TIDMAO.
RNS Number : 8323H
AO World plc
20 November 2018
AO WORLD PLC
INTERIM RESULTS FOR THE 6 MONTHSED 30 SEPTEMBER 2018
Continued revenue growth against challenging backdrop and on
track with strategic plan
AO World plc ("the Group" or "AO"), a leading European online
electrical retailer, today announces its unaudited interim
financial results for the six months ended 30 September 2018.
Financial Highlights(1)
-- Continued revenue growth with total revenue for the period
increasing by 9.9% to GBP404.2m (2017: GBP368.0m) against a
continuingly tough macro trading environment in UK and Europe and a
declining UK MDA market(2) :
o AO website sales(3) for the UK(4) up 4.2% to GBP294.3m (2017:
GBP282.5m) with growth coming from newer categories(5) . Total UK
revenue up 5.7% to GBP334.8m (2017: GBP316.8m).
o Europe(6) revenue for the period increased by 35.0% to
EUR78.4m (2017: EUR58.1m) (in GBP up 35.7% 2018: GBP69.4m; 2017:
GBP51.2m) with Q2 sales growth rates impacted by changes to our
German driver operating model(7) .
-- Group Adjusted EBITDA losses reduced to GBP5.4m (2017: GBP6.3m).
o UK Adjusted EBITDA(8) of GBP6.9m (2017: GBP7.4m) impacted by
lower than anticipated MDA sales and the expected dilutive gross
margin percentage impact of growth in our newer categories.
o Europe Adjusted EBITDA losses reduce to EUR13.8m (2017:
EUR15.6m) as a result of improvements in product margin and
leverage in logistics and overheads (in GBP 2018: GBP12.3m loss;
2017: GBP13.7m loss).
-- Group operating losses reduced to GBP11.7m (2017: GBP12.0m
loss) including exceptional costs of GBP1.4m incurred in relation
to the proposed acquisition of Mobile Phones Direct Ltd
("MPD").
-- As at 30 September 2018 Group net cash was GBP36.6m (2017:
GBP72.3m, 31 March 2018: GBP52.9m); net funds(9) GBP23.9m (2017;
GBP56.7m, 31 March 2018: GBP38.3m) with an increase in working
capital driven by increased accrued income. As at 30 September
2018, the Group continues to have significant liquidity headroom of
GBP94.3million.
-- Basic loss per share of 2.19p (2017: 1.90p), which includes
foreign exchange gains from inter-group funding. Reversing such
foreign exchange gains gives adjusted loss per share of 2.52p
(2017: 2.23p loss). (10)
Strategic and Operational Highlights
-- Market share at least maintained in our core UK MDA category
with share taken in our newer categories in the UK and in all
categories and territories in Europe.(2)
-- Our customer number now exceeds 5 million in the UK and approaching 6 million across all territories.(11)
-- Customer satisfaction remains exceptional with Net Promoter
Score(12) of c.80 in all territories reflecting continued high
levels of customer satisfaction; repeat purchase metrics remain
healthy.
-- Strengthening of competencies progressing to plan:
o Dedicated B2B team formalised to leverage AO's capabilities
with housebuilders, housing associations and the insurance
market.
o Hi-tech plastics recycling site expected to be operational
early FY20 and plans for our 2(nd) recycling plant are
underway.
o Focus on our third party logistics business as we commence
trials to deliver non-electrical products and leverage the green
van fleet.
o Developing our finance offering to be appropriate to all
categories and territories.
-- Initial results from new brand campaign, "Delivering
Tomorrow", encouraging with brand awareness metrics increasing.
-- Proposed acquisition of Mobile Phones Direct Limited
conditional on shareholder and regulatory approval will further
diversify our product offer and improve our customer proposition
through the offer of network contract sales in our Mobile
Category.
Steve Caunce, AO Chief Executive Officer, said:
"This has been a half of continued delivery against our
long-term strategy, thanks to a strong offer for customers.
While our core UK and Germany MDA markets have been challenging,
with the UK MDA market becoming tougher than expected, we take
encouragement that we are at least maintaining market share in this
core category in the UK and growing significantly in Germany.
Elsewhere, our continued focus on growing our range of online
electricals and adding new complementary ranges proved successful
in the first six months of the year, with newer categories such as
Audio Visual and Computing performing particularly well.
Similarly, we are excited about further strengthening our
customer offer through the acquisition of the UK's leading
online-only mobile phone retailer, Mobile Phones Direct.
Customers continue to love AO, as demonstrated through the
satisfaction metrics which remain very strong, and awareness of the
AO brand has further improved through the recent launch of our
'Delivering Tomorrow' campaign.
While we faced some operational challenges with our driver model
in Germany which had an effect on our second quarter we expect to
return to our targeted growth levels in Germany over the next few
months.
Our peak trading period began on 9 November with the launch of
our biggest ever Black Friday and I remain confident of achieving
long-term sustainable growth across the Group. We expect full year
results to fall within the range of Board expectations, albeit more
second half weighted than previously anticipated."
Webcast details
A results presentation hosted by Geoff Cooper, Steve Caunce and
Mark Higgins for analysts and investors will be held today, 20
November 2018 at 9:00am (GMT) at Numis Securities Limited, 10
Paternoster Square, London EC4M 7LT. Please register your
attendance in advance with Tulchan Communications using the contact
details below.
A webcast of the presentation will be available to watch live
and later in the day at www.ao-world.com/investor-centre(13) where
the results presentation slides can also be viewed or the
presentation can be heard live by dialling in on +44 20 3713 5011
using access code 492-915-541.
For further information, please contact:
AO World plc Tel: +44(0) 1204 672400
Mark Higgins ir@ao.com
Tulchan Communications Tel: +44(0) 20 7353
Catherine James 4200
Will Smith ao@tulchangroup.com
About AO
AO World plc, headquartered in Bolton and listed on the London
Stock Exchange, is an online electrical retailer, with a clear
purpose: to have the happiest customers by relentlessly striving
for a better way.
We create value by providing electrical products and related
services to our customers, offering a huge range, a price-match
promise and market-leading customer service. We are now leveraging
our skills and expertise to develop existing competencies and
create new opportunities.
We sell major and small domestic appliances and consumer
electronics in the UK, Germany and the Netherlands and deliver them
via our in-house logistics business and carefully selected third
parties. We also provide ancillary services such as the
installation of new and collection of old products and offer
product protection plans and customer finance. AO also has a
majority equity stake in AO Recycling, a WEEE(14) processing
facility, allowing AO to ensure its customers' waste is dealt with
responsibly in the UK.
______________________________
(1) The highlights are for the 6 month period ended 30 September
2018 and the comparative 2017 period. Certain financial data have
been rounded. As a result of this rounding, the totals of data
presented in this document may vary slightly from the actual
arithmetic totals of such data.
(2) Source: GfK market data to September 2018
(3) This includes AO.com and the UK AO-branded eBay shop.
(4) UK is defined by the Group as entities operating within the
United Kingdom. (It excludes AO Deutschland Limited which is a
company registered in England but operates in Germany and therefore
is included in the Europe segment).
(5) Newer categories refers to categories other than Major
Domestic Appliances ("MDA") and includes Small Domestic Appliances
("SDA") Audio-visual ("A/V"), computing, mobile phones, gaming
consoles, smart home and cameras
(6) Europe is defined by the Group as entities operating within
the European Union but excluding the UK and for the six months
ended 30 September 2017 also includes costs in other European
territories.
(7) For further details on the changes to the operating model
see the revenue section in the Financial Review.
(8) Adjusted EBITDA is defined by the Group as profit/(loss)
before tax, depreciation, amortisation, profit on disposal of fixed
assets net finance income, "adjustments" and exceptional items.
Adjustments is defined by the Group as (i) set-up costs relating to
overseas expansion namely strategic post go-live costs incurred in
connection with our European expansion strategy of nil (2017:
GBP0.1m), (ii) share-based payment charges of GBP1.4m (2017:
GBP1.9.m) attributable to the exceptional LTIP awards, and (iii)
Exceptional professional fees of GBP1.4m (2017:GBPnil) relating to
the proposed acquisition of Mobile Phones Direct Limited, which the
Board considers one off in nature.
(9) Net funds are defined by the Group as cash as per the
consolidated statement of financial position less borrowings less
overdrafts.
(10) Please refer to the loss per share paragraph on page 24 of
this announcement for further information.
(11) A customer is defined as an individual who has purchased
from ao.com, ao.de or ao.nl.
(12) NPS is defined by the Group as Net Promoter Score which is
an industry measure of customer loyalty and satisfaction.
(13) The content of the AO.com website should not be considered
to form a part of or be incorporated into this announcement.
(14) WEEE means waste electrical and electronic equipment.
Alternative performance measures
One of the Group's key performance indictors is Adjusted EBITDA
and each segment is measured by the Chief Operating Decision Maker
on this basis. The use of this measure is also evidenced by
executive management bonus targets and Long Term Incentive Schemes
being measured in relation to adjusted EBITDA, amongst other
factors. As such, these measures are important and should be
considered alongside the IFRS measures.
Adjusted EBITDA is calculated by adding back those items of
income and expense defined at footnote 8 above which, because of
the nature and expected infrequency of events giving rise to them,
merit separate presentation to allow shareholders to better
understand the financial performance of the Group in the
period.
The adjustments are as follows:
-- Long Term Incentive Plan ("LTIP") awards were made to a
number of senior staff under the Employee Reward Plan (ERP) in July
2016. The Board considers that the magnitude and timing of these
awards are one-off in nature and so add-back any charge in arriving
at Adjusted EBITDA. AO Sharesave scheme charges and LTIP charges
relating to the LTIP awards which are not considered to be one-off
in nature are included in trading numbers.
-- Europe set-up costs for the prior year comparable period are
costs incurred in connection with our European expansion strategy
prior to the "go-live" of that territory, namely the launch of
AO.de and AO.nl and our continuing research into other further
countries along with strategic post "go-live" costs.
-- On 9 November 2018, the company announced the proposed
acquisition of Mobile Phones Direct Limited, for a cash-free
debt-free enterprise value of GBP32.5million. Costs accrued in
relation to the acquisition as at 30 September 2018 were GBP1.4m.
Due to the magnitude of the costs, and the fact that the
acquisition is one off in nature, the costs have been added back in
arriving at Adjusted EBITDA.
Cautionary statement
This announcement contains certain forward-looking statements
(including beliefs or opinions) with respect to the operations,
performance and financial condition of the Group. These statements
are made in good faith and are based on current expectations or
beliefs, as well as assumptions about future events. By their
nature, future events and circumstances can cause results and
developments to differ materially from those anticipated. Except as
is required by the Listing Rules, Disclosure Guidance and
Transparency Rules and applicable laws, no undertaking is given to
update the forward-looking statements contained in this document,
whether as a result of new information, future events or otherwise.
Nothing in this document should be construed as a profit forecast
or an invitation to deal in the securities of the Company. This
announcement has been prepared for the Group as a whole and
therefore gives greater emphasis to those matters which are
significant to AO World plc and its subsidiary undertakings when
viewed as a whole.
PERFORMANCE AT A GLANCE
Summary Results(1)
6 months ended 30 September 30 September 2017 Better/(worse)
(GBPm) 2018
------------------ ------------------------------ ---------------------------- ---------------------------------------
UK Europe(2) Total UK Europe Total UK Europe Total
------------------ -------- ---------- -------- -------- -------- -------- ---------- -------- ---------------
Income Statement
------------------ -------- ---------- -------- -------- -------- -------- ---------- -------- -----------------
AO website sales 294.3 69.2 363.5 282.5 51.1 333.6 4.2% 35.6% 9.0%
Third-party
website sales 25.8 0.1 25.9 21.3 0.1 21.4 21.2% 33.5% 20.9%
Other Sales 14.7 0.1 14.8 13.0 - 13.0 12.7% n/a 13.1%
------------------ -------- ---------- -------- -------- -------- -------- ---------- -------- -----------------
Revenue 334.8 69.4 404.2 316.8 51.2 368.0 5.7% 35.7% 9.9%
------------------ -------- ---------- -------- -------- -------- -------- ---------- -------- -----------------
Adjusted
EBITDA/(loss)(3) 6.9 (12.3) (5.4) 7.4 (13.7) (6.3) (7.0%) 10.5% 14.7%
------------------ -------- ---------- -------- -------- -------- -------- ---------- -------- -----------------
Adjusted EBITDA
margin(4) 2.1% (17.7%) (1.3%) 2.3% (26.8%) (1.7%) (0.3ppts) 9.1ppts 0.4ppts
------------------ -------- ---------- -------- -------- -------- -------- ---------- -------- -----------------
Adjusted
operating
profit/(loss)(5) 3.9 (12.8) (8.9) 4.5 (14.5) (10.0) (12.8%) 11.4% 11.3%
------------------ -------- ---------- -------- -------- -------- -------- ---------- -------- -----------------
Adjustments(6)
Share-based
payment charge
attributable
to exceptional
LTIP awards(7) (1.4) - (1.4) (1.9) - (1.9) 23.5% n/a 23.5%
Exceptional
professional
fees(8) (1.4) - (1.4) - - - n/a n/a n/a
Europe set-up
costs(9) - - - (0.1) - (0.1) (n/a) n/a (n/a)
Operating
profit/(loss) 1.1 (12.8) (11.7) 2.5 (14.5) (12.0) (56.0%) 11.4% 2.0%
------------------ -------- ---------- -------- -------- -------- -------- ---------- -------- -----------------
(Loss) per
share(10)
------------------ -------- ---------- -------- -------- -------- -------- ---------- -------- -----------------
Basic Loss per
share (pence) (2.19) (1.90) (15.3%)
------------------ -------- ---------- -------- -------- -------- -------- ---------- -------- -----------------
Diluted Loss
per share
(pence) (2.18) (1.90) (14.7%)
------------------ -------- ---------- -------- -------- -------- -------- ---------- -------- -----------------
Cash flow
------------------ -------- ---------- -------- -------- -------- -------- ---------- -------- -----------------
Cash
(used)/generated
from operating
activities (11.2) (0.9) (12.1) (0.4) (0.3) (0.7) n/a n/a n/a
------------------ -------- ---------- -------- -------- -------- -------- ---------- -------- -----------------
Period end net
funds/(debt)
position(11) 29.3 (5.4) 23.9 61.4 (4.7) 56.7 (52.2%) (15.3%) (57.8%)
------------------ -------- ---------- -------- -------- -------- -------- ---------- -------- -----------------
______________________________
(1) The highlights are for the 6 month period ended 30 September
2018 and the comparative 2017 period. Certain financial data
have been rounded. As a result of this rounding, the totals of
data presented in this document may vary slightly from the actual
arithmetic totals of such data.
(2) Europe is defined by the Group as entities operating within
the European Union but excluding the UK and, for the 2017 comparable
period, also includes costs in other European territories.
(3) Adjusted EBITDA is defined by the Group as profit/(loss)
before tax, depreciation, amortisation, profit on disposal of
fixed assets, net finance income, "adjustments" and exceptional
items.
(4) Adjusted EBITDA margin is defined by the Group as Adjusted
EBITDA divided by revenue.
(5) Adjusted operating profit/(loss) is defined by the Group
as profit/(loss) before tax, net finance income, "adjustments"
and exceptional items but after depreciation, amortisation and
profit on disposal of fixed assets.
(6) Adjustments is defined by the Group as (i) set-up costs relating
to overseas expansion namely strategic post go-live costs incurred
in connection with our European expansion strategy of GBPnil
(2017: GBP0.1m), (ii) share-based payment charges of GBP1.4m
(2017: GBP1.9m) attributable to exceptional LTIP awards which
the Board considers one-off in nature, and (iii) exceptional
professional fees of 1.4m (2017: GBPnil)
(7) Share based payment charges attributable to exceptional LTIP
awards which the Board consider one-off in nature.
(8) Exceptional professional fees relating to the proposed acquisition
of Mobile Phones Direct Limited, which the Board consider to
be one-off in nature.
(9) Relates to Europe set-up costs incurred by Group entities
in the UK and Europe.
(10) Please refer to the loss per share paragraph on page 24
of this announcement for further information.
(11) Net funds/ (debt) are defined as cash as per the consolidated
statement of financial position less borrowings.
CEO REVIEW
Despite the weaker trading environment, we remain on track with
each of our strategic objectives: Customers, Competencies and
Countries, with culture and brand underpinning each.
Customers (UK)
With our Purpose - "to have the happiest customers by
relentlessly striving to find a better way" - embedded across the
Group, our customer proposition remains paramount to our success
and we continue to focus on this across all our business units. Our
core retail proposition remains strong; unbeatable prices, huge
range, wide availability, smart and innovative web content and
amazing service.
Our Net Promoter Score (an industry measure of customer loyalty
and satisfaction) has again been maintained at its consistently
high level of c.80 across all territories and our UK Trustpilot
score was an excellent 9.2 at the period end. Over 5 million
customers have now shopped with us providing us with a fantastic
asset to leverage for future growth.
During the period we added an additional transhipping outbase to
our UK logistics infrastructure in Telford and a further two since
the period end, one in Coventry and the other in Luton. This takes
the number of outbases to 17 and we have identified a further two
sites which we plan to be operational prior to the end of our
financial year. This will help ensure resilience in our delivery
network and maintain our market leading product availability for
customers, whilst reducing stem mileage and improving efficiencies
in our logistics division.
We have further invested in our people as we strengthen our
teams to support future growth in our competencies.
We are also able to deliver, install and remove products in one
visit to a customer thanks to our premium installation service
which is available with any of the built-in products sold by
ao.com. During the period we have continued to grow and develop our
Premium Installation Team via our AO Academy (in conjunction with
City & Guilds) and maximise similar opportunities such as Smart
Home installation via our dynamic in-house capability
Our logistics division continues to develop a number of
efficiency initiatives. Our in-house fleet intelligence system
dynamically choses the most efficient method for delivery and we
continue to develop our routing techniques. We also now offer
dynamic time slots which improves choice for our customers whilst
also maintaining our in-house efficiencies. Our improved routing
capabilities have also allowed us to expand our Premium
Installation service.
We were delighted to announce the proposed acquisition of Mobile
Phones Direct Limited ("MPD") earlier this month which, following
shareholder and regulatory approval, will make AO the UK's second
largest indirect mobile connector. The acquisition of MPD will
further develop our Customer strategic objective by extending our
mobile phone offering by introducing network contracts and sims and
giving customers access to the four UK mobile network operators,
EE, O2, Three and Vodafone. The addition of MPD diversifies our
range of online electricals and thereby increases our addressable
market size. Further details including the background to and
benefits of the acquisition are set out on the circular posted to
shareholders on 9 November 2018.
Competencies (UK)
This objective not only includes the categories we offer as an
electrical retailer but also how we can leverage our competencies
into new opportunities and expand into our supply chain.
Despite the tough market back-drop, we have at least maintained
market share in our core UK MDA category with share taken in our
newer categories in the UK and in all categories and territories in
Europe. We are particularly pleased with our performance in our
newer categories A/V and SDA which have driven sales growth during
the reporting period albeit with an expected dilutive effect on
gross margin percentage. The growth in these categories illustrates
that customers now recognise AO as a multi-category retailer and
provides us with a significant growth opportunity as we increase
our addressable market size.
Our success in delivering the difficult white goods category via
our two-man delivery model has been based on our core skills,
infrastructure and culture. Leveraging this expertise, we are
trialling furniture delivery on behalf of third party retailers
using our green van fleet.
Trade customers have been buying from the ao.com website for
some time, including schools, offices, large landlords and house
builders. Our newly formalised AO B2B division is focused on
delivering a better way for businesses to buy appliances online.
During the period, it has grown our customer and client base across
multiple industries. We have agreed in principle a trial with a
major home builder and have won preferred supplier status for a
number of large organisations.
During the period, we have continued to develop our recycling
capability, confirming our commitment to building a second fridge
recycling facility in the South East of England, anticipated to
open in the year ending 2020. Once built, the capacity of both
plants will mean that AO has the ability to process around 40% of
all the fridges collected in the UK. We also plan to build a
plastics refinement facility, which will give us the capability to
sort plastics from our two fridge plants, making it easier for this
plastic to be re-used and creating an additional sustainable
revenue stream.
Countries
We have continued to drive our European operations in a
controlled manner. In the second quarter we were required to make
some changes to our driver operating model in Germany which limited
our delivery capacities over the last few months and which we are
still working through but we do not anticipate these changes to
have a material long-term effect (for further details see the
revenue section in the financial review).
This meant that trading in the second quarter was less than the
growth rates in recent periods but we expect these to return to
targeted levels. Notwithstanding this, we are pleased with the
significant growth we are seeing overall and have continued to make
improvements across our Europe businesses with NPS scores at c.80
throughout the period.
We have added new outbases in Stuttgart and Leipzig to our
logistics infrastructure and look forward to opening a further in
Dortmund before the end of the financial year. Premium
installations have, since the period end, been launched in the
Netherlands and in Germany and sales through the AO branded shop on
Amazon.de and through PAYBACK (a marketing platform which allows
customers to collect points from partners and exchange these for
vouchers to spend at AO.de) are growing well.
In line with our strategy there has been little traditional
marketing activity with sales driven by a combination of further
exposure of our brand on marketplaces, digital marketing, and
repeat purchases.
Brand
In July, we launched our new brand campaign "Delivering
Tomorrow". Created following a significant amount of research into
the factors that are important to customers when shopping the
electricals category, our aim was to find a compelling way to tell
AO's unique story, to build awareness and consideration of the AO
brand as well as our verticals. Early results are encouraging; the
creative has been well received and we have experienced increases
in brand awareness metrics which we hope in the long-term will
drive additional sales.
FINANCIAL REVIEW
Revenue
For the 6 months ended 30 September 2018 total Group revenue
increased by 9.9% to GBP404.2m (2017: GBP368.0m).
Year ended (GBPm) 30 September 2018 30 September 2017 31 March 2018
----------------------------- --------------------- --------------------- --------------------
UK Europe Total UK Europe Total UK Europe Total
----------------------------- ------ ------ ----- ------ ------ ----- ----- ------ -----
AO website sales 294.3 69.2 363.5 282.5 51.1 333.6 606.6 115.6 722.3
Third-party website sales(1) 25.8 0.1 25.9 21.3 0.1 21.4 46.5 0.2 46.7
Other sales(2) 14.7 0.1 14.8 13.0 0.0 13.0 27.7 0.1 27.8
----------------------------- ------ ------ ----- ------ ------ ----- ----- ------ -----
Total revenue 334.8 69.4 404.2 316.8 51.2 368.0 680.8 115.9 796.8
----------------------------- ------ ------ ----- ------ ------ ----- ----- ------ -----
In the UK, revenue growth was driven by sales from our newer
Categories and traffic growth has come from multiple channels
including AO branded shops in eBay and Amazon.
Sales from our German website, AO.de, and our Netherlands
website, AO.nl, were GBP69.2m (2017: GBP51.1m). The growth has been
driven by further exposure to market places and digital marketing
as well as customer recommendations and repeat purchases, with
little investment in traditional marketing, in line with our
strategy. Growth rates were muted for a period during the second
quarter whilst we worked through the German driver operational
changes to comply with legislation. This involved implementing
changes to our driver shift patterns by extending maximum driver
working times to span a five day period rather than the existing
four day model. The change initially gave us some capacity
constraints, thereby impacting revenue and increasing our cost to
deliver. We continue to work through the impact of these changes
but do not expect them to have a material long-term effect and we
continue to expect to achieve a break-even positive run rate in
FY21.(3)
Across the Group AO branded website sales accounted for 89.9% of
total Group revenue (2017: 90.7%) reflecting an increased focus on
ancillary competencies.
"AO website sales" and, for the UK, "Third-party website sales"
includes revenue earned from the sale of physical products and also
ancillary services such as delivery, the installation of products,
unpack, inspect, together with commission earned from the promotion
of Domestic and General's product protection plans and, in the UK,
customer finance. Revenue from such ancillary service sales in the
period achieved growth materially in line with product sales
representing 7.6% of total sales at GBP30.9m (2017: 7.9%
GBP29.0m).
(1) Third-party website sales includes sales through our Boots
and Next "white -label" sites and also product replacement sales to
certain insurance companies or claims-handling agents.
(2) Other sales includes third party logistics and recycling
services.
(3) By "run rate" we mean achieving a positive Adjusted EBITDA
for the Europe segment in at least one month of the financial year
ending 31 March 2021, as we set out in our Capital Markets Day in
February 2017).
Gross margin
30 September 2018 30 September 2017 Better/(worse)
-------------------- --------------------- --------------------- -----------------------------
6 months ended
(GBPm) (1) UK Europe Total UK Europe Total UK Europe Total
-------------------- ------ ------ ----- ------ ------ ----- --------- ------- ---------
Gross profit/(loss) 70.8 0.3 71.1 70.5 (2.2) 68.3 0.5% 114.0% 4.2%
-------------------- ------ ------ ----- ------ ------ ----- --------- ------- ---------
Gross margin 21.2% 0.4% 17.6% 22.2% (4.2%) 18.6% (1.1)ppts 4.7ppts (1.0)ppts
-------------------- ------ ------ ----- ------ ------ ----- --------- ------- ---------
(1) Certain financial data have been rounded. As a result of
this rounding, the totals of data presented in this document may
vary slightly from the actual arithmetic totals of such data.
Gross profit for the Group grew by 4.2% to GBP71.1m (2017:
GBP68.3m) with gross margin percentage decreasing by 1.0ppts to
17.6% for the reporting period (2017: 18.6%).
In the UK gross margin percentage decreased to 21.2% (2017:
22.2%) due to a higher proportion of sales from our newer
categories which have a dilutive gross margin percentage
impact.
In Europe, we are hugely encouraged to report a positive gross
profit of GBP0.3m (and a margin of 0.4%) (2017: GBP2.2m loss and a
margin of -4.2%) despite the challenging MDA market and changes to
our logistics model in Germany. This has been driven by a
combination of leveraging our logistics costs and an improvement in
product margin.
Selling, General & Administrative Expenses ("SG&A")
30 September 2018 30 September 2017 Better/(worse) %
--------------- --------------------- --------------------- ------------------------------
6 months ended UK Europe Total UK Europe Total UK Europe Total
(GBPm) (1)
--------------- ------ ------ ----- ------ ------ ----- --------- ------- ---------
Advertising
and marketing 12.4 3.2 15.6 17.4 2.4 19.8 28.7% (34.0)% 21.1%
--------------- ------ ------ ----- ------ ------ ----- --------- ------- ---------
% of revenue 3.7% 4.6% 3.9% 5.5% 4.7% 5.4% 1.8ppts 0.1ppts 1.5ppts
--------------- ------ ------ ----- ------ ------ ----- --------- ------- ---------
Warehousing 16.0 2.4 18.4 15.1 2.1 17.2 (5.4)% (17.2)% (6.9)%
--------------- ------ ------ ----- ------ ------ ----- --------- ------- ---------
% of revenue 4.8% 3.5% 4.6% 4.8% 4.1% 4.7% 0.0ppts 0.6ppts 0.1ppts
--------------- ------ ------ ----- ------ ------ ----- --------- ------- ---------
Other admin 39.1 7.7 46.8 34.1 8.0 42.1 (14.5)% 3.2% (11.0)%
--------------- ------ ------ ----- ------ ------ ----- --------- ------- ---------
% of revenue 11.6% 11.2% 11.6% 10.8% 15.7% 11.4% (0.9)ppts 4.6ppts (0.1)ppts
--------------- ------ ------ ----- ------ ------ ----- --------- ------- ---------
Adjustments(2) 2.9 - 2.9 2.0 - 2.0 (41.0)% n/a (41.0)%
--------------- ------ ------ ----- ------ ------ ----- --------- ------- ---------
% of revenue 0.9% - 0.9% 0.6% - 0.6% (0.2)ppts n/a (0.2)ppts
--------------- ------ ------ ----- ------ ------ ----- --------- ------- ---------
Administrative
expenses 70.2 13.4 83.6 68.6 12.5 81.1 (2.3)% (6.9)% (3.0)%
--------------- ------ ------ ----- ------ ------ ----- --------- ------- ---------
% of revenue 21.0% 19.3% 20.7% 21.7% 24.5% 22.0% 0.7ppts 5.2ppts 1.4ppts
--------------- ------ ------ ----- ------ ------ ----- --------- ------- ---------
(1) Certain financial data have been rounded. As a result of
this rounding, the totals of data presented in this document may
vary slightly from the actual arithmetic totals of such data.
(2) Adjustments is defined by the Group as (i) set-up costs
relating to overseas expansion namely strategic post go-live costs
incurred in connection with our European expansion strategy of
GBPnil (2017: GBP0.1m), (ii) share-based payment charges of GBP1.4m
(2017: GBP1.9m) attributable to the exceptional LTIP awards which
the Board considers one-off in nature, and (iii) exceptional
professional fees relating to the acquisition of Mobile Phones
Direct Limited of GBP1.4m (2017: GBPnil)
Total SG&A costs across the Group as a percentage of revenue
was slightly down year on year decreasing from 22.0% to 20.7%.
In the UK, advertising and marketing costs reduced by 1.8ppts
with the first half of the previous year impacted by the
sponsorship of Britain's Got Talent. The first half of the current
year has reduced to more normal levels as expected although it has
been impacted by the costs relating to the launch of the new brand
creative "Delivering Tomorrow" in the second quarter. Expectations
are that expenditure will reduce in the second half of our
financial year. Warehousing costs have remained flat at 4.8% of
revenue with investment in a new outbase at Bridgend during the
comparable period in the prior year. Other admin costs as a
percentage of revenue have increased by 0.9ppts as we strengthen
our teams to support future growth in our competencies and have
seen increases in pension costs and wage inflation.
In Europe, advertising and marketing costs were relatively flat
as a percentage of revenue with minimal traditional marketing
expenditure. Warehousing as a percentage of revenue reduced
slightly as we continue to build scale. Other admin costs reduced
by 4.6ppts on the prior year as we continue to see the benefit from
the leveraging of scale in both territories.
Operating loss and Adjusted EBITDA
Our operating loss for the period was GBP11.7m, with losses
decreasing by GBP0.3m from GBP12.0m in the prior period including
the GBP1.4m of MPD acquisition costs recognised in the period
However, when reviewing profitability, the Board of Directors
use an adjusted measure of EBITDA in order to give a meaningful
year on year comparison and it is a performance criteria for the
purposes of both the Executive management's annual bonus and LTIP
awards and, more recently, the single incentive award. Whilst we
recognise that the measure is an alternative (non Generally
Accepted Account Practice ("non-GAAP")) performance measure which
is also not defined within IFRS, this measure is important and
should be considered alongside the IFRS measures.
Group Adjusted EBITDA losses were GBP5.4m (2017: GBP6.3m) after
allowing for GBP12.3m of Europe Adjusted EBITDA losses (2017:
GBP13.7m loss).
UK Adjusted EBITDA for the 6 months to 30 September 2018 was
GBP6.9m (2017: GBP7.4m) representing a decrease of 7.0% against the
prior year. The decrease is primarily due to a reduction in gross
margin percentage predominantly driven by category mix.
The table below reconciles operating profit to Adjusted
EBITDA:
6 months ended 30 September 2018 30 September Better/(Worse)
(1) 2017
(GBPm) UK Europe Total UK Europe Total UK Europe Total
------------------------- ---- ------- ------ ----- -------- ------ --------- ------- -------
Operating profit/(loss) 1.1 (12.8) (11.7) 2.5 (14.5) (12.0) (56.0%) 11.4% 2.0%
------------------------- ---- ------- ------ ----- -------- ------ --------- ------- -------
Add adjustments:
Share-based payment
charge attributable
to exceptional
LTIP award(2) 1.4 - 1.4 1.9 - 1.9 23.5% n/a 23.5%
Europe set-up costs(3) - - - 0.1 - 0.1 n/a n/a n/a
Exceptional professional
fees4 1.4 - 1.4 - - - n/a n/a n/a
------------------------- ---- ------- ------ ----- -------- ------ --------- ------- -------
Adjusted operating
profit/(loss) 3.9 (12.8) (8.9) 4.5 (14.5) (10.0) (12.8%) 11.4% 11.3%
------------------------- ---- ------- ------ ----- -------- ------ --------- ------- -------
Add: Depreciation
and amortisation 2.9 0.6 3.5 2.9 0.7 3.6 2.3% 18.6% 4.0%
------------------------- ---- ------- ------ ----- -------- ------ --------- ------- -------
Less: Profit on - - - - - - n/a - n/a
disposal
------------------------- ---- ------- ------ ----- -------- ------ --------- ------- -------
Adjusted EBITDA 6.9 (12.3) (5.4) 7.4 (13.7) (6.3) (7.0%) 10.5% 14.7%
------------------------- ---- ------- ------ ----- -------- ------ --------- ------- -------
Adjusted EBITDA
as
% of revenue 2.1% (17.7%) (1.3%) 2.3% (26.8%) (1.7%) (0.3)ppts 9.1ppts 0.4ppts
------------------------- ---- ------- ------ ----- -------- ------ --------- ------- -------
(1) Certain financial data have been rounded. As a result of
this rounding, the totals of data presented in this document may
vary slightly from the actual arithmetic totals of such data.
(2) Certain LTIP awards of a significant magnitude were made to
a number of senior staff under the 2016 Employee Reward Plan in
July 2016. The Board considers that the magnitude and timing of
these awards are one-off in nature and so add -back any charge
(3) Europe set-up costs are costs incurred in connection with
our European expansion strategy prior to the "go-live" of that
territory, namely the launch of AO.de and AO.nl and our continuing
research into other further countries.
4Exceptional professional costs were incurred in the period to
30 September 2018 of GBP1.4m relating to the proposed acquisition
of Mobile Phones Direct Limited.
The tax charge is recognised based on management's best estimate
of the weighted--average annual corporation tax rate expected for
the full financial year multiplied by the pre--tax income of the
interim reporting period. The Group's tax credit for the period is
GBP0.4m (2017: GBP0.9m) as a result of the expected effective tax
rate for the year of 4.21% (2017: 8.96%). The effective tax rate of
4.21% is lower than the UK corporation tax rate for the period of
19%; this is due to the utilisation of unrecognised brought forward
losses within AO Recycling Limited, share based payment charges,
non-qualifying depreciation and a non-taxable foreign exchange gain
arising on intercompany balances. The Group continues not to
recognise a deferred tax asset on the cumulative losses carried
forward of GBP5.3m (2017: GBP3.8m).
Retained loss and loss per share
Retained loss for the period was GBP10.1m (2017: GBP8.7m).
Basic loss per share was 2.19p (2017: 1.90p) and diluted
earnings per share was 2.18p (2017: 1.90p).
Basic loss per share is reconciled to adjusted basic loss per
share (after excluding the impact of foreign exchange differences)
of 2.52p loss (2017: 2.23p) as follows.
6 months ended 6 months ended
30 September 30 September
(GBPm) 2018 2017
------------------------------------------------------ --------------- ---------------
Loss
Loss attributable to owners of the parent
company (10.1) (8.7)
Foreign exchange gains on intra-group
loans (1.5) (1.5)
Adjusted earnings attributable to owners
of the parent company (11.6) (10.2)
------------------------------------------------------ --------------- ---------------
Number of shares
Basic and adjusted weighted average number
of ordinary shares 458,788,480 458,788,480
------------------------------------------------------ --------------- ---------------
Loss per share (in pence)
Basic loss per share (2.19) (1.90)
Adjusted basic loss per share (2.52) (2.23)
------------------------------------------------------ --------------- ---------------
The foreign exchange gain has arisen as a result of the
significant movement in the exchange rate between Sterling and the
Euro in the period and prior period. This has impacted the value of
intra-group loans held in GBP in the European entities giving rise
to the GBP1.5m (2017: GBP1.5m) gain referenced above.
Cash resources and cash flow
At 30 September 2018, the Group's net funds position was
GBP23.9m (2017: GBP56.7m), as net cash (i.e. cash less overdrafts)
decreased to GBP36.6m (September 2017: GBP72.3m, March 2018:
GBP52.9m). During the six months to September 2018, the Group had a
net cash outflow of GBP14.9m primarily as a result of the trading
losses incurred in Europe over the period and an outflow of working
capital. Total borrowings (comprising asset finance and borrowings)
decreased to GBP12.7m from GBP14.6m at 31 March 2018, due to
repayments under finance lease and borrowing obligations. Surplus
cash balances are held with UK-based banks, in line with the Group
Treasury Policy.
As previously reported, the Group has put in place a revolving
credit facility ("RCF") of GBP60m with Lloyds Bank, Barclays Bank
plc and HSBC Bank plc in order to fund UK working capital movements
in future. The RCF is for UK general corporate purposes. At 30
September 2018 the amount available against the GBP60m facility was
GBP57.7m (2017: GBP28.6m of GBP30m) with the balance drawn being
against letters of credit and short term guarantees. Since the
period end we have also been granted an additional Term Loan
Facility of GBP24million which will be used to fund, and which is
conditional upon completion of, the MPD acquisition.
As at 30 September 2018, the Group continues to have significant
liquidity headroom of GBP94.3million.
Working Capital
30 September 2018 30 September 2017
---------------------------- ------------------------ ----------------------------
6 months ended (1)
(GBPm) UK Europe Total UK Europe Total
---------------------------- ------- ------ ------- ------- ------ -------
Inventories 40.9 12.6 53.5 42.7 13.2 55.9
---------------------------- ------- ------ ------- ------- ------ -------
As % of Cost of Goods
Sold 15.5% 18.3% 16.1% 17.3% 24.9% 18.7%
---------------------------- ------- ------ ------- ------- ------ -------
Trade and other receivables 101.2 14.4 115.6 86.0 8.1 94.1
---------------------------- ------- ------ ------- ------- ------ -------
As a % of revenue 30.2% 20.8% 28.6% 27.2% 15.8% 25.6%
---------------------------- ------- ------ ------- ------- ------ -------
Trade and other payables (147.5) (15.1) (162.6) (152.0) (15.8) (167.8)
---------------------------- ------- ------ ------- ------- ------ -------
As a % of Cost of Goods
Sold 55.9% 21.9% 48.8% 61.7% 29.7% 56.0%
---------------------------- ------- ------ ------- ------- ------ -------
Net working capital (5.4) 11.9 6.5 (23.3) 5.5 (17.8)
---------------------------- ------- ------ ------- ------- ------ -------
Change in net working
capital 17.9 6.4 24.3 (10.9) 3.3 (7.6)
---------------------------- ------- ------ ------- ------- ------ -------
(1) Certain financial data have been rounded. As a result of
this rounding, the totals of data presented in this document may
vary slightly from the actual arithmetic totals of such data.
At 30 September 2018, the Group had net current liabilities of
GBP14.5m (2017: GBP5.1m assets) principally due to the cash outflow
from the operating losses in the period and repayment of
borrowings. As at 30 September 2018 UK inventories were GBP40.9m
(2017: GBP42.7m) and UK average stock days remained at 35 days
(2017: 35 days). Our stock days may increase in the short to medium
term as we look to mitigate any friction in the supply chain that
Brexit may yield to ensure availability to customers.
UK trade and other receivables (both non-current and current)
were GBP101.2m as at 30 September 2018 (2017: GBP86.0m) mainly
reflecting an increase in accrued income in respect of commissions
due on product protection plans due to the growth trajectory of the
retail business and also an increase in trade receivables. UK trade
and other payables at GBP147.5m have reduced in line with the prior
period (2017: GBP152.0m), reflecting a tightening of credit.
Net working capital increased from GBP5.5m to GBP11.9m in Europe
reflecting the mix of terms of payment providers and a build of
rebates as volume increases.
Capital Expenditure
Total capital expenditure for the six month period was GBP1.2m
(2017: GBP2.2m), largely attributable to the continued investment
in our recycling facility.
Steve Caunce Mark Higgins
CEO CFO
CONDENSED CONSOLIDATED INCOME STATEMENT
For the 6 months ended 30 September
2018
6 months ended 6 months ended Year ended
30 September 30 September 31 March
2018 2017 2018
Note GBPm GBPm GBPm
Revenue 2 404.2 368.0 796.8
Cost of sales (333.1) (299.7) (655.0)
---------------------------------------- ---- ---------------- ---------------- --------------
Gross profit 71.1 68.3 141.8
Administrative expenses (83.6) (81.1) (159.8)
Other operating income 0.8 0.8 1.8
---------------------------------------- ---- ---------------- ---------------- --------------
Operating loss (11.7) (12.0) (16.2)
Finance income 4 2.1 2.9 4.8
Finance costs 5 (0.7) (0.5) (2.1)
---------------------------------------- ---- ---------------- ---------------- --------------
Loss before tax (10.3) (9.6) (13.5)
Taxation credit 0.4 0.9 0.2
---------------------------------------- ---- ---------------- ---------------- --------------
Loss for the period (9.9) (8.7) (13.3)
---------------------------------------- ---- ---------------- ---------------- --------------
Loss for the period
attributable to:
Owners of the parent company (10.1) (8.7) (13.4)
Non-controlling interest 0.2 - 0.1
---------------------------------------- ---- ---------------- ---------------- ------------
(9.9) (8.7) (13.3)
---------------------------------------- ---- ---------------- ---------------- ------------
Loss per share (pence)
Basic loss per share 8 (2.19) (1.90) (2.93)
Diluted loss per share 8 (2.18) (1.90) (2.92)
---------------------------------------- ---- ---------------- ---------------- ------------
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 6 months ended 30 September 2018
6 months ended 6 months ended Year ended
30 September 30 September 31 March
2018 2017 2018
GBPm GBPm GBPm
Loss for the period (9.9) (8.7) (13.3)
------------------------------------------- ---------------- ---------------- ------------
Items that may be subsequently recycled
to Income Statement
Exchange differences on translation
of foreign operations (1.5) (1.4) (1.0)
------------------------------------------- ---------------- ---------------- ------------
Total comprehensive loss for the period (11.4) (10.1) (14.3)
------------------------------------------- ---------------- ---------------- ------------
Loss for the period attributable to:
Owners of the parent company (11.6) (10.1) (14.4)
Non-controlling interest 0.2 - 0.1
------------------------------------------- ---------------- ---------------- ------------
Total comprehensive loss for the period (11.4) (10.1) (14.3)
------------------------------------------- ---------------- ---------------- ------------
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 September 2018
At At At
30 September 30 September 31 March
2018 2017 2018
Note GBPm GBPm GBPm
---------------------------------- ---- ------------- ------------- ---------
Non-current assets
Goodwill 13.5 13.5 13.5
Other intangible assets 0.9 1.4 1.2
Property, plant and equipment 26.3 28.6 28.0
Trade and other receivables 6 52.8 45.2 47.9
Derivative financial asset 11 1.9 1.3 2.2
Deferred tax asset 2.2 2.5 1.7
------------------------------------ ---- ------------- ------------- ---------
97.6 92.5 94.5
---------------------------------- ---- ------------- ------------- ---------
Current assets
Inventories 53.5 55.9 53.2
Trade and other receivables 6 62.8 48.9 54.8
Derivative financial asset 11 0.3 - 0.2
Corporation tax receivable - - 0.2
Cash and cash equivalents 9 41.1 72.3 56.0
157.7 177.1 164.4
---------------------------------- ---- ------------- ------------- ---------
Total assets 255.3 269.6 258.9
------------------------------------ ---- ------------- ------------- ---------
Current liabilities
Bank overdraft (4.5) - (3.1)
Trade and other payables 7 (162.6) (167.8) (156.0)
Borrowings 9 (4.0) (4.0) (4.2)
Derivative financial liability 11 (0.9) - (0.4)
Provisions (0.1) (0.2) -
Corporation tax (0.1) - -
(172.2) (172.0) (163.7)
---------------------------------- ---- ------------- ------------- ---------
Net current (liabilities)/current
assets (14.5) 5.1 0.7
------------------------------------ ---- ------------- ------------- ---------
Non-current liabilities
Borrowings 9 (8.7) (11.6) (10.4)
Derivative financial liability 11 (2.6) (3.6) (3.4)
Provisions (1.6) (1.5) (1.8)
------------------------------------ ---- ------------- ------------- ---------
Total liabilities (185.1) (188.7) (179.3)
------------------------------------ ---- ------------- ------------- ---------
Net assets 70.2 80.9 79.6
------------------------------------ ---- ------------- ------------- ---------
Equity attributable to owners
of the parent
Share capital 1.1 1.2 1.1
Share premium account 103.7 103.7 103.7
Other reserves 5.5 2.0 5.3
Retained losses (38.9) (24.3) (28.9)
------------------------------------ ---- ------------- ------------- ---------
Total 71.4 82.6 81.2
------------------------------------ ---- ------------- ------------- ---------
Non-controlling interest (1.2) (1.7) (1.6)
------------------------------------ ---- ------------- ------------- ---------
Total equity 70.2 80.9 79.6
------------------------------------ ---- ------------- ------------- ---------
CONDENSED CONSOLIDATED STATEMENT OF CHANGE IN EQUITY
At 30 September 2018
Other reserves
---------------------------------------------
Share Share Merger Capital Share-based Translation Other Retained Total Non-controlling Total
capital premium reserve redemption payment reserve reserve losses interest
account reserve reserve
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- -----
Balance at 1 April
2018 1.1 103.7 4.4 0.5 9.1 (6.6) (2.1) (28.9) 81.2 (1.6) 79.6
------------------ ------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- -----
(Loss)/profit for
the period - - - - - - - (10.1) (10.1) 0.2 (9.9)
Acquisition of
minority
interest - - - - - - (0.4) - (0.4) 0.3 (0.1)
Issue of share - - - - - - - - - - -
capital
(net of expenses)
Foreign currency
gains arising on
consolidation - - - - - (1.5) - - (1.5) - (1.5)
Share-based
payments
charge net of tax - - - - 2.1 - - - 2.1 - 2.1
-------- ------
Balance at 30
September
2018 1.1 103.7 4.4 0.5 11.2 (8.1) (2.5) (39.0) 71.4 (1.2) 70.2
------------------ ------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- -----
Other reserves
---------------------------------------------
Share Share Merger Capital Share-based Translation Other Retained Total Non-controlling Total
capital premium reserve redemption payment reserve reserve losses interest
account reserve reserve
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ------- ------- ------- ---------- ----------- ----------- ------- -------- ----- --------------- -----
Balance at 1 April
2017 1.1 55.7 4.4 0.5 3.8 (5.6) (2.1) (15.6) 42.2 (1.7) 40.5
------------------ ------- ------- ------- ---------- ----------- ----------- ------- -------- ----- --------------- -----
Loss for the
period - - - - - - - (8.7) (8.7) - (8.7)
Issue of share
capital
(net of expenses) 0.1 48.0 - - - - - - 48.1 - 48.1
Foreign currency
gains arising on
consolidation - - - - - (1.5) - - (1.5) - (1.5)
Share-based
payments
charge net of tax - - - - 2.5 - - - 2.5 - 2.5
------------------ ------- ------- ------- ---------- ----------- ----------- ------- -------- ----- --------------- -----
Balance at 30
September
2017 1.2 103.7 4.4 0.5 6.3 (7.1) (2.1) (24.3) 82.6 (1.7) 80.9
------------------ ------- ------- ------- ---------- ----------- ----------- ------- -------- ----- --------------- -----
Other reserves
---------------------------------------------
Share Capital Share-based
Share premium Merger redemption payment Translation Other Retained Non-controlling
capital account reserve reserve reserve reserve reserve losses Total interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- ------
Balance at 1
April
2017 1.1 55.7 4.4 0.5 3.8 (5.6) (2.1) (15.6) 42.2 (1.7) 40.5
-------------- ------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- ------
(Loss)/profit
for
the year - - - - - - - (13.4) (13.4) 0.1 (13.3)
Share-based
payments
charge net of
tax - - - - 5.4 - - - 5.4 - 5.4
Foreign
currency
gains arising
on
consolidation - - - - - (1.0) - - (1.0) - (1.0)
Issue of
shares net
of expenses - 48.0 - - - - - - 48.0 - 48.0
Movement
between
reserves - - - - (0.1) - - 0.1 - - -
Balance at 31
March
2018 1.1 103.7 4.4 0.5 9.1 (6.6) (2.1) (28.9) 81.2 (1.6) 79.6
-------------- ------- ------- ------- ---------- ----------- ----------- ------- -------- ------ --------------- ------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the 6 months ended 30 September 2018
6 months ended 6 months ended Year ended
30 September 30 September 31 March
2018 2017 2018
GBPm GBPm GBPm
------------------------------------------------------- -------------- -------------- ----------
Cash flows from operating activities
Loss for the period (9.9) (8.7) (13.3)
Adjustments for:
Depreciation and amortisation 3.5 3.6 7.6
Finance income (2.1) (2.9) (4.8)
Finance costs 0.7 0.5 2.1
Profit on disposal of property, plant
and equipment - - (0.1)
Taxation credit (0.4) (0.9) (0.2)
Share-based payment charge 2.1 2.5 5.5
Increase in provisions (0.1) 0.1 0.3
-------------------------------------------------------- -------------- -------------- ----------
Net operating cash flows before movement
in working capital (6.2) (5.8) (2.9)
-------------------------------------------------------- -------------- -------------- ----------
Increase in inventories (0.2) (11.0) (8.4)
Increase in trade and other receivables (15.3) (12.9) (21.5)
Increase in trade and other payables 9.5 28.7 17.1
Net movement in working capital (6.0) 4.8 (12.8)
Taxation recovered 0.2 0.3 0.3
-------------------------------------------------------- -------------- -------------- ----------
Net cash (used in)/ from operating
activities (12.0) (0.7) (15.4)
-------------------------------------------------------- -------------- -------------- ----------
Cash flows from investing activities
Acquisition of minority interest (0.4) - -
Proceeds from sale of property, plant
and equipment - - 0.1
Acquisition of property, plant and
equipment (1.2) (2.0) (4.8)
Acquisition of intangible assets - (0.1) (0.5)
-------------------------------------------------------- -------------- -------------- ----------
Net cash used in investing activities (1.6) (2.1) (5.2)
-------------------------------------------------------- -------------- -------------- ----------
Cash flows from financing activities
Movement in bank overdraft 1.4 - 3.1
Interest paid (0.5) (0.5) (1.0)
New borrowings - - 1.1
Repayment of borrowings (0.6) (0.4) (0.9)
Repayment of finance lease liabilities (1.6) (1.6) (3.2)
Proceeds from share issue - 50.0 50.0
Costs relating to share issue - (1.9) (1.9)
Net cash (used in) / from financing
activities (1.3) 45.6 47.2
-------------------------------------------------------- -------------- -------------- ----------
Net (decrease)/ increase in cash (14.9) 42.8 26.6
Cash and cash equivalents at beginning
of period 56.0 29.4 29.4
-------------------------------------------------------- -------------- -------------- ----------
Exchange gains on cash & cash equivalents - 0.1 -
-------------------------------------------------------- -------------- -------------- ----------
Cash and cash equivalents at end of
period 41.1 72.3 56.0
-------------------------------------------------------- -------------- -------------- ----------
NOTES TO THE FINANCIAL INFORMATION
1. Basis of preparation
The interim financial information was approved by the Board on
20 November 2018. The financial information for the 6 months ended
30 September 2018 has been reviewed by the Group's external
auditor. Their report is included within this announcement. The
financial information for the year ended 31 March 2018 is based on
information in the audited financial statements for that period
which are available online at
http://ao.com/corporate/investor-centre.
The comparative figures for the year ended 31 March 2018 are an
abridged version of the Group's full financial statements and,
together with other financial information contained in these
interim results, do not constitute statutory financial statements
of the Group as defined in section 434 of the Companies Act 2006. A
copy of the statutory accounts for the year ended 31 March 2018 has
been delivered to the Registrar of Companies. The auditors have
reported on those accounts: their report was unqualified, did not
draw attention to any matters by way of emphasis and did not
contain a statement under s498(2) or (3) of the Companies Act
2006.
Basis of preparation and accounting policies
The annual financial statements of AO World plc are prepared in
accordance with IFRSs as adopted by the European Union. The
unaudited condensed consolidated set of financial statements
included in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 'Interim
Financial Reporting', as adopted by the European Union. The same
accounting policies, presentation and methods of computation are
followed in the condensed set of interim financial information as
applied in the Group's latest annual audited financial
statements.
Standards issued but not yet effective
As of the date of authorisation of these condensed consolidated
interim financial statements, the following standards were in issue
but not yet effective:
IFRS 16
IFRS 16 'Leases' will be applicable to the Group for the
financial year ending 31 March 2020 and will significantly affect
the presentation of the Group financial statements, with the Group
recognising a right-of use asset and a lease liability for all
leases currently accounted for as operating leases, with the
exception of leases for short periods (less than 12 months) and
those for items of low value. IFRS 16 is also expected to have a
material impact on key components within the Consolidated Income
Statement as operating lease rental charges will be replaced with
depreciation and finance costs.
IFRS 16 allows for two different transition approaches, fully
retrospective and modified retrospective. Both approaches will
impact the income statement, balance sheet and disclosure when
adopted including the opening balance sheet, although the amounts
will differ depending on the approach taken. There will be no
impact on cash flows, although the presentation of the Cash Flow
will change significantly, with an increase in cash flows from
operating activities being offset by an increase in cash flows from
financing activities.
The Group is in the process of gathering the required lease
information and establishing the relevant processes and accounting
policies.
Given the complexities of IFRS 16 and the material sensitivity
to key assumptions, such as discount rates, it is not yet
practicable to fully quantify the effect of IFRS 16 on the
financial statements of the Group.
Going concern
The Directors have, at the time of approving the interim
financial information, a reasonable expectation that the Company
and the Group have adequate resources to continue in operational
existence for a period not less than 12 months. This takes into
consideration potential impacts of Brexit (including a reduction in
sales growth, a reduction in margin and effects on stock levels)
together with a reduction in trade payables (due to further
tightening of credit insurers), the available cash resources, the
forecasted cash flow of the Group and the availability of a GBP60m
Revolving Credit Facility and, assuming the acquisition of MPD
completes, the integration of MPD and the GBP24m term loan
facility. Thus they continue to adopt the going concern basis of
accounting in preparing the interim financial information.
Significant accounting policies
As required by the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority, the condensed set of financial
statements has been prepared by the Group by applying the same
accounting policies and presentation that were applied in the
preparation of the Group's published consolidated financial
statements as at 31 March 2018.
IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from
Contracts with Customers' have been adopted by the Group in the
period with no significant impact on the consolidated results or
financial position of the Group.
Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies the
Directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other
factors that are considered to be relevant and are reviewed on an
on-going basis. Actual results could differ from these estimates
and any subsequent changes are accounted for with an effect on
income at the time such updated information becomes available.
The most critical accounting policies in determining the
financial condition and results of the Group are those requiring
the greatest degree of subjective or complex judgements. These
relate to the revenue recognition and recoverability of product
protection plans and commercial income as set out below.
Revenue recognition & recoverability of income from product
protection plans
Revenue recognised in respect of commissions receivable over the
lifetime of the plan for the sale of product protection plans is
recognised at fair value, when the Group obtains the right to
consideration as a result of performance of its contractual
obligations (acting as an agent for a third-party). Revenue in any
one year therefore represents the fair value of the commission due
on the plans sold, which management estimates reliably based upon a
number of assumptions including the length of the plans, the
commission rates payable and the historical rate of customer
attrition. Reliance on historical data assumes that current and
future experience will follow past trends. The Directors consider
that the quantity and quality of data available provides an
appropriate basis for making these estimates. Commission receivable
depends for certain transactions on customer behaviour after the
point of sale. Assumptions are therefore required, particularly in
relation to levels of customer default within the contract period,
expected levels of customer spend, and customer behaviour beyond
the initial contract period. Such assumptions are based on
extensive historical evidence, and provision is made for the risk
of potential changes in customer behaviour, but they are
nonetheless inherently uncertain. Changes in estimates recognised
as an increase or decrease to revenue may be made, where for
example more reliable information is available, and any such
changes are required to be recognised in the income statement. The
commission receivable balance at 30 September 2018 was GBP67.5m
(2017: GBP57.8m). The discount rate used to unwind the commission
receivable is 4.9% (2017: 4.3%).
Commercial income
Commercial income comes from two major sources: volume rebates
and strategic marketing investment funding.
Volume rebates are deducted from cost of sales in line with the
sale of the product to which the rebate is attributable.
Calculation of the volume rebate for the final month of the
financial year includes judgements for expected rebate values.
Volume rebates receivable at 30 September 2018 are GBP16.5m (2017:
GBP16.9m). At 31 October 2018 the balance outstanding was GBP2.5m
(2017: GBP6.8m).
Strategic marketing investment funding is recognised in revenue
and cost of sales. Where incremental third--party costs are
incurred as a result of marketing support, revenue is offset
against these costs. The remainder of the strategic marketing fund
is recognised in revenue as it represents part of the ordinary
activities of the business.
Calculation of the revenue recognised requires judgements to be
made which include forecasting expected total marketing funding and
third--party expected marketing spend. At 30 September 2018 GBP1.8m
remains as an outstanding receivable (2017: GBP1.2m). As at 30
September 2018 the Directors do not believe that there is a
material risk regarding the judgements made for the purposes of
calculating both volume rebates and the strategic marketing fund.
At 31 October 2018 the outstanding balance was GBP0.4m (2017:
GBP0.1m).
2. Revenue
The Group's revenue is derived from contracts with customers.
During the period, IFRS15 'Revenue from Contracts with Customers'
was adopted. This has had no impact on the recognition of revenue
in the financial statements.
As required by IFRS15, the Group has disaggregated its revenue,
and the table below shows the split of revenue between geographical
market (the Group's primary segment), the source of revenue and
major products
Primary geographical markets and source of revenue
(GBPm) 30 September 2018 30 September 2017 31 March 2018
-------------------------- --------------------- ------------------- ----------------------------
UK Europe Total UK Europe Total UK Europe Total
-------------------------- ------ ------ ----- -------- --------- ----- ----- ------- -----
AO website sales 294.3 69.2 363.5 282.5 51.1 333.6 606.6 115.6 722.3
Third-party website sales 25.8 0.1 25.9 21.3 0.1 21.4 46.5 0.2 46.6
Other sales* 14.7 0.1 14.8 13.0 0.0 13.0 27.7 0.1 27.8
-------------------------- ------ ------ ----- -------- --------- ----- ----- ------- -----
Total revenue 334.8 69.4 404.2 316.8 51.2 368.0 680.8 115.9 796.8
-------------------------- ------ ------ ----- -------- --------- ----- ----- ------- -----
*Other sales includes third party logistics and recycling
services.
Major product/services lines
(GBPm) 30 September 2018 30 September 2017 31 March 2018
------------------- ----------------------- ----------------------- -----------------------
UK Europe Total UK Europe Total UK Europe Total
Product revenue:
MDA 228.6 61.7 290.3 228.9 47.7 276.6 466.8 107.1 573.8
Newer categories 60.7 6.6 67.3 46.1 2.6 48.7 125.8 7.1 132.9
Services:
Service revenue 30.8 1.1 31.9 28.8 0.8 29.6 60.6 1.7 62.3
Third party
logistics 7.9 - 7.9 8.3 - 8.3 16.9 - 16.9
Recycling 6.8 - 6.8 4.8 - 4.8 10.8 - 10.8
Total revenue 334.8 69.4 404.2 316.8 51.2 368.0 680.8 115.9 796.8
------------------- ------ ------- ------ ------ ------- ------ ------ ------- ------
Service revenue relates to ancillary services including
delivery, connection and disconnections, product protection plan
commission and finance commission, all of which are related to the
initial sale of the product, together with strategic marketing
income.
All revenue is recognised at the point of sale as for all
revenue, the Group's performance obligations have been satisfied at
that time.
3. Segmental analysis
The Group has two reportable segments, online retailing of
domestic appliances to customers in the UK and online retailing of
domestic appliances to customers in Europe (excluding the UK).
Operating segments are determined by the internal reporting
regularly provided to the Group's Chief Operating Decision Maker.
The Chief Operating Decision Maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Executive Directors and they
have determined that the primary segmental reporting format of the
Group is geographical by customer location, based on the Group's
management and internal reporting structure.
Transactions between segments are undertaken on an arms-length
basis using appropriate transfer pricing policies.
The following is an analysis of the Group's revenue and results
by reportable segments.
(GBPm) 6 months ended 6 months ended Year ended
30 September 2018 30 September 2017 31 March 2018
-------------------------- ------------------------ ------------------------ -------------------------
UK Europe Total UK Europe Total UK Europe Total
-------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
AO website sales 294.3 69.2 363.5 282.5 51.1 333.6 606.6 115.7 722.3
Third-party website sales 25.8 0.1 25.9 21.3 0.1 21.4 46.5 0.2 46.7
Other sales 14.7 0.1 14.8 13.0 - 13.0 27.7 0.1 27.8
-------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
Total revenue 334.8 69.4 404.2 316.8 51.2 368.0 680.8 116.0 796.8
-------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
Cost of sales (264.0) (69.1) (333.1) (246.3) (53.4) (299.7) (536.2) (118.8) (655.0)
-------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
Gross profit/(loss) 70.8 0.3 71.1 70.5 (2.2) 68.3 144.6 (2.8) 141.8
-------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
Administrative expenses (70.2) (13.4) (83.6) (68.6) (12.5) (81.1) (134.3) (25.5) (159.8)
-------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
Other operating income 0.5 0.3 0.8 0.6 0.2 0.8 1.3 0.5 1.8
-------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
Operating profit/(loss) 1.1 (12.8) (11.7) 2.5 (14.5) (12.0) 11.6 (27.8) (16.2)
-------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
Finance income 0.8 1.3 2.1 1.6 1.3 2.9 4.0 0.8 4.8
-------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
Finance costs (0.7) - (0.7) (0.5) - (0.5) (2.0) (0.1) (2.1)
-------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
Profit/(loss) before tax 1.2 (11.5) (10.3) 3.6 (13.2) (9.6) 13.6 (27.1) (13.5)
-------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
Tax credit/(charge) 0.4 - 0.4 0.9 - 0.9 0.4 (0.2) 0.2
-------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
Profit/(loss) after tax 1.6 (11.5) (9.9) 4.5 (13.2) (8.7) 14.0 (27.3) (13.3)
-------------------------- ------- ------ ------- ------- ------ ------- ------- ------- -------
As set out on page 4, one of the Group's key performance
indicators is Adjusted EBITDA. When reviewing profitability, the
Directors use an adjusted measure of EBITDA in order to give a
meaningful year on year comparison and it is a performance criteria
for the purposes of the bonuses and certain LTIP awards.
Whilst we recognise that the measure is an alternative (Non
Generally Accepted Accounting Principle ("Non GAAP")) performance
measure which is not defined within IFRS, the measure is important
and should be considered alongside IFRS measures.
The table below sets out the reconciliation of operating profit
to Adjusted EBITDA:
Adjusted EBITDA: 30 September 2018 30 September 2017 31 March 2018
-------------------------------------------------- --------------------- --------------------- --------------------
Operating profit/(loss) 1.1 (12.8) (11.7) 2.5 (14.5) (12.0) 11.6 (27.8) (16.2)
Depreciation 2.6 0.6 3.2 2.3 0.6 2.9 4.9 1.7 6.6
Amortisation 0.3 - 0.3 0.6 0.1 0.7 0.9 0.1 1.0
Profit on disposal of non-current asset - - - - - - - (0.1) (0.1)
EBITDA 4.0 (12.3) (8.2) 5.4 (13.7) (8.3) 17.4 (26.1) (8.7)
-------------------------------------------------- ---- ------- ------ ----- ------ ------ ---- ------ ------
Share-based payment charge attributable to
exceptional LTIP awards 1.4 - 1.4 1.9 - 1.9 3.5 - 3.5
Europe set-up costs - - - 0.1 - 0.1 0.3 - 0.3
Executive restructuring costs - - - - - - 1.4 0.1 1.5
Exceptional professional fees 1.4 - 1.4 - - - - - -
-------------------------------------------------- ---- ------- ------ ----- ------ ------ ---- ------ ------
Adjusted EBITDA 6.9 (12.3) (5.4) 7.4 (13.7) (6.3) 22.6 (26.0) (3.4)
-------------------------------------------------- ---- ------- ------ ----- ------ ------ ---- ------ ------
4. Finance income
6 months ended 6 months Year ended
30 September ended 30 31 March
2018 September 2018
(GBPm) 2017
--------------------------------------- --------------- ----------- -----------
Foreign exchange gains on intra-group
loans 1.5 1.5 1.1
Movement in valuation of put
and call option - - 1.8
Unwind of discounting on long
term receivables 0.6 1.4 1.9
--------------------------------------- --------------- ----------- -----------
2.1 2.9 4.8
--------------------------------------- --------------- ----------- -----------
5. Finance costs
6 months ended 6 months Year ended
30 September ended 30 31 March
2018 September 2018
(GBPm) 2017
---------------------------------- --------------- ----------- -----------
Interest on obligations under
finance leases 0.2 0.2 0.5
Other finance costs 0.3 0.1 0.1
Movement in valuation of put
and call option - - 1.1
Unwind of discount on put option 0.2 0.2 -
Finance costs in relation to
debt facility - - 0.4
---------------------------------- --------------- ----------- -----------
0.7 0.5 2.1
---------------------------------- --------------- ----------- -----------
6. Trade and other receivables
6 months
6 months ended ended 30 Year ended
30 September September 31 March
(GBPm) 2018 2017 2018
------------------------------ --------------- ----------- -----------
Trade receivables 12.4 7.7 8.7
Other receivables:
- Accrued income 67.6 58.1 61.9
- Prepayments and other 35.6 28.3 32.2
------------------------------ --------------- ----------- -----------
115.6 94.1 102.8
------------------------------ --------------- ----------- -----------
The trade and other receivables are classified as:
6 months ended 6 months ended Year ended
30 September 30 September 31 March
(GBPm) 2018 2017 2018
------------------------------ --------------- --------------- -----------
Non-current assets - Accrued
income 52.8 45.2 47.9
Current assets 62.8 48.9 54.8
------------------------------ --------------- --------------- -----------
115.6 94.1 102.7
------------------------------ --------------- --------------- -----------
Accrued income
A reconciliation of opening and closing balances for accrued
income can be found in the table below:
6 months ended 6 months ended Year ended
30 September 30 September 31 March
2018 2017 2018
------------------------------------- -------------- -------------- ----------
Balance brought forward 61.9 51.4 51.4
Commission earned, cash received and
revisions to estimates 5.2 5.5 8.8
Unwind of discounting on long term
receivables 0.6 1.4 1.9
Other accrued income (0.1) (0.2) (0.2)
------------------------------------- -------------- -------------- ----------
Balance carried forward 67.6 58.1 61.9
------------------------------------- -------------- -------------- ----------
Accrued income principally represents the expected future
commission payments in respect of product protection plans. The
Group recognises revenue in relation to these plans when it obtains
the right to consideration as a result of performance of its
contractual obligations (acting as an agent for a 3(rd) party).
Revenue in any one year therefore represents the fair value of the
commission due on the plans sold. To calculate the fair value of
the revenue and hence the accrued income the Group uses historical
empirical data accumulated over 11 years based on over 1.4m plans
sold to date of which 0.6m plans are active.
The fair value calculation takes into consideration the
following level 3 unobservable data:
- length of individual plans with a range of c6-16 years included in the calculation;
- historical rate of customer attrition; and
- contractually agreed margins based on actual historical margins earned.
Given the wide range of attrition rates and margins applicable
to the plans, the data relating to these areas has not been
quantified above.
Expected future commission payments in respect of product
protection plans are discounted at 4.9% (2017: 4.3%).
There has been no change in the overall fair value methodology
in the period from that adopted in the accounts for the year ended
31 March 2018. Whilst management have significant amounts of data
from which the valuation is determined, the level 3 unobservable
data could be subject to change particularly with regard to
customer behaviour which could impact cancellation rates and the
mix of products which could impact margin. The sensitivity analysis
below has been conducted to assess the impact on the accrued income
balance and the income statement if a reasonably possible
alternative was used (in line with disclosures at 31 March
2018).
Sensitivity Impact on Accrued Income (GBPm)
----------------------------- --------------------------------
Cancellation rate increases
by 5% (2.5)
Cancellation rate decreases
by 5% 2.5
Margin decreases by 5% (3.3)
Margin increases by 5% 3.3
7. Trade and other payables
6 months
6 months ended ended Year ended
30 September 30 September 31 March
(GBPm) 2018 2017 2018
------------------- --------------- -------------- -----------
Trade payables 120.7 119.5 118.4
Other payables:
- Accruals 25.1 30.7 20.7
- Deferred income 7.3 8.9 6.9
- Other 9.5 8.7 10.0
------------------- --------------- -------------- -----------
162.6 167.8 156.0
------------------- --------------- -------------- -----------
8. Loss per share
The calculation of the basic and diluted loss per share is based
on the following data:
6 months 6 months ended Year ended
ended 30 September 31 March
30 September 2017 2018
(GBPm) 2018
(Loss)/earnings for the purposes
of basic and diluted loss per share
being (loss)/profit for the period (10.1) (8.7) (13.4)
------------------------------------------------- ------------- -------------- -------------
Number of shares
Basic weighted average number of
ordinary shares
in issue 458,788,480 458,788,480 458,788,480
Potentially dilutive share options
and shares 2,262,453 - 1,855,206
Weighted average number of diluted
ordinary shares 461,050,933 458,788,480 460,673,686
Loss per share (pence)
------------------------------------------------ ------------- -------------- -------------
Basic loss per share (2.19) (1.90) (2.93)
Diluted loss per share (2.18) (1.90) (2.92)
------------------------------------------------- ------------- -------------- -------------
The adjusted loss per share for the period was 2.52p (2017:
2.23p loss) (see page 12).
9. Net Funds and movement in financial liabilities
6 months 6 months Year ended
ended ended 31 March
30 September 30 September 2018
(GBPm) 2018 2017
------------------------------- -------------- -------------- -----------
Cash and cash equivalents 41.1 72.3 56.0
Bank overdraft (4.5) - (3.1)
Borrowings - Repayable within
one year (4.0) (4.0) (4.2)
Borrowings - Repayable after
one year (8.7) (11.6) (10.4)
------------------------------- -------------- -------------- -----------
Net funds 23.9 56.7 38.3
------------------------------- -------------- -------------- -----------
Movement in financial liabilities in the period ending 30(th)
September 2018 was as follows:
Loans and Finance lease
borrowings liabilities
GBPm GBPm
---------------------------------------- ----------- -------------
Balance at 1 April 2018 4.6 10.1
Changes from financing cash flows
Repayment of borrowings (0.6) -
Repayment of finance lease liabilities - (1.6)
Total changes from financing cash flows (0.6) (1.6)
Other changes
New finance leases -0.1
Total other changes - 0.1
Balance at 30 September 2018 4.0 8.7
At 30 September 2018, AO Limited and its two subsidiaries, AO
Retail Limited and Expert Logistics Limited, had access to a
Revolving Credit Facility.
At 30 September 2018 the amount available was GBP57.7m (2017:
GBP28.6m) with the amounts drawn being in relation to letters of
credit and short term guarantees.
10. Share-based payments
On 19 July 2018, the Company adopted the AO 2018 Incentive Plan
(the 'Plan') in which the Directors and key members of staff
participate. The Plan combines an annual bonus element and a
conditional share award based on various financial and
non-financial performance criteria as well as the continuing
employment of the individuals. The bonus and number of conditional
share awards will initially be calculated based on the performance
criteria for the year ending 31 March 2019.
The total charge in the Income Statement in relation to all
LTIPs was GBP1.8m (2017: GBP2.3m) and SAYE Schemes was GBP0.3m
(2017: GBP0.2m). The exceptional LTIP charge included in the above
is GBP1.4m (2017: GBP1.9m).
11. Financial instruments
As detailed in the Group's most recent annual financial
statements, our principal financial instruments consist of a call
and put option, trade and other receivables, accrued income, cash
and cash equivalents, trade and other payables and borrowings. As
indicated in Note 1, there have been no changes to the accounting
policies for financial instruments, from those disclosed in the
Company's Annual Report at 31 March 2018.
There have been no changes to the categorisation or fair value
hierarchy of our financial instruments. The fair values of cash and
cash equivalents, trade and other receivables, accrued income, and
trade and other payables and borrowings are all deemed to
approximate their carrying values and these can be identified on
the face of the Statement of Financial Position and accompanying
notes.
During the period, the Group exercised the first option over
shares in AO Recycling Limited. As a result, the Company has
acquired a further 7.2% of the issued share capital of AO Recycling
Limited, taking its holding to 67.2%. The movement in the put and
call option in the period is as follows:
Call Option Put Option
GBPm GBPm
At 1 April 2018 2.4 (3.8)
Exercise of option (0.2) 0.4
Unwind of discount - (0.2)
At 30 September 2018 2.2 (3.5)
There has been no change in the valuation methodology from that
adopted at 31 March 2018 which utilised the Monte Carlo model for
the call option and the gross liability method for the put option.
The latter equates to an estimate of the amount payable over the
life of the option based on discounted future cashflows.
12. Post balance sheet event
On 9 November 2018 the Company announced the proposed
acquisition of 100% of the issued share capital of Mobile Phones
Direct Limited, an online-only retailer of mobile phones in the UK
(the "Acquisition"). The Acquisition is subject to, inter alia, the
approval of AO World plc shareholders at a general meeting convened
for 29 November 2018 and FCA approval of the change of control of
Mobile Phones Direct Limited. Total consideration of approximately
GBP38.1m (plus interest) is to be satisfied by approximately
GBP20.9m (plus interest) in cash and 13,095,104 new ordinary shares
in AO World plc, with the cash element of the consideration to be
funded exclusively from a new Term Loan Facility of GBP24m provided
by the Group's incumbent lenders. The loan will be repayable in
June 2021.
Subject to the approvals listed above being granted, the
Acquisition is expected to complete by 31 March 2019. Further
details of MPD, its activities and benefits of the acquisition can
be found in a circular to AO World plc shareholders dated 9
November 2018.
13. Principal risks and uncertainties
There are a number of potential risks and uncertainties which
could have a material impact on the Group's performance over the
remaining six months of the financial year and could cause actual
results to differ materially from expected or historical results.
The Directors do not consider that the principal risks and
uncertainties have changed materially since the publication of the
Annual Report for the year ended 31 March 2018 although we now have
a greater understanding of the risks that Brexit may bring to our
businesses and we are cognisant of the additional risks that the
acquisition of Mobile Phones Direct ("MPD") may bring to the
enlarged Group, should it complete. Further information surrounding
risks associated with Brexit and the inclusion of MPD within the
Group are set out below.
The principal risks as set out in the Annual Report are
summarised below and further information on these together with
information as to how the Group seeks to mitigate these risks is
set out on pages 40-46 inclusive and 74 of the Annual Report and
Accounts 2018 which can be found at www.ao-world.com:
-- Risks relating to our failure to maintain our culture as we
grow and dependence on members of the Group Executive and
Leadership Teams.
-- Risks relating to our European expansion.
-- Risks relating to brand recognition and damage.
-- Risk relating to IT systems resilience and agility.
-- Risks relating to legal and/or regulatory changes,
particularly with regard to the increased scrutiny of the gig
economy which may drive changes to laws surrounding employment
status.
-- Risks of interruption to physical infrastructure.
-- Risk relating to Brexit and the UK electricals market.
-- Risks relating to our key commercial relationships
-- Risks in relation to significant accounting matters including
revenue recognition, debtor recoverability and the status of
product protection plans and commercial income arrangements.
Brexit
The directors are particularly mindful of the uncertainty in the
UK economy following the outcome of the EU Referendum (Brexit) and
the implications this may have for the Group for both our UK
businesses and our Europe businesses.
- Effects on the UK businesses
Uncertainty in the economy has and may continue to reduce
consumer confidence and affect demand, particularly for the more
"considered" (as opposed to "distressed") purchase and may also
have an effect on the housing market, to which our MDA sales bear
some correlation. Further whilst all our product purchases are
bought in local currency (minimising the effects of the weakening
of the pound against the Euro and Dollar), the increase in our
suppliers' supply chain costs have in many cases been passed on to
the Group and this may continue. We need to remain competitive on
price and, if our competitors do not pass price increases on
(either because they have longer term trade deals or decide to
absorb some of the price increases themselves) this may hamper our
profitability in the short-term. In addition, friction in the
supply chain arising from increased border control could affect our
availability proposition or drive the need for us to maintain
increased stock levels to keep such effects on our availability
proposition as minimal as possible. The Board is also cognisant of
the likely effect a hard Brexit could have on the free movement of
people and therefore the cost of labour particularly in our
logistics and recycling businesses.
- Effects on our Europe businesses
Our German business is operated through an English corporate and
we are investigating the effect that Brexit may have on this
structure. Our current expectation is that (having taken
professional advice) the structure may remain "as is" but in an
alternative scenario we may need to transfer the business to a
German corporate entity (a "GMBH"), which could impact our ability
to offset German losses against UK profit for tax purposes.
Further, should Brexit further weaken the Pound against the Euro
our investment in the Europe segment would become more expensive to
fund.
The Board continues to monitor the risks and uncertainties
associated with Brexit and the potential impact these may have on
the Group's results and financial position in both the short and
longer term.
Proposed Acquisition of MPD
The Acquisition of MPD may give rise to certain risks which, if
they occur, may have a material adverse effect on the business,
financial condition, results of operations and prospects of the
Group, MPD and, following Completion, the Enlarged Group. The
principal risks are set out on pages 16-23 of the Circular to
shareholders dated 9 November 2018 which can be found at
https://www.ao-world.com/wp-content/uploads/2018/11/MPD-Class-1-Acquisition-Circular-9Nov18.pdf.
Of those risks set out in the circular, the Board believes the
following risks are material and would be included within the
Enlarged Group's principal risks:
(a) The failure to retain key management and staff of MPD
following completion could adversely impact the success of the
Acquisition.
(b) MPD is, and following Completion the Enlarged Group will be,
dependent on relationships with network operators, which are
generally terminable on short notice, and will be exposed to the
distribution strategies and other actions of network operators.
(c) The success of the Enlarged Group depends in part on the
market for mobile phones and the market for network contracts.
(d) There is the threat of new participants entering the online
marketplace for the sale of mobile phones or the provision of
network services, or competitive behaviour from existing
participants, including mobile network operators and
manufacturers.
(e) Changes to current regulatory requirements or practices
including in relation to the sale of mobile phones with network
contracts, and the renewal and handset upgrade processes could
adversely affect the Enlarged Group's business, financial
condition, results of operations and prospects.
Following completion of the proposed acquisition, the Group's
risk management processes and internal controls framework will be
rolled out to MPD.
14. Responsibility statement
Responsibility statement of the directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
-- The condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU
-- The interim management report includes a fair review of the information required by:
(a)DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b)DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
On behalf of the Board
Steve Caunce Mark Higgins
CEO CFO
20 November 2018 20 November 2018
INDEPENDENT REVIEW REPORT TO AO WORLD PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2018 which comprises a Condensed
Consolidated Income Statement, Condensed Consolidated Statement of
Comprehensive Income, Condensed Consolidated Statement of Financial
Position, Condensed Consolidated Statement of Changes in Equity,
Condensed Consolidated Statement of Cash Flows and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2018 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU and the Disclosure Guidance and Transparency Rules ("the
DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1 annual financial statements of the group
are prepared in accordance with International Financial Reporting
Standards as adopted by the EU. The directors are responsible for
preparing the condensed set of financial statements included in the
half-yearly financial report in accordance with IAS 34 as adopted
by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Mick Davies
For and on behalf of KPMG LLP
Chartered Accountants
1 St. Peter's Square
Manchester
M2 3AE
19 November 2018
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR GGGPGGUPRPGB
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November 20, 2018 02:01 ET (07:01 GMT)
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