TIDMAO.
RNS Number : 9818E
AO World plc
05 July 2023
5 July 2023
AO WORLD PLC
FINAL RESULTS FOR THE YEARED 31 MARCH 2023
DELIVERING A STEP CHANGE IN FINANCIAL PERFORMANCE, DRIVEN BY
STRATEGIC PIVOT TO PROFIT & CASH GENERATION
CONTINUING AS THE UK'S MOST TRUSTED ELECTRICALS RETAILER
AO World plc ("the Group" or "AO"), the UK's most trusted
electrical retailer, today announces its audited financial results
for the financial year ended 31 March 2023 ("FY23").
The strong performance over the year illustrates the excellent
progress against the Group's plan to pivot the business to focus on
profit and cash generation.
GBP(m) (1) FY23 FY22 % Mvmt
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Revenue 1,139 1,368 (17%)
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Adjusted EBITDA(2) 45 23 102%
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Operating profit/(loss) 13 (8) NM% (4)
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Profit / (Loss) before tax 8 (11) NM%
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Basic earnings/ (loss) per share 1.13 (0.75) NM%
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Net funds / (debt) (3) 4 (33) NM%
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Financial highlights
-- Step change in profitability YoY as we rationalise, simplify and refocus our operations
-- Statutory profit before tax of GBP7.6m (2022 : loss of GBP10.5m)
-- Adjusted EBITDA of GBP45m, achieving an adjusted EBITDA margin of 4.0%
-- Overall liquidity (5) of GBP89m (2022: GBP50m) at 31 March
2023 with net funds of GBP4m (2022: GBP33m net debt); balance sheet
position strengthened with GBP40m share placing
-- GBP80m Revolving Credit Facility renewed now expires in April 2026
-- Revenue performance in line with our pivot plan, driven by
actions taken to remove non-core channels and loss-making sales,
also reflecting weak consumer sentiment attributed to cost of
living pressures
Operational highlights
-- Strategic pivot delivered: exited some business lines and
delivered operational efficiencies and overhead reductions ahead of
original plans
-- AO remains a UK market leader in Major Domestic Appliances
("MDA") with a 16% total market share and a 30% online share
-- Over 800,000 new customers (6) experienced the AO Way during
the year, with repeat customers taking an increasing share of
overall business
-- Customer satisfaction scores remain outstanding, with Net
Promoter Scores averaging c85 (7) and over 400,000 Trustpilot
ratings, averaging an "Excellent" 4.6/5 stars - as we continue to
be the UK's most trusted electrical retailer
-- Simplified the UK operations focusing on more profitable
lines of business that fit our core model
-- Ceased trading in Germany and completed its closure in all
material respects with minimal cash impact to the Group
-- Recycled or given new life to our six millionth appliance at
our AO Recycling facility and we are continuing to work with
manufacturers to use our recycled plastic in new products
-- Cultural improvements as we bring AOers back together at our
sites, enabling the business to benefit from better cohesion across
the group
Outlook
Looking forward to FY24 we are confident in our ability to
deliver on our 5% EBITDA ambition in the short term and returning
to top line growth in the medium term. Our strategy now is to
invest prudently in the business, seize the significant market
opportunities that we see in front of us, leveraging our growing
and loyal customer base.
AO's Founder and Chief Executive, John Roberts, said:
"We are delighted with the demonstrable progress that we've made
with the strategic realignment of AO towards profitability and cash
generation. The significant improvement in our profit performance
speaks for itself and has been achieved by focusing on our core
strengths and simplifying our operations, while still delivering
the outstanding customer service for which we're famous.
"Looking ahead, we intend to continue with this focus whilst
also retaining the flexibility to drive growth through disciplined
investment at the right pace and at the right time.
"Over five million new customers experienced the AO Way over the
last three years, during which time we've maintained our
"excellent" Trustpilot rating from more than 400,000 Trustpilot
reviews, making AO the most trusted electricals retailer in the
UK.
"I'd also like to thank all AOers for their support and
commitment over the last 12 months I'm always very proud of the way
in which they rise to the challenges and maintain our fantastic
culture, which is ultimately how we deliver for customers. I'm also
grateful to our manufacturer partners for their continued support
as we navigate this hugely unpredictable trading period
together."
Enquiries
AO World plc Tel: +44(0)7525 147
John Roberts, Founder & CEO 877
Mark Higgins, CFO ir@ao.com
Powerscourt Tel: +44(0) 20 7250
Rob Greening 1446
Nick Hayns ao@powerscourt-group.com
Elizabeth Kittle
Webcast details
An in-person results presentation and Q&A will be held for
analysts and investors at 09:00 with registration opening at 08.30
BST today, 5 July 2023 at our London Creative Hub. Advance
registration prior to arrival is required via Powerscourt. A
playback of the presentation will be available on AO World's
investor website at www.ao-world.com in the afternoon.
About AO
AO World plc, headquartered in Bolton and listed on the London
Stock Exchange, is the UK's most trusted online electricals
retailer, with a mission to be the destination for electricals. Our
strategy is to create value by offering our customers brilliant
customer service and making AO the destination for everything they
need, in the simplest and easiest way, when buying electricals. We
offer major and small domestic appliances and a range of mobile
phones, AV, consumer electricals and laptops. We also provide
ancillary services such as the installation of new and collection
of old products and offer product protection plans and customer
finance. AO Business serves the B2B market in the UK, providing
electricals and installation services at scale. AO also has a WEEE
processing facility, ensuring customers' electronic waste is dealt
with responsibly.
(1) Unless otherwise stated all numbers, including any restated
comparatives, relate to the continuing operations of the Group and
therefore exclude the impact of Germany. Refer to note 12 for
further details.
(2) Adjusted EBITDA is defined as profit/(Loss) before tax,
depreciation, amortisation, net finance costs, loss on disposal of
fixed assets, and other adjusting items.
(3) Net funds/ (debt) is defined as cash and cash equivalents
less borrowings less owned asset lease liabilities but excluding
right of use asset lease liabilities.
(4) Where comparison change is a swing from negative to
positive, this is judged to be a non-meaningful ("NM")
comparison.
(5) Liquidity is the total of cash and cash equivalents and the
remaining availability on the revolving credit facility
(6) A customer is defined as an individual customer who has
purchased via ao.com.
(7) Net Promoter Score or "NPS" is an industry measure of
customer loyalty and satisfaction. UK NPS comprises ao.com and
mobilephonesdirect.com and is calculated on a revenue weighted
average basis. Trustpilot scores sourced from their website, June
2023.
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.
STRATEGIC REVIEW
As we began the 2023 financial year, it was abundantly clear
that a further period of economic uncertainty lay ahead. Our number
one priority was to prepare AO to trade its way successfully and
resiliently through whatever economic climate prevailed, and so we
began the process of pivoting the focus of the business towards
cash and profit generation.
The team's deep understanding of the dynamics and drivers of the
business made it relatively straightforward to identify both the
opportunities and the challenges that we needed to tackle, and also
enabled us to move quickly and decisively.
Our core UK business has always been a strong, profitable, cash
generative operation. As part of our plan, we also undertook a
successful capital raise to strengthen our balance sheet. Our cash
position continued to improve through the second half of the year
as our actions to improve profitability gained traction.
With those economic clouds on the horizon, we decided to only
continue with operations or initiatives where we had line of sight
to profitability or cash generation.
Our decision-making process took us back to our fundamentals and
made us carefully consider what drives our flywheel and what adds
grit to the AO machine.
Specifically, the output of our strategic review resulted in the
closure of our operations in Germany, our housebuilders contracts
and our store-within-a-store trial with Tesco. While each had good
long-term potential, their complexity, short and medium term cash
consumption and opportunity cost meant that they were no longer
compatible with the pressing priorities of 2023.
We have also simplified aspects of our operations, consolidated
several teams and realised more of the value we deliver for
customers. We've rationalised relevant ranges and raised the bar of
what we're willing to accept in our supply chains. Inevitably these
actions have cumulatively reduced sales, but we believe the best
businesses are often defined by what they decide not to do, rather
than always just chasing every opportunity.
Rationalisation and simplification also meant that we needed
fewer people. We had to say goodbye to a number of AOers which is
never an easy decision, but nonetheless a necessary one. While the
economic element of those choices may have been relatively
straightforward, the human element was, of course, much harder.
Our priority now is to cement the progress that we've made with
our pivot to profitable growth and cash generation by focusing on
brilliant execution and investing to deepen our relationships,
while growing our brand and share of wallet.
During the last three years, over five million new customers
experienced the AO Way and we now have over 400,000 Trustpilot
reviews and counting. We are looking forward to building on that
fantastic foundation in the years ahead to maintain our position as
the most trusted electricals retailer in the UK.
Our strategy will always be centred around our obsession with
customers and treating them like our grans. This obsession is a
moat around our business and makes repeating what we do - and the
way that we do it - ever more difficult for competitors to
replicate, meaning that its value to our customers will only
increase.
This is true across a whole host of areas from culture, customer
service, loyalty, brand relationships and our B2B partnerships.
During FY24, having embedded the changes from our pivot year,
our focus will move back to profitable and cash generative growth
through disciplined investment at the right pace and at the right
time.
We'll drive our structural advantage of having an extremely well
invested, more efficient model with better unit economics, built
for the future not the past, leveraging our scale centred around
trust and excellence.
We expect the output of this to be that we will deliver over 5%
EBITDA margin for the current year and that we will be back to
driving profitable, top line growth by the end of this financial
year.
OPERATIONAL AND FINANCIAL REVIEW
Operational highlights
Over the last 12 months we have executed a significant
reorganisation and simplification of the business. The closure of
our Germany business in the year has enabled us to focus on the UK
business and really drive the efficiencies from our vertically
integrated model.
UK Retail
Our UK retail business is one of the market leaders in MDA
retailing and generates strong and sustainable cashflows. We serve
customers through both B2B and B2C channels. Established over 20
years ago we offer customers a full range of MDA products
complemented by a range of smaller domestic appliances, computing,
AV, mobile phones, consumer electronics, gaming and smart home
products.
Our UK website, ao.com, is the main business in UK retail and is
usually the first introduction that customers have to our brilliant
customer service, range of products and competitive pricing. We
continually seek to improve our customer experience through
enhanced product information, payment options, flexible delivery
and installation options, and recycling services. By sweeping the
market several times a day we keep our prices appropriately
competitive.
Over 800,000 new customers experienced the AO Way this year,
bringing the total historical number of customers who have shopped
on ao.com in the UK to 11.3 million. Of the customers who shopped
with us during FY23, over 58% were repeat. In line with our profit
plan we continue to drive growth in product categories in which we
can leverage our whole ecosystem and deliver a desired level of
profit from the sale of these goods. Accordingly, we expected our
pivot to profitability and cash generation to impact our market
share and it has. Our share of the MDA online market fell 2ppt to
30% for FY23 with our overall market share falling slightly year on
year to 16%. We once again reported market-leading, outstanding
customer satisfaction scores averaging c85 on NPS and 4.6/5 on
Trustpilot, based on over 400,000 reviews. This is a clear
demonstration that our laser focus on outstanding service and
customer satisfaction remains excellent, notwithstanding our pivot
to profit and cash.
The first half of the year was impacted by supply chain issues
and customer demand also weakened as a result of political
uncertainty in Ukraine, rising inflation and increasing cost of
living pressures. The business invested heavily in chasing market
share in the first quarter of the year in order to combat these
issues, which was not sustainable in the long term.
The strategic realignment saw us removing parts of the business
that didn't fit our priorities. We ended the trial of a
store-in-store format with Tesco and have also terminated our
business in the housebuilder sector.
We introduced delivery charges for all orders to offset the
growing costs of delivering for our logistics business. We have
accelerated our pricing structure development, particularly in non
MDA categories that have been in an investment and growth phase
over the last few years. As a result, very few products are now
incrementally loss making and the corresponding margin drag has
been removed. We expected that this would impact our overall sales
volumes in the second half of the year, but it has delivered the
planned step change in profitability and cash generation.
We have completed a major staffing restructure, which has seen a
significant reduction in headcount and subsequent saving in the
cost of senior and middle management layers. A detailed review of
our office footprint was completed in the year which has seen the
business close three offices across the Group.
Our Financial Services business performed resiliently as our
customers continue to recognise the value and peace of mind that
our warranties offer. Our long-term successful partnership with
Domestic & General (AO Care) and NewDay (AO Finance) helped us
ensure high customer service levels, and we continue to work
closely with both partners to enhance our customer proposition.
There has been no material impact to warranty cancellation rates
as a result of the underlying macroeconomic conditions.
Mobile
AO Mobile (Mobile Phones Direct) continues to focus its customer
proposition on traditional network contract connections through our
network partners, O2, Vodafone and Three. Our focus is on being
affordable, providing value for money offers, connecting through
robust eligibility gateways, and appealing to a genuine customer
grouping/base.
Rising inflation costs have impacted the market, with the
margins being squeezed as consumers become more cost conscious. The
business has concentrated on the quality of its connections that it
makes rather than choosing to compete purely on price. In doing so
it has given up some market share, however the value of customer
tenures has improved in the year which has served to offset some of
this decline.
Logistics
Our market leading in house logistics infrastructure enables the
delivery of millions of products a year nationwide, seven days a
week, to customers on behalf of AO's retail business and a number
of third-party logistics clients. Our delivery network operates
from our hub in Crewe, comprising our warehouses and distribution
centres with a total of over 1.2 million square foot of space and
via a network of 17 delivery depots across the UK.
As the business pivoted to profit and cash, the logistics
operation was able to flex the driver resource down, rationalise
our warehouse and outbase requirements and leverage our operational
gearing through third party logistics. We are able to leverage our
expertise in complex two-person delivery, which is highly valued in
our industry, to deliver incremental profitability. We will
continue to leverage this opportunity without it distracting from
our core business.
A new logistics routing system was introduced in the year to
develop our delivery routing process which has enabled the
operation to further its efficiencies and expand our capacity, to
continue to provide our customers with brilliant service.
Recycling
Our recycling plant in Telford is one of the largest fridge
recycling plants in Europe, and it operates to the highest UK and
European standards. This ensures that gases and oils that are
harmful to the environment are safely and efficiently captured.
Refrigeration products including large American style fridges are
our speciality, but we collect all old fridges and other white
goods (also known as "WEEE" - waste electrical and electronic
equipment). We have our own highly skilled repairs team which
refurbishes appliances delivered to the plant that still have a
useful life. These are then sold with a warranty through our
established base of trade customers.
During the year we achieved a key milestone of recycling or
reusing our six millionth appliance. Even though overall volumes
processed in the year were lower due to the slowing of the overall
market for MDA, strong pricing across all key metals and plastic
outputs compensated for the lower recycling volumes.
Over the past few years, our Recycling operations have been
working to perfect the recycling of plastics into new white goods
components to complete true circularity of recycling. During FY23
the throughput of plastic to our recycling plant grew by 20%, with
the output quality of materials continuously improving. We were
able to demonstrate REACH and RoHS compliance, and progressed
external laboratory testing for mechanical specifications, taking
us a step closer to our strategic objective of 'Closing the Loop'
partnership with key manufacturers to supply recycled products to
make electrical appliances.
This quality in plastics recycling has been recognised by the
Awards in Excellence in Recycling and Waste Management 2023, where
the business was awarded Recycled Product of the Year. In
partnership with Volution Group our high-quality plastics output
has been used to manufacturer over 330,000 ventilation fan units
(domestic and commercial). This again brings us closer to our goal
of seeing our recycled plastics back into products for sale on
AO.com.
We continue to collect third-party volumes using our own
logistics network, again providing efficient service from council
amenity sites, whilst reducing the amount of miles driven.
Closure of International Operations
As we reported in last year's annual report we made the decision
to close our German business and ceased trading there in early July
2022. During the remainder of the year we then closed down our
operations, terminated leases and agreements and concluded other
arrangements. As expected the total cash impact from the closure of
our operations was minimal in FY23. As we move in to FY24 there
remains only one outbase lease to exit.
Financial performance
We started the 2023 financial year facing a difficult market as
a result of inflation pressures on both our customers and our cost
base and saw a continued post covid drag of customers returning to
offline purchasing. Initially we reacted by discounting sales
prices to maintain market share through the short term volatility.
In Q1 our strategic pivot towards cash and profit generation
fundamentally realigned the business during the rest of the year.
This has entailed a rigorous and wide-reaching programme aimed at
simplifying our operations and optimising our cost base, completed
through the following key steps:
1. Improving Gross Margin
Delivery charges were introduced for all orders to offset the
growing costs of delivering for our logistics business, and
pleasingly the customer response was good, as customers accepted
that delivery has a cost. In addition, we also accelerated our
pricing structure development, particularly in non MDA categories
that have been in an investment and growth phase over the last few
years, which served to reduce margin drag.
2. Simplifying our operation
We closed our operations in Germany, brought an end to our trial
with Tesco and terminated our activities in the housebuilding
sector, as those initiatives were non-core, loss making, cash
consumptive and no longer fit with our focused priorities.
3. Optimising our cost base and overhead reduction
Throughout the year we identified and implemented a wide range
of opportunities to increase operational efficiencies, particularly
in light of our simplified operations. These have included removing
158,000 sq ft of warehouse and outbases, rationalising vehicles,
reducing our office footprint and lowering our stock holding. We
also undertook an organisational restructure, which resulted in a
reduction in headcount particularly in senior and middle management
roles.
Our cashflow strengthened in the year as a result of the impact
of operational changes and further supported by the capital raising
with gross proceeds of approximately GBP40m. Subsequent to the 2023
year-end we also renewed our GBP80m Revolving Credit Facility,
which is now due to expire in April 2026.
Our priorities for the current financial year are to leverage
our cost base and strong balance sheet for profitable growth. AO
remains a market leader in MDA in the UK with a 16% share of the
total market and a 30% share of the online market, which provides
us with a strong and resilient base from which to grow. Our
strategy is to invest prudently in the business, seize the
significant market opportunities that we see in front of us, and
leverage our growing and loyal customer base.
The following commentary, unless stated otherwise, covers our UK
business only.
Revenue
Table 1
Year ended 31 March 2023 31 March 2022 %
GBPm Change
-------------------------------- ------------- ------------- -------
Product revenue 874.8 1,114.4 (21.5%)
Services revenue 56.2 50.3 11.7%
Commission revenue 156.4 156.8 (0.2%)
Third-party logistics revenue 27.6 22.7 21.2%
Recycling revenue 23.6 24.1 (2.1%)
-------------------------------- ------------- ------------- -------
1,138.5 1,368.3 (16.8%)
-------------------------------- ------------- ------------- -------
For the 12 months ended 31 March 2023, revenue decreased by
16.8% to GBP1,138.5m (2022: GBP1,368.3m).
Product revenue
Product revenue, comprising sales generated from ao.com,
marketplaces and third-party websites, decreased by 21.5% as the
impact of our actions to improve profitability took hold combined
with the impacts of the cost of living crisis on consumer spending,
and the market normalised post Covid. H1 was also impacted by
supply chain issues, which were subsequently materially resolved by
H2.
Our revenues reduced in line with our change in strategy and
pivot to prioritise profit over revenue as set out above. Our MDA
revenue decreased YoY by 18.2%, with the total UK MDA market value
falling 6.3% and the online MDA market value falling by 11.7%. Our
non MDA revenues, comprising SDA, computing and gaming but
excluding AV, declined by 14.7%. Our AV revenue, which includes
televisions and audio visual, saw a decline YoY of 35.6%.
Services revenue
Services revenues, which includes fees for delivery, recycling,
installation and related services, was impacted by the reduction in
product revenue. However, this was offset by the introduction of
delivery charges on all orders to counteract the growing costs of
delivery for our logistics business. The net result was that
services revenue increased by 11.7%.
Commission revenue
Commission revenue, which includes commissions generated by
network connections in our Mobile business and from AO Care
warranties remained broadly flat against prior year revenues.
In Mobile, the number of connections increased in FY23 which,
coupled with further RPI increases imposed by the networks resulted
in an increase in Mobile commission revenue in the year.
In AO Care, the number of plans sold in FY23 reduced from FY22
in line with the drop in product revenue and consequently
commissions from the sale of warranties reduced against the prior
year. This was partly offset by an increase in certain plan prices
in the period in order to counter the increased costs incurred by
Domestic & General in running the scheme.
Third-party logistics revenue
Third-party logistics performed well, with YoY revenue growth of
21.2%, albeit off a modest base. Our expertise in complex
two-person delivery is highly valued in our industry, and we
undertake a number of deliveries and other services on behalf of
third-party clients in the UK including Hisense and Simba. This
revenue delivers incremental profitability. The business will
continue to maximise this revenue opportunity to leverage our
operational gearing, without it distracting from the core
business.
Recycling revenue
Recycling revenues decreased 2.1% over the year, which again was
a pleasing performance when taking into account the wider trading
environment. Processed volumes decreased overall year on year,
although this was offset by an increased output from the plastics
plant, as well as improvements in output prices for recycled
materials.
Gross margin
Table 2
Year ended
GBPm 31 March 31 March %
2023 2022 Change
------------- -------- -------- ----------
Gross profit 238.2 263.4 (9.6%)
------------- -------- -------- ----------
Gross margin 20.9% 19.3% + 1.6 ppts
------------- -------- -------- ----------
Gross profit, including product margins, services and delivery
costs, decreased by 9.6% to GBP238.2m (2022: GBP263.4m), against a
sales decrease of 16.8%. Gross margin increased by 1.6ppts to
20.9%. This increase reflects the significant steps taken by the
business to offset inflationary increases in operational costs
through pricing actions and the focus on profitable sales.
Selling, General & Administrative Expenses ("SG&A")
Table 3
Year ended 31 March 31 March %
GBPm 2023 2022 Change
Advertising and marketing 38.0 46.1 (17.5%)
-------------------------- -------- -------- -------
% of revenue 3.3% 3.4%
-------------------------- -------- -------- -------
Warehousing 59.8 69.6 (14.1%)
-------------------------- -------- -------- -------
% of revenue 5.2% 5.1%
-------------------------- -------- -------- -------
Other admin 124.1 156.1 (20.5%)
-------------------------- -------- -------- -------
% of revenue 10.9% 11.4%
-------------------------- -------- -------- -------
Adjustments 4.5 0.9 395.7%
-------------------------- -------- -------- -------
% of revenue 0.4% 0.1%
-------------------------- -------- -------- -------
Administrative expenses 226.4 272.7 (17.1%)
-------------------------- -------- -------- -------
% of revenue 19.9% 19.9%
-------------------------- -------- -------- -------
SG&A costs decreased during the period to GBP226.4m (2022:
GBP272.7m), but as a percent of revenues remained flat at 19.9%.
The largest cost decreases were seen in warehousing and other
admin.
Warehousing costs which include the costs of running our central
warehouses for both our customers and for our third-party customers
as well as the outbase infrastructure and our recycling operation
came under focus during the period. Savings were made through both
third-party leasing and efficiency improvements at the sites
themselves. This resulted in a reduction to warehousing costs in
cash terms to GBP59.8m (2022: GBP69.6m). However, warehousing as a
percentage of sales increased slightly year on year, given the drop
in sales volume.
Other admin costs decreased to GBP124.1m (2022: GBP156.1m), or
from 11.4% to 10.9% as a percentage of revenues. This primarily
reflects the actions that the business has taken as part of the
detailed overhead review and property rationalisation. The
headcount of the business entering into FY23 was aligned with
expected international growth. Therefore, following the decision to
focus exclusively on the UK operation, a rightsizing of headcount
was necessary during the year. With reduced headcount and a move to
remote working for some areas of the group, the need for office
space has also reduced. As we move into FY24, the annualisation of
savings is expected to offset inflationary pressures and should see
the business deliver a like for like cost base.
Advertising and marketing costs in the UK decreased to GBP38.0m
(2022: GBP46.1m) and remained relatively flat as a percent of
revenues. Spend decreased as the business focussed on the
efficiency of acquisition spend.
Operating profit and Adjusted EBITDA
As a result of the above actions and dynamics, our operating
profit for the period was GBP12.5m (2022: GBP7.5m 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) from continuing
activities before interest, tax, depreciation, amortisation, loss
on the disposal of fixed assets and impairment of assets.
Adjusted EBITDA
Adjusted EBITDA is calculated by adding back or deducting
Adjusting Items to EBITDA. Adjusting Items are those items which
the Group excludes in order to present a further measure of the
Group's performance. Each of these items, costs or incomes, is
considered to be significant in nature and/or quantum or are
consistent with items treated as adjusting in prior periods.
Excluding these items from profit metrics provides readers with
helpful additional information on the performance of the business
across periods because it is consistent with how the business
performance is planned by, and reported to, the Board and the Chief
Operating Decision Maker.
The reconciliation of statutory operating profit/ (loss) to
Adjusted EBITDA is as follows:
Table 4
Year ended 31 March 2023 31 March 2022 %
GBPm Change
--------------------------------------- ------------- ------------- -------
Operating profit / (loss) 12.5 (7.5) NM%
Depreciation 25.6 24.9 2.9%
Amortisation 2.6 3.8 (31.9%)
Loss on disposal of non-current assets 0.2 0.4 (49.0%)
EBITDA 40.9 21.6 89.6%
--------------------------------------- ------------- ------------- -------
Adjusting items 4.5 0.9 395.7%
Adjusted EBITDA 45.4 22.5 101.9%
--------------------------------------- ------------- ------------- -------
Adjusted EBITDA as % of Revenue 4.0% 1.6%
--------------------------------------- ------------- ------------- -------
The Adjusting Items for the current year are:
-- Following the Group's change of strategy to focus on the UK
business, the Group started a simplification of its operations
which has included removing areas of the business that didn't fit
our priorities, including the trial with Tesco and housebuilder
contracts; simplifying the organisational structure and associated
contracts and exiting surplus properties. As a consequence, the
Group has recognised an expense of GBP4.5m relating to the
restructuring which, due to its size and nature, has been added
back in arriving at Adjusted EBITDA.
The Adjusting Items for the prior year were as follows:
-- Due to the continued losses in the German business, the Group
undertook a strategic review during the prior year. Legal advice
and other costs of the review totalled GBP0.9m during the year and
given the nature of these costs, they were added back in arriving
at Adjusted EBITDA. All other charges arising as a result of the
review, principally relating to the impairment of assets in the
German business, were included in the result for that business
which is shown as a discontinued operation in these financial
statements.
Taxation
The tax charge for the year was GBP1.2m (2022: tax credit of
GBP7.2m) resulting in an effective rate of tax for the year of
16.4% in continued operations.
The Group is subject to taxes in the UK and Germany. The Group
continued to be able to offset a proportion of its German losses
against profits arising within the UK in the relevant overlapping
period through its registered branch structure in Germany. No
overseas tax is attributable to Germany in the year due to its
trading results.
Our tax strategy can be found at ao-world.com/
responsibility/group-tax-strategy.
Retained loss and earnings/ (loss) per share
The calculations for earnings/ (loss) per share are shown in the
table below
Table 5
2 months ended 31 March 31 March
GBPm 2023 2022
Profit / (Loss)
Profit/ (Loss) attributable to Owners
of the Parent Company from Continuing
operations 6.2 (3.6)
Loss attributable to Owners of the Parent
Company from Discontinued operations (8.8) (26.8)
----------------------------------------------------- ------------ ------------
(2.6) (30.4)
Number of shares
Weighted average shares in issue for the
purposes of basic earnings/ (loss) per
share 548,947,969 478,558,948
Potentially dilutive share options 15,509,762 7,028,898
----------------------------------------------------- ------------ ------------
Diluted weighted average number of shares 564,457,731 465,587,847
----------------------------------------------------- ------------ ------------
Earnings / (loss) per share from continuing operations
(pence per share)
Basic earnings / (loss) per share 1.13 (0.75)
Diluted earnings / (loss) per share 1.10 (0.75)
----------------------------------------------------- ------------ ------------
Loss per share from continuing and discontinued
operations (pence per share)
Basic loss per share (0.48) (6.33)
Diluted loss per share (0.47) (6.33)
----------------------------------------------------- ------------ ------------
In the prior year, the diluted loss per share has been
restricted to the basic loss per share to prevent having an
anti-dilutive effect.
Cash resources and cash flow
At 31 March 2023, the Group's available liquidity, being Cash
and cash equivalents plus amounts undrawn on its revolving credit
facility, was GBP88.9m (2022: GBP49.6m). Group liquidity was
strengthened via a successful share placing in July 2022 which
raised net proceeds of GBP39.1m.
Net funds, which comprise cash balances less borrowings and
owned asset lease liabilities, were GBP3.6m (2022: GBP32.8m net
debt). Cash balances at 31 March 2023 were GBP19.1m (2022:
GBP19.5m). The movement in net funds represents a cash inflow from
operations generated by the improved profitability partly offset by
a working capital outflow (see below), the inflow from the proceeds
of the share placing offset by the repayment of borrowings,
interest and lease liabilities. Borrowings of GBP10.0m (2022:
GBP45.0m) relate to short term funding drawn from the Group's
revolving credit facility.
At 31 March 2023, the Group's Total net debt, being net funds
less all right of use asset lease liabilities, was GBP76.1m (2022:
GBP134.1m)
Lease liabilities decreased by GBP23.3m to GBP85.3m (2022:
GBP108.6m) principally reflecting capital repayments of GBP26.1m
and the early exit or reassessment of leases of GBP8.2m offset by
new lease liabilities of GBP11.0m. New leases in the year
principally relate to the replenishment of the delivery fleet with
newer vehicles replacing older obsolete models. As expected,
following the decision to close its business in Germany, almost all
of the Group's liabilities in Europe have either been settled or
terminated early.
On 5 April 2023, the Group renewed its GBP80m revolving credit
facility and this now expires in April 2026. At 31 March 2023, the
Group had GBP69.8m available on its old facility. The amount
utilised represents GBP10.0m of cash borrowings (see above) and
GBP0.2m of guarantees.
Working Capital
As at
GBPm 31 March 2023 31 March 2022
---------------------------- ------------------------- -------------------------
UK Germany Total UK Germany Total
---------------------------- ------- ------- ------- ------- ------- -------
Inventories 73.1 - 73.1 82.0 15.0 97.0
---------------------------- ------- ------- ------- ------- ------- -------
Trade and other receivables 230.9 0.2 231.1 243.9 18.2 262.1
---------------------------- ------- ------- ------- ------- ------- -------
Trade and other payables (253.5) (0.8) (254.3) (296.9) (23.3) (320.3)
---------------------------- ------- ------- ------- ------- ------- -------
Net working capital 50.5 (0.6) 49.9 29.0 9.8 38.8
---------------------------- ------- ------- ------- ------- ------- -------
Change in net working
capital 21.5 (10.4) 11.1 75.2 (8.0) 67.2
---------------------------- ------- ------- ------- ------- ------- -------
At 31 March 2023, the Group had net current liabilities of
GBP47.9m (2022: GBP91.5m).
At 31 March 2023, UK inventories were GBP73.1m (2022: GBP82.0m)
and UK stock days were 40 days (2022: 34 days). Overall inventory
levels reduced in line with the reduction in sales albeit the Group
continues to run an efficient stock holding model ensuring that a
sufficient and efficient level of inventory is held to maintain
customer availability. Inventory days at the end of March were
however higher than the previous year as a consequence of the
timing of purchasing in our Mobile business to maintain
availability across the range.
UK trade and other receivables (both non-current and current)
were GBP230.9m as at 31 March 2023 (2022: GBP243.9m) reflecting a
reduction in trade with B2B customers as we exited loss making
business in addition the lower level of sales activity reducing the
amount of supplier marketing commissions.
UK trade and other payables were GBP253.5m at 31 March 2023
(2022: GBP296.9m). Again, this is reflective of the lower level of
activity in the year across the business. Trade payables days at 31
March 2023 were 51 days (2022: 47 days).
The changes in working capital in Germany are all reflective of
the decision to close operations in June 2022.
Capital Expenditure
UK cash capital expenditure for the 12-month period was GBP2.2m
(2022: GBP7.5m), largely related to ongoing investment in IT
equipment, company vehicles and leasehold improvements.
Acquisition of Non Controlling Interest
In November 2022, the Company acquired the remaining 18.4% of
issued share capital in AO Recycling Limited for consideration of
GBP2.5m. AO Recycling is now a wholly owned subsidiary.
CONSOLIDATED INCOME STATEMENT
For the year ended 31 March 2023
2022
GBPm
Restated
2023 (See
Note GBPm note 12)
------------------------------------------------------- ---- ------- ---------
Revenue 2,3 1,138.5 1,368.3
Cost of sales (900.3) (1,104.9)
------------------------------------------------------- ---- ------- ---------
Gross profit 238.2 263.4
Administrative expenses (226.4) (272.7)
Other operating income 0.7 1.8
------------------------------------------------------- ---- ------- ---------
Operating profit/ (loss) 12.5 (7.5)
Finance income 4 2.9 2.6
Finance costs 5 (7.8) (5.6)
------------------------------------------------------- ---- ------- ---------
Profit/ (loss) before tax 7.6 (10.5)
Tax (charge)/ credit 6 (1.2) 7.2
------------------------------------------------------- ---- ------- ---------
Profit/ (loss) after tax for the period from
continuing operations 6.4 (3.3)
Loss for the period from discontinued operations 12 (8.8) (26.8)
------------------------------------------------------- ---- ------- ---------
Loss after tax for the year (2.4) (30.1)
------------------------------------------------------- ---- ------- ---------
Profit/ (loss) for the year attributable
to:
Owners of the Company (2.6) (30.4)
Non-controlling interests 0.2 0.3
------------------------------------------------------- ---- ------- ---------
(2.4) (30.1)
------------------------------------------------------- ---- ------- ---------
Earnings/ (loss) per share from continuing
operations (pence)
Basic earnings/ (loss) per share 7 1.13 (0.75)
Diluted earnings/ (loss) per share 7 1.10 (0.75)
------------------------------------------------------- ---- ------- ---------
Loss per share from continuing and discontinued operations
(pence)
Basic loss per share 7 (0.48) (6.33)
Diluted loss per share 7 (0.47) (6.33)
------------------------------------------------------- ---- ------- ---------
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2023
2023 2022
GBPm GBPm
---------------------------------------------------------- ------ ------
Loss for the year (2.4) (30.1)
Items that may subsequently be recycled to income
statement
Exchange differences on translation of foreign operations (6.4) 1.0
---------------------------------------------------------- ------ ------
Total comprehensive loss for the year (8.8) (29.1)
---------------------------------------------------------- ------ ------
Total comprehensive (loss)/ profit for the year
attributable to:
Owners of the Company (9.0) (29.4)
Non-controlling interests 0.2 0.3
---------------------------------------------------------- ------ ------
(8.8) (29.1)
---------------------------------------------------------- ------ ------
Total comprehensive profit/ (loss) attributable to owners
of the company arising from:
Continuing operations 6.2 (3.6)
Discontinued operations (15.2) (25.8)
---------------------------------------------------------- ------ ------
(9.0) (29.4)
---------------------------------------------------------- ------ ------
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March 23
2023 2022
Note GBPm GBPm
-------------------------------------------- ---- ------- -------
Non-current assets
Goodwill 8 28.2 28.2
Other intangible assets 9.6 12.2
Property, plant and equipment 20.9 32.7
Right of use assets 69.4 86.6
Trade and other receivables 9 93.3 92.4
Deferred tax 8.3 9.0
-------------------------------------------- ---- ------- -------
229.7 261.1
-------------------------------------------- ---- ------- -------
Current assets
Inventories 73.1 97.0
Trade and other receivables 9 137.8 169.7
Corporation tax receivable 0.6 1.9
Cash and cash equivalents 19.1 19.5
-------------------------------------------- ---- ------- -------
230.6 288.1
-------------------------------------------- ---- ------- -------
Total assets 460.3 549.2
-------------------------------------------- ---- ------- -------
Current liabilities
Trade and other payables 10 (249.5) (313.9)
Borrowings 11 (10.0) (45.0)
Lease liabilities 11 (17.8) (20.3)
Provisions (1.2) (0.4)
-------------------------------------------- ---- ------- -------
(278.5) (379.6)
-------------------------------------------- ---- ------- -------
Net current liabilities (47.9) (91.5)
-------------------------------------------- ---- ------- -------
Non-current liabilities
Trade and other payables 10 (4.8) (6.4)
Lease liabilities 11 (67.5) (88.3)
Provisions (3.8) (2.5)
-------------------------------------------- ---- ------- -------
(76.1) (97.2)
-------------------------------------------- ---- ------- -------
Total liabilities (354.6) (476.8)
-------------------------------------------- ---- ------- -------
Net assets 105.7 72.4
-------------------------------------------- ---- ------- -------
Equity attributable to owners of the parent
Share capital 1.4 1.2
Share premium account 108.2 104.4
Other reserves 59.4 28.5
Retained losses (63.3) (60.7)
-------------------------------------------- ---- ------- -------
Total 105.7 73.4
-------------------------------------------- ---- ------- -------
Non-controlling interest - (1.0)
-------------------------------------------- ---- ------- -------
Total equity 105.7 72.4
-------------------------------------------- ---- ------- -------
CONDENSED CONSOLIDATED STATEMENT OF CHANGE IN EQUITY
As at 31 March 2023
Other reserves
-----------------------
Share Investment Share Merger Capital Share-based Translation Other Retained Total Non-controlling Total
capital in own premium reserve redemption payment reserve reserve losses interest
shares account reserve reserve
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ---------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- ------
Balance at 31
March 2021 1.2 - 104.3 22.2 0.5 9.6 (4.0) (3.0) (33.1) 97 .7 (1.3) 96.4
(Loss) /
Profit for
the
period - - - - - - - - (30.4) (30.4) 0.3 (30.1)
Share-based
payment
charge
(net of tax) - - - - - 5.0 - - - 5.0 - 5.0
Issue of
shares (net
of
expenses) - - 0.1 - - - - - - 0.1 - 0.1
Foreign
currency gain
arising
on
consolidation - - - - - - 1.0 - - 1.0 - 1.0
Movement
between
reserves - - - - - (2.7) - - 2.7 - - -
-------------- ------- ---------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- ------
Balance at 31
March 2022 1.2 - 104.4 22.2 0.5 11.8 (3.0) (3.0) (60.7) 73.4 (1.0) 72.4
-------------- ------- ---------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- ------
(Loss) /
Profit for
the
period - - - - - - - - (2.6) (2.6) 0.2 (2.4)
Share-based
payment
charge
(net of tax) - - - - - 5.5 - - - 5.5 - 5.5
Issue of
shares (net
of
expenses) 0.2 - 3.8 37.0 - - - - (2.0) 39.1 - 39.1
Foreign
currency loss
arising
on
consolidation - - - - - - (6.4) - - (6.4) - (6.4)
Acquisition of
minority
interest - - - - - - - (3.3) - (3.3) 0.8 (2.5)
Movement
between
reserves - - - - - (1.9) - - 1.9 - - -
-------------- ------- ---------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- ------
Balance at 31
March 2023 1.4 - 108.2 59 .2 0.5 15.5 (9.4) (6.3) (63.3) 105.7 - 105.7
-------------- ------- ---------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- ------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the 12 months ended 31 March 2023
2022
GBPm
Restated
2023 (See note
GBPm 12)
------------------------------------------------------ ------ ----------
Cash flows from operating activities
Profit/ (loss) for the year in continuing
operations 6.4 (3.3)
Net cash used in operating activities in discontinued
operations (8.8) (7.3)
Adjustments for:
Depreciation and amortisation 29.0 28.5
Loss on disposal of property, plant and
equipment 0.9 0.4
Finance income (2.9) (2.6)
Finance costs 7.8 5.6
Taxation charge / (credit) 1.2 (7.2)
Share-based payment charge 5.3 5.8
Increase in provisions 2.7 0.5
------------------------------------------------------- ------ ----------
Operating cash flows before movement in
working capital 41.6 20.4
------------------------------------------------------- ------ ----------
Decrease in inventories 9.0 33.0
Decrease/ (increase) in trade and other
receivables 14.7 (10.8)
Decrease in trade and other payables (43.0) (96.7)
------------------------------------------------------- ------ ----------
Total movement in working capital (19.4) (74.5)
------------------------------------------------------- ------ ----------
Taxation refunded 2.2 1.7
------------------------------------------------------- ------ ----------
Cash generated from/ (used in) operating
activities 24.4 (52.4)
------------------------------------------------------- ------ ----------
Cash flows from investing activities
Proceeds from sale of property, plant and
equipment 0.1 -
Acquisition costs relating to right of
use assets - (1.0)
Acquisition of property, plant and equipment (2.1) (7.5)
Acquisition of intangible assets (0.1) (1.0)
Net cash generated from/ (used in) investing
activities by discontinued operations 9.8 (0.1)
------------------------------------------------------- ------ ----------
Cash generated from/ (used) in investing
activities 7.7 (9.6)
------------------------------------------------------- ------ ----------
Cash flows from financing activities
Proceeds from issue of ordinary share capital 41.1 0.1
Share issue costs (2.0) -
Acquisition of non-controlling interest (2.5) -
(Repayment of)/ New borrowings (35.0) 45.0
Interest paid on borrowings (3.5) (1.6)
Interest paid on lease liabilities (4.2) (4.3)
Repayment of lease liabilities (17.7) (21.2)
Net cash used in financing activities by discontinued
operations (8.6) (3.6)
------------------------------------------------------- ------ ----------
Net cash (used in)/ generated from financing
activities (32.3) 14.4
------------------------------------------------------- ------ ----------
Net decrease in cash (0.3) (47.6)
------------------------------------------------------- ------ ----------
Exchange loss on cash and cash equivalents (0.1) -
------------------------------------------------------ ------ ----------
Cash and cash equivalents at beginning
of year 19.5 67.1
------------------------------------------------------- ------ ----------
Cash and cash equivalents at end of year 19.1 19.5
------------------------------------------------------- ------ ----------
NOTES TO THE FINANCIAL INFORMATION
1. Basis of preparation
This financial information has been prepared and approved by the
Directors in accordance with UK adopted International Accounting
Standards ("UK adopted IFRS").
Whilst the financial information included in this preliminary
announcement has been prepared in accordance with the recognition
and measurement criteria of International Financial Reporting
Standards (IFRSs), this announcement does not itself contain
sufficient information to comply with IFRSs.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 March 2023 or
2022 but is derived from those accounts. Statutory accounts for
2022 have been delivered to the Registrar of Companies and those
for 2023 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.
During the year, the Group made the decision to close its German
business which has been treated and presented as a discontinued
operation in the year ended 31 March 2023 which includes restating
comparatives (see note 12).
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 Group financial
statements have been applied in preparing this financial
information.
New accounting standards in issue but not yet effective
New standards and interpretations that are in issue but not yet
effective are listed below:
-- IFRS 17 Insurance Contracts, Amendments to IFRS 17 and
Initial Application of IFRS 17 and IFRS 9 - Comparative Information
(effective date 1 January 2023).
-- Amendments to IAS 1 Presentation of Financial Statements:
Classification of Liabilities as Current or Non-current and
Classification of Liabilities as Current or Non-current (effective
date to be confirmed).
-- Amendments to IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors to introduce a new definition for
accounting estimates (effective date 1 January 2023).
-- Amendments to IAS 1 Presentation of Financial Statements and
IFRS Practice Statements 2 Making Materiality Judgements (effective
date 1 January 2023).
-- Amendments to IAS 12 Income Taxes - Deferred Tax Related to
Assets and Liabilities Arising from a Single Transaction (effective
date 1 January 2023).
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 GBP47.9 m as at 31
March 2023 and a cash outflow of GBP0.3m in the year ended 31 March
2023, the financial statements have been prepared on a going
concern basis which the Directors consider to be appropriate for
the following reasons:
The Group meets its day-to-day working capital requirements from
its cash balances and the availability of its GBP80m revolving
credit facility (which was renewed in April 2023 to now expire in
April 2026). At 30 June 2023 total liquidity amounted to
GBP62.8m.
The Directors have prepared base and sensitised cash flow
forecasts for the Group covering the period to 31 March 2025 ("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 its
revolving credit facility to meet its liabilities as they fall due
for that period. The forecasts take account of current trading,
management's view on future performance and their assessment of the
impact of market uncertainty and volatility.
In assessing the going concern basis, the Directors have taken
into account severe but plausible downsides to sensitise its base
case and have also run these in combination. These primarily
include:
-- Negative growth in FY24 and in the subsequent periods to
account for how the overall electrical online market could be
impacted by the continuing macro-economic factors such as
inflation, consumer confidence, interest rate increases;
-- Changes in margin including the impact of any changes in the
Group's policy with regard to charging;
-- The impact of a change in product protection plan
cancellations as a result of a macroeconomic event e.g., continued
interest rate increases, utilising data seen where other events
have happened (e.g., Covid outbreak, initial cost of living
crisis); and
-- Changes in other revenue including the impact of a reduction in logistics third-party income.
Under these severe but plausible downside scenarios the Group
continues to demonstrate headroom on its banking facilities and
remains compliant with its quarterly covenants which are interest
cover (Adjusted EBITDA being at least 4x net finance costs) and
leverage (Net debt to be no more than 2.5x EBITDA). The likelihood
of a breach of covenants is considered remote and hence headroom
against its covenants has not been disclosed.
In addition, the Directors have considered mitigating actions
including limiting discretionary spend and managing working capital
should there be any pressure on headroom. These would provide
additional headroom but have not been built into the going concern
forecast. 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, which are
set out in Note 3 of the Group financial statements, the Directors
are required to make judgements, estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant and are reviewed on an ongoing
basis.
Actual results could differ from these estimates and any
subsequent changes are accounted for with an effect on income at
the time such updated information becomes available.
Accounting standards require the Directors to disclose those
areas of critical accounting judgement and key sources of
estimation uncertainty that carry a significant risk of causing
material adjustment to the carrying value of assets and liabilities
within the next 12 months.
As a result of macro-economic factors in recent years, the
Directors consider that the revenue recognition in respect of
commission for product protection plans and network connections
include significant areas of accounting estimation. The Directors
have applied the variable consideration guidance in IFRS 15 and as
a result of revenue restrictions do not believe there is a
significant risk of a material downward adjustment. Revenue has
been restricted to ensure that it is only recognised when it is
highly probable and therefore subsequently, there could be a
material reversal of restrictions.
The information below sets out the estimates and judgements used
in recognising revenue in these two areas.
Revenue recognition and recoverability of income from product
protection plans
Revenue recognised in respect of commissions receivable over the
lifetime of the plan for the sale of product protection plans is
recognised in line with the principles of IFRS 15, when the Group
obtains the right to consideration as a result of performance of
its contractual obligations (acting as an agent for a third
party).
Revenue in any one year therefore represents an estimate of the
commission due on the plans sold, which management estimate
reliably based upon a number of key inputs, including:
-- the contractual agreed margins;
-- the number of live plans;
-- the discount rate;
-- the estimated length of the plan;
-- the estimated historic rate of attrition; and
-- the estimated overall performance of the scheme.
Commission receivable also depends for certain transactions on
customer behaviour after the point of sale. Assumptions are
therefore required, particularly in relation to levels of customer
attrition within the contract period, expected levels of customer
spend, and customer behaviour beyond the initial contract period.
Such assumptions are based on extensive historical evidence, and
adjustment to the amount of revenue recognised is made for the risk
of potential changes in customer behaviour, but they are
nonetheless inherently uncertain e.g., changes seen in FY21 as a
result of Covid-19.
Reliance on historical data assumes that current and future
experience will follow past trends. The Directors believe that the
quantity and quality of historical data available provides an
appropriate proxy for current and future trends. Any information
about future market trends, or economic conditions that we believe
suggests historical experience would need to be adjusted, is taken
into account when finalising our assumptions each year. Our
experience over the last decade, which has been a turbulent period
for the UK economy as a whole, is that variations in economic
conditions have not had a material impact on consumer behaviour
and, therefore, no adjustment to commissions is made for future
market trends and economic conditions.
In assessing how consistent our observations have been, we
compare cash received in a period versus the forecast expectation
for that period as we believe this is the most appropriate check on
revenue recognised. Small variations in this measure support the
assumptions made.
For plans sold prior to 1 December 2016, the commission rates
receivable are based on pre-determined rates. For plans sold after
that date, base-assumed commissions will continue to be earned on
pre-determined rates but overall commissions now include a variable
element based on the future overall performance of the scheme.
Changes in estimates recognised as an increase or decrease to
revenue may be made, where for example, more reliable information
is available, and any such changes are required to be recognised in
the income statement. During the year, management have refined
estimations in relation to plan cancellations which has resulted in
a GBP1.7m reversal of previously recognised revenue. As with all
years, other small refinements have been made but have had an
immaterial impact on the revenue recognised.
The commission receivable balance as at 31 March 2023 was
GBP93.1m (2022: GBP90.7m). The rate used to discount the revenue
for the FY23 cohort is 5.45% (2022: 3.54%). The weighted average of
discount rates used in the years prior to FY23 was 3.91% (2022:
4.12%).
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 estimates
reliably based upon a number of key inputs, including:
-- The contractually agreed revenue share percentage - the
percentage of the consumer's spend (to MNOs) to which the Group is
entitled;
-- The discount rate using external market data (including risk
free rate and counter party credit risk) 2.86% (2022: 0.53%);
-- The length of contract entered into by the consumer (12 - 24
months) and the resulting estimated consumer average tenure which
takes account of both the default rate during the contract period
and the expectations that some customers will continue beyond the
initial contract period and generate out of contract ("OOC")
revenue (c2%).
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 and any additional churn expected as a
result of recent price increases announced and applied by the MNOs,
for which a reduction to revenue is made based on historical
experience.
The Directors consider that the quality and quantity of the data
available from the MNOs is appropriate for making these estimates
and, as the contracts are primarily for 24 months, the period over
which the amounts are estimated is relatively short. As with
commissions recognised on the sale of product protection plans, the
Directors compare the cash received to the initial amount
recognised in assessing the appropriateness of the assumptions
used.
Changes in estimates recognised as an increase or decrease to
revenue may be made where, for example, more reliable information
is available, and any such changes are required to be recognised in
the income statement. During the year, management have refined the
estimations in relation to the assumed collection of commissions
once customers reach out-of-contract periods. This has resulted in
a restriction of revenue in FY23, compared to the prior
methodology, of GBP2.9m. In addition, as a result of the increase
in commission rates driven by the significant increase in
inflation, previously restricted revenue of GBP4.4m has been
recognised in FY23.
Other small refinements have been made which have had an
immaterial impact on the revenue recognised. The total revenue
restricted at 31 March 2023 is GBP8.7m.
The commission receivable balance as at 31 March 2023 was
GBP81.3m (2022: GBP83.4m). The rate used to discount the current
year revenue is 2.83% (2022: 0.53%).
Impairment of intangible assets and goodwill
As part of the acquisition of Mobile Phones Direct Limited in
2018, the Group recognised amounts totalling GBP16.3m in relation
to the valuation of the intangible assets and GBP14.7m in relation
to residual goodwill. At 31 March 2023 these amounted to
GBP23.5m.
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 and the long-term growth
rate to be applied beyond this three-year period.
Whilst at 31 March 2023 the Directors have concluded that the
carrying value of the intangibles and goodwill is appropriate,
significant 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.
Recoverability of deferred tax asset
At 31 March 2023, the Group has UK tax losses of GBP26.1m and
accordingly has recognised a deferred tax asset of GBP6.5m in
respect of these losses.
In recognising the asset, management have taken account of the
historic profitability of the UK business together with its
forecasts (utilising the same information as in the going concern
and viability statement). In recent years, other than FY22, the UK
business has been profitable. The unprecedented circumstances which
affected the post Covid trading period had been the prime reason
for the result in FY22. Since then, and following the closure of
the German business, the Group has changed its strategy to focus on
profit and cash generation. The results in the second half of FY23
reflect the measures taken to reduce costs and improve margin
despite the ongoing impacts of the cost of living squeeze and
difficult macro-economic conditions which have restricted growth.
The business therefore expects this profitability to continue in
the future and therefore has assessed that utilising the losses is
probable and as such the asset has been recognised.
Management acknowledge that the economic environment is
providing a difficult backdrop on which to forecast but believes
that its forecasts reflect the impact of the current challenges.
However, as a consequence of the significance of the asset, this is
disclosed as an area of accounting judgement.
2. Revenue
The table below shows the Group's revenue by 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.
2022
GBPm
2023 Restated
Major product/services lines GBPm (See note 12)
------------------------------ ------- --------------
Product revenue 874.8 1,114.4
Service revenue 56.2 50.3
Commission revenue 156.4 156.8
Third-party logistics revenue 27.6 22.7
Recycling revenue 23.6 24.1
------------------------------ ------- --------------
1,138.5 1,368.3
------------------------------ ------- --------------
3. Segmental analysis
In the periods prior to the current period, the Group had two
reportable segments; online retailing of domestic appliances and
ancillary services to customers in the UK, and online retailing of
domestic appliances and ancillary services to customers in Germany.
Following the decision in June 2022 to close the German operations
(which are now treated as discontinued (see note 12)), the UK
operation is now the only reportable segment.
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 UK operations now form three reportable
segments after considering the threshold guidance in IFRS 8, being
retail, logistics and recycling.
However, having consideration for the economic characteristics
of each of these segments including the nature of products and
services, the type of customer and methods used to distribute
product, the Chief Operating Decision Maker has concluded that the
majority of the Group's business is retail related and has
determined it is appropriate to aggregate these segments into one
reportable segment.
4. Finance income
2023 2022
GBPm GBPm
----------------------------------------------- ------ ------
Unwind of discounting on non-current contract
assets 2.9 2.6
----------------------------------------------- ------ ------
2.9 2.6
----------------------------------------------- ------ ------
5. Finance costs
2022
GBPm (Restated
2023 see note
GBPm 12)
------------------------------- ------ ----------------
Interest on lease liabilities 4.2 4.3
Interest on bank loans 2.3 0.6
Other finance costs 1.2 0.7
------------------------------- ------ ----------------
7.8 5.6
------------------------------- ------ ----------------
6. Taxation
2022
GBPm
(Restated
2023 see note
GBPm 12)
----------------------------------------- ------ ----------
Corporation tax on continuing operations
Current year 0.3 (0.6)
Adjustments in respect of prior years 0.2 -
----------------------------------------- ------ ----------
0.5 (0.6)
Deferred tax on continuing operations
Current year 0.1 (5.9)
Adjustments in respect of prior years 0.6 (0.6)
----------------------------------------- ------ ----------
0.7 (6.5)
----------------------------------------- ------ ----------
Total tax charge/ (credit) on continuing
operations 1.2 (7.2)
----------------------------------------- ------ ----------
The expected corporation tax charge for the year is calculated
at the UK corporation tax rate of 19% (2022: 19%) on the profit/
(loss) before tax for the year.
The charge/ (credit) for the year can be reconciled to the
profit/ (loss) in the statement of comprehensive income as
follows:
2023 2022
GBPm GBPm
--------------------------------------------------- ----- ------
Profit/ (loss) before tax on continuing operations 7.6 (10.5)
Tax at the UK corporation tax rate of 19%
(2022: 19%) 1.5 (2.0)
Ineligible expenses 0.2 0.2
Impact of difference in current and deferred
tax rates (0.7) (1.2)
Income not taxable - (0.1)
Group relief claimed from discontinued operations
(see below) (1.6) (4.7)
Share-based payments 1.0 1.7
Prior period adjustments 0.8 (0.9)
--------------------------------------------------- ----- ------
Tax charge/ (credit) for the year 1.2 (7.2)
--------------------------------------------------- ----- ------
An increase in the UK corporation rate from 19% to 25%
(effective 1 April 2023) was substantively enacted on 24 May 2021.
The impact of the rate change is reflected in the deferred tax
asset as at 31 March 2023.
The Group have offset a proportion of its German losses against
profits arising within the UK continuing operations, in the
relevant overlapping period, through its registered branch
structure in Germany .
7. Earnings/ (loss) per share
The calculation of the basic and diluted earnings/ (loss) per
share is based on the following data:
2022
GBPm
(Restated
2023 See note
GBPm 12)
------------------------------------------------------- ----------- -----------
Profit/ (Loss) attributable to Owners of the Parent
Company from continuing operations 6.2 (3.6)
Loss attributable to Owners of the Parent Company from
discontinued operations (8.8) (26.8)
------------------------------------------------------- ----------- -----------
(2.6) (30.4)
------------------------------------------------------- ----------- -----------
Number of shares
Weighted average shares in issue for the purposes of
basic
earnings/ (loss) per share 548,947,969 478,558,948
Potentially dilutive shares 15,509,762 7,028,898
------------------------------------------------------- ----------- -----------
Weighted average number of diluted ordinary shares 564,457,731 485,587,846
------------------------------------------------------- ----------- -----------
Earnings/ (loss) per share from continuing operations
(pence per share)
Basic earnings/ (loss) per share 1.13 (0.75)
Diluted earnings/ (loss) per share 1.10 (0.75)
------------------------------------------------------- ----------- -----------
Loss per share from continuing and discontinued operations
(pence per share)
Basic loss per share (0.48) (6.33)
Diluted loss per share (0.47) (6.33)
----------------------------------------------------------- ------ ------
In the prior year, the diluted loss per share has been
restricted to the basic loss per share to prevent having an
anti-dilutive effect.
8. Goodwill
GBPm
---------------------------------------- -----
Carrying value at 31 March 2022 and 31
March 2023 28.2
---------------------------------------- -----
Goodwill relates to purchase of Expert Logistics Limited, the
purchase by DRL Holdings Limited (now AO World PLC) of DRL Limited
(now AO Retail Limited), the acquisition of AO Recycling Limited
(formerly The Recycling Group Limited) and the acquisition of
Mobile Phones Direct Limited (now AO Mobile Limited) by AO
Limited.
Impairment of goodwill
UK CGU - GBP13.5m
At 31 March 2023, goodwill acquired through UK business
combinations (excluding Mobile Phones Direct Limited) was allocated
to the UK cash-generating unit ("CGU") which is part of the UK
operating segment.
This represents the lowest level within the Group at which
goodwill is monitored for internal management purposes.
The Group performed its annual impairment test as at 31 March
2023. The recoverable amount of the CGU has been determined based
on the value in use calculations. The Group prepares cash flow
forecasts derived from the most recent financial budget and
financial plan for three years. The final year cash flow is used to
calculate a terminal value and is based on an estimated growth rate
of 1%. This rate does not exceed the average long term growth rate
for the market.
Management estimates discount rates using pre-tax rates that
reflect current market assessments of the time value of money and
the risks specific to this CGU. In arriving at the appropriate
discount rate to use, we adjust the CGU's post-tax weighted average
cost of capital to reflect the impact of risks and tax effects
specific to the cash flows. The weighted average pre-tax discount
rate we used was approximately 13.1% (2022: 9.7%).
The key assumptions, which take account of historic trends, upon
which management has based their cash flow projections are sales
growth rates, selling prices and product margin.
Management do not believe that any reasonable possible
sensitivity would result in any impairment to this goodwill.
Mobile Phones Direct Limited - GBP14.7m
The Group has assessed the goodwill arising on the acquisition
of Mobile Phones Direct Limited ("MPD") in December 2018. This was
performed based on a value in use calculation in the same way as
for the UK business noted previously, but using a pre- tax weighted
average cost of capital appropriate for MPD as a standalone
business of 19.2% (2022: 14.8%).
The total recoverable amount for this CGU group is greater than
its carrying value by GBP11.9m in management's base case.
The main assumptions underlying the value in use calculation is
revenue where growth is forecast at c3% per annum and EBITDA
margin, which has been impacted by higher levels of inflation for
recent cohorts, and is assumed to be c5%.
The Directors have performed sensitivity analysis on the numbers
included in the three-year strategic plan for the business in
assessing the value in use. The final year cash flow is used to
calculate a terminal value and includes an estimated long term
growth rate of 3% per annum which does not exceed the average long
term growth rate for the market. Management believes that the key
assumptions are revenue and EBITDA margin. If there was no revenue
growth post FY26 (i.e. the period beyond the three-year strategic
plan), then this would have an impact of (GBP6.9m) on the amount of
headroom.
The sensitivities analysed demonstrate that it would require a
total reduction in revenue over the three year strategic plan of
GBP68.8m (c15% of total revenue over the three years), or a total
reduction in EBITDA over the three year strategic plan of GBP4.2m
(c19% of total EBITDA over the three years) with, in both cases, a
continued reduction into perpetuity to eliminate the headroom on
the recoverable amount. This is without considering any mitigating
actions.
Management believes that based on the range of possible outcomes
noted above and given the value in use is significantly higher than
the carrying value, there is no current impairment.
9. Trade and other receivables
2023 2022
GBPm GBPm
-------------------------------- ------ ------
Trade receivables 21.6 25.8
Contract assets 174.4 174.1
Prepayments and accrued income 34.9 50.0
Other receivables 0.2 12.2
-------------------------------- ------ ------
231.1 262.1
-------------------------------- ------ ------
The trade and other receivables are classified as:
2023 2022
GBPm GBPm
-------------------- ------ ------
Non-current assets 93.3 92.4
Current assets 137.8 169.7
-------------------- ------ ------
231.1 262.1
-------------------- ------ ------
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:
2023 2022
GBPm GBPm
------------------------ ------- -------
Balance brought forward 174.1 172.2
Revenue recognised* 148.7 145.9
Cash received (154.0) (151.0)
Revisions to estimates 2.7 4.4
Unwind of discounting 2.9 2.6
Balance carried forward 174.4 174.1
------------------------ ------- -------
* 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.
Included in the contract asset balance in relation to product
protection plans at 31 March 2022 was an amount of GBP1.7m in
relation to variable consideration recognised as revenue up to that
date which has reversed in the year ended 31 March 2023. This is
included in the revisions to estimates above.
Included in the contract asset balance in relation to Network
Commissions at 31 March 2022 was an amount of GBP4.4m in relation
to previously constrained revenue which has now been recognised in
the year ended 31 March 2023. This is included in the revisions to
estimates above.
The Group still recognises that there is inherent risk in the
amount of revenue recognised as it is dependent on future customer
behaviour which is outside of the Group's control and therefore at
31 March 2023 an amount of GBP8.7m has been constrained in relation
to revenue recognised in relation to Network commissions.
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 - 5.45% (2022: 3.54%);
-- the estimate of profit share relating to the scheme as a
whole based on information provided by D&G;
-- historic rate of customer attrition that uses actual
cancellation data for each month for the previous 8 years to form
an estimate of the cancellation rates to use by month going forward
(range of 0% to 9.0% 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 14 years
from c.3.1m plans that have been sold. Of these, c.1.08m are live.
Applying all the information above, management calculates their
initial estimate of commission receivable. Consideration is then
given to other factors outside of the historical data noted above
that could impact the valuation. This primarily considers the
reliance on historical data as this assumes that current and future
experience will follow past trends. There is, therefore, a risk
that changes in consumer behaviour could reduce or increase the
total cash flows ultimately realised over the forecast period.
Management makes a regular assessment of the data and assumptions
with a detailed review at half year and full year to ensure this
continues to reflect the best estimate of expected future trends.
As set out in Note 1, the Directors do not believe there is a
significant risk of a downward material adjustment to the revenue
recognised in relation to these plans over the next 12 months. The
sensitivity analysis below is disclosed as we believe it provides
useful insight to the users of the financial statements into the
factors taken into account when calculating the revenue to be
recognised.
The table shows the sensitivity of the carrying value of the
commission receivables and revenue to a reasonably possible change
in inputs to the discounted cash flow model over the next 12
months.
Impact on
contract
asset and
revenue
Sensitivity GBPm
--------------------------------------------------- ----------
Cancellations increase by 2% (1.8)
Cancellation rate reduces by 2% 2.0
Profit share entitlement (increase) or decrease by
10% (2.0)/2.0
--------------------------------------------------- ----------
Cancellations
The number of cancellations and therefore the cancellation rate
can fluctuate based on a number of factors. These include
macroeconomic changes e.g., unemployment, but will also reflect the
change in nature of the plan itself (insurance plan vs service
plan). The impact of reasonable potential changes is shown in the
sensitivities above.
Profit share
The profit share attaching to the overall scheme is dependent on
factors such as the price of the plan, the cost of claims and the
administration of the scheme itself. Given changes in
macro-economic conditions, there is an increased risk that claims
cost could increase but also the possibility that to counter any
increase in cost that D&G could further increase the price per
plan. The above sensitivity considers what any reasonable change in
either of these could mean to the overall profit share.
Network commissions
The Group operates under contracts with a number of Mobile
Network Operators ("MNOs"). Over the life of these contracts, the
service provided by the Group to each MNO is the procurement of
connections to the MNO's networks. The individual consumer enters
into a contract with the MNO for the MNO to supply the ongoing
airtime over that contract period. The Group earns a commission for
the service provided to each MNO. Revenue is recognised at the
point the individual consumer signs a contract and is connected
with the MNO. Consideration from the MNO becomes receivable over
the course of the contract between the MNO and the consumer. The
Group has determined that the number and value of consumers
provided to each MNO in any given month represents the measure of
satisfaction of each performance obligation under the contract. A
discounted cash flow methodology is used to measure the estimated
value of the revenue and contract assets in the month of
connection, by estimating all future cash flows that will be
received from the MNOs and discounting these based on the expected
timing of receipt. Subsequently, the contract asset is measured at
the present value of the estimated future cash flows.
The key inputs to management's base case model are:
-- revenue share percentage, i.e. the percentage of the
consumer's spend (to the MNO) to which the Group is entitled;
-- the discount rate using external market data - 2.83% (2022: 0.53%);
-- the length of contract entered into by the consumer (12 - 24
months) and the resulting estimated consumer average tenure that
takes account of both the default rate during the contract period
and the expectations that some customers will continue beyond the
initial contract period and generate out of contract revenue.
The input is estimated based on extensive historical evidence
obtained from the networks, and adjustment is made for the risk of
potential changes in consumer behaviour. Applying all the
information above, management calculates their initial estimate of
commission receivable. Consideration is then given to other factors
outside of the historical data noted above which could impact the
valuation. This primarily considers the reliance on historical data
as this assumes that current and future experience will follow past
trends.
The risk remains that changes in consumer behaviour could reduce
or increase the total cash flows ultimately realised over the
forecast period. Management make a regular assessment of the data
and assumptions with a detailed review at half year and full year
to ensure this continues to reflect the best estimate of expected
future trends and appropriate revisions are made to the estimates.
As set out in Note 1, the Directors do not believe there is a
significant risk of a downward material adjustment to the revenue
recognised in relation to these plans over the next 12 months given
the variable revenue constraints applied albeit there could be a
material upward adjustment.
The sensitivity analysis below is disclosed as we believe it
provides useful insight to the users of the financial statements by
giving insight into the factors taken into account when calculating
the revenue to be recognised. The table shows the sensitivity of
the carrying value of the commission receivables and revenue to a
reasonably possible change in inputs to the discounted cash flow
model over the next 12 months, having taken account of the changes
in behaviour experienced in the period.
Impact on
contract
asset and
revenue
Sensitivity GBPm
--------------------------------------------------- -----------
2% decrease/ (increase) in expected cancellations
- in contract 2.0/ (2.0)
20% decrease/ (increase) in expected cancellations
at month 24 - OOC 1.4/ (1.4)
--------------------------------------------------- -----------
Cancellations - in contract
The number of cancellations, and therefore the cancellation
rate, can fluctuate based on a number of factors. These include
macroeconomic changes e.g., unemployment, interest rates and
inflation. The impact of reasonable potential changes is shown in
the sensitivities above for customers with exit barriers in
place.
Cancellations - out of contract ("OOC")
This sensitivity focuses on the period beyond month 24 when
customers can exit contracts without penalty. During the year,
management restricted GBP2.9m in revenue related to the assumed
collection of commissions once customers reach out of contract
periods due to heightened uncertainty of future cancellation rates
in the recent inflationary economic environment. This equates to
c40% of customers exiting their contract at month 24. The
sensitivity reflects what may happen if more or fewer consumers
cancel at month 24.
Prepayments and accrued income
At 31 March 2023, there is GBP14.4m (2022: GBP19.0m) 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 2023, the balance outstanding was GBP2.7m (30 June
2022: GBP3.3m).
10. Trade and other payables
2023 2022
GBPm GBPm
Trade payables 163.4 205.0
Accruals 19.4 28.9
Contract liabilities 37.2 44.1
Deferred income 14.2 18.1
Other payables 20.1 24.2
---------------------- ------ ------
254.3 320.3
---------------------- ------ ------
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases is 51 days (2022: 47
days).
Contract liabilities includes payments on account from Mobile
Network Operators where there is no right of set off with the
contract asset within the mobile business.
Trade and other payables are classified as:
2023 2022
GBPm GBPm
------------------------- ------ ------
Current liabilities 249.5 313.9
Non-current liabilities 4.8 6.4
------------------------- ------ ------
254.3 320.3
------------------------- ------ ------
11. Net debt and movement in financial liabilities
2023 2022
GBPm GBPm
-------------------------------------------------- ------- --------
Cash and cash equivalents at year end 19.1 19.5
Borrowings - Repayable within one year (10.0) (45.0)
Owned asset lease liabilities - Repayable
within one year (1.9) (2.0)
Owned asset lease liabilities - Repayable
after one year (3.6) (5.3)
-------------------------------------------------- ------- --------
Net funds/ (debt) excluding leases relating
to right of use assets 3.6 (32.8)
Right of use asset lease liabilities - Repayable
within one year (15.8) (18.3)
Right of use asset lease liabilities - Repayable
after one year (63.9) (83.0)
-------------------------------------------------- ------- --------
Net debt (76.1) (134.1)
-------------------------------------------------- ------- --------
Whilst not required by IAS 1 Presentation of Financial
Statements, the Group has elected to disclose its lease liabilities
split by those which ownership transfers to the Group at the end of
the lease ("Owned asset lease liabilities") and are disclosed
within the Property Plant and Equipment table in note 18 of the
Group financial statements, and those leases which are rental
agreements and where ownership does not transfer to the Group at
the end of the lease as Right of use asset lease liabilities which
are disclosed within the Right of use assets table in the Group
financial statements. This is to give additional information that
the Directors feel will be useful to the understanding of the
business.
Movement in financial liabilities in the year was as
follows:
Lease
Borrowings Liabilities
GBPm GBPm
----------------------------------------------- ---------- ------------
Balance at 1 April 2022 45.0 108.6
Changes from financing cash flows
Payment of interest (2.3) (4.2)
Repayment of lease liabilities - (17.7)
Repayment of borrowings (35.0) -
Repayment of lease liabilities by discontinued
operations - (8.3)
Total changes from financing cash flows (37.3) (30.2)
----------------------------------------------- ---------- ------------
Other changes
New lease liabilities - 11.0
Reassessment of lease term - (8.2)
Interest expense 2.3 4.2
Exchange differences - (0.1)
----------------------------------------------- ---------- ------------
Total other changes 2.3 6.9
----------------------------------------------- ---------- ------------
Balance at 31 March 2023 10.0 85.3
----------------------------------------------- ---------- ------------
Reassessment of lease terms relate to leases the Group have
exited during the period.
Lease
Borrowings Liabilities
GBPm GBPm
----------------------------------------------- ---------- ------------
Balance at 1 April 2021 - 95.3
Changes from financing cash flows
Payment of interest (0.6) (4.3)
Repayment of lease liabilities - (21.2)
New borrowings* 45.0 -
Repayment of lease liabilities by discontinued
operations - (3.1)
Total changes from financing cash flows 44.4 (28.6)
----------------------------------------------- ---------- ------------
Other changes
New lease liabilities - 45.4
Reassessment of lease terms - (7.8)
Interest expense 0.6 4.3
Total other changes 0.6 41 .8
----------------------------------------------- ---------- ------------
Balance at 31 March 2022 45.0 108.6
----------------------------------------------- ---------- ------------
* In the prior period, the movement arising from new borrowings
was presented within "Other changes". This should have been
presented as a change in financing cash flows and as such the
comparative analysis has been restated. There is no impact of this
to the overall movement or closing balance of financial liabilities
or cash flow presentation.
12. Discontinued Operations
On 9 June 2022, it was announced that the Group had taken the
decision to close its German business as a result of its continued
losses. The website was closed on 1 July 2022 and in August, AO
Deutschland completed the final deliveries on behalf of its third
party customers. The majority of German employees have now left the
business and we have now materially exited from the Company's
property portfolio.
The German business is clearly distinguishable from the rest of
the Group and its numbers have been reported separately as an
operating segment in previous periods. Therefore, it meets the
definition of a component of an entity and in line with IFRS 5
"Non-current assets held for sale and discontinued operations", the
business has been treated and presented as a discontinued operation
in the year ended 31 March 2023 which includes restating
comparatives to present Germany as such. The tables below show the
results of the German operation for the relevant reporting
periods:
2023 2022
GBPm GBPm
--------------------------------------------------- ------ -------
Revenue 36.2 189.0
Cost of sales (40.4) (183.0)
--------------------------------------------------- ------ -------
Gross (loss)/ profit (4.2) 6.0
Administrative expenses and other operating income (13.5) (23.5)
--------------------------------------------------- ------ -------
Operating loss (17.7) (17.5)
Finance income 6.4 -
Finance costs - (1.9)
--------------------------------------------------- ------ -------
Loss before tax (11.3) (19.4)
Taxation charge (0.1) (0.1)
--------------------------------------------------- ------ -------
Loss after tax (11.4) (19.5)
Gain/ (loss) on remeasurement of assets 2.6 (7.3)
--------------------------------------------------- ------ -------
Loss after tax of discontinued operations (8.8) (26.8)
--------------------------------------------------- ------ -------
The gain/ (loss) on remeasurement of assets arose following the
decision to close the business in June 2022. The balance sheet at
31 March 2022 reflected the Director's initial view of the impact
on assets held based on information available at that date. As the
closure proceeded during the year, and leases were exited, this
gave rise to a GBP2.6m reversal of previous impairments during the
period.
Basic loss per share from discontinued operations was 1.61p
(2022: 5.58p loss per share). Diluted loss per share from
discontinued operations is 1.56p (2022: restricted to basic loss
per share of 5.58p to prevent having an anti-dilutive effect).
The table below summarises the cashflows of the German operation
for the relevant reporting periods:
2023 2022
GBPm GBPm
----------------------------------------------------- ------ ------
Cash flows from operating activities in discontinued
operations
Loss for the year (8.8) (26.8)
Adjustments for:
Depreciation and amortisation 0.9 3.6
Gain on disposal of property, plant and
equipment (4.5) (0.1)
Impairment of assets - 7.2
Finance (income)/ costs (6.4) 1.8
Taxation charge 0.1 0.1
(Decrease)/ increase in provisions (0.7) 0.1
------------------------------------------------------ ------ ------
Operating cash flows before movement in
working capital (19.4) (14.0)
------------------------------------------------------ ------ ------
Movement in working capital balances 10.6 6.7
------------------------------------------------------ ------ ------
Cash used in operating activities (8.8) (7.3)
------------------------------------------------------ ------ ------
Cash flows from investing activities
Proceeds from sale of property, plant and
equipment 9.8 -
Acquisition of property, plant and equipment - (0.1)
------------------------------------------------------ ------ ------
Cash generated from/ (used in) investing
activities 9.8 (0.1)
------------------------------------------------------ ------ ------
Cash flows from financing activities
Interest paid on borrowings (0.3) (0.6)
Repayment of lease liabilities (8.3) (3.1)
------------------------------------------------------ ------ ------
Net cash used in financing activities (8.6) (3.6)
------------------------------------------------------ ------ ------
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