax (charge)/ credit 6 (3.1) 0.1
Profit after tax excluding Netherlands 17.1 5.9
Netherlands loss after tax - (5.2)
---------------------------------------- ---- --------- ---------------
Profit after tax for the year 17.1 0.7
---------------------------------------- ---- --------- ---------------
Profit/(loss) for the year attributable
to:
Owners of the Company 17.7 1.0
Non-controlling interests (0.6) (0.3)
---------------------------------------- ---- --------- ---------------
17.1 0.7
---------------------------------------- ---- --------- ---------------
Profit per share (pence per share)
Basic profit per share 7 3.73 0.21
Diluted profit per share 7 3.68 0.21
---------------------------------------- ---- --------- ---------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2021
2021 2020
GBPm GBPm
Restated
(see note
11)
------------------------------------------------- ----- ----------
Profit for the year 17.1 0.7
Items that may subsequently be recycled to
income statement
Exchange differences on translation of foreign
operations 5.8 (5.5)
------------------------------------------------- ----- ----------
Total comprehensive profit/(loss) for the
period 22.9 (4.8)
------------------------------------------------- ----- ----------
Total comprehensive profit/(loss) for the
year attributable to:
Owners of the Company 23.5 (4.5)
Non-controlling interests (0.6) (0.3)
------------------------------------------------- ----- ----------
22.9 (4.8)
------------------------------------------------- ----- ----------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March 2021
2020 2019
GBPm GBPm
Restated Restated
2021 (See note (See note
Note GBPm 11) 11)
--------------------------------- ---- ------- ---------- ----------
Non-current assets
Goodwill 28.2 28.2 28.2
Other intangible assets 15.6 15.8 16.9
Property, plant and equipment 32.8 29.3 26.5
Right of use assets 74.3 64.7 63.1
Trade and other receivables 85.3 79.2 71.4
Derivative financial asset - 0.6 0.8
Deferred tax 5.6 4.6 4.6
--------------------------------- ---- ------- ---------- ----------
241.8 222.4 211.5
--------------------------------- ---- ------- ---------- ----------
Current assets
Inventories 139.6 72.7 76.3
Trade and other receivables 8 166.2 134.9 112.2
Corporation tax receivable 1.0 1.0 0.6
Cash and bank equivalents 10 67.1 6.9 28.9
--------------------------------- ---- ------- ---------- ----------
373.9 215.5 218.0
--------------------------------- ---- ------- ---------- ----------
Total assets 615.7 437.9 429.5
--------------------------------- ---- ------- ---------- ----------
Current liabilities
Trade and other payables 9 (411.4) (249.6) (229.8)
Borrowings 10 - (5.2) (9.5)
Lease liabilities (21.4) (16.1) (14.3)
Derivative financial liability - (0.2) (0.6)
Provisions (0.1) (0.7) -
--------------------------------- ---- ------- ---------- ----------
(432.9) (271.8) (254.2)
--------------------------------- ---- ------- ---------- ----------
Net current liabilities (59.0) (56.3) (36.2)
--------------------------------- ---- ------- ---------- ----------
Non-current liabilities
Trade and other payables 9 (7.9) (7.5) (7.4)
Borrowings 10 - (16.7) (20.9)
Lease liabilities (73.9) (68.1) (67.8)
Derivative financial liabilities - (0.8) (2.9)
Deferred tax (2.3) (2.6) (2.7)
Provisions (2.3) (1.9) (2.2)
--------------------------------- ---- ------- ---------- ----------
(86.4) (97.5) (103.9)
--------------------------------- ---- ------- ---------- ----------
Total liabilities (519.3) (369.3) (358.1)
--------------------------------- ---- ------- ---------- ----------
Net assets 96.4 68.6 71.5
--------------------------------- ---- ------- ---------- ----------
Equity attributable to owners of
the parent
Share capital 1.2 1.2 1.2
Investment in own shares - - -
Share premium account 104.3 103.7 103.7
Other reserves 25.3 21.9 29.0
Retained losses (33.1) (57.1) (61.5)
--------------------------------- ---- ------- ---------- ----------
Total 97.7 69.7 72.4
--------------------------------- ---- ------- ---------- ----------
Non-controlling interest (1.3) (1.0) (0.9)
--------------------------------- ---- ------- ---------- ----------
Total equity 96.4 68.6 71.5
--------------------------------- ---- ------- ---------- ----------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
At 31 March 2021
Other reserves
----------------------------------------------- --------
Investment Share Capital Share-based Non-
Share in own premium Merger redemp-tion payments Trans-lation Other Retained controlling
capital shares account reserve reserve reserve reserve reserves losses Total interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ---------- ------- ------- ----------- ----------- ------------ -------- -------- ------ ----------- ------
Reported
balance
at 1 April
2019 1.2 - 103.7 22.2 0.5 13.1 (4.2) (2.5) (51.2) 82.7 (0.9) 81.8
Cumulative
adjustment
to opening
balance
(see note 11) - - - - - - - - (10.4) (10.4) - (10.4)
Restated
balance
at 1 April
2019 1.2 - 103.7 22.2 0.5 13.1 (4.2) (2.5) (61.5) 72.4 (0.9) 71.5
Profit/ (loss)
for the
period - - - - - - - - 1.0 1.0 (0.3) 0.7
Share-based
payment
charge net of
tax - - - - - 2.0 - - - 2.0 - 2.0
Issue of
shares
net of
expenses - - - - - - - - - - - -
Foreign
currency
loss arising
on
consolidation - - - - - - (5.5) - - (5.5) - (5.5)
Acquisition of
minority
interest - - - - - - - (0.2) - (0.2) 0.2 -
Movement
between
reserves - - - - - (3.4) - - 3.4 - - -
-------------- ------- ---------- ------- ------- ----------- ----------- ------------ -------- -------- ------ ----------- ------
Restated
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
loss 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
-------------- ------- ---------- ------- ------- ----------- ----------- ------------ -------- -------- ------ ----------- ------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2021
2020
GBPm
Restated
2021 (See note
GBPm 11)
------------------------------------------------- ------ ----------
Cash flows from operating activities
Profit for the year 17.1 0.7
Adjustments for:
Depreciation and amortisation 24.6 21.1
Finance income (4.3) (10.5)
Finance costs 13.8 5.6
Taxation charge/ (credit) 3.1 (0.1)
Share-based payment charge 3.3 2.0
Increase in provisions 0.9 0.4
------------------------------------------------- ------ ----------
Operating cash flows before movement in working
capital 58.5 19.2
------------------------------------------------- ------ ----------
(Increase)/ decrease in inventories (67.6) 4.0
Increase in trade and other receivables (35.9) (29.0)
Increase in trade and other payables 162.0 19.7
------------------------------------------------- ------ ----------
Total movement in working capital 58.5 (5.3)
------------------------------------------------- ------ ----------
Taxation (paid)/ refunded (2.4) 0.2
------------------------------------------------- ------ ----------
Cash generated from operating activities 114.6 14.1
------------------------------------------------- ------ ----------
Cash flows from investing activities
Interest received - 0.1
Proceeds from sale of property, plant and
equipment - 0.1
Acquisition of property, plant and equipment (6.3) (6.9)
Acquisition of intangible assets (2.8) (1.1)
------------------------------------------------- ------ ----------
Cash used in investing activities (9.1) (7.9)
------------------------------------------------- ------ ----------
Cash flows from financing activities
Proceeds from issue of ordinary share capital 0.6 -
Acquisition of non-controlling interest (0.1) (0.5)
Interest paid on borrowings (2.3) (1.5)
Interest paid on lease liabilities (4.0) (3.7)
Repayments of borrowings (21.9) (6.4)
Repayment of lease liabilities (17.6) (16.2)
------------------------------------------------- ------ ----------
Net cash used in financing activities (45.3) (28.2)
------------------------------------------------- ------ ----------
Net increase/ (decrease) in cash 60.2 (22.1)
Cash and cash equivalents at beginning of
year 6.9 28.9
------------------------------------------------- ------ ----------
Exchange gains on cash and cash equivalents - 0.1
------------------------------------------------- ------ ----------
Cash and cash equivalents at end of year 67.1 6.9
------------------------------------------------- ------ ----------
NOTES TO THE FINANCIAL INFORMATION
1. Basis of preparation
The financial information been prepared in accordance with
International Accounting Standards in conformity with the
requirements of the Companies Act 2006 and International Financial
Reporting Standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.
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 2021 or
2020 but is derived from those accounts. Statutory accounts for
2020 have been delivered to the Registrar of Companies and those
for 2021 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.
The following amendments to accounting standards and
interpretations, issued by the International Accounting Standards
Board (IASB), have been adopted for the first time by the Group in
the period with no significant impact on the consolidated results
or financial position:
-- Amendments to References to the Conceptual Framework in IFRS
Standards.
-- Amendments to IFRS 3 'Definition of a Business'
-- Amendments to IAS 1 and IAS 8 'Definition of Material'
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
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 GBP59.0m as at 31
March 2021, 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 revolving credit
facility which at the date of approval of these financial
statements amount to GBP67.1m.
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.
In assessing the going concern basis, the Directors have taken
into account reasonably possible downsides to sensitise its base
case. These primarily include an assessment of how market share
could be impacted as Covid-19 restrictions continue to ease and
consumers are able to shop in bricks and mortar stores again
without precaution. Whilst the directors are confident that a
majority of new customers attracted during the past year will
continue to enjoy the benefits of shopping online with AO, the
sensitivity analysis has explored reduced market shares and a
severe but plausible downside of a return to online MDA sales
levels experienced in FY20. Under this severe but plausible
downside scenario the Group continues to demonstrate headroom on
its banking facilities of GBP45.9m and remains compliant with
covenants.
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 disclosure those
areas of critical accounting judgement and key sources of
estimation uncertainty which carry a significant risk of causing
material adjustment to the carrying value of assets and liabilities
within the next 12 months. These are discussed below.
Impairment of intangible assets and goodwill
As part of the acquisition of Mobile Phones Direct Limited in
2018, the Group recognised amounts totalling GBP16.3m in relation
to the valuation of the intangible assets and GBP14.7m in relation
to residual goodwill.
Intangible assets are reviewed for impairment if events or
changes in circumstances indicate that the carrying amount may not
be recoverable. Goodwill is reviewed for impairment on an annual
basis. When a review for impairment is conducted, the recoverable
amount is determined based on the higher of value in use and fair
value less costs to sell. The value in use method requires the
Group to determine appropriate assumptions (which are sources of
estimation uncertainty) in relation to the cash flow projections
over the three-year strategic plan period, the long-term growth
rate to be applied beyond this three-year period and the
risk-adjusted pre-tax discount rate used to discount the assumed
cash flows to present value.
Whilst at 31 March 2021, the Directors have concluded that the
carrying value of the intangibles and goodwill is appropriate
(after considering certain sensitivities), 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.
Other areas of estimation uncertainty
As explained in note 8 and note 11, during the year ended 31
March 2021, management have made significant revisions to the
carrying value of the contract assets in relation to product
protection plans and mobile commissions. These have arisen mainly
due to:
1. A misinterpretation of data supplied by a third party in
relation to product protection plans which has resulted in a
restatement of prior year financial statements (see note 11);
2. The consequential effect on assumptions and estimates used in
recognising revenue in past years from the amendment to the
underlying data noted above (see note 3 and 8); and
3. A significant change in customer behaviour in the Mobile
business resulting in the tenure of contracts reducing as end
customers have cancelled contracts or defaulted as well as an
increase in redemption rates on relating to cashback schemes.
Management believes that the financial impact of Covid 19 has
contributed significantly to these behaviours.
Having taken account of the above matters, which are all
considered to be non-recurring by management and the effect of
which has been reflected in the current carrying value, the
Directors do not believe there is a significant risk of a material
reversal of revenue in the following 12 months. However, they
believe that disclosure of the assumptions made in relation to the
recognition and assessment of the recoverability of commissions
relating to product protection plans and mobile network operator
contracts is important for an understanding of the financial
statements.
Historical information available to the Group prior to FY21, and
the approach taken in calculating revenue to recognise, provides
management with a degree of confidence that the initial revenue
recognised should be consistent with the subsequent receipt of
cash.
The nature of the estimates made based on the historical
information available reflects a range of reasonable outcomes based
on the facts and circumstances present at the year-end therefore
the revenue recognised is not expected to trigger a material upward
or downward adjustment.
We do however continue to believe that the information provided
is useful for a reader of the Annual Report as it gives meaningful
insight into the factors considered when recognising commission
revenue.
Revenue recognition and recoverability of income from product
protection plans
Revenue recognised in respect of commissions receivable over the
lifetime of the plan for the sale of product protection plans is
recognised in line with the principles of IFRS 15, when the Group
obtains the right to consideration as a result of performance of
its contractual obligations (acting as an agent for a third
party).
Revenue in any one year therefore represents an estimate of the
commission due on the plans sold, which management estimate
reliably based upon a number of assumptions, including:
-- the length of the policies;
-- the commission rates receivable;
-- the historical rate of customer attrition; and
-- the overall performance of the scheme.
Commission receivable also depends for certain transactions on
customer behaviour after the point of sale. Assumptions are
therefore required, particularly in relation to levels of customer
default within the contract period, expected levels of customer
spend, and customer behaviour beyond the initial contract period.
Such assumptions are based on extensive historical evidence, and
adjustment to the amount of revenue recognised is made for the risk
of potential changes in customer behaviour, but they are
nonetheless inherently uncertain, e.g., any change in behaviour 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 post
that date, base assumed commissions will continue to be earned on
pre-determined rates, but overall commissions now include a
variable element based on the future overall performance of the
scheme.
Changes in estimates recognised as an increase or decrease to
revenue may be made, where for example more reliable information is
available, and any such changes are required to be recognised in
the income statement. The commission receivable balance as at 31
March 2021 was GBP80.7m (2020 restated: GBP70.0m). The discount
rate used to unwind the commission receivable is 3.55% (2020:
4.6%).
Revenue recognition and recoverability of income in relation to
network commissions
Revenue in respect of commissions receivable from the Mobile
Network Operators ("MNOs") for the brokerage of network contracts
is recognised in line with the principles of IFRS 15, when the
Group obtains the right to consideration as a result of performance
of its contractual obligations (acting as an agent for a third
party).
Revenue in any one year therefore represents an estimate of the
commission due on the contracts sold, which management estimate
reliably based upon a number of assumptions, including:
-- revenue share percentage, i.e., the percentage of the
consumer's spend (to the MNO) to which the Group is entitled;
-- the discount rate using external market data (principally
forecasts of inflation - 1.5% (2020: 2.75%);
-- the length of contract entered into by the consumer (12 to 24 months); and
-- consumer average tenure which takes account of both the
default rate during the contract period and the expectations that
some customers will continue beyond the initial contract period and
generate out of contract ("OOC") revenue (4% - 12.5%)
The 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 MNO and these are discounted based on the timing
of receipt.
This also takes into account the potential clawback of
commission by the MNOs for which a reduction is made in the amount
of revenue recognised based on historical experience. The Directors
consider that the quality and quantity of the data available from
the MNOs is appropriate for making these estimates and, as the
contracts are primarily for 24 months, the period over which the
amounts are estimated is relatively short. As with commissions
recognised on the sale of production protection plans, the
Directors compare the cash received to the initial amount
recognised in assessing the appropriateness of the assumptions
used.
The commission receivable balance as at 31 March 2021 was
GBP91.5m (2020: GBP90.9m). The discount rate used to unwind the
commission receivable is 0.1% (2020: 2.75%).
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
31 March 2020
Restated (See note
Year ended (GBPm) 31 March 2021 11)
---------------------- ------------------------ -----------------------
UK Europe Total UK Europe Total
---------------------- ------- ------ ------- ------ ------ -------
Product revenue 1,200.3 220.9 1,421.2 692.8 140.7 833.5
Service revenue 54.0 4.0 58.0 35.0 3.4 38.3
Commission revenue 146.0 0.3 146.3 143.3 0.2 143.5
Third party logistics
revenue 16.5 1.2 17.7 16.6 - 16.7
Recycling revenue 17.7 - 17.7 13.5 0.2 13.6
---------------------- ------- ------ ------- ------ ------ -------
Total revenue 1,434.5 226.4 1,660.9 901.2 144.5 1,045.7
---------------------- ------- ------ ------- ------ ------ -------
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 Europe.
Operating segments are determined by the internal reporting
regularly provided to the Group's Chief Operating Decision Maker.
The Chief Operating Decision Maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Executive Directors and has
determined that the primary segmental reporting format of the Group
is geographical by customer location, based on the Group's
management and internal reporting structure. Transactions between
segments are undertaken on an arm's length basis using appropriate
transfer pricing policies.
a. Income statement
The following is an analysis of the Group's revenue and results
by reportable segments.
31 March 2020
Year ended (GBPm) 31 March 2021 Restated (See note 11)
------------------------ ----------------------------- ---------------------------
UK Europe Total UK Europe Total
------------------------ --------- ------- --------- -------- -------- -------
Total revenue 1,434.5 226.4 1,660.9 901.2 144.5 1,045.7
Cost of sales (1,161.6) (206.8) (1,368.4) (724.3) (143.6) (867.9)
------------------------ --------- ------- --------- -------- -------- -------
Gross profit 273.0 19.5 292.5 176.9 0.9 177.8
Administrative expenses (235.6) (27.9) (263.6) (153.2) (30.1) (183.3)
Other operating income 0.8 - 0.8 0.8 0.4 1.2
------------------------ --------- ------- --------- -------- -------- -------
Operating profit/(loss) 38.1 (8.4) 29.7 24.5 (28.8) (4.3)
Finance income 4.3 - 4.3 6.0 4.5 10.5
Finance costs (6.9) (6.9) (13.8) (4.9) (0.7) (5.6)
------------------------ --------- ------- --------- -------- -------- -------
Profit/(loss) before
tax 35.4 (15.3) 20.2 25.6 (25.0) 0.6
Tax (charge)/credit (3.1) - (3.1) 0.1 (0.1) 0.1
------------------------ --------- ------- --------- -------- -------- -------
Profit/(loss) after
tax 32.3 (15.3) 17.1 25.7 (25.1) 0.7
------------------------ --------- ------- --------- -------- -------- -------
The Group uses alternative performance measures which are not
defined within IFRS, as well as IFRS measures. One of these is
adjusted EBITDA.
The reconciliation of operating profit/(loss) to Adjusted EBITDA
is shown [in table 4 above].
b. Geographical analysis
Revenue by location is the same as that shown in section (a) by
reportable segment. Information on non-current assets by
geographical location is shown in section (c).
c. Other information
Additions
-----------------------------
Intangible Right of Profit
2021 (GBPm) assets PP&E use assets Depreciation Amortisation on disposal
------------ ---------- ---- ----------- ------------ ------------ ------------
UK 2.8 11.4 26.2 18.6 2.8 -
Europe - 0.2 1.5 3.2 - -
------------ ---------- ---- ----------- ------------ ------------ ------------
2.8 11.6 27.7 21.8 2.8 -
------------ ---------- ---- ----------- ------------ ------------ ------------
Additions
-----------------------------
Intangible Right of Profit
2020 (GBPm) assets PP&E use assets Depreciation Amortisation on disposal
------------ ---------- ---- ----------- ------------ ------------ ------------
UK 1.3 8.3 13.0 15.8 2.2 (0.1)
Europe - 0.2 1.3 3.1 - 0.1
------------ ---------- ---- ----------- ------------ ------------ ------------
1.3 8.5 14.3 18.9 2.2 -
------------ ---------- ---- ----------- ------------ ------------ ------------
Due to the nature of its activities, the Group is not reliant on
any individual major customer or group of customers.
No analysis of the assets and liabilities of each operating
segment is provided to the Chief Operating Decision Maker in the
monthly Board presentation; therefore, no measure of segmental
assets or liabilities is disclosed in this note.
4. Finance income
2020
GBPm
Restated
2021 (See note
Year ended 31 March GBPm 11)
----------------------------------------------- ----- ----------
Non cash Foreign exchange gains on intra-Group
loans - 6.0
Movement in valuation of put and call
option 0.8 1.9
Unwind of discounting on non-current
contract assets 3.4 2.5
Other interest - 0.1
----------------------------------------------- ----- ----------
4.3 10.5
----------------------------------------------- ----- ----------
5. Finance costs
2021 2020
Year ended 31 March GBPm GBPm
------------------------------------------------ ----- -----
Interest on lease liabilities 4.0 3.7
Interest on bank loans 0.4 0.6
Other finance costs 1.9 0.9
Non cash Foreign exchange losses on intra-Group
loans 6.8 -
Unwind of discounting on long-term payables 0.1 0.3
Movement in valuation of put and call
option 0.6 0.1
13.8 5.6
------------------------------------------------ ----- -----
6. Taxation
2020
GBPm
Restated
2021 (See note
Year ended 31 March GBPm 11)
--------------------------------------- ----- ----------
Corporation tax:
Current year 3.4 0.1
Adjustments in respect of prior years - -
--------------------------------------- ----- ----------
3.4 0.1
Deferred tax
Current year (0.1) 0.9
Adjustments in relation to prior years (0.3) (1.0)
--------------------------------------- ----- ----------
Total tax charge/ (credit) 3.1 (0.1)
--------------------------------------- ----- ----------
The expected corporation tax charge for the year is calculated
at the UK corporation tax rate of 19% (2020: 19%) on the 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 Group has recognised deferred tax in relation to UK
companies at 19%.
The charge for the year can be reconciled to the profit in the
statement of comprehensive income as follows:
2020
GBPm
Restated
2021 (See note
Year ended 31 March GBPm 11)
--------------------------------------------- ----- ----------
Profit before tax on continuing operations 20.2 0.6
Tax at the UK corporation tax rate of 19%
(2020: 19%) 3.8 0.1
Ineligible expenses 1.7 0.3
R & D tax credit - -
Difference in overseas and UK tax rates - (0.3)
Movement in unrecognised deferred tax - 1.5
Impact of difference in current and deferred
tax rates - (0.2)
Income not taxable (0.1) (1.5)
Share-based payments (2.0) 1.0
Prior period adjustments (0.3) (1.0)
--------------------------------------------- ----- ----------
Tax charge/(credit) for the year 3.1 (0.1)
--------------------------------------------- ----- ----------
A reduction in the UK corporation tax rate from 19% to 17%
(effective 1 April 2020) was substantively enacted on 6 September
2016. The March 2020 Budget announced that a rate of 19% would
continue to apply with effect from 1 April 2020, and this change
was substantively enacted on 17 March 2020. The UK deferred tax
asset/(liability) as at 31 March 2021 was calculated at 19% (2020:
19%).
An increase in the UK corporation rate from 19% to 25%
(effective 1 April 2023) was substantively enacted on 24 May 2021.
As these changes were not substantively enacted at the balance
sheet date, the Group has continued to recognise deferred tax in
relation to UK companies at 19%. The impact of the rate change is
not believed to have a material impact on the deferred tax position
as at 31 March 2021.
7. Earnings/(loss) per share
The calculation of the basic and diluted earnings per share is
based on the following data:
2020
GBPm
Restated
2021 (See note
Year ended 31 March GBPm 11)
-------------------------------------------------- ----------- -----------
Profit for the purposes of basic and diluted
earnings per share being profit attributable
to owners of the parent Company 17.7 1.0
-------------------------------------------------- ----------- -----------
Number of shares
Weighted average shares in issue for the purposes
of basic profit per share 475,626,353 472,462,309
Potentially dilutive shares options 6,337,186 4,857,812
-------------------------------------------------- ----------- -----------
Weighted average number of diluted ordinary
shares 481,963,539 477,320,121
-------------------------------------------------- ----------- -----------
Earnings per share (pence per share)
Basic earnings per share 3.73 0.21
Diluted earnings per share 3.68 0.21
-------------------------------------------------- ----------- -----------
The basic earnings per share is affected by significant noncash
foreign exchange movements arising from intra-Group funding
arrangements. Management have therefore presented an adjusted
earnings per share which is based on an adjusted 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.
2020
GBPm
Restated
2021 (See note
Year ended 31 March GBPm 11)
-------------------------------------------- ----------- -----------
Earnings/(loss)
Profit attributable to owners of the parent
company 17.7 1.0
Add back/ (reduction) of foreign exchange
movements
on intra-Group loans 6.8 (6.0)
-------------------------------------------- ----------- -----------
Adjusted earnings/ (loss) attributable to
owners of the parent Company 24.5 (5.1)
-------------------------------------------- ----------- -----------
Number of shares
Weighted average number of ordinary shares 475,626,353 472,462,309
Potentially dilutive shares options 6,337,186 4,857,812
-------------------------------------------- ----------- -----------
Diluted weighted average number of shares 481,963,539 477,320,121
-------------------------------------------- ----------- -----------
Earnings/(loss) per share (pence per share)
Basic earnings per share 3.73 0.21
Diluted earnings per share 3.68 0.21
Adjusted earnings/ (loss) per share 5.15 (1.08)
-------------------------------------------- ----------- -----------
8. Trade and other receivables
2020
GBPm
Restated
2021 (See note
Year ended 31 March GBPm 11)
------------------------------- ----- ----------
Trade receivables 19.8 20.5
Contract assets 172.2 160.9
Prepayments and accrued income 46.8 29.7
Other receivables 12.7 3.0
------------------------------- ----- ----------
251.5 214.1
------------------------------- ----- ----------
The trade and other receivables are classified as:
2020
GBPm
Restated
2021 (See note
Year ended 31 March GBPm 11)
-------------------- ----- ----------
Non-current assets 85.3 79.2
Current assets 166.2 134.9
-------------------- ----- ----------
251.5 214.1
-------------------- ----- ----------
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:
2020
GBPm
Restated
2021 (See note
Year ended 31 March GBPm 11)
----------------------------------------------- ------- ----------
Balance brought forward as previously reported 160.9 151.1
Restatement - see note 11 - (10.4)
----------------------------------------------- ------- ----------
Balance brought forward as restated 160.9 140.7
Revenue recognised(1) 174.0 153.4
Cash received (153.0) (134.7)
Revisions to estimates - adjusting items (see
page 11) (8.1) -
Revisions to estimates- other (5.0) (0.7)
Unwind of discounting 3.4 2.2
----------------------------------------------- ------- ----------
Balance carried forward 172.2 160.9
----------------------------------------------- ------- ----------
1 Revenue recognised is gross, that is excluding the deduction
of cashback payments, which are deducted from revenue in the Income
Statement but are shown as contract liabilities in the Statement of
Financial Position.
Commission receivable on product protection plans is estimated
using a number of assumptions including the customer cancellation
rate. As set out in note 11, the misinterpretation of data supplied
by a third party, which is used in calculating the expected
cancellation rates, has resulted in a prior year restatement of the
financial statements as a result of a number of cancelled plans
being counted as live plans within the contract asset valuation. As
a consequence of these plans now being excluded, management have
reassessed the impact of the plans on the overall expected
recoverability of the contract asset and the assumptions and
estimate used in such valuation.
The consequential effect on assumptions and estimates used in
recognising revenue in past years from the amendment to the
underlying data noted above amounts to GBP8.1m and as it does not
relate to the underlying trading in the period has been added back
as an Adjusting Item in arriving at the Group's Adjusted EBITDA
(see note 3). This is shown as a separate item in the table above.
Normal revisions to estimates in relation to revenue recognised in
past years amounted to GBP1.4m.
Commission receivable on mobile phone connections is estimated
based on a number of assumptions. These include the customer
default rate, being the rate at which the customers disconnect from
the mobile network operators. The directors have historically
considered this not to be an area of significant estimate due to
relatively small fluctuations in the cash received compared to the
revenue recognised. However, during the year, there has been a
significant change in customer behaviour resulting in the tenure of
contracts reducing as end customers have cancelled contracts or
have defaulted with the networks and accordingly the estimated
transaction price has been reconsidered.
Included in the total contract asset balance at 31 March 2020
was an amount of GBP3.6m in respect of variable consideration
recognised as revenue up to that date that has been reversed in the
year ended 31 March 2021. This has been included in the revision in
estimates- other in the table above. Overall, the estimated
transaction price recognised as revenue and contract assets up to
31 March 2021 in relation to mobile commission is constrained by
GBP4.7m (31 March 2020: GBP11.7m).
Product protection plans
Under our arrangement with Domestic & General ("D&G"),
the Group receives commission in relation to its role as agent for
introducing its customers to D&G and recognises revenue at the
point of sale as it has no future obligations following this
introduction. A discounted cash flow methodology is used to measure
the estimated value of the revenue and contract assets in the month
of sale of the relevant plan, by estimating all future cash flows
that will be received from D&G and discounting these based on
the expected timing of receipt. Subsequently, the contract asset is
measured at the present value of the estimated future cash flows.
The key inputs into the model which forms the base case for
management's considerations are:
-- the contractually agreed margins which differ for each
individual product covered by the plan as is included in the
agreement with D&G;
-- the number of live plans based on information provided by D&G;
-- the discount rate for plans sold in the year using external
market data - 3.55% (2020: 4.6%);
-- the estimate of profit share relating to the scheme as a
whole based on information provided by D&G;
-- historic rate of customer attrition which uses actual
cancellation data for each month since the start of the plans in
2008 to form an estimate of the cancellation rates to use by month
going forward (Range of 0% to 10.7% weighted average cancellation
by month); 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 circa 2.5 million plans which have been sold. Of these, c1.0
million are live. Applying all the information above, management
calculate their initial estimate of commission receivable.
Consideration is then given to other factors outside of the
historical data noted above which could impact the valuation. This
primarily considers the reliance on historical data as this assumes
that current and future experience will follow past trends. There
is therefore a risk that changes in consumer behaviour 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 1, the Directors do not believe there is a
significant risk of a material adjustment to the revenue recognised
in relation to these plans over the next 12 months The sensitivity
analysis below is disclosed as we believe it provides useful
insight to the users of the financial statements into the factors
considered when calculating the revenue to be recognised. The table
shows the sensitivity of the carrying value of the commission
receivables and revenue to a reasonably possible change in inputs
to the discounted cash flow model over the next 12 months.
Impact on
contract
asset and
revenue
Sensitivity GBPm
----------------------------------------------------- ----------
25% reduction in terminal drop off rate after actual
data available 0.3
25% increase in terminal drop off rate after actual
data available (0.3)
Cancellations increase by 1% (0.8)
Cancellation rate reduces by 1% 0.9
----------------------------------------------------- ----------
Terminal drop-off rate - cancellations
The total expected life length of the average plan is dependent
on an estimated end of life cancellation. Due to having less
empirical data, management accelerated the drop off rate of
cancellations beyond the period for which there is actual data as
inherently there is a greater degree of judgement required. The
drop off rate assumptions used by management have been updated
during the year to reduce volatility by excluding expected revenue
beyond a backstop date. Over the past year, actual cancellations
have been broadly in line with the expected terminal drop off
rates. As the amount of data beyond the period is limited, no
adjustment has been made to the assumption in the model. We would
reasonably expect a maximum variance to the current drop off rate
of 25%. The backstop date reduces the impact of any variance.
Cancellations
The number of cancellations and therefore the cancellation rate
can fluctuate based on a number of factors. These include
macro-economic changes e.g. unemployment, but will also reflect the
change in nature of the plan itself (insurance plan versus service
plan). Assumptions were updated during the year to remove assumed
improvements which should reduce the impact of changes in the
cancellation rates. The impact of reasonable potential changes is
shown in the sensitivities above.
Other areas
Sensitivities related to changes in margins have not been
included due to the extensive amount of historical data our
valuation assumptions are based on and the fact that the data is
based on actual prices changed by D&G. Any change in price of a
plan would need to be agreed between D&G and AO and we consider
therefore the likelihood of any significant impact related to
changes in price and hence margin is remote; therefore, no
sensitivity has been included.
Network commissions
The Group operates under contracts with a number of Mobile
Network Operators ("MNOs"). Over the life of these contracts the
service provided by the Group to each MNO is the procurement of
connections to the MNO's networks. The individual consumer enters
into a contract with the MNO for the MNO to supply the ongoing
airtime over that contract period. The Group earns a commission for
the service provided to each MNO ("network commission"). Revenue is
recognised at the point the individual consumer signs a contract
with the MNO. Consideration from the MNO becomes receivable over
the course of the contract between the MNO and the consumer. The
Group has determined that the number and value of consumers
provided to each MNO in any given month represents the measure of
satisfaction of each performance obligation under the contract. A
discounted cash flow methodology is used to measure the estimated
value of the revenue and contract assets in the month of
connection, by estimating all future cash flows that will be
received from the MNOs and discounting these based on the expected
timing of receipt. Subsequently, the contract asset is measured at
the present value of the estimated future cash flows.
The key inputs to management's base case model are:
-- revenue share percentage, i.e. the percentage of the
consumer's spend (to the MNO) to which the Group is entitled;
-- the discount rate using external market data (principally
forecasts of inflation - 1.5% (2020: 2.75%);
-- the length of contract entered into by the consumer (12 to 24 months); and
-- consumer average tenure which takes account of both the
default rate during the contract period and the expectations that
some customers will continue beyond the initial contract period and
generate out of contract ("OOC") revenue (4% - 12.5%)
The last two inputs are estimated based on extensive historical
evidence obtained from the networks, and adjustment is made for the
risk of potential changes in consumer behaviour. Applying all the
information above, management calculate their initial estimate of
commission receivable. Consideration is then given to other factors
outside of the historical data noted above which could impact the
valuation. This primarily considers the reliance on historical data
as this assumes that current and future experience will follow past
trends.
As noted earlier, Management believes that the financial impact
of Covid-19 has contributed significantly to customer behaviours
resulting in the tenure of contracts reducing as end customers have
cancelled contracts or defaulted as well as an increase in
redemption rates on relating to cashback schemes. This has impacted
previously recognised revenue in the current year with revisions to
estimates amounting to cGBP10.8m. 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 makes a regular assessment of the data and assumptions
with a detailed review at half year and full year to ensure this
continues to reflect the best estimate of expected future trends
and appropriate revisions are made to the estimates. The
sensitivity analysis below is disclosed as we believe it provides
useful insight to the users of the financial statements by giving
insight into the factors considered when calculating the revenue to
be recognised. The table shows the sensitivity of the carrying
value of the commission receivables and revenue to a reasonably
possible change in inputs to the discounted cash flow model over
the next 12 months, having taken account of the changes in
behaviour experienced in the period.
Impact on contract
asset and revenue
Sensitivity GBPm
---------------------------------------- ------------------
1% increase in contractual entitlements 2.4
2% increase in the default rate (3.7)
---------------------------------------- ------------------
Prepayments and accrued income
At 31 March 2021, there is GBP18.2m (2020: GBP11.6m) included in
prepayments and accrued income in relation to volume rebates
receivable. The amounts are largely coterminous and are mainly
agreed in the month after recognition.
At 31 May 2021, the balance outstanding was GBP5.0m (2020:
GBP2.7m).
9. Trade and other payables
2021 2020
Year ended 31 March GBPm GBPm
--------------------- ----- -----
Trade payables 273.8 139.6
Accruals 36.8 23.1
Contract liabilities 63.0 61.5
Deferred income 27.4 15.2
Other payables 18.3 17.6
--------------------- ----- -----
419.3 257.1
--------------------- ----- -----
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases is 62 days (2020: 52 days)
reflecting improved terms with a number of suppliers during the
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.
Certain Mobile phone contracts include variable consideration
resulting from cash-back rights that a customer must claim
periodically. The Group constrains the transaction price in
relation to the cash back based on historical information and has
in past periods not considered that the estimates in arriving at
the provision were significant as historically, many customers have
not fully claimed cash back to which they are entitled. However,
during the current year, the Group saw an unprecedented increase in
the level of cashback redemptions which was inconsistent with the
previous trend of redemptions reducing year on year.
Management believes that the financial impact of Covid-19 has
contributed to the increased redemptions and, as a consequence, the
Group has revised its estimate of the transaction price based on
current consumer behaviour. Included in the total contract
liability balance at 31 March 2020 was an amount of GBP7.2m in
respect of variable consideration recognised as revenue in prior
years that has been reversed in the year ended 31 March 2021. At 31
March 2021, a liability of GBP8.2m (31 March 2020: GBP12.9m) has
been recognised out of a maximum potential exposure of GBP16.2m (31
March 2020: GBP42.9m). Taking into consideration the revenue
constraints required by IFRS15, the range of the estimated
liability is between GBP8.2m and GBPnil ((31 March 2020: GBP12.9m
and GBPnil).
The trade and other payables are classified as:
2021 2020
Year ended 31 March GBPm GBPm
---------------------- ----- -----
Current liabilities 411.4 249.6
Long-term liabilities 7.9 7.5
---------------------- ----- -----
419.3 257.1
---------------------- ----- -----
10. Net debt
2021 2020
Year ended 31 March GBPm GBPm
---------------------------------------------- ------ ------
Cash and cash equivalents at year end 67.1 6.9
Borrowings - Repayable within one year - (5.2)
Borrowings - Repayable after one year - (16.7)
Lease liabilities - Repayable within one year (21.4) (16.1)
Lease liabilities - Repayable after one year (73.9) (68.1)
---------------------------------------------- ------ ------
Net debt (28.2) (99.1)
---------------------------------------------- ------ ------
On 6 April 2020, AO Limited, a direct subsidiary of AO World
plc, entered into a new Revolving Credit Facility of GBP80m which
replaced the existing revolving credit facility and term loan. This
did not constitute a loan modification but rather the settling of
an old facility and replacement with a new one.
The facility expires in April 2023 and is secured by a debenture
over the assets of the relevant companies, a charge over the shares
in the relevant companies and a charge over the AO.com domain
name.
At 31 March 2021, AO Limited had undrawn amounts on its
Revolving Credit Facility of GBP76.1m (2020: GBP56.7m). The amount
drawn at the year-end was in relation to letters of credit
(GBP3.9m).
During the year ended 31 March 2019, AO Limited entered into a
term loan agreement under which it borrowed GBP24m to partly fund
the acquisition of MobilePhonesDirect Limited. This was repayable
in quarterly instalments starting on 1 April 2019 with a final
repayment date in June 2021. At 31 March 2020, GBP20m was
outstanding and was repaid out of the new Revolving Credit Facility
on 6 April 2020.
In the same year, AO Recycling Limited entered into GBP3m term
loan to part fund the capital expenditure required for the
development of its Plastics Plant. During the prior year GBP2m of
the loan had been converted into finance leases resulting in GBP1m
being outstanding at 31 March 2020. This was repaid in full in
April 2020.
11. Restatement of comparatives
In conducting a reconciliation of the contract base with the
Group's insurance plan partner, the Group discovered that a number
of plans which were treated as live on the Group's database had
actually been cancelled in addition to a number of live plans which
had not been reported to the Group. These arose due primarily to a
misinterpretation of data received from the third party. These
plans related to the period 2008 to 2020.
As a consequence- revenue, finance income and the associated
contract asset have been overstated in these past periods. The
errors have been corrected by restating each of the affected
financial statement line items for prior periods. The following
tables summarise the impacts on the Group's consolidated financial
statements.
Summarised consolidated income statement and other comprehensive
income
Year ended Year ended 31
31 March 2020 March 2020
GBPm as reported Adjustment restated
------------------------------ --------------- ---------- -------------
Revenue 1,046.2 (0.5) 1,045.7
------------------------------ --------------- ---------- -------------
Operating loss (3.8) (0.5) (4.3)
Finance income 10.9 (0.4) 10.5
Finance costs (5.6) - (5.6)
------------------------------ --------------- ---------- -------------
Profit before tax 1.5 (0.9) 0.6
------------------------------ --------------- ---------- -------------
Tax (charge)/ credit (0.1) 0.1 0.1
Profit after tax for the year 1.4 (0.8) 0.7
------------------------------ --------------- ---------- -------------
Total comprehensive loss for
the year (4.1) (0.8) (4.8)
------------------------------ --------------- ---------- -------------
The restatement of the Income Statement has also resulted in
Earnings per Share being restated. The profit attributable to
shareholders in the prior year has decreased from GBP1.7m to
GBP1.0m. As a consequence, this results in basic profit per share
being 0.21p (2020 reported: 0.38p) and diluted loss per share being
0.21p (2020 reported: 0.37p).
Summarised consolidated statement of financial position
At 31 March At 31 March
2020 as 2020
GBPm reported Adjustment restated
---------------------------- ----------- ---------- -----------
Non-current assets
Trade and other receivables 87.9 (8.7) 79.2
Deferred tax asset 4.5 0.1 4.6
Other non-current assets 138.6 - 138.6
---------------------------- ----------- ---------- -----------
231.0 (8.6) 222.4
---------------------------- ----------- ---------- -----------
Current assets
Trade and other receivables 137.4 (2.5) 134.9
Other current assets 80.6 - 80.6
---------------------------- ----------- ---------- -----------
218.0 (2.5) 215.5
---------------------------- ----------- ---------- -----------
Total assets 449.0 (11.1) 437.9
---------------------------- ----------- ---------- -----------
Total liabilities (369.3) - (369.3)
---------------------------- ----------- ---------- -----------
Net assets 79.7 (11.1) 68.6
---------------------------- ----------- ---------- -----------
Retained losses (46.1) (11.1) (57.1)
Other reserves 126.8 - 126.8
---------------------------- ----------- ---------- -----------
Total 80.7 (11.1) 69.7
---------------------------- ----------- ---------- -----------
Non-controlling interest (1.0) - (1.0)
---------------------------- ----------- ---------- -----------
Total equity 79.7 (11.1) 68.6
---------------------------- ----------- ---------- -----------
There is no impact on the overall cash balance as at 31 March
2020 as a result of the restatement. Deductions for the related
overpayments of taxation have been reflected in respect of the 2020
financial year. No further deductions relating to periods prior to
2020 have been recognised in these financial statements due to the
uncertainty around the recoverability of overpayments of tax
relating to these periods.
Summarised consolidated statement of financial position
At 31 March
At 31 March 2019
GBPm 2019 as reported Adjustment restated
---------------------------- ----------------- ---------- -----------
Non-current assets
Trade and other receivables 79.4 (8.1) 71.4
Other non-current assets 140.1 - 140.1
---------------------------- ----------------- ---------- -----------
219.5 (8.1) 211.5
---------------------------- ----------------- ---------- -----------
Current assets
Trade and other receivables 114.5 (2.3) 112.2
Other current assets 105.8 - 105.8
---------------------------- ----------------- ---------- -----------
220.3 (2.3) 218.0
---------------------------- ----------------- ---------- -----------
Total assets 439.8 (10.4) 429.5
---------------------------- ----------------- ---------- -----------
Total liabilities (358.1) - (358.1)
---------------------------- ----------------- ---------- -----------
Net assets 81.8 (10.4) 71.5
---------------------------- ----------------- ---------- -----------
Retained losses (51.2) (10.4) (61.5)
Other reserves 134.0 - 134.0
---------------------------- ----------------- ---------- -----------
Total 82.7 (10.4) 72.4
---------------------------- ----------------- ---------- -----------
Non-controlling interest (0.9) - (0.9)
---------------------------- ----------------- ---------- -----------
Total equity 81.8 (10.4) 71.5
---------------------------- ----------------- ---------- -----------
Summarised consolidated statements of changes in equity
Other reserves
Investment Share Capital Share-based Non-
Share in own premium Merger redemption payments Translation Other Retained controlling
capital shares account reserve reserve reserve reserve reserve losses Total interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------- ------- ---------- ------- -------- ---------- ----------- ----------- -------- -------- ------ ----------- ------
Reported
balance
at 31
March 2020 1.2 - 103.7 22.2 0.5 11.7 (9.7) (2.7) (46.1) 80.7 (1.0) 79.7
Cumulative
adjustment - - - - - - - - (11.1) (11.1) - (11.1)
----------- ------- ---------- ------- -------- ---------- ----------- ----------- -------- -------- ------ ----------- ------
Restated
balance
at 1 April
2020 1.2 - 103.7 22.2 0.5 11.7 (9.7) (2.7) (57.1) 69.7 (1.0) 68.6
----------- ------- ---------- ------- -------- ---------- ----------- ----------- -------- -------- ------ ----------- ------
Other reserves
-------------------------------------------------------
Investment Share Capital Share-based Non-
Share in own premium Merger redemption payments Translation Other Retained controlling
capital shares account reserve reserve reserve reserve reserve losses Total interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Reported
balance
at 31
March 2019 1.2 - 103.7 22.2 0.5 13.1 (4.2) (2.5) (51.2) 82.7 (0.9) 81.8
Cumulative
adjustment - - - - - - - - (10.4) (10.4) - (10.4)
----------- ------- ---------- ------- ------- ---------- ----------- ----------- -------- -------- ------ ----------- ------
Restated
balance
at 1 April
2019 1.2 - 103.7 22.2 0.5 13.1 (4.2) (2.5) (61.5) 72.4 (0.9) 71.5
----------- ------- ---------- ------- ------- ---------- ----------- ----------- -------- -------- ------ ----------- ------
Ends
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