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Building for
growth
AO World Plc
Annual Report and Accounts 2017
Contents
How we performed in 2016/17
Financial Highlights
Group revenue up 17.0%
UK Adjusted EBITDA up 41.7%
£701.2m
£24.4m
‑£2.1m
‑£12m
Operating Loss increased by 13.4%
Group Adjusted EBITDA losses reduced by 46.2%
Operational Highlights
– Continued to grow market share
across countries and categories
– Launched computing in UK and
AV in Germany
– Opened Bergheim
– Built recycling facility
Overview
ifc Full year 2017 highlights
1 Our mission
2 AO at a glance
4 Everything in‑between
Strategic Report
16 Chairman’s statement
18 A letter from our Founder
20 Chief Executive Officer’s Strategic Review
21 Strategic KPIs
22 Our strategy: the 4Cs
28 Strategy in action
30 Corporate Social Responsibility
34 Responsible recycling
36 The AO Way business model
38 Our resources and relationships
40 How we manage our risks
45 Chief Financial Officer’s Report
46 Trends and insights in our markets
48 Financial Review
Our Governance
52 Corporate Governance Statement
52 Chairman’s letter to shareholders
54 Board of Directors
56 Leadership
59 Effectiveness
60 Report of the Nomination Committee
62 Accountability
63 Report of the Audit Committee
66 Shareholder relations
67 Directors’ Remuneration Report
69 Remuneration Policy Report
75 Annual Report on Remuneration
81 Directors’ Report
Our Results
85 Independent Auditors’ Report
88 Consolidated income statement
89 Consolidated statement of comprehensive income
90 Consolidated statement of financial position
91 Consolidated statement of changes in equity
92 Consolidated statement of cash flows
93 Notes to the consolidated financial statements
112 Company statement of financial position
113 Company statement of changes in equity
114 Company statement of cash flows
115 Notes to the Company financial statements
Shareholders’ Information
119 Important information
120 Glossary
Our mission
Our mission is
to be the Best*
Electrical Retailer
in Europe.
We will do this by
caring more
from the first click
to the recycling of
old products
(and everything
in between).
We are relentless
We deliver what others can’t.
We don’t give up and do
whatever it takes.
Genuine people
make the difference
You can’t pay people
to care.
To see what
“everything in-between”
means go to pages
4 to 15.
Driven
Caring
Smart
Bold
We find the best way
We are smart through
understanding and
innovation.
Fun
If you enjoy what
you do, you do it better
Work is serious and we do
it with a smile on our face.
We have the
courage to try
We think in an
unconstrained way
to go beyond
conventional limits.
* See what we
mean by “best”
in our glossary
on page 120.
AO World Plc
Annual Report and Accounts 2017
1
Overview Strategic Report Our Governance Our Results Shareholders’ Information
AO at a glance
Who we are and what we do
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. Via our state‑of‑the‑art facility we are also
able to carry out the recycling of waste appliances.
Where we operate
We operate across three countries: UK, Germany and the Netherlands
offering a broad range of electricals.
UK
Germany
The Netherlands
de
We have a unique and vibrant culture and a team of people who
genuinely care more about our business and its customers.
com
UK
product mix
Germany
product mix
The Netherlands
product mix
MDA
AV
MDA
Floorcare
AV
MDA
SDA
Computing
Floorcare
See page 46 for further information on the trends,
insights and opportunities in our markets
AO World Plc
Annual Report and Accounts 2017
2
Our investment case
– A leading position in the growing online electricals market
– Compelling customer proposition, delivered The AO Way
– Control of the end-to-end customer experience
– Strong culture
– Multiple growth opportunities
– Track record of growth/ability to replicate model
Our scalable business model
We create value by providing electrical products and related
services to our customers; we aim to make shopping easy and
our customers happy!
We do this ‘The AO Way’ – uniquely combining our customer
proposition with our culture, systems and processes whilst
maintaining end-to-end control.
See pages 36 and 37 for further information on how we create
and capture value
Our 4Cs strategy
– Develop new countries
– Roll-out new categories
– Deliver a market-leading proposition to our customers
– Develop and protect our unique culture and brand
O M E R S
C U S T
CULTURE
& BRAND
Making things easy
because we care
more
S
E
I
R
T
N
U
O
C
C
A
T
E
GORIES
See page 22 for further information on progress against
our strategic objectives
AO World Plc
Annual Report and Accounts 2017
3
Overview Strategic Report Our Governance Our Results Shareholders’ Information
Large
available
range
We offer an extensive range of
MDA items and we are growing
our range of SDAs, TVs and
computing. Most of our SKUs are
available for next-day delivery
– not many of our competitors
can offer that.
What customers love
about our range
Good service…
Good service. Plenty of
fridge freezers to choose
from in stock.
Would recommend to
others to use AO.
Maggie
Everything in-between
AO World Plc
Annual Report and Accounts 2017
4
AO World Plc
Annual Report and Accounts 2017
5
Overview Strategic Report Our Governance Our Results Shareholders’ Information First class
delivery
model
Our in-sourced seven-day
delivery (six in Germany and
the Netherlands) is first class.
We offer our customers a wide
range of delivery options
including next-day and
designated time slots so that
they can pick the delivery that
suits them. We can also install
new appliances and remove
and recycle the old ones too.
Having our own national delivery
fleet operating out of a central
distribution centre with a network
of outbases, gives us control over
our distribution chain. From the
online purchase of a product
through to its delivery to the
customer and recycling of old
products, we control all of the
customer touch points
What customers love
about our delivery service
I cannot believe the
great service that…
I cannot believe the great
service that I received from
ao.com. I ordered my new
washing machine at 1pm on
Saturday and it arrived at
1pm the next day. We were
kept informed of delivery
slots and the driver phoned
half an hour before he was
due to deliver so we could
plan our Sunday. The
delivery drivers were also
really helpful. I would
definitely use ao.com
again.
Graham
Everything in-between
continued
AO World Plc
Annual Report and Accounts 2017
6
AO World Plc
Annual Report and Accounts 2017
7
Overview Strategic Report Our Governance Our Results Shareholders’ Information Amazing
customer
service
Of course we can claim that our
service is wonderful but our
independent customer feedback
scores are exceptionally high.
We give customers a flexible and
personal approach and make
clear commitments to them
which we then deliver on.
What customers love
about our service
Amazing service…
I’ve purchased a washing
machine and a fridge
freezer over the last few
months. Absolutely brilliant
service from ordering
the items online… the
communication re:
delivery and to the guys
that deliver. Perfect Perfect
Perfect…
David
Everything in-between
continued
AO World Plc
Annual Report and Accounts 2017
8
AO World Plc
Annual Report and Accounts 2017
9
Overview Strategic Report Our Governance Our Results Shareholders’ Information Everything in-between
continued
Not
beaten on
price
We offer a price match promise
such that if a customer finds a
cheaper product from any other
UK retailer (online or instore)
we’ll match that price and refund
the difference. Our price match
promise is valid on the day the
customer orders a product and
up until seven days after.
What customers love
about our prices
New vacuum
cleaner…
Best price we could find
and excellent delivery
service.
Amanda
AO World Plc
Annual Report and Accounts 2017
10
AO World Plc
Annual Report and Accounts 2017
11
Overview Strategic Report Our Governance Our Results Shareholders’ Information Innovative
online
content
We ensure our on-site content
is clear but detailed, explaining
product benefits to customers
better than anyone else, with
feature-led reviews and 3D
animation which tells the
manufacturer’s stories. Offering
this innovative content means
that customers can make an
informed decision on their
purchase and are able to choose
the right appliance for them.
What customers love
about our content
I’ve bought from
AO.com several times…
I’ve bought from AO.com
several times now, over a
period of a couple of years,
and each time has been a
delight. Their website is
easy to navigate and has
all the specifications and
photos I need to make a
decision on an appliance.
I’m a customer for life!
Jo
Everything in-between
continued
AO World Plc
Annual Report and Accounts 2017
12
AO World Plc
Annual Report and Accounts 2017
13
Overview Strategic Report Our Governance Our Results Shareholders’ Information Everything in-between
continued
AO World Plc
Annual Report and Accounts 2017
14
The
AO Way
The AO Way is not any of these
individual elements. It’s the way
we stitch them all together through
our bespoke infrastructure and
our culture of simply caring more.
Underpinning our business
proposition is something that
cannot be replicated: AO’s unique
culture. As a business, we all live
by our five values; bold, smart,
driven, caring and fun. It’s
important that people love what
they do and strive to be the best
they can be, whether that be our
employees, the drivers or the
manufacturers’ designers.
What customers love
about The AO Way
New washing
machine
From placing the order,
to tracking delivery online
and installation, AO.com
are the best company I
have ever dealt with. I now
don’t consider anyone else.
This is the third white goods
item I have bought from
AO. Delivery guys were
efficient and courteous in
removing my old washing
machine and installing my
new one. Well done!!!
Paddy
AO World Plc
Annual Report and Accounts 2017
15
Overview Strategic Report Our Governance Our Results Shareholders’ Information Chairman’s statement
Geoff Cooper
Chairman
It has been a year of further progress for AO, with strategic
developments on many fronts.
AO has continued on its mission to become the best electrical retailer
in Europe delivering on all aspects of its four pillar strategy, the 4Cs:
– Developing new countries;
– Rolling out new categories in existing and new countries;
– Delivering a market-leading proposition to customers; and
– Developing and protecting our unique culture that underpins
our brand.
Over the period, AO has established a new fully operational
35,000 sq. metre Regional Distribution Centre in Bergheim, serving
Germany and the Netherlands (which has now been trading for a full
year); successfully launched new categories – audio‑visual (“AV”) in
Germany and computing in the UK; maintained consistently high
customer metrics and furthered our brand awareness.
In the last quarter of the financial year the Board reviewed the capital
structure of the Group and raised, shortly after year end, c.£50m via a
placing of new shares. This capital injection strengthens the balance
sheet, provides flexibility to react to market opportunities and changes
and, importantly, suitably capitalises the business to support our
continued growth and increasing scale.
We have delivered another good year of top-line growth albeit with
a challenging second half of the year which meant we missed our
internal expectations. Group revenue increased by 17% to £701.2m.
Year-on-year UK revenue was up 12.7% to £629.7m (with AO branded
sales accounting for £557.9m, up 14.5% year on year). Revenue for our
European segment was £71.5m/€84.7m; up 52.3% year on year on
a constant currency basis.
Group Adjusted EBITDA losses for the period were £2.1m marking
an improvement against prior year losses of £3.9m, with strong
performance from the UK business more than offset by the trading
losses incurred in our Europe business as we continue to build scale
and achieve critical mass. UK Adjusted EBITDA was £24.4m, up 41.7%
from the prior year and Europe Adjusted EBITDA losses were £26.5m,
an increase of 25.5% against the prior year. On a statutory basis, our
operating losses were £12m (such losses increasing 13.4% year on year
due mainly to the share-based payment charge this year (with a credit
in 2016)). Cash at year end was c.£29.4m, before taking account of net
placing proceeds, which were received just a few days after the year end.
In February we announced a transition in our Executive Director roles,
with Steve Caunce taking over as CEO and John Roberts assuming the
role of Founder. This was a natural evolution and the Board is confident
that Steve is the right person to take on the role from John to deliver the
significant growth potential of the Group. John’s new role will enable
him to continue to play to his strengths as an innovator and a visionary
leader, helping develop and test high level strategy. Steve and John
remain very much a partnership and together they will ensure that AO
continues to deliver for customers, colleagues, suppliers and our investors.
There have also been some changes to the Board’s Non-Executive
composition, following the retirement of Rudi Lamprecht as a
Non-Executive Director and we are looking to appoint two further
Non-Executives to the Board over the next few months. Further details
are set out in the governance section on page 52.
In summary, the Group has continued to make good progress against its
strategy. Whilst the Board continues to be cautious given the uncertain
UK economic outlook and broadly expects the patterns of trading seen
in the second half of FY2017 to continue into the year ahead (with UK
business profits being reinvested in our European operations) the Board
is confident of achieving its stated goals over the years ahead.
Since taking the role of Chairman in July 2016 I have been impressed by
the quality and enthusiasm of the Executive Directors and of the teams
of people that support them and I look forward to working with them on
their way to become the Best Electrical Retailer in Europe.
Geoff Cooper
Chairman
5 June 2017
Over the past few months
John (left) and Steve (right) have
transitioned seamlessly into their
new roles, each playing to their key
strengths. Both remain as committed
as ever to AO and to driving our
unique culture.
AO World Plc
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Annual Report and Accounts 2017
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AO World Plc
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Overview Strategic Report Our Governance Our Results Shareholders’ InformationOverview Strategic Report Our Governance Our Results Shareholders’ Information A letter from our Founder
John Roberts
Founder
Dear Stakeholders,
Last month, I received a letter from a customer, Moira, with the subject
title: “Love your company!” It’s quite long, but I’ve copied it opposite in
full because it really gets to the heart of what I want to say in this letter.
At AO, we care more. It’s at the core of our business, it’s the reason
we’ve succeeded, and it’s the reason we’ll continue to grow. It’s the
thing that differentiates us.
We have an amazing team of over 2,500 people in the business who
live AO every day in a way that defines that difference; who understand
our business from the customer’s point of view. But we’re not magicians;
we don’t know what customers think through some special mind-reading
method. Instead, we ask them, we listen to them, and then we innovate
for them.
You have to stay in touch with customers because they’re the ones
who’ve got all the answers. I write a personal letter to every single
customer who has written to me at AO with either a positive or a
negative comment. I get amazing responses back because the
customer feels a part of the movement we are creating.
But the biggest impact isn’t on them. It’s on us. We have to make
sure that whatever we got wrong, we put right. We need to make sure
they’re happy. We learn the lesson, and see it from their point of view.
Like Peter, understanding and responding not only to Moira’s concerns,
but applying it to the business as a whole to make things better for
every one of our customers.
It’s not one silver bullet, but a hundred different things we just care
more about. Being an AO’er is a lot more than a job – The AO Way is
a way of life. It’s the backbone to our culture and, as we’ve grown and
expanded into new territories, maintaining, cultivating and obsessing
about this culture is critical.
Earlier in the year, Steve succeeded me as Chief Executive Officer. This
transition was the natural evolution of our succession planning work
since IPO and reflects AO’s rapid growth and success. It ensures that
we can capitalise on all the team’s strengths as we continue to grow –
enabling me to focus on delivering for our customers and for AO’ers
by playing to my strengths as an innovator, and enabling Steve to
concentrate on strategy and performance delivery. He’s already
making a big difference to how we operate as a business, and I’m
immensely proud of our partnership.
In my first letter to shareholders three years ago, I told you that we
genuinely wanted to change the world of retail – to get customers to
become intolerant of poor service and realise that they don’t have to
accept it. That ambition hasn’t changed, and we’ve become relentless
in our search for new markets, new ideas and new and better ways to
serve our customers. Change is the only constant and we’re always
thinking: “What’s next?”
So, what IS next? As I transition into the role of Founder, I want to look at
how the next generation will shop and understand better what they’ll want
and need from their experience. I want to examine how our brand partners
are developing their technologies to stay relevant in a connected world
and how we, as a business, can use innovative techniques to stay ahead
of the competition whilst remaining true to our core values; harnessing
technology, AI and digital channels to enhance the customer experience.
And I want to explore how we can better empower and motivate our
employees to innovate; encouraging our people to try new things and
take new risks.
Steve and I also want to concentrate on our brand. A brand is what
you are, who you are, why you are. The AO smiley face isn’t a bit of
decoration; it says we want to make our customers smile and we want
the people who sell to our customers to be smiling. We work very hard
on making sure that our staff appreciate what we are trying to do. We
are spread across many locations so only if everyone absorbs our
brand values will we remain consistent. We’re making great strides
across all our territories in brand awareness, but we’re not yet the
household name we aspire to be. Honing in on our brand message,
and getting it out there to people who haven’t used AO before, is one
of our key challenges in the coming months.
The sponsorship of this year’s Britain’s Got Talent has kick-started that
challenge. It’s been an exciting project and has given us all something
to smile about, especially those who’ve been lucky enough to star in
some of the accompanying adverts. At AO, we’ve always maintained
that happy staff equal happy customers. Underpinning our culture is
the belief that you can’t pay people to care and you can’t tell people to
have fun with customers; they’ve got to want to. Peter’s small gesture
to Moira was unprompted, but it made a big difference to her overall
customer experience.
It is a story we need to tell better and to more people because AO.com
really is a much easier way to shop for electricals and once people
experience The AO Way they really get it. We have learned a lot of
lessons on how to best tell that story over the last four years and we
are getting better at it. It is by far our biggest single opportunity.
At AO, we want this ethos to go beyond the business, into the local
communities in which we work. I’ve always believed that retailers have
a responsibility to give back to their communities; that’s why we set up
the AO Smile Foundation, providing support to disadvantaged young
people across the UK. We actively encourage all our staff to get
involved with the charity, and to make a positive impact within their
local communities; each AO’er is able to take two “make a difference”
days each year to work with a charity and last year they made over
376 days of difference. I’m incredibly proud of that work. But I also
believe that what you put in, you get back. In truth, we all get as much
from our involvement with the AO Smile Foundation, as it gets from us.
It’s another part of what makes AO such a great place to work.
As Moira says, AO’ers are not people simply “going through the
motions”, they are people who are inspired, empowered and happy
in what they do. So a big thank you from Steve and me to the whole
AO family, and a promise to keep on caring more as we continue on
the next stage of the AO journey.
John Roberts
Founder
AO World Plc
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18
Love your company!
I recently purchased a fridge freezer from AO, primarily on the recommendation of a friend, and I wanted
you to know it was the most positive customer experience I have had in a very, very long time.
Your website is good and easy to navigate, the choice of product is great, your prices are very competitive,
your communications appropriate but most of all your people are fantastic. I had reason to “chat” on your
website a couple of times and to call and speak to a customer service representative on two (or maybe
three) occasions – not problems, just questions. Your staff could not have been more helpful,
knowledgeable or “human” for want of a better word!
Of particular note was my conversation with your customer services representative Peter. For a start –
all my phone calls were answered very promptly – quite a novelty in this day and age. I had a small
concern re some of the wording in a confirmation email I received that seemed contradictory to your
website information and I just wanted to clarify the actual installation service I was going to receive.
Peter could not have been more helpful in investigating the concern and, upon agreeing the email wording
was not right, advised me that “AO will probably have this template email corrected in a couple of hours
so no further customers are confused.” Again, impressive. Peter went on to proactively give me a small
refund as a “thank you” for bringing the matter to AO’s attention – a gesture that was unexpected but very
much appreciated. If only all companies demonstrated their respect and appreciation for their customers
so readily, unprompted and with good grace.
Towards the end of the conversation with Peter I told him how impressed I had been with all my contacts
with AO and he told me how very much he enjoyed working for AO, that it is a great company and how
he and his colleagues are treated as “human beings”, I think was the expression.
These are not people “going through the motions”, they are clearly inspired, empowered and happy in
their work. I thought that warranted comment. These days it is not often there is an opportunity to praise
good customer service – I hope you enjoy reading this as much as I enjoyed being able to write it.
Needless to say, I am telling all my friends to order from AO!
Kind regards
It’s great to get this type
of customer feedback as
it shows our customers
recognise everything we
have worked hard on
over the years.
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Overview Strategic Report Our Governance Our Results Shareholders’ InformationOverview Strategic Report Our Governance Our Results Shareholders’ Information
Chief Executive Officer’s Strategic Review
However, our customer service metrics remain exceptional across all
of the countries in which we operate because we make it our mission
to care more and we continue to innovate to create the best customer
experience for tomorrow. This has helped us to continue to gain
market share in our categories and countries, notwithstanding the
challenging trading environment in the UK.
We remain as committed as ever to doing business The AO Way
and continuing to deliver outstanding results for our customers,
our people, our supplier partners and our investors. Our online
market-leading proposition and the solid foundation we have built
in mainland Europe have positioned us well for the future. Since year
end we completed a share placing which will ensure our balance sheet
is suitably capitalised to support our continued growth and increasing
scale as we deliver our strategy. We will continue to be bold but
responsible on where we allocate our resource.
In the past year we have demonstrated how to scale up in new
countries and how to expand and grow product categories. When the
time is right, we will replicate this approach in new geographies and
categories. We have strengthened our foundations for growth and in
line with our strategy we will continue to focus on and drive AO
own-branded sales. Although our brand awareness has continued to
grow during the period, it remains our greatest challenge and the key
to longer-term success; we must push to drive this metric. We will
achieve this through highlighting and explaining why customers
should shop with AO: it’s simply that we care more. Going forward we
will continue to work hard to ensure that AO becomes a household
name and the obvious choice when shopping for electricals.
Further details on our performance in the year under review are set
out in the next few pages. Put simply, I am proud to say that it has been
another great year for AO thanks to our outstanding team of people.
We will continue to execute our strategy in the year ahead and focus
on demonstrating to more customers that The AO Way is the best way.
It is easy, it can be trusted and we simply care more. This is
our differentiator.
Steve Caunce
Chief Executive Officer
Steve Caunce
Chief Executive Officer
I’m pleased to report on the significant strategic and operational
progress made during the financial year as we continue on our mission
to be the best electrical retailer in Europe. This is the first time I’m
reporting as CEO but, fundamentally, our approach has not changed
and nor do I expect it or want it to: we remain relentless in pursuing
our goal to be the best electrical retailer in Europe and, through
focusing on our 4Cs strategy, we are confident we can deliver against
that objective.
We have a business model that differentiates us from our competitors,
“The AO Way”, as set out on pages 36 and 37. While we obsess about
each element, it isn’t the individual components of this model which
give us our competitive advantage; it’s the way that we stitch them all
together through our culture of caring more, making things easier for
the customer and being exceptional in the moments that matter. That’s
what makes us different. Our culture is absolutely crucial to us so,
together with John, I’m looking to protect it, nurture it, and further
embed it across the Group, particularly in our newer territories.
Looking back at the year, we have strengthened our foundations for
future growth. In Europe, we opened our new regional distribution
centre in Bergheim, near Düsseldorf; we have built a state-of-the-art
recycling facility in the UK, we have added new categories to our
offering in both the UK and Europe and, in launching computing,
we have developed systems and infrastructure to operate a different
distribution model, which we can leverage for future category
roll-out across territories.
Trading this year has been mixed (particularly for our UK business).
In the first half of the year, in the UK, our investment in marketing and
brand translated into encouraging sales growth with some tailwinds
from stamp duty changes in March 16. In the second half of the year,
trading in the UK became more challenging as we began to feel the
impacts of dampening consumer confidence following the UK’s vote
to leave the EU, subsequent price inflation and a slow‑down in the
UK housing market.
AO World Plc
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Annual Report and Accounts 2017
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20
20
Culture and brand
Brand awareness
(%)
60
50
40
30
20
10
0
Jul
2013
Dec
2013
Apr/May
2014
Dec
2014
Jul
2015
Dec
2015
Jun
2016
Oct
2016
Mar
2017
Spontaneous brand awareness
Prompted brand awareness
Strategic KPIs
Customers
UK customer base*
(’000)
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
c. 4m
c. 3m
c. 2m
c. 1.5m
c. 1m
FY13
FY14
FY15
FY16
FY17
Categories
Continuing our
category roll-out
strategy
Excellent 9.5 out of 10 –
Our UK trustpilot score
Excellent 9.6 out of 10 –
Our Netherlands
trustpilot score
Sehr gut 4.83 out of 5 –
Our DE Trusted
shops score
* A customer is defined as an individual customer who has purchased from us.
Appliances
Online
becomes
AO.com
Air Treatment
com
Appliances
Online
launches
SDA
AV
Heating
Computing
2000
2012
2013
2014
2015
2016
2017
de
nl
UK
Germany
The Netherlands
MDA
AV
SDA
Floorcare
MDA
AV
SDA
SDAs AV MDA Heating Air treatment Floorcare Computing
• • • •
• •
• •
•
•
•
•
Countries
5Sites across Europe
Countries3
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Overview Strategic Report Our Governance Our Results Shareholders’ InformationOverview Strategic Report Our Governance Our Results Shareholders’ Information Chief Executive Officer’s Strategic Review
continued
Our strategy: the 4Cs
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As a result of the initiatives highlighted above our brand awareness
continued to improve slightly over the period (including spontaneous
and prompted awareness) although we did see a dip in the final
quarter as marketing was postponed in anticipation of our Britain’s Got
Talent (“BGT”) sponsorship – see further below. Our strong customer
advocacy together with manufacturer endorsement (through joint
advertising campaigns) have helped build trust in our brand and have
helped to drive revenue growth. Our customer acquisition costs
continued to fall during the 12 months to 31 March 2017 as we refined
our online advertising strategy, improved our SEO (Search Engine
Optimisation) rankings and benefited from an increase in direct traffic
following our improved brand awareness and customer
recommendations.
However, more work needs to be done; our biggest opportunity
remains for us to grow our brand to the recognition levels enjoyed
by our competitors, and so, in March 2017 prior to our year-end, we
agreed to sponsor the 11th series of BGT. The series has been aired
over the past two months and our sponsorship deal included on-air
and mobile companion app branding, plus numerous other
opportunities to bring our sponsorship to life outside of the BGT TV
show. This investment is designed to build long-term brand awareness
rather than drive short-term sales as we seek to develop and instil trust
and confidence. Going forward we must use our brand investment to
very clearly highlight the difference of AO to the customer.
Culture & Brand
Our culture is our brand, our brand is our culture.
Together, they are our greatest asset and provide us
with a structural advantage over our competitors.
Through nurturing and growing our culture we will be
able to deliver the best customer experience, broaden
our categories, expand into new countries, drive our
operations and, ultimately, achieve our goal.
We recruit and retain the best talent and look for people
who are smart, bold and driven. They must care more,
not only about our customers but other stakeholders of
the business too, be it the manufacturers and suppliers,
other employees and, of course, our drivers, and do it
all with a sense of fun.
Our values can be found in every single one of our
AO people. We hire and fire against them and they
are everything our brand stands for; our culture and
how our people act will be how our brand is
perceived externally.
The risks affecting our culture and brand are
highlighted on pages 42 to 44.
Performance this year
UK
Building brand awareness remains our biggest opportunity. During
the year we continued to grow overall brand awareness and develop
our brand strategy.
AO has historically been known for selling white goods and so,
during the year, we have focused on educating our customers that
AO is a multi-category electrical retailer, building momentum as we
add more categories and products to our range. We sought to increase
the effectiveness of our brand investment as we honed our TV adverts
to illustrate the strong customer testimonials we receive. We also
explored new advertising channels including radio, both national and
local, together with print media through press advertising, billboards
and other large formats. In the early part of the financial year we invested
in those audiences where our sales profile was under‑indexed,
in particular in Greater London and amongst male shoppers.
Towards the end of the year we also commenced the process of
significantly increasing the level of branding on our 3.5 tonne delivery
truck fleet. This will continue to promote our brand on a daily basis
across the country.
See how many you can
now spot as you journey
on our roads and
motorways!
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Overview Strategic Report Our Governance Our Results Shareholders’ InformationOverview Strategic Report Our Governance Our Results Shareholders’ Information Chief Executive Officer’s Strategic Review
continued
Following my appointment as CEO
we implemented some changes to
the structure of our GET and senior
management teams to ensure that we
remain robust and scalable as our
business continues to grow.
Our culture goes to the heart of our brand and is our greatest asset,
providing us with a real advantage over our competitors; we continue
to protect it fiercely. To achieve our goal we need to nurture it,
attracting the best people who live our values and then, retaining
them. That means being the best employer we can be for our people,
so high employee engagement and development is fundamental to the
growth of our brand, and ultimately, to the Group. Our emerging talent
schemes, such as our Future and Star Programmes, Apprenticeship
Schemes and Duke of Edinburgh scheme all progressed during the
year. Each is sponsored by a member of the Group Executive Team
(”GET”) in order to identify and develop our talent and ensure our
winning team gets even stronger in the future.
Europe
As planned, we limited our promotional activity during our period
of consolidation with no TV exposure from April to October 2016.
In the second half of the year we resumed limited activity such as joint
TV advertising campaigns with manufacturers alongside some print
media advertising and continued use of AO branded fleet, but beyond
that advertising has been limited. Accordingly, there has been modest
growth in brand awareness during the year to 31 March 2017. Despite
this, our customer base is growing well, our direct traffic statistics are
encouraging and repeat purchases are already coming through.
Our sales growth is being driven by the strength of the customer
recommendations we are receiving, replicating the evolution of
our UK business, albeit at a faster pace.
We are pleased that our culture and values have been fully embedded
into our operations in Germany and the Netherlands, thanks in part to
the use of a recruitment process focused on our central values. Our
European team has also been restructured and during the year we
were pleased to welcome a new European retail director into the team
who is already making a difference to both culture and performance.
Priorities next year
Building brand awareness will continue to be a key focus for the year
ahead; it remains our biggest weakness and therefore our biggest
opportunity. We will do more to ensure that AO becomes a household
name and the obvious place to shop for our products both in the UK
and Europe.
We are investing in new creative for our TV advertising, and this
together with further branding of the AO fleet in the UK should help
continue to drive awareness.
In Europe, we will look to continue to drive our digital performance
channels, increase our SEO rankings, build our social media audience
and utilise local marketing channels, for example direct mail and CRM.
We will also seek to increase local and national media through PR and
will continue to use TV advertising tactically.
With the support of our senior management over the next financial
year we will continue to safeguard our culture, define its essence and
embed it across the Group. As more and more people join the AO
family it is critical that we do not lose sight of our values.
Customers
We are continuing to drive our market-leading
proposition forward. Our key offering remains strong;
our unbeatable prices, huge range, wide availability,
smart and innovative web content and amazing service
mean our customer satisfaction levels remain exceptional.
Repeat customer metrics are healthy as are the number
of new customers we are attracting to our brand.
The risks affecting our customers are highlighted on
pages 42 to 44.
Performance this year
UK
We made good progress with our customer metrics over the reporting
period. AO’s customer base is now a huge asset to the business as we
approach four million UK customers (defined as an individual customer
who has purchased from us) giving us a fantastic foundation from
which to leverage our growth. Our repeat business remains very
healthy and we continue to attract new customers. Notwithstanding
progress this year whilst customers continue to repeat the time taken
to repeat has fallen slightly which we think, in part, is driven by market
dynamics. Growth in traffic remained encouraging during the
12 months to 31 March 2017 and we experienced particularly strong
growth in visits to our mobile site, although we have some work to
do to increase our conversion rates to levels similar with those on
Desktop and Tablet devices.
We have worked hard to make the customer journey as easy and
effortless as possible, whilst remaining personal. Our Customer Labs
allow us to thoroughly research and understand our customers’
needs. In order to work towards our best service goal, we have
continued to develop and enhance the retail experience. During the
year we launched our app “MyAO”. This currently provides “track
your order” functionality and will be developed further to provide
transactional capability and to tie into the “My Account” feature
launched last year. We have also streamlined our interactive voice
response (“IVR”) system to take the customer through the most
efficient route of service, based on the stage of the customer’s journey.
This maximises efficiency and is part of our developing self‑service
strategy, should customers choose to shop that way. We continue to
ensure we have the best staff at the end of the phone to give a bit more
of a personal touch. The use of functions such as Live and Nano chat
(an automated alternative to live chat) together with the learnings
identified from our Customer Labs really help us to understand our
customers so we can meet their needs and tailor our offering
appropriately. The way in which consumers shop is ever evolving
and we must work hard to keep up with changing preferences.
During the year we invested further in our digital content team,
which is now 40+ strong as we evolve our content strategy and apply
the learnings from our Customer Lab sessions. The team creates
innovative and essential content, for example through 3D videos and
features, as we continue with our goal for our website to be the
destination for information for customers. This content adds value
to the customer journey and to the manufacturers we buy from and
we are investing in rolling this out further.
See one of our in-house created 3D videos here.
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Our CRM strategy continues to evolve and we are keen to build on all
aspects of the customer life cycle, not just the point of purchase. AO
Life, our online lifestyle magazine, together with social media and
personalised email programmes provide handy hints on how to use
and maintain products. We have also been working on how to improve
what happens when, unfortunately, products break down and to this
end have renegotiated a deal with Domestic and General (“D&G”), our
extended warranty partner. Our new pan-European 10 year deal will
see some exciting developments in the extended warranties that we
can offer to customers (as agent for D&G) that demonstrates our values
and excels in service delivery and care, whilst at the same time ensuring
that customers really do get value for money from this type of product.
We added two additional outbases to our UK logistics infrastructure over
the reporting period, one in Slough and the other in Dundee. This will
help ensure resilience in our delivery network and maintain market-
leading product availability for customers, whilst reducing stem mileage
and improving efficiencies in our logistics. Our premier fleet has grown
significantly as we respond to increasing demand for more complex
installation services. In addition to developing a trainee programme for
newly‑qualified engineers, some of our self‑employed subcontractors
now have the skillset to connect electric cookers and integrated products.
Further, as part of our responsible retailing programme, we have now
completed the build of our recycling facility at Telford. The official launch
of AO Recycling will happen later in 2017, but our state-of-the-art recycling
plant is now operational and ensures WEEE is safely and properly disposed
of and that re-use is optimised. This vertical integration ensures further
end-to-end control of our reverse supply chain with the associated
environmental benefits. It is another great example of how we have applied
The AO Way to an underinvested section of the market which we believe
can make a very exciting contribution to the business in the future.
See the ins and outs of the recycling
process on pages 34 and 45.
The results of the above initiatives can be seen in our Net Promoter
Score (“NPS” an industry measure of customer loyalty and satisfaction)
which over the year has been maintained at a consistently high level of
over 80 and our UK Trustpilot score was an excellent 9.5 at the period
end. In addition, we were proud to be voted 2nd best online retailer in
the UK in the annual Which? Survey in October 2016 and just after our
year end AO was named Best UK Retailer by the public in GlobalData’s
2017 Customer Satisfaction Awards (previously the Verdict Retail
Awards). There is no better testament to our service than the
feedback from our customers and this award highlights the
continuing strength of our commitment to ensure our customers
receive the best possible service.
Europe
We are enjoying good customer feedback in both territories with NPS
scores remaining outstanding at over 85. AO.de had a Trusted Shops
score of 4.8 out of 5 and AO.nl had a Trustpilot score of 9.6 out of 10 at
our year end and repeat business is already building momentum.
Our brand new regional distribution centre (RDC) in Bergheim,
serving Germany and the Netherlands, became fully operational in
September 2016. With 35,000m2 of warehouse space, the RDC allows
us to improve product availability for our customers and promote
brand awareness. The RDC comprises a head office allowing the retail
and logistics divisions to become more cohesive, drive efficiencies
and embed a consistent AO culture. With a capacity of five times our
previous facility we are well resourced to fulfil our future growth.
We have partnered with third‑party logistics firms to better serve
customers in more remote areas while also reducing delivery costs,
working closely with them to ensure that their service meets our high
expectations. As we increase scale and drive efficiencies, we plan to
add additional outbases to our existing infrastructure, replicating our
UK model.
To improve the customer proposition further during the year, we
introduced electrical premium installations in Germany and plan to
extend this offering in the Netherlands during the current financial
year. We have also introduced Live Chat functionality and have
launched the MyAO app. As in the UK, we also intend to implement
Customer Labs into our European operations as we seek to
understand customer needs and behaviours in these territories
and tailor our offering accordingly.
As reported at the half year, the warranty product we offer on behalf
of D&G has not achieved the volumes we were expecting in Europe,
but as part of our new agreement with D&G, we are seeking to work
together to develop the product and its promotion to be more effective
in this market. We will also look to launch a Dutch warranty offering
during the course of the year ahead.
Priorities next year
We will do more of the same. As we grow across categories and
countries we need to ensure we do not lose our focus on delighting our
customers. We are looking to build on the results of the Customer Lab
and tailor the web journey to meet different customers’ needs; to build
on the self-service strategy but to retain our personal touch.
Development of the My AO app, to become fully transactional, is now
in progress and we expect this to be launched in the coming months.
In conjunction with D&G, we will look to develop a better warranty
product for our customers, with better benefits and a more digital
offering. We will also seek to expand on the customer finance offering
to provide customers with alternative ways to purchase our products.
We will strive to maintain our excellent NPS scores and market-leading
Trustpilot scores. As we enter new categories we need to ensure that
we continue to deliver a great proposition and the same level of
exceptional customer service we offer in existing categories so that
our reputation and industry-wide acknowledgements will be
maintained and our brand never compromised and customers
continue to make repeat purchase.
UK customers vs repeat customers
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
June
2008
June
2009
June
2010
June
2011
June
2012
June
2013
June
2014
June
2015
June
2016
New customers
Repeat customers
Repeat %
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Overview Strategic Report Our Governance Our Results Shareholders’ InformationOverview Strategic Report Our Governance Our Results Shareholders’ Information
Chief Executive Officer’s Strategic Review
continued
See how we launched
the category ‘The AO Way’
on page 28.
Categories
AO is now an electrical retailer; not just a white goods
one. We have continued to extend our MDA model to the
SDA and AV categories in the UK and this year we have
launched computing in the UK. In Europe, we now sell
the AV category in addition to MDA and Floorcare. We
believe we can replicate the model further and we are
exploring other categories within the “electricals” sphere
where we can leverage our existing relationships with
the brands and also our infrastructure.
Risks affecting our category roll-out are discussed in
the Risk Review on pages 42 to 44.
Performance this year
UK
One of our greatest achievements during the reporting period was the
successful launch of our computing category. We are delighted by our
progress so far, leveraging the investments we have previously made
in our web content, IT and product teams to add the category
seamlessly to ao.com.
Customers tend to shop this category differently to others and we
therefore had to develop ways of demystifying products to make
them easier to understand to give customers the best choice, whilst
changing our back-end operations to utilise drop-ship vendor
methodology. Additionally, as there are different pre and post-sales
requirements, we had to ensure that our call centre staff were trained
to handle and deal with specific and sometimes rather technical
queries. Product information and customer advice are the key areas
where we believe AO can demonstrate a difference to the existing
market and hardware and software brands have been supportive
of our different approach to the category.
We are now in the process of defining the next stage of the Computing
category, making logical additions to our existing range. Research into
new complementary areas continues and we are confident we can
utilise the disciplines we have learnt from the launch of computing
to bring more value to customers in the future.
We have seen some challenges in the MDA category over the past
few months with market data suggesting the market in the UK has
decreased year-on-year. However, we have continued to gain market
share and our increasing importance as a channel to market for the
leading brands has helped us grow product margin in this category.
Whilst we had a strong performance in the first half of the year, in the
second half MDA margin was under pressure following price inflation.
Where it all started
Appliances
Online
launched
2000
de
nl
Appliances
Online
becomes
AO.com
com
SDA
AV
Air Treatment
Heating
Computing
2012
2013
2014
2015
2016
2017
MDA
AV
SDA
Floorcare
MDA
AV
SDA
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We have gained further market share in both SDA and AV as our
credibility and authority, with both customer and manufacturers,
in these categories continues to build momentum. We now have all
major manufacturers on board in the SDA category and have grown
further market share in the Floorcare sub-set of this category.
In the UK, sales in our AV category have significantly increased year
on year, helped by a wider product range including premium models
with cutting-edge technologies and some exclusive branded products.
We have also expanded the audio offering this year adding ultra-HD
Blu-ray and turntables into our range.
Europe
We have made significant progress with our product manufacturers
over the period as our local strategy gains momentum and
relationships continue to improve. During the current financial year
we will continue to build on our partnerships with them and further
educate them about The AO Way. We will increase marketing
campaigns to produce engaging content for their customers, build
marketing support and leverage Group-wide media assets.
Category development has continued with the launch of AV on ao.de
in early October 2016. We now sell TVs, home cinema equipment,
satellite receivers and Blu-ray players and sales to date have been
encouraging. We continue to build on the range, adding new brands
and recently expanded the category to include audio headphones.
We were able to apply our learnings from our roll-out in the UK:
ensuring local to local supplier engagement with an AO industry
expert, leveraging and utilising UK content at a low cost and drawing
on UK knowledge and experience. The ability to utilise our existing
UK content should help us attract additional support from the
manufactures as we look to expand our categories and ranges.
Priorities next year
In the year ahead we will continue to broaden ranges as far as possible
within existing categories.
In our computing category in the UK, at the time of writing, we have
added a second drop ship vendor into our operation which will enable
us to offer a wider range of computing products and will look to
strengthen the relationships we have with the brands themselves,
now we have demonstrated our retailing strengths. We will also
continue to focus on expansion of our AV range – particularly in audio,
looking to add additional premium brands to the mix. In MDA, we plan
to focus on the built-in subset of MDA (which is a growing market
opportunity), drive our installation capabilities and look to develop
trade relationships.
In Europe we will be exploring opportunities in the AV category and
building on our SDA range, adding small kitchen appliances to the
floor‑care range already available on ao.de. In the Netherlands we
will look to roll out AV and SDA.
We will continue to work in partnership with our manufacturers,
sharing insight and knowledge, innovating categories and changing
the normal course of retailing.
Our research of further complementary categories is continuing
with the focus on mobile and gaming, portable tech and other
smart/connected products, as we look to broaden our offering to
give our customers more reasons to return to AO.
Countries
Our ultimate goal is to become the best electrical
retailer in Europe and we now operate in three countries,
the UK, Germany and the Netherlands. Progress in
Germany and the Netherlands gives us further confidence
that the model can be successfully replicated and gives
a very strong platform for future growth.
The risks affecting our expansion are highlighted on
pages 42 to 44.
Performance this year
We are continuing to drive our European operation responsibly with
controlled growth. It has been a year of consolidation and whilst
financial performance has not met our expectations (with investment
losses being more than internally planned), we are nonetheless pleased
with the strategic progress made and now have a firm foundation from
which to further build our German and Dutch market offerings.
Our new territories are taking the same journey that our UK operation
experienced in its infancy, which we communicated to analysts and
investors at our Capital Markets Day in February. The strategy across
Europe is identical to the focus we have in the UK; to develop the
customer proposition, categories, culture and brand, to build and
deliver a sustainable business.
We launched in the Netherlands in March 2016 and have been
extremely pleased with the way our brand has resonated with our
Dutch customers over the full year of trading. We applied the learnings
from our launch in Germany, for example, in terms of supplier
engagement, the recruitment of key personnel and customer
acquisition. This resulted in a smooth launch and we hit the ground
running, giving us the confidence to replicate this bolt‑on model in
other territories when appropriate.
Priorities next year
Our research into further countries continues and we will pursue this
strategy through continued careful assessment of the European
electricals market, being selective of which opportunities to progress or
put on hold, to ensure that we deliver the best possible proposition for
our customers and maximise value in the long term for our stakeholders.
The opportunity!
Czech Republic
France
Poland
S
y
S p e e d
Austria
Belgium
Switzerland
y
c
n
Efficie
n y
G e r m a
Netherlands
s
t
e
m
s and processes
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Overview Strategic Report Our Governance Our Results Shareholders’ InformationOverview Strategic Report Our Governance Our Results Shareholders’ Information Strategy in action
Introducing Computing
(The AO Way)
In early 2016, we began our journey to launch a
brand new category in the UK, Computing. Our mission;
to transform the way this category was retailed by
approaching it in The AO Way. Our aim; to create
a new way of shopping that results in happy
customers and manufacturers.
We extensively researched and created a better
customer purchase journey. We made it informative and
innovative, by using content that cuts through the jargon,
helping customers choose the right product for them.
Lots to do – but a
strong belief AO
can once again
change how people
buy a product.
January
2016
Research
We ran customer labs to
understand how the customer shops
this specific category.
We held an extensive number of
customer labs to help us to really
understand customers’ pain points
when shopping this category online.
Support
We got manufacturer backing once
we explained our unique way.
Manufacturers were hugely
supportive of the new way of thinking
as they could see how AO’s new
proposition cut through the jargon
and helped to explain the benefits and
features of their products.
Learnings
We showed customers how we can
help and demonstrated our
understanding.
The outcome of these labs was
that customers had problems
understanding the wording around
products and what that meant for
them, meaning they weren’t always
buying the right product.
Solution:
We decided to make the whole
process EASIER by introducing a
“help me choose” function which
asks customers simple questions
to ascertain what they really want
and need.
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Smart working
We streamlined our distribution
processes to make our service as
efficient as possible.
To ensure that we could deliver this
category in an efficient way but still
with the high standards that we live
by, we linked this insight into the
distributor to make sure they
delivered in The AO Way.
We are delighted by
our progress so far,
leveraging the
investments we have
previously made in our
web content, IT and
product teams to add
the category seamlessly
to ao.com.
Ready for take-off.
October
2016
New category
launched
(using our learnings and the
systems we’ve developed, there
are so many categories we can
extend into).
Training
We trained all our staff to be experts in
the new category, helping customers
make decisions.
Launching a new category means
that there are new learnings and new
customer emotions to understand, so
we held training workshops for all our
customer service teams to make sure
they could help a customer at any
point of their computing
purchase journey.
See our computing
launch video here.
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Overview Strategic Report Our Governance Our Results Shareholders’ InformationOverview Strategic Report Our Governance Our Results Shareholders’ Information Corporate Social Responsibility
A modern company with
old fashioned values
Our values
are what
set us apart.
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30
There’s lots here about
“grass roots” and
“pipelines”. In short, we
select who we think are
AO people, train, encourage
and give them the
chance they need.
Responsible retailing
The Board considers that the development, well-being and
safe-keeping of people is central to supporting its strategy and
this, coupled with our social and environmental credentials,
is fundamental in creating a sustainable business.
People are our business
Creating the right environment for our employees
We continue to do what we believe is best for our employees, providing
an environment in which they can really flourish and the ability to
develop their skills. We want to encourage people as much as possible
to collaborate and have open spaces for employees to share and create
ideas and the new facility at Bergheim has been built to mirror the style
of our facilities at Parklands and Crewe. We believe this type of
environment really fosters the entrepreneurial spirit, creating a can-do
attitude for all our people. And we empower them to do what they think
is right, based on our values, rather than apply rigid rules that they must
adhere to, giving them autonomy and ownership.
This year we’ve updated our employee benefits (AO Perks), enhancing
our parental leave policies, helping with eye-care funding and placing a
real emphasis on employee wellbeing, giving employees the opportunity
to purchase medical cover and gym membership at reduced rates and
supporting employees through difficult times through our employee
welfare programme. We’ve also arranged for a number of corporate
discounts to be available to our employees, ranging from car-lease/hire,
cinema tickets, air travel, hotels, cruises, electronics and event tickets.
We’re also enhancing our learning and development function to be able
to deliver online training modules and skills workshops.
Recently we supported National Learning at Work Week putting the
spotlight on the importance and benefits of learning and development
at work. We held sessions where, for example, employees shared some
of their technical expertise – in areas such as Excel, social media,
analysis and computer programming – and also delivered
mindfulness workshops.
Employee engagement/nurturing our AO Culture
Last year saw a huge focus on how we ensure our employees are
inspired by the vision of our business and feel a part of what we are
trying to achieve. We focused our attention on how we communicate
these key messages to our employees and increased our efforts
through a number of communication channels, including a reformed
business‑wide “state of the nation” delivered in territory by both our
CEO and Founder, management briefing sessions to our senior
management team and a revamped intranet for all employees to keep
up to date with business updates. This includes a regular blog by
Founder, John Roberts.
We also revived our “what we are doing workshops” this year,
led by heads of departments giving real insight to specific areas
of the business and bringing our teams closer together.
As we continue to grow as a business we have repositioned our
engagement activities and worked towards the objective of building
relationships and driving collaboration across the business. All our
development programmes now have an element of this placed in them
and we encourage this through activities such as team building away
days and incentives within the office.
Investing for the future
Our recruitment model at AO is simple – we always strive to recruit at
a grass roots level and nurture talent through our leadership pipeline.
We continue to initiate programmes specifically designed to build and
nurture a future AO talent pool, strengthen our culture from within
and to aid our succession planning to meet our needs as the business
grows. These programmes are aimed at enabling technical capability
and behavioural development aligned to the business’ goals.
Our investment in emerging talent has seen an increased focus on
apprenticeships across the business. We now run apprenticeship
programmes across all core areas of our business including digital,
marketing and finance and have c.40 apprentices in junior roles.
As part of this programme to develop the next generation of leaders,
we enrol our apprentices on the Duke of Edinburgh (“DofE”) scheme.
This focuses on instilling the values and behaviours that make AO
what it is and what it will be in the future. It enables employees to
develop their own skills while also enabling them to give back to the
local community. Following the success of the DofE scheme during
the year we rolled it out to our full business with an additional
60 employees taking part in our DofE Diamond Challenge.
Once again, our Star Programme has been rolled out across the
business during the year, aimed at front-line (non-manager)
employees who have been identified as “talent” and have the potential
to be future managers at AO. The programme included Team Building,
Business and Charity Projects, Business Updates and Self-Development
with Skills Workshops designed to create lasting habits and behaviours
that will ensure that our people perform at their best whilst consistently
demonstrating our values. The programme proved a huge success in
the business with 70% of our employees progressing in their careers
following the programme. On top of this, we have invested further in
our Future Programme, designed at helping our managers become
the next leaders, centred around personal development, team
development and inspiration and are looking to launch our very
own AO Let’s Grow programme shortly.
Once again, we have carried out a robust employee survey to
ensure employees are given a voice and to enable us to understand
areas where we can improve as an employer. Our scores continue
to grow year on year with our employees NPS question “would you
recommend us as a place to work” increasing from 61 to 68. Specific
actions resulting from this survey have seen us place more emphasis
on development programmes for all our employees.
Equal opportunities
AO is committed to an equal opportunities policy. We aim to ensure
that no employee is discriminated against, directly or indirectly, on the
grounds of colour, race, ethnic or national origins, sexual orientation
or gender, marital status, disability, religion or belief, being part time
or on the grounds of age or frankly anything else and recruit on this
basis. See pages 57 and 61 “Diversity” for further details.
In January this year we launched our fourth save-as-you-earn
scheme which was open to all employees who had passed their
probationary period, building on the previous schemes in place,
giving an opportunity to all our employees to share in the success
of the Group as we grow.
Disabled persons have equal opportunities when applying for
positions at AO and we ensure they are treated fairly. Procedures are
in place to ensure that disabled employees are also treated fairly in
respect of career development. Should an employee become disabled
during their course of employment with the Group, we would seek
whenever practical, to ensure they could remain as part of our team.
In the opinion of the Directors, our equal opportunities policies are
effective and adhered to.
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Overview Strategic Report Our Governance Our Results Shareholders’ InformationOverview Strategic Report Our Governance Our Results Shareholders’ Information Corporate Social Responsibility
continued
Keeping people safe
We are committed to maintaining the highest standards of Health
and Safety practices for our employees, drivers, customers, visitors,
contractors and anyone affected by our business activities. During the
year, our Health and Safety risks increased with the commencement
of operations at our recycling plant in Telford. Accordingly, over the
year we further invested in various forms of recognised external
training and education to ensure even more improvement in our
Health and Safety culture. This enables us to have a workplace where
employees take individual responsibility for reducing the risk to both
them and their colleagues through: improved reporting of incidents
and near-misses, regularly reviewing risk assessments, updating
training and regular inspections of all sites and departments. We have
redesigned the format of our Health and Safety inspections over the
last year to ensure that all areas of the business are providing the best
level of Health and Safety.
We have continued to expand our Health and Safety team in line with
the growth in our business. Our established safety practices and ways
of working have continued to be replicated across our new territories
and our quarterly inspection procedures have been carried through
to these new locations, across all of our operations.
Our Health and Safety policies and procedures include:
– Regular internal audits on our Health and Safety performance
by an independent expert. The audit reviews legal compliance,
best practice and maintaining a safe environment.
– Managing risk and promoting Health and Safety culture in the
Board’s agenda.
– Seeking accreditation and aligning long-standing Company
programmes and procedures to internationally recognised
Quality Assurance standards.
– Appropriate training and education of all staff to adhere to legal
compliance and best practice.
– Proactively creating a safe environment to significantly reduce
occupational injuries or illnesses.
Supporting our communities
AO actively encourages all employees to support and give back to their
local community and the AO Smile Foundation continues to facilitate
this. 65% of our UK employees make a regular monthly gift to the
charity, and during the year over £60,000 was raised through payroll
giving, which makes the process of giving as easy, flexible and tax
efficient as possible.
In recognition of AO’s commitment in fostering a culture of
philanthropy and committed giving in the workplace we were
delighted to once again received a Platinum Payroll Giving Award
from HM Government and Institute of Fundraising.
Over the year we have continued to encourage colleagues to have a
positive impact within their local communities with our focus this year
driven by the “Gift of Time” and specifically our “make a difference”
days and volunteering. Over the course of the year we have supported
a number of charities and community projects, including:
– Barnabus Homeless Shelter in Manchester
– Rays of sunshine
– Claire House Children’s Hospice
– Wigan Youth
– West Houghton Youth Project Landscaping Day
Further, our call centre was chosen to be an official call centre for Red
Nose Day 2017. 110 of our people gave up their Friday night to man the
phones and we helped collect a whopping £45,000 for the charity.
Business ethics
Our Modern Slavery statement for the year ended 31 March 2016
was published during the year and we have continued to look at
our due diligence processes in this area to ensure we are complying
with the law but above all doing the right thing in accordance with
our values. Our modern slavery statement can be found at
http://ao.com/corporate/responsibility/modern-slavery-statement/
Building on our environmental credentials
We are mindful of the effects of our business on our environment.
We are committed to meeting or exceeding legislative requirements
across the board, in particular with regard to packaging and waste
electrical and electronic equipment (“WEEE”) waste in the territories
in which we operate.
To ensure minimum environmental impact all handling processes
are developed to fully utilise supplier packaging with around 2%
additional packaging added from receipt into our warehouses to
delivery to our consumers. We offer customers an unpack and
recycle service and are pleased with the level of take up. The majority
of packaging collected during delivery to the consumer is recycled
with more than 400 tonnes of card and plastic (including Expanded
Polystyrene) recycled in the year to 31 March 2017 across all
our operations.
We offer a collection and recycling service to our customers for their
old appliances (for a small transportation charge) or, alternatively,
we accept any WEEE free of charge which is delivered directly to our
warehouse. Old appliances are mostly broken down into recyclable
parts. A proportion are refurbished and put back into the market;
re-use is, after all, the ultimate in recycling. Last year over 37,000
tonnes of WEEE was processed.
During the year we completed the build of our recycling facility at
Telford giving us a state-of-the-art recycling plant which ensures
WEEE is safely and properly disposed and that re-use is optimised
giving rise to a number of environmental benefits. There is clearly an
appetite from customers to recycle and re-use even if they don’t
always put it into action – and don’t know how to. In the years ahead
we will be focusing on this and will look to create a platform that would
support a Group-wide sustainability drive (using the recycling
business as a springboard and foundation for sustainability). Further
details of our recycling facility are set out on pages 34 and 35.
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Energy efficient operations
We aim to run our operations with a strong focus on environmental
impact, fuel management and operational efficiency and constantly
seek at both a corporate and local level to help improve our
performance in all areas.
In order to drive energy efficiencies:
– Our home delivery fleet comprises 3.5 tonne “Hi‑Cube” trucks–
these trucks are lighter and have a greater space and weight
capacity;
– We have opened two new outbases in the UK during the year to
service demand and improve the efficiency of our fleet; and
– We also try to maximise our fuel efficiency by, for example,
employing double-decker trunking so that we can deliver more
products in one go to our outbases.
Greenhouse Gas Emissions Statement
As AO is listed on the London Stock Exchange we are required to
measure and report our direct and indirect greenhouse gas (GHG)
emissions pursuant to the Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013.
The methodology used to calculate our emissions is based on the
Greenhouse Gas Protocol Corporate Standard and emissions reported
correspond with our financial year. This year we have reported on all
material emissions from both our owned and leased assets for which
we are responsible across the UK, Germany and the Netherlands (the
prior year period included less than one month of trading from the
Netherlands). Emission factors used are from UK Government (Defra)
conversion factor guidance current for the year reported with the
exception of Germany and the Netherlands for which current
conversion factors were unavailable and therefore the prior year’s
factors have been used. Any changes in factors between the current
and prior year reporting periods are considered minimal.
Our emissions predominately arise from the fuel used in the vehicles
we use to deliver orders to customers and from gas combustion and
electricity used at our offices, national delivery centres and outbases.
In order to express our annual emissions in relation to a quantifiable
factor associated with our activities, we have used revenue as our
intensity ratio as this is a relevant indication of our growth and is
aligned with our business strategy.
Greenhouse Gas Emissions data
Year ending 31 March
Emissions from operations and
combustion of fuel (Scope 1)
Emissions from energy usage (Scope 2)
Total
Intensity ratio:
tonnes of CO2e per £m of revenue
Tonnes of CO2e*
2017
2016
25,600
3,865
29,465
24,408
2,735
27,143
42.01
45.25
Scope 1 comprises vehicle emissions in relation to the delivery of orders
to customers and operational visits and combustion of fuel (gas).
Scope 2 comprises our energy consumption in buildings (electricity,
heat, steam and cooling).
*
CO2e conversion factors in respect of gas and electricity for the Group’s German
and Netherlands operations for the current year were unavailable therefore CO2
factors for the prior year have been used.
Steve Caunce
Chief Executive Officer
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Overview Strategic Report Our Governance Our Results Shareholders’ InformationOverview Strategic Report Our Governance Our Results Shareholders’ Information Responsible recycling
AO Recycling launches
(The AO Way)
AO Recycling carries out the large scale recycling of
fridges and domestic appliances such as washing machines,
tumble driers and dishwashers, sometimes known as WEEE
(Waste Electrical and Electronic Equipment).
From its state-of-the-art facility in Telford in Shropshire,
which opened in spring 2017, AO Recycling is transforming
the way this difficult waste stream is dealt with.
Since 2014, all newer fridges in the UK which contain
pentane gases have been classed as hazardous waste.
This means they cannot be recycled until the potentially
flammable gases have been safely removed, along with
refrigerant and oil contained in the fridge motor.
The issue
Over the last few years the UK has
suffered from serious capacity issues
in the fridge recycling sector. Put
simply, far more fridges were
entering the waste stream every year
than the industry had the ability to
process correctly and responsibly.
The risk is that the UK could see
another repeat of the “fridge
mountain” crisis of the early 2000s.
Then, there was not enough capacity
to safely process older CFC fridges
– leading to mountains of fridges
piling up at waste sites across the
country.
The solution
AO wanted to recycle customers’ old
products in the most efficient and
environmentally friendly way as part
of its aim to being a more sustainable
business. AO plans to deliver a “step
change” in the way fridges are
recycled at end of life.
The new recycling facility in Telford
was built and will be able to recycle
more than 700,000 fridges a year.
To put this in context, about
3.5 million fridges are thrown away
every year – so AO Recycling
could be processing nearly one fifth
of these.
The machine
The plant could process up to 100
fridges an hour inside an enclosed
metal chamber. The machine weighs
more than 80 tonnes and works by
smashing appliances into their
constituent metals, plastics, and
foam insulation using heavy duty
rotating chains – a bit like a kitchen
blender. The raw materials are then
sorted into different metals, plastics
and foam powder for reuse in new
products – everything from kerb
stones and garden furniture to
new fridges.
Breaking up is tough.
Sometimes, it’s a
sad day at AO as we love
the products we sell
(we really do). But,
the environment
comes first!
Telford
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How does it work?
Old fridges and large domestic appliances will arrive at the site for
recycling having been collected from AO customers when they
purchase a new machine. Items which are still in working order will
be checked and, where appropriate, refurbished and sold. Packaging
from AO customers’ new appliances will also be brought to the Telford
facility for recycling.
It will be as “closed loop” a system as possible – meaning nothing is
wasted and every part of the old fridge is given a new lease of life.
It’s safe, clean, efficient and more environmentally friendly than any
other facility in the UK.
Step 1
Firstly we strip down the fridge
and dispose of the refrigerant and
oil that fridge motors are full of.
To do this we manually drill into
the fridge’s internal workings to
drain everything away.
Step 2
The motor is then removed with
some giant, heavy duty cutters
and sent away for recycling.
Step 3
The rest of the fridge is then sent
into a sealed chamber to extract
the gases in the fridge’s insulation
foam. To do this oxygen is removed
and replaced with nitrogen to
prevent anything igniting.
N
Step 4
The fridge is then dropped into a
big shredder, where heavy duty
chains spin around at 500 rpm.
This motion forms a vortex that
breaks the outer shell of the fridge
apart, into smaller pieces. This
process also smashes the
insulation foam into powder to
release more of the gases.
Step 5
The rest of the fridge’s remains
are dropped onto a heated
conveyor belt below. Heat helps
to release and neutralise any
leftover gases.
Step 6
At this point nitrogen is used to
condense the gases into liquid so
they can be safely sent away for
disposal elsewhere.
N
O8
Step 7
What’s left of the fridge’s remains
are sent through four different
filtration systems, to separate the
different materials from each other.
Step 8
This makes it really easy to collect
up the plastics and metals into
individual storage containers that
are now ready to be shipped on to
be recycled into other household
appliances, maybe another fridge!
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Overview Strategic Report Our Governance Our Results Shareholders’ InformationOverview Strategic Report Our Governance Our Results Shareholders’ Information77
The AO Way business model
We create sustainable value by providing electrical
products and related services to our customers. We do
this “The AO Way” – uniquely combining our customer
proposition with our culture, systems and processes
whilst maintaining end-to-end control throughout
our supply chain, all underpinned by our core values.
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Best Electrical
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People and Culture
We have a unique and vibrant culture
which embodies the Company’s
entrepreneurial spirit. We have a team
of people who genuinely care more
about our business and its customers,
and who live our five values.
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The AO Way consists of the following elements:
ATI V
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Largest available range
We offer an extensive range of MDA items – over 4,000
SKUs in the UK and we are growing our range of SDAs,
TVs and computing. In Germany we have almost 2,000
MDA SKUs and a number of SDAs. Most of our SKUs are
available for next day delivery – not many of our
competitors can offer that.
First-in-class delivery model
Our in-sourced seven-day delivery (six in Germany and
the Netherlands) is first class. We offer our customers a
wide range of delivery options including next-day and
designated time-slots, so that they can pick the delivery
that suits them. We can also install new appliances and
remove and recycle the old ones too.
Amazing customer service
Of course, we can claim that our service is wonderful
but our independent customer feedback scores are
exceptionally high. We give customers a flexible and
personal approach and make clear commitments to
them which we then deliver on.
Not beaten on price
We aim to offer the best price and will match any price
in the market but we are not a price leader.
Innovative online content
We ensure our on-site content is clear but detailed,
explaining product benefits to customers better than
anyone else, with feature-led reviews and 3D animation
which tells the manufacturer’s stories. Offering this
innovative content means that customers can make an
informed decision on their purchase and are able to
choose the right appliance for them.
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How we will create value
Our AO Way business model is scalable. Building customer, employee
and supplier advocacy and replicating our proposition into other
categories and territories will create long-term value as we seek to
become the Best Electrical Retailer in Europe. Our brand and reputation
will be our greatest asset as we become retailer of choice for customers
in our chosen categories, attracting new and repeat custom, thereby
growing market share, revenue and profits, in a responsible manner
for the benefit of all our stakeholders.
“Our Competitive Advantage” or “What sets us apart”
How we deliver The AO Way differentiates us from our peers. It isn’t
the individual elements of our model that are unique. It’s how we stitch
them together, coupled with the fact that we CARE more.
All elements of our operations that have direct contact with the
customer are either owned by AO or controlled (via SLAs) by us via
a third party so we can ensure that the same high levels of service
are given to all customers at each stage of their journey. Our fully
in-sourced online proposition provides structural advantages over
our competitors as it allows us to:
– Control the customer experience from order to delivery
– Control the margin end-to-end from supplier to customer
– Maintain a lower fixed‑cost base as compared to competitors
with significant store‑based assets whilst providing customers
with a simply better experience.
Our model is based on a wealth of knowledge and proprietary
systems built and a culture embedded over many years. This creates
a significant barrier to entry and makes it difficult for competitors to
copy but easy for us to replicate in new categories and territories.
We believe that by delivering a better service, caring more and
creating the easiest shopping experience we will become the Best
Electrical Retailer in Europe with a financial output to match.
Who we benefit
Our customers
The customer is at the heart of everything we do. We provide them
with a product and service both how and when they want it.
Our employees
Through creating an environment to allow them to flourish and be
the best that they can be. We provide a sharesave scheme to allow
employees to share in the Group’s success and offer a wide range
of programmes and courses to allow them to develop.
Our suppliers
We work with our suppliers to communicate the benefits of their
products to our customers, and build long and lasting relationships.
Our communities
We are an employer of 2,500+ employees and contract with a large
number of third parties. We invest time and money in local communities
through employees volunteering and via the AO Smile Foundation.
We pay our taxes and aim to retail responsibly, minimising our impact
on the environment.
Our shareholders
The benefits we provide to other stakeholders drive the benefits to
shareholders. We are a high growth company. Our profits generated
from our UK operations are invested into building our European
business, which we expect to achieve a profitable run rate during the
financial year ending 31 March 2021. This should then lead to capital
appreciation and future dividends for our shareholders.
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Our resources and relationships
Our success to date has been based on a number
of key elements: our customer service; our strong
management and culture; our supplier relationships
and our processes and systems.
Customer relationships
Our online platform includes detailed technical information,
customer reviews, product and price comparison tools and
an enhanced retail experience, which are not always available
in stores.
Destination for information
One of our aims is to become the “destination for information”
helping our customers decide which product best matches their
needs. We provide 3D animation and feature-led reviews to
bring products to life, we simplify complex technologies,
highlight user benefits and then deliver it to the customer with
our market-leading standards. Our best service goal means that
we aim to develop a retail experience which is as easy and
effortless as possible, always maintaining a personal touch.
We have the “MyAO” app which has track your order functionality
and customers are now able to shop on their Desktop, Tablet or
Mobile device and speak to an adviser on the telephone or via our
Live chat function. We believe we care more about the customer
than most of our competition.
We offer over 6,400 SKUs in the UK, nearly 2,700 in Germany
and nearly 1,300 in the Netherlands, a price match promise and
deliver seven days a week (six in Germany and the Netherlands)
at no extra charge. We offer a broad range of MDA, SDA and AV
products and our Computing range is growing along with the
range of ancillary services we offer such as customer finance
options, product protection plans, an unpack and recycle service,
product care packs and disposal and connection services.
What do customers want?
Best products, Best service, Best price and the Easiest
shopping experience!
So that’s what we offer...
...as a result customer satisfaction levels are high and our
customers love us. As at 31 March 2017 we ranked an “excellent”
9.5 and 9.6 on Trustpilot for AO.com and AO.nl respectively and
4.8 out of 5 stars on Trusted Shops for AO.de. Our NPS scores
remain consistently high too.
Manufacturer relationships
A trusted partner
We are reliant on our suppliers and see our role as being the
most direct and smartest link between them and the end user
– our customers.
There is considerable interdependence between us and the
manufacturers and most of the relationships have been in place
for many years in the UK. These relationships are becoming
increasingly strategically important to our suppliers as we grow
our customer base, sales volumes and influence on customer
demand, but also to us as we seek to launch in new countries
and try to leverage existing relationships. We aim to work in
partnership with them, sharing insight and knowledge, innovating
categories and changing the normal course of retailing.
Bringing products to life
We understand they invest millions in research to develop
product features so we think a lot about and invest in how we
add value for supplier brands to be the trusted partner in our
channel and we always think long term. Our joint advertising
campaigns really highlight the benefits and key product features
whilst driving brand awareness.
Our innovative content offers our manufacturers a great
platform to showcase their products and deliver our brand
messages as our 3D animation and feature-led reviews
bring products to life.
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Processes and systems
Distribution
Our UK in-house delivery network runs from Crewe and 12
stockless outbases around the UK. We operate a similar model
in Europe and currently have a European Regional Distribution
Centre in Bergheim and a number of outbases and customer
service centres across Germany and the Netherlands.
Delivery and installation options, speed and reliability are
important as are the removal and recycling of the old appliances.
IT
Our core IT systems have all been developed in-house. The
systems are bespoke; built for and continuously adapted to fit the
needs of the business. They are therefore not easily replicable by
any competitor and they are scalable and resilient.
Our automated stock forecasting and ordering system is
integrated with suppliers’ systems meaning that we can combine
high levels of availability for next‑day delivery with the efficient
use of working capital. It also means that we can optimise
resources by, for example, loading trucks most efficiently.
We believe that the standard of the
delivery service we provide is crucial
given that the delivery teams are
typically the only face-to-face
interaction that customers have
with the Group.
Watch Siemens’
European MD talk
about AO.
Strong management and culture
Our employees
Happy people care more and require a lot less management.
So we make sure they’re happy by giving them autonomy where
appropriate, support where needed and a great environment to
work in. They are empowered; they are incentivised; and they
know they are trusted. We love watching them grow and thrive.
Our values
We recruit and retain the best talent and look for people who
are smart, bold and driven. They must care more, not only about
our customers but other stakeholders of the business too, be it
the manufacturers and suppliers, other employees and,
of course, our drivers, and do it all with a sense of fun.
Our team
There are 10 of us on the Group Executive Team, including the
Executive Directors, and we have an average length of service of
over nine years. Our recent GET and senior management team
restructure has given greater responsibility to key members of
our team and further opportunities for career progression
throughout the business.
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Overview Strategic Report Our Governance Our Results Shareholders’ InformationOverview Strategic Report Our Governance Our Results Shareholders’ Information How we manage our risks
In common with many businesses, AO faces a broad range of risks
due to the scale and nature of our operations. These risks have varying
likelihoods and impacts and range from operational risks in our
day-to-day activities; strategic risks due to our high growth and
international expansion strategy; and external risks such as the market
environment and the regulatory frameworks to which we are subject.
Effective risk management allows us to identify, appropriately monitor
and mitigate, to the extent possible, these risks in line with our risk
appetite so that we can deliver our strategic objectives and protect
value for our key stakeholders.
How we manage risks
We have developed a risk management framework with policies in
place for identifying and addressing risks and with clearly defined
lines of responsibility, accountability and delegation of authority.
During the year under review, we have focused on enhancing our risk
governance processes and ensuring it is truly embedded throughout
the business, ensuring a more holistic approach to risk management.
AO World Plc Board
Audit Committee
RMC
Internal
Audit
Insurance
Committee
AO
Teams
Board
– Overall responsibility for effectiveness of AO’s internal control
and risk management process
– Approves risk appetite and risk capacity
– Agrees principal risks and mitigation strategy
Audit Committee
– Delegated responsibility from the Board to oversee risk
management and internal controls
– Reviews internal financial controls and risk management
systems and assesses their effectiveness by having regard to
the risks elevated to the corporate risk register
– Reviews and oversees Corporate Risk Register and advises
Board on risk appetite
Internal Audit
– Facilitates Risk Management Committee process
– Shares risk management information and best practice across
the AO Group
– Compliance checking; identifies gaps and improvements;
recommends corrective action
Risk Management Committee (“RMC”)
– Ensures robust risk management procedures are implemented
and complied with
– Develops strategies and programmes to embed risk
management as a core management skill
– Promotes a culture to encourage risk awareness and integrity
– Attended by each Group Executive Team member plus relevant
members from their teams to ensure engagement in risk
management practice
– Critically reviews risk register; assesses materiality/
measurement of risk and monitors mitigation and controls
– Supports AO teams in assessing risk
Insurance Committee
– Ensures that appropriate insurance is in place over property
and other assets, to help mitigate risks (in addition to meeting
legal and contractual obligations)
AO Teams
– Continuous identification and assessment of day‑to‑day risks
and mitigation
– Communicates significant risks to Risk Management Committee
Risk identification and assessment
Our risk register covers many risks that could affect our business,
customers, supply chain and communities. We have a formal risk
identification and management process to ensure that risks from our
day-to-day operations and from the general economy and our sector,
are continually identified, evaluated and, where possible, mitigated
throughout all of our operations. Our Internal Audit function meets
with AO team representatives on a bi-monthly basis to assess new and
existing risks, how these are being mitigated and how changes from
within the business or the wider corporate landscape may impact
them. It is this risk assurance process which forms the basis of our
Group Corporate Risk Register (“CRR”).
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Our Risk Management Committee, in which our Executives
participate, meets regularly to review the status of the existing CRR
and whether all risks are still current and relevant, and to appraise
newly identified risks to determine whether these impact existing risks
or require inclusion on the CRR in their own right. The review includes
an assessment of how each risk is being mitigated, its inherent and
residual risk and any changes. The likelihood and impact of each risk
is assessed against the Group’s Risk Assessment matrix which
determines its risk factor and resulting risk category which ranges
from minimal to aggressive. This process allows us to regularly
understand the strength and performance of the controls in place
and to address any potential gaps and weaknesses.
The Risk Appetite Statement is reviewed annually, in line with
the strategic direction of the Group, recent experience and the
regulatory environment.
This year’s achievement and future actions
This year we have continued to embed our Risk Management
Framework across the Group, ensuring that all areas of the business
understand our risk appetite and risk management processes and
that there is a consistent approach to risk.
Risks on our risk register (and new risks identified through our
processes) have been reviewed together with the controls we have
in place to mitigate the impact should these risks develop.
The CRR is reviewed by the Audit Committee at least annually and it
is notified of any significant changes in perceived risk as appropriate.
Individual risks which are considered to be AO’s principal risks are
reviewed by the Board annually and assessed against the Group’s risk
appetite and capacity. The Audit Committee annually appraises the
Group’s Risk Management and Internal Control Framework and
makes a recommendation to the Board as to its effectiveness.
Assurance
Framework
Corporate Risk
Register/Risk
Management
Committee
Internal
Audit
Plan
The Board/
Audit
Committee
Whilst our risk management processes work well, the programme
can only provide reasonable, not absolute assurance that key risks
are managed at an acceptable level.
Risk appetite
Overall, the Group has a “balanced” approach to risk taking; we will
not be unduly aggressive with our risk taking but we may accept a
limited number of significant risks at any one time in order to foster
innovation and to facilitate growth. We recognise that it is not possible
or necessarily desirable to eliminate some of the risks inherent in our
activities. However, these must be reviewed against the assessment of
other principal risks to ensure that the level of net risk remains within
the overall accepted risk appetite. For example, where it has already
accepted an aggressive or material risk, this would then limit the
acceptance of additional material risks.
We have seen a number of risk factors decrease over the year –
for example, the opening of the second distribution centre in Crewe,
reduced our reliance on the main (and previously sole) distribution
centre and provided us with extra capacity for peak trade and the
migration of our IT systems to a virtual platform has helped our
systems become more agile whilst at the same time helping them to
be robust against failure or attack. Conversely, we have seen some
risks on our register increase: the gross risk to the Group of Health and
Safety failures has increased now that the recycling facility in Telford
is operational; we recognise that the employment status of our drivers
is subject to increasing political pressure and media scrutiny and the
risks of a data breach are considered to be increasing as hackers
continually develop new ways to commit cybercrime. We have also
spent some time considering the risks that have arisen and may arise
following the UK’s decision to leave the EU.
Overall our scoring methodology has yielded a slightly lower overall
risk factor score this year compared to last. For movements in our
individual principal risk scores, please see the following pages.
In addition to our risk analysis work, a number of specific projects
have stemmed from the work of the RMC, either to address new risks
or improve our ability to mitigate risks. These include:
– The establishment of an Insurance committee to ensure
appropriate insurance is in place and to help address additional
requirement on the Group arising from the Insurance Act 2015.
– Enhanced business continuity planning to also include an
assessment of the BCP procedures of some of our key suppliers.
– Modern slavery due diligence improvements.
– GPDR planning.
These projects will continue in the year ahead and we will continue
to embed our risk culture throughout our Group, in all territories and
areas in which we operate.
Principal risks
Our principal risk categories have been defined as: Culture and
People; Failure of European Expansion, Brand Recognition and
Damage; IT Systems Resilience; Compliance with Laws and
Regulation, Business Interruption and the UK Economy.
The table overleaf summarises our assessment of these risks and how
we seek to mitigate them.
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How we manage our risks
continued
Nature of the risk
Mitigating activities
Overall change during the year
Key risk
Culture and People
Impact on strategic
objectives:
– Culture & Brand
– Customers
– Categories
– Countries
Impact on business model:
– People
Failure of European
Expansion
Impact on strategic
objectives:
– Countries
Culture is a key ingredient in the
success of the business and a
unique differentiator from our
competitors. If we fail to maintain
the culture in conjunction with
our growth this could affect all
areas of the business from our
ability to attract customers, our
dealings with suppliers and the
way we deliver.
We rely on members of our
Group Executive Team and
Senior Management Team to
provide strategic direction to the
business. The loss of key
member(s) of the team would
have a significant impact on our
strategy being realised.
Expanding into new territories
is a key part of our strategy.
Failure in these territories
would limit our long-term
growth and negatively impact
the Group’s finances.
Brand Recognition and
Damage
Impact on strategic
objectives:
– Customers
Impact on business model:
– People
Damage to our brand or failing
to achieve growing recognition
would lead to a reduction in
customer loyalty, a failure to
attract new customers or
suppliers or affect existing
relationships.
– AO culture is supported by a
wide range of tools, workshops
and events with a dedicated
employee events team
– Group Executive Team and
senior management have a
shared responsibility to drive
culture throughout the business
on the basis of AO’s values
– Senior employees continue to
receive attractive remuneration
packages including long-term
share options to encourage
retention
– Strengthened operational
management teams in each
territory give the benefit of
localised decision making and
reduce reliance on individuals
– Succession planning is in place
– Expansion into new territories
is only undertaken after
extensive research
– Expansion leverages AO’s
existing UK online retailing
expertise and experience
that has been built up over
many years
– Capital requirements are
relatively low and investment
is managed in stages
– Specific targets are in place for
new territories to enable focus
on objectives and measurement
of performance
– There is a dedicated social
media team in place to increase
brand awareness and generate
consumer interest in AO.com
– Ongoing marketing campaigns
to raise brand awareness
through different mediums
– Rigorous monitoring of
customer feedback through
quality processes
– In-house PR teams established
to deal with press and events
Risk decrease
Our European businesses are
now more established and
have well developed teams
who understand the culture
and values and are able to
nurture the culture amongst
new recruits.
A restructure below Board
into defined business units is
allowing for greater room for
career progression and also
improvements in succession
planning, although this still
remains a significant risk.
Risk decrease
Our German business is
now approaching three years
old and our business in the
Netherlands is just over year
old. Whilst there is still much
to do, the building blocks are
in place; our teams are now
well established, the
infrastructure to sustain
growth is now built, the
trajectory of progress with
manufacturers is good and
we have more confidence that
the model can be replicated.
No change
Brand awareness in the UK has
increased slightly over the
reporting period and customer
NPS and trustpilot/trusted-shop
scores show that our proposition
resonates and customers
continue to love our brand.
We still need to be vigilant and
protect the brand at all times
and increase our efforts to
drive brand awareness and
instil trust and confidence.
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Nature of the risk
Mitigating activities
Overall change during the year
Further risks in relation to
significant financial accounting
matters are discussed in the
Corporate Governance section
on page 64.
Key risk
IT Systems Resilience
Impact on strategic
objectives:
– Customers
– Categories
– Countries
Impact on business model:
– Infrastructure
Compliance with Laws
and Regulation
Impact on strategic
objectives:
– Customers
– Categories
– Countries
Impact on business model:
– Proposition
– People
AO’s main IT systems are
interlinked and critical for ongoing
operations. Therefore failure of
one system may disrupt others.
The majority of customer orders
are taken through our website
AO.com and therefore significant
downtime as a result of a
successful systems breach or
failure would affect the ability to
accept customer orders and may
affect customer loyalty, AO’s
reputation or our competitive
advantage and result in reduced
growth.
The loss of sensitive information
relating to strategic direction or
business performance may
compromise our future strategies
or the loss of data relating to
individuals may result in an ICO
complaint and negative publicity.
Changes in regulations or
compliance failures may affect
our strategy or operations, in
particular to the following areas:
– Health and Safety
– Driver employment status
– Data protection
– The basis upon which the
Company offers and sells
product protection plans or
the basis upon which revenue
from the sale of such plans is
accounted for.
Business Interruption
Impact on strategic
objectives:
– Customers
– Countries
Impact on business model:
A disastrous event occurring at
or around one or more of the
Group’s sites, including our main
distribution centre in each of the
UK and Germany, may affect the
ongoing performance of our
operations and negatively impact
the Group’s finances and our
customers.
– Proposition
– People
– Infrastructure
No change
The risk of failure of IT systems
was generally thought to have
decreased with the migration
to the virtual platform and new
fail-over systems in place.
However, the risk of cyber-crime
is thought to have increased
given recent attacks on other
businesses over the year.
Risk increase
Whilst Health and Safety is a
key priority of the Board and
robust processes and
procedures are in place, the
commencement of operations
at the Group’s new recycling
facility in Telford has
increased the overall Health
and Safety risk to the Group.
Recent first tier tribunal
decisions and increased
scrutiny of the “gig economy”
has increased the risk of
legislation changing in this area.
The forthcoming GPDR poses
potential challenges to working
and marketing practices.
Risk decreased
In the UK we have added a
second NDC and increased
the number of outbases.
– Physical and system controls in
place to minimise data breaches
– There is a continual improvement
cycle in respect of access levels,
housing of critical data,
encryption and penetration
testing for customer data
– Software is rigorously tested and
follows a robust release process
before being deployed in live
environment
– Operation of the IT environment
is continuously monitored and
disaster recovery plans are in
place to ensure business can
recover from any interruptions
with minimal impacts
– The AO website and internal
network are protected by a
firewall, a holistic view of routers
and switches with potential for
individual configuration change,
frequently updated anti-virus
and penetration testing
– Regulatory developments are
routinely monitored both in the
UK and in Europe to ensure that
potential changes are identified,
assessed and appropriate action
is taken
– AO are supported by a Legal
team who promote awareness
and best practice and an Internal
Audit team who provide
assurance on compliance
– Third-party legal advice is
sought were necessary and any
recommendations are
implemented and subject to
ongoing monitoring
– AO’s business is supported by a
qualified Health and Safety team
– Changes to the macro
environment and legislation are
monitored and implemented
promptly
– Two NDCs in the UK reduce
reliance on any one distribution
centre and in Germany the
distribution centre is separated
into chambers to reduce the
impact of fire or damage
– Dedicated engineering teams
on-site with daily maintenance
programmes to support the
continued operation of the NDCs
– A number of standalone controls
are in place to mitigate a major
event occurring at one of the
Group’s sites
– Enhanced business continuity
planning continues
– Insurance policies are also in
place to further mitigate this risk
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Overview Strategic Report Our Governance Our Results Shareholders’ InformationOverview Strategic Report Our Governance Our Results Shareholders’ Information How we manage our risks
continued
Key risk
UK Economy/Brexit
Impact on strategic
objectives:
– Customers
– Culture
Impact on business model:
– Proposition
– People
Nature of the risk
Mitigating activities
Overall change during the year
New (stand-alone) risk
Uncertainty in the UK economy
following the outcome of the EU
Referendum (Brexit), the risk of
inflation and the dampening of
consumer confidence may affect
the ability of the Group to
maintain sales growth.
– Customer proposition remains
strong and continued migration
to online shopping should soften
macro-economic impacts
– Robust relationships with
suppliers and improved stock
holding could mitigate impacts
on lead times
Controls on the freedom of
movement of people could add
friction in to the supply chain.
– Long-term recruitment planning
underway to reduce potential for
gaps in worker availability
Controls on the freedom of
movement of people may impact
the availability of workers in the
UK or the ability of our people to
move freely between our UK
business and our mainland
Europe operations.
Potential for an online sales tax
once no longer a member of the EU.
Currency risk from profit and loss
translation from Europe to the UK
adds uncertainty.
Assessment of Group’s prospects
Viability assessment
In accordance with Code C.2.2 of the UK Corporate Governance Code
2014 (“the Code”) the Directors are required to assess the longer‑term
viability of the Company taking into account the principal risks facing
the Company.
The Directors have considered whether the Group will be able to
continue in operation and meet its liabilities as they fall due over the
three‑year period ending 31 March 2020. This period was considered
appropriate due to: the rapid growth plans of the Group and changes
in its strategic opportunities; changes in the economic environment
which may alter consumer demand patterns and the Group’s business
planning processes which cover this period and help to support the
Board’s assessment.
In making its assessment of the longer-term viability of the Group,
the Board have carried out a robust assessment of the principal risks
facing the Company, including those that would threaten its business
model, future performance, solvency, or liquidity. These risks and
how they are mitigated are set out above on pages 42 to 44 and in the
Corporate Governance Statement on page 64. The Directors have also
reviewed the Group’s annual and longer‑term financial forecasts and
have considered the resilience of the Group using sensitivity analysis
to test these metrics over the three-year period. This analysis involves
varying a number of main assumptions underlying the forecasts
(including, without limitation revenue, margin and working capital),
and evaluating the monetary impact of severe but plausible risk
combinations and the likely degree of mitigating actions available to
the Company over the three-year period if such risks did arise.
Based on the Company’s current position and principal risks, together
with the results of the assessment detailed above and the Group’s
enhanced risk management processes (see pages 40 to 41) and
internal controls (see page 62), the Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the three-year period of
their assessment.
Going concern statement
The Company’s business activities, together with the factors likely
to affect its future development, performance and position are set out
in the Strategic Report on pages 16 to 51. The financial position of the
Company and its cash flows are described in the Chief Financial Officer’s
Review on pages 45 to 51. In addition, the notes to the financial
statements include the Company’s policies and processes for
managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities, and its
exposures to credit risk and liquidity risk.
In making their assessment of going concern, the Directors considered
the Board‑approved budget, the three‑year business plan, cash flow
forecast, the availability of a £30m Revolving Credit Facility, the proceeds
raised from the placing of new shares in the Company completed in
April 2017 and the Principal Risks set out on pages 42 to 44.
The Directors have a reasonable expectation that the Company and
the Group as a whole have adequate resources to continue in operational
existence for the foreseeable future, a period of not less than 12 months
from the date of this Report. Accordingly, the financial statements have
been prepared on a going concern basis.
The external auditors have reviewed these statements and have
nothing to report (see the Independent Auditors’ Report on pages
85 to 87).
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Chief Financial Officer’s Report
Mark Higgins
Chief Financial Officer
I am pleased to present the financial review for the Group for the year to
31 March 2017. We maintained our focus on delivering value for all our
stakeholders through our 4Cs strategy and have made good progress
against all these objectives. Furthermore we have continued to grow
Group revenue, increased profits across our core UK business and
ensured we are suitably capitalised to continue to accelerate our growth
across Europe. Going forward we will continue to increase sales and
profits by leveraging the assets we have built, driving out further
efficiencies and, in the short to medium term, reinvesting our free cash
flow in the growth of our European operations.
We experienced a strong start to our financial year, driven in part by the
stamp duty change in March 2016 which had a positive impact on the
overall MDA market. During the second half we began to feel the impacts
of dampening consumer confidence and a reduction in consumer
spending power as a result of growing inflationary pressures. Sterling
deflation in our market saw cost prices increase by 10‑15% through 2016.
Despite these factors and the impact of lower trading days against the
prior year (due to 2016 being a leap year), we achieved a 17.0% increase
in Group revenue to £701.2m. In the first half of the year the Group made
a profit (on an Adjusted EBITDA basis) with UK profits exceeding Europe
losses, however with margin pressures in the UK in the second half of
the year our UK profitability growth reduced and Europe losses
exceeded such profit giving an overall Group Adjusted EBITDA loss for
the year. Nonetheless, we have grown market share across all countries
and categories and have achieved a gross margin improvement of 0.7%
across the Group due to product margin gains and increased efficiencies
in our delivery network in Europe as our volumes build. We are
confident that we will be able to drive further efficiencies and build
margin by leveraging our increased scale, although in the UK product
margins are under pressure as we enter the new financial year.
In the UK, our focus on educating our customers that AO is a multi-
category electrical retailer began to deliver results as we experienced
particularly strong performances in our SDA category where we have
continued to expand our range. Sales in our new Computing category
performed better than we initially anticipated further highlighting that
our innovative way of retailing and demystifying products is resonating
well with our customers and we continued to see ancillary sales
(including that of product protection plans) perform well.
The financial year was a period of physical consolidation for our
European operations as we commenced operations from our new
regional distribution centre in Bergheim. This resulted in us investing
more than we had anticipated in Europe with operating losses
increasing to £27.6m (2016: £23.0m). The gross loss in Europe reduced
from £4.9m in 2016 to £4.0m in 2017, reflecting the significant progress
we have made with our supplier relationships and improvements in
delivery costs. Our increasing scale has helped to leverage European
SG&A Costs which have reduced to 33.2% of revenue (2016: 44.4%),
and we expect to make further progress in the year ahead as volumes
increase. Over the next few years we will continue to apply our UK
learnings in Europe and undertake initiatives to continue to improve
product margins to a mature state, make supply chain and cost-to-
deliver efficiencies and utilise our UK assets where possible, leveraging
our cost base through growth, as we set out at the Capital Markets Day
in February 2017.
In March 2017 we announced that we had raised £50m of gross
proceeds via a placing of new shares in the Company from both new and
existing investors. The new shares were admitted to trading on 3 April
2017 which was outside our reporting period and therefore the proceeds
are not included in the balance sheet as at 31 March 2017 but are detailed
within the “Events after the reporting period” note on page 111. The
placing was undertaken to suitably capitalise the business to support
our continued growth and increasing scale, providing us with the
flexibility to react to market opportunities and changes whilst we
capitalise on our increased brand awareness.
Our customer base and repeat purchase metrics are healthy,
highlighting the benefits of our model which will help drive continued
growth across our new territories. Our expanding range and categories
ensures resilience as we broaden our revenue streams. This, together
with our strong balance sheet and outstanding customer proposition,
will ensure that we are well positioned to trade well through possible
challenging market conditions.
Performance at a glance
Financial KPIs
Year ended 31 March
Group revenue (£m)
UK revenue (£m)
Europe revenue (€m)
UK Adjusted EBITDA (£m)
Europe Adjusted EBITDA losses (€m)
Group Adjusted EBITDA (£m)
Group Operating Loss (£m)
Non-Financial KPIs
2017
701.2
629.7
84.7
24.4
(31.5)
(2.1)
(12.0)
2016 % change
599.2
558.5
55.6
17.2
(30.4)
(3.9)
(10.6)
17.0%
12.7%
52.3%
41.7%
3.6%
(46.2%)
13.2%
Non-Financial KPIs, such as Brand Awareness and Trustpilot scores
are highlighted on page 21.
See our computing
launch video here.
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Overview Strategic Report Our Governance Our Results Shareholders’ InformationOverview Strategic Report Our Governance Our Results Shareholders’ Information Chief Financial Officer’s Report
continued
Trends and insights in our markets
UK trends
Online migration is continuing in the UK across Retail as a whole1, with
online penetration for electricals increasing further in the year from
33% to 36% for the categories in which AO operates2. This ongoing
migration allows AO’s addressable market size to continue to increase
despite forecast decreases in the overall electricals market.
Online retail sales value as % of total
20
18
16
14
12
10
8
6
4
2
0
2008 2009 2010 2011
Source: ONS
2012
2013
2014
2015
2016 2017
The migration to mobile devices (smartphones and tablets) continues
in the UK, with as much as half of online retail sales being made via a
mobile device3. The trend for consumers purchasing via shopping
apps is currently stronger in the UK than the rest of Western Europe4.
Personalisation is becoming increasingly important to the consumer,
48% of which now believe it is important for retailers to offer
personalised promotions online5.
UK overview
With the launch of Computing in October 2016, AO now operates in
four categories in the UK (Major Domestic Appliances “MDA”, Small
Domestic Appliances “SDA”, Audio Visual “AV”, and Computing) with
a combined market size estimated at £13.1bn6.
There are mixed expectations for the electricals market in 2017 from
market intelligence agencies with Mintel predicting 2.3% growth while
Retail Economics predict a decline of 0.5%, and BDO a decline of 0.7%7.
The overall expectation is that any increase will be driven by inflation,
with potential declines in volume as the gap between wage growth and
inflation is shrinking leaving consumers with reduced disposable income.
Conditions in the housing market are expected to be tough given the
forecast reduction in transactions8 by Royal Institute of Chartered
Surveyors and Council of Mortgage Lenders. Whilst our MDA sales
do correlate to the performance of the housing market, we are in part
insulated from any downturn as we believe a substantial proportion
of MDA sales are “distressed” purchases. Additionally, diversifying
into further categories also allows us to lessen the impact of any one
particular market declining, and as a result our sales mix of MDA
products is reducing each year.
Residential property transactions (000s)
1,600
1,200
800
400
0
MDA
Over the year to 31 March 2017 the total MDA market grew by 5%2 to
£3.7bn inc VAT6. Strong market growth throughout the first half of the
year tailed off as a result of reduced consumer confidence coupled
with price rises within the market. Average prices are rising both as
a result of a shift towards more premium and smart products and
the adverse impact of the euro exchange rate. Built-in appliances
experienced high growth levels of 16% throughout the year2.
AO continues to have access to almost all major branded MDA
suppliers, making up 98% of the major brands9 and we have further
strengthened our relationships with the major MDA suppliers in the year.
Notwithstanding the challenging economic conditions, AO’s share of
the overall UK MDA market share increased slightly year on year.
SDA
The SDA market (comprising Small Appliances, Food Preparation and
Floor Care) was worth £2.2bn inc VAT in the year to 31 March 20176,
declining 3% as a result of reduced food preparation sales2. However,
the category experienced a significant level of online migration in the
year driven, we believe, by increased choice of fulfilment options.
Our range now covers 92% of the market of major brands9, a marked
improvement on this time last year. We continue to focus on the more
premium end of the market, i.e. products over £30, which make up
89% of the online market9 and as a result our average price is 152%
above the market average. Our share of the overall SDA market has
more than doubled, year on year.
AV
The AV market was estimated to be worth £3.7bn inc VAT6, increasing
c.4% year on year2. It currently has the lowest online penetration of
AO’s four categories, but migration is significant with the online
market having grown 17% over our reporting period2.
There are two main trends being seen in the TV market currently,
with products under 40" experiencing significant decline, while
UHD/4K and screen sizes over 40" are seeing high growth levels.
Within Audio, headphones with premium features such as noise
cancellation & Bluetooth are growing strongly, as well as multiroom
smart audio speakers.
Our brand coverage of the TV market is now 99% of major brands9,
and we are increasing our audio ranges. Overall our market share in
AV has increased year on year.
Computing
The Computing market is estimated to be worth £3.6bn inc VAT6.
Although the market declined slightly over the reporting period,
primarily due to a lack of product innovation, PC gaming is estimated
to be growing at a rate of 53% year on year2. Computing has the highest
online penetration of any category we are present in9.
We now have access to the majority of brands across the core three
product areas (laptops, desktops and tablets), ranging c.88% of major
brands9. We expect to gain further market share in this category in the
current financial year.
Europe
The combined size of the MDA, SDA, AV and Computing markets in
Germany is €25bn inc VAT, 62% larger than the UK, and the
equivalent in the Netherlands is €4.8bn inc VAT6.
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
2007
Source: Council of Mortgage Lenders
We have completed a successful first full year of trading in the
Netherlands, and expanded our category offering further in Germany,
launching into AV in October 2016. Further categories will follow and AO’s
AO World Plc
AO World Plc
Annual Report and Accounts 2017
Annual Report and Accounts 2017
46
46
launch into Computing in the UK has provided us the learnings and
systems infrastructure to launch this category in our European territories.
Current and future potential markets (inc VAT)10
Online migration continues throughout Europe, as can be shown from
the chart below presenting a significant opportunity for AO.
Germany
With the launch of AV in October 2016, our addressable market in
Germany now stands at €15.7bn inc VAT6 (comprising MDA, Floorcare
and AV), of which 21% is traded online9.
4
1
3
8
2
5
9
6
10
7
As we have become more established in the German MDA market, we
have broadened our brand offering and now range 86% of major brands9.
The Floorcare market grew 13% in the year2 to €0.8bn inc VAT6,
experiencing strong growth in new technologies such as rechargeable
handhelds and Robotic Vacuum cleaners. The remainder of the SDA
market in which we do not currently operate is worth €2.0bn inc VAT6.
The AV market is worth €6.7bn6 inc VAT of which 22% is traded
online9. The DVB‑T2 signal switch in March 17 has driven sales of TVs
and Set Top Boxes and we have seen significant year‑on‑year
increases in these categories. Our brand offering is increasing every
month as we become more established in the market and gain share.
Online penetration rates are increasing in Germany, and there is still
significant opportunity for growth, as rates generally remain behind
the UK.
The Netherlands
In February 2016 we launched MDA in the Netherlands entering a
€1.7bn inc VAT6 market of which 21% is traded online9. The market
has grown by 10% in the year due to increased cooling sales2.
Throughout the year our brand and proposition offering has improved
significantly with the addition of major manufacturers, and the
introduction of pull switch installations which are specific to the
Netherlands and give us access to another segment of the market.
We have access to brands representing 79% of the major brands9.
Please see “Market Overview; GfK definitions” on page 120
for details of what is comprised in each of the stated categories
by territory.
Online penetration by category FY17 9
%
Online penetration by category FY17 9
Online penetration by category FY17 9
(%)
(%)
1. UK
MDA, SDA, AV,
Computing: £13.1bn
Broader electricals: £7.7bn
2. Germany
MDA, SDA, AV,
Computing: £21.1bn
Broader electricals: £7.9bn
3. The Netherlands
MDA, SDA, AV,
Computing: £4.0bn
Broader electricals: £1.5bn
4. Ireland
MDA, SDA, AV,
Computing: £0.6bn
Broader electricals: £0.2bn
Sources
1 ONS
2
GfK, 12 months to March 2017 vs.
12 months to March 2016. FY16
included an extra week in the GfK
data and so we have adjusted for this.
IMRG 2016
comScore 2016
IBM Study 2017
3
4
5
5. France
MDA, SDA, AV,
Computing: £13.0bn
Broader electricals: £5.7bn
6. Poland
MDA, SDA, AV,
Computing: £3.9bn
Broader electricals: £2.0bn
7. Austria
MDA, SDA, AV,
Computing: £2.1bn
Broader electricals: £0.8bn
8. Belgium
MDA, SDA, AV,
Computing: £2.5bn
Broader electricals: £0.7bn
9. Switzerland
MDA, SDA, AV,
Computing: £1.8bn
Broader electricals: £0.5bn
10. Czech Republic
MDA, SDA, AV,
Computing: £1.4bn
Broader electricals: £0.6bn
Current: £63.5bn
Broader: £27.6bn
Total: £91.1bn
Note: This order is illustrative and
gives no indication of the order of
planned category roll-out.
6
7
8
9
10
GfK, inc VAT, 12 months to March 2017
Mintel “Electrical Goods Retailing
UK, February 2017”, Retail
Economics “UK Electricals
Forecasts and Market Intelligence Q1
2017”, “BDO Retail Forecasts 2017”
Per RICS and Council of Mortgage
Lenders 2017 vs. 2016
GfK, 12 months to March 2017
MDA, SDA, AV, Computing: GfK,
12 months to March 2017. Broader
electricals: Euromonitor 2016.
Exchange rate used is the average
for the period
37
37
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
46
46
39
39
31
31
26
26
44
44
34
34
22
22
18
18
49
49
33
33
25
25
21
21
60
60
38
38
38 3836
38 3836
25
25
22
22
12
12
23
23
16
16
12
12
8
8
32
32
19
19
15 14
15 14
27
27
19
19
16
16
12
12
21
21
18 20
18 20
10
10
3 5 4
3 5 4
The UK
The UK
Germany
Germany
The
The
Netherlands
Netherlands
Austria
Austria
Belgium
Belgium
Czech
Czech
Republic
Republic
France
France
Ireland
Ireland
Poland
Poland
Switzerland
Switzerland
MDA
MDA
SDA
SDA
AV
AV
Computing
Computing
AO World Plc
AO World Plc
Annual Report and Accounts 2017
Annual Report and Accounts 2017
47
47
Overview Strategic Report Our Governance Our Results Shareholders’ InformationOverview Strategic Report Our Governance Our Results Shareholders’ Information
Chief Financial Officer’s Report
continued
Financial Review
Revenue (see table 1)
For the year ended 31 March 2017 total Group revenue increased by
17.0% to £701.2m (2016: £599.2m) missing our internal expectations.
Revenue in the UK increased by 12.7% to £629.7m (2016: £558.5m)
largely driven by a 14.5% increase in “AO” website sales, which
includes AO.com and AO branded eBay shops which accounted for
£557.9m of revenue (2016: £487.1m). This growth has been achieved
through continuing to attract new customers to the website and our
existing customers continuing to repeat, our investment to continue to
raise awareness of the AO brand and our consistently strong customer
proposition, all of which have helped ensure a good mix of demand
from both new and repeat customers. It has, however, been hampered
by some challenges in the major domestic appliance (“MDA”) category
in the final few months of the year with overall market data suggesting
the free-standing market in the UK has decreased year-on-year.
In Europe, AO website sales from our German website, AO.de, and
also our Netherlands website, AO.nl, totalled revenues of £71.5m
(2016: £40.7m) equating to €84.7m (2016: €55.6m) and an increase of
52.3% on a constant currency basis. This growth reflects (i) a full year
of trading in the Netherlands (with AO.nl only being launched in March
2016) and (ii) growth in our AO.de sales. Growth in the German
operation is particularly pleasing as it has been achieved despite a low
level of promotional activity during the year as we consolidated our
cost base and opened our new regional distribution centre in
Bergheim, currently serving both our German and Dutch markets.
Growth in sales was therefore largely driven by the strong testimonials
received from customers who have experienced The AO Way of
shopping and digital marketing (Google, affiliates, etc).
AO branded website sales (including AO.com, AO.de, AO.nl and AO
branded eBay shops) now account for 89.8% of total Group revenue
(2016: 88.1%).
Sales from third-party websites in the UK reduced to £46.0m (2016:
£53.6m) as our focus remains on promoting the AO.com brand,
eroding the market share of some of these clients and indicating the
overall challenging market conditions.
Included within “Other sales” is revenue from UK third‑party logistics
services and, from this year, our recycling business. This segment
experienced a 44.9% increase in revenue to £25.8m (2016: £17.8m)
driven by revenue from the recycling business and as we benefited
from the extension of a short-term logistics contract which
commenced in the final quarter of the previous financial year. This
contract has now expired and going forward we would expect to see
revenue from third-party logistics services fall. Recycling income
includes revenue from the sale of evidence notes following our
treatment of WEEE, packaging recycling income and revenue from
the sale of materials derived from the recycling process. The new plant
at Telford became operational towards the end of the year and therefore
we would expect revenue from this operation to increase going
forward although it will be a very small part of overall Group revenue.
“AO website sales” and, for the UK, “Third‑party website sales”
includes revenue earned from the sale of physical products and also
ancillary services such as delivery, the installation of products, unpack,
inspect, together with commission earned from the promotion of
Domestic and General’s product protection plans and, in the UK,
customer finance. Revenue from such ancillary service sales in the
period achieved growth consistent with product sales representing
11.6% of total sales at £81.0m (2016: 10.6%, £63.7m).
The first full year of trading from our Recycling business generated
£5.2m of revenue, comprising £3.9m from recycling and £1.3m from
the sale of used product to third parties. At the time of our pre-close
statement on 30 March 2017, the Group planned to include these
amounts within AO website sales however it has since been deemed
more appropriate to include the £3.9m revenue generated from
recycling services within “Other sales” and the £1.3m in Third party
website sales. The reclassification, together with a level of sales slightly
higher than anticipated over the last few days of the financial year,
means that overall there has been a 14.5% increase in AO website sales
over the reported period compared to the prior year, versus c.16%
indicated in the pre-close statement on 30 March 2017.
Gross margin (see table 2)
Gross margin for the Group, which includes product margin, delivery
costs, commissions from selling product protection plans and other
ancillaries (which attract a higher margin as a percentage of revenue
than product sales) grew to 18.4% for the reporting period. This was an
improvement of 0.7ppts against the prior year with gross profit
increasing by 22.0% to £129.2m (2016: £105.9m) largely driven by
leverage in Europe.
See “UK customers vs.
repeat customers”
on page 25.
Table 1:
Year ended 31 March (£m)
AO website sales
Third-party website sales
Other sales
Revenue
Table 2:
2017
UK
Europe
557.9
46.0
25.8
629.7
71.5
–
–
71.5
Total
629.4
46.0
25.8
701.2
2016
UK
Europe
487.1
53.6
17.8
558.5
40.7
–
–
40.7
Total
527.8
53.6
17.8
599.2
% change
UK
Europe
Total
14.5%
-14.2%
44.9%
12.7%
75.9%
N/A
N/A
75.9%
19.3%
-14.2%
44.9%
17.0%
Year ended 31 March (£m)
UK
Europe
Total
UK
Europe
Total
UK
Europe
Total
2017
2016
% change
22.0%
Gross profit/(loss)
0.7
Gross margin %
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.
-18.2%
6.5
(4.9)
-12.1%
(4.0)
-5.6%
20.2%
1.4
110.8
19.8%
129.2
18.4%
133.2
21.2%
105.9
17.7%
AO World Plc
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Annual Report and Accounts 2017
Annual Report and Accounts 2017
48
48
In the UK, gross margin increased by 1.4ppts to 21.2% (2016: 19.8%).
The improvement was predominately due to improved supplier
product margin in our MDA and AV categories reflecting strengthening
relationships with our product manufacturers and our ability to
leverage our brand and scale. We also benefited from continuing
volume efficiencies realised from our delivery bases as we continue to
grow. However, we had margin headwinds during the second half of
the year due to supplier pricing pressures following adverse currency
movements post the Brexit referendum.
In line with the increase in revenue relative to the prior period, in the
UK the contribution from ancillaries increased slightly with additional
next day delivery charges. The contribution to profit relative to revenue
from other ancillaries increased slightly year on year reflecting the
increase in delivery income described above. The contribution to
profit from product protection plans and other ancillaries (excluding
delivery) relative to revenue remained consistent with the previous year.
In Europe the gross loss reduced by 18.2% to £4.0m (2016: £4.9m) and
gross margin improved by 6.5ppts to -5.6% (2016: -12.1%), with the
losses and negative margin continuing to represent the early stage of
these operations (with relatively low product margins and higher costs
to deliver due to low drop densities at our current scale). However,
during the period we have made significant progress with our supplier
relationships resulting in solid improvements in product margin. In
addition, our individual costs of delivery have improved following
(i) internal efficiency drives (ii) a full year’s trading in the Netherlands
which leverages our German infrastructure cost base (iii) increasing order
levels which improved our drop densities and (iv) the use of a third‑party
logistics delivery model in areas with very low population density.
Selling, General & Administrative Expenses (“SG&A”)
(see table 3)
Total Group SG&A expenses increased by 22.2% over the year by
£25.9m to £142.4m (2016: £116.5m).
UK SG&A expenses for the year to 31 March 2017 increased by 20.6%
to £118.6m (2016: £98.4m) and represented 18.8% of sales (2016: 17.6%).
UK advertising and marketing expenditure as a percentage of revenue
remained broadly unchanged year on year at 4.1% (2016: 4.3%) as we
continue our strategy to grow brand awareness. We achieved a strong
reduction across our traditional customer acquisition costs as a result
of an increase in direct traffic (following improved brand awareness)
and improved Search Engine Optimisation (“SEO”) performance.
This has enabled us to further invest in TV and other advertising costs
to accelerate our brand awareness strategy, which has continued into
the new financial year with the sponsorship of Britain’s Got Talent.
UK warehousing costs increased by £6.2m to £27.3m (2016: £21.1m)
representing 4.3% of revenue (2016: 3.8%) as we incurred a full year
of trading from our second warehouse in Crewe and strengthened our
distribution network via the opening of two new stockless outbases in
Slough and Dundee. The additional outbases helped to reduce stem
mileage thus creating further efficiencies in delivery costs reflected in
gross margin and part of the cost of the second warehouse in Crewe
was offset by the sub-let of part of it (the income from which sits in
other Operating Income). As we continue to grow we should achieve
greater efficiencies due to scale.
UK Other administration expenses increased by £9.0m to £61.4m
(2016: £52.4m) and as a percentage of sales increased moderately to
9.7% (2016: 9.4%). The increase largely related to investments made in
trading teams for our new categories, our multi-media and IT teams,
in advance of our anticipated further growth.
UK Administrative expenses also includes £4.3m of cost in relation to
(i) share-based payment charges which relate to a scheme introduced
during the year which the Board considers one-off in nature and
(ii) European set‑up costs (namely strategic post‑go‑live costs);
(2016: £0.7m, which included a share-based payment credit of £0.4m).
Our increasing scale has helped to leverage European SG&A costs
which have reduced to 33.2% of revenue (2016: 44.4%). Whilst this
level of costs still reflects the relatively young nature of these
operations we expect to make further progress in the year ahead as
volumes increase and we continue to apply our well established UK
business model, for example in respect of customer acquisition costs.
We expect that such costs will not rise significantly going forward and
we are ready for growth.
Europe advertising and marketing expenses have been held in line
with the prior year at £6.2m (2016: £6.2m). This was a conscious
decision by the Group to ensure a smooth transition as we consolidated
our European operations. Warehousing costs incurred in our European
operations increased by £1.8m in the period to £4.0m (2016: £2.2m)
reflecting the opening of our Bergheim facility (although one chamber
of the warehouse is currently sub-let) and we will continue to leverage
this asset as we grow our volume. Other administration expenses
increased by 59.8% to £13.6m (2016: £8.5m) as our headcount
increased to a level ready for our next phase of growth.
Table 3:
Year ended 31 March (£m)
Advertising and marketing
% of revenue
Warehousing
% of revenue
Other administration
% of revenue
Adjustments1
% of revenue
2017
UK
Europe
25.7
4.1%
27.3
4.3%
61.4
9.7%
4.3
0.7%
6.2
8.6%
4.0
5.6%
13.6
19.0%
–
N/A
Total
31.9
4.5%
31.3
4.5%
75.0
10.7%
4.3
0.6%
2016
UK
Europe
24.2
4.3%
21.1
3.8%
52.4
9.4%
0.7
0.1%
6.2
15.3%
2.2
5.5%
8.5
20.8%
1.2
2.8%
Total
30.4
5.1%
23.3
3.9%
60.9
10.2%
1.9
0.3%
% change
UK
6.2%
Europe
-0.7%
Total
4.8%
29.4%
82.3%
34.4%
17.1%
59.8%
23.1%
507.2%
-100%
123.7%
Administrative expenses
% of revenue
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.
1
Adjustments is defined by the Group as set‑up costs and strategic post go‑live costs relating to overseas expansion and share‑based payment charges attributable to
exceptional LTIP awards which the Board considers one-off in nature.
142.4
20.3%
18.1
44.4%
23.8
33.2%
118.6
18.8%
116.5
19.4%
98.4
17.6%
20.6%
22.2%
31.2%
AO World Plc
AO World Plc
Annual Report and Accounts 2017
Annual Report and Accounts 2017
49
49
Overview Strategic Report Our Governance Our Results Shareholders’ InformationOverview Strategic Report Our Governance Our Results Shareholders’ Information
Chief Financial Officer’s Report
continued
Operating loss and Adjusted EBITDA (see table 4)
Operating Loss was £12.0m for the period, with operating losses
increasing by £1.4m against the prior period. However, 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 both the Executive
management’s annual bonus and recent LTIP awards. Whilst we
recognise that the measure is an alternative (non-Generally Accepted
Accounting Practice (“non‑GAAP”)) performance measure which is
also not defined within IFRS, this measure is important and should
be considered alongside the IFRS measures. The adjustments are
separately disclosed below.
Exceptional share-based payment charges/(credits)
LTIP awards were made to a number of senior staff under the
Performance Share Plan at the time of the Company’s IPO in 2014 and
also 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/(credit) in arriving at Adjusted
EBITDA. The difference in the add‑back year on year reflects the
cumulative adjustment to the LTIP charge based on the assessment
of certain performance criteria during the period (with the credit in
2016’s numbers reflecting the likelihood that the IPO award would not
vest, whilst the charge this year relates to the ERP which, having been
granted during the year under review, was not in the previous year).
Group Adjusted EBITDA losses reduced to £2.1m (2016: £3.9m losses)
after allowing for £26.5m of Europe Adjusted EBITDA losses (2016:
£21.1m). In local currency (removing the impact of foreign exchange
movements), European losses increased by 3.3% to €31.5m (2016:
€30.4m), reflecting losses incurred in the Netherlands operation in
its early stages of trading and further losses in the German business
as we continue on our journey to build critical mass.
UK Adjusted EBITDA for the 12 months to 31 March 2017 was £24.4m
(2016: £17.2m) representing a significant increase of 41.7% against
the prior year period following growth in sales and improvement
in gross margin.
Overall, Group Adjusted EBITDA missed our internal expectations
but fell within our guided range.
Adjustments
Europe set-up costs
These 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.
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.
Depreciation, amortisation and profit on disposal of
fixed assets
These are non-cash costs in relation to the Group’s tangible and
intangible fixed assets which are added back to operating profit to
arrive at EBITDA which is considered to be a relevant proxy for
“cash operating profit”.
Profit on disposal of £0.3m (2016: £nil) represents the gain on the
disposal of the Group’s existing trailers as part of our trailer
replacement programme.
Taxation
The tax charge for the year was £0.4m (2016: tax credit of £0.6m).
The effective rate of tax for the year was -6.3% (2016: 9.2%).
The Group is subject to taxes in the UK, Germany and the Netherlands.
Through its registered branch structure in Germany, the Group is able
to fully offset its German losses against profits within the UK. Tax losses
for prior years remain as carried forward losses within Germany. Due
to the start-up nature and losses in Germany and the Netherlands, no
overseas tax was attributable to the period. Losses to date not utilised
that are subject to overseas tax are not recognised for deferred tax
purposes on the basis that the Group does not expect these territories
to be profitable until 2020. The above, along with the release of the
deferred tax asset in connection with the IPO LTIP scheme results
in a small Group tax charge despite the overall Group loss.
Table 4:
Year ended 31 March (£m)
Operating profit/(loss)
Add adjustments:
Europe set-up costs
Non-cash share-based
payments charge/(credit) for
exceptional LTIP awards
Adjusted operating profit
Add: Depreciation and
amortisation
Less: Profit on disposal
2017
Europe
(27.6)
–
–
(27.6)
UK
15.6
0.7
3.6
19.8
Total
(12.0)
0.7
3.6
(7.8)
2016
Europe
(23.0)
Total
(10.6)
% change
UK
Europe
25.9%
20.1%
Total
13.2%
1.2
2.3
-43.9%
-100%
-73.2%
UK
12.4
1.1
(0.4)
13.1
–
(21.8)
(0.4)
(8.7)
-1,008.3%
51.6%
N/A -1,008.3%
-10.9%
26.7%
23.9%
N/A
-46.7%
Adjusted EBITDA
-0.4ppts
Adjusted EBITDA as % of revenue
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.
62.9%
N/A
25.5%
-14.9ppts
17.3%
N/A
41.7%
0.8ppts
(26.5)
-37.0%
(21.1)
-51.9%
(2.1)
-0.3%
(3.9)
-0.7%
24.4
3.9%
6.0
(0.3)
4.9
(0.3)
17.2
3.1%
4.8
–
0.7
–
4.1
–
1.1
–
AO World Plc
AO World Plc
Annual Report and Accounts 2017
Annual Report and Accounts 2017
50
50
Retained loss for the year and loss per share
Retained loss for the year was £7.4m (2016: £6.1m). Basic loss per share
was 1.56p (2016: 1.44p loss) which is positively affected by a foreign
exchange gain of £4.4m (2016: £2.7m) arising from intra-Group
funding arrangements.
As at 31 March 2017 UK inventories were £35.7m (2016: £30.9m)
reflecting an increase in sales volumes and an increase in our
stock‑holding to support the AV category which is generally only
bought in bulk loads and to lock in prices prior to supplier price
increases. As a result UK average stock days increased to 31 days
(2016: 29 days).
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. This has impacted the value of intra-Group loans held in GBP
in the European entities and EUR loans in the UK giving rise to the
£4.4m gain referenced above.
Below shows the adjusted basic loss per share excluding the foreign
exchange gain mentioned above.
Year ended
31 March (£m)
Loss
Loss attributable to owners of the
parent company
Foreign exchange gains on
intra-Group loans
Adjusted loss attributable to owners
of the parent company
Number of shares
Basic and adjusted weighted average
number of ordinary shares
Loss per share (in pence)
Basic loss per share
Adjusted basic loss per share
2017
2016
(6.6)
(4.4)
(6.0)
(2.7)
(11.0)
(8.7)
421,052,631 421,052,631
(1.56)
(2.62)
(1.44)
(2.07)
Cash resources and cash flow
Year-end net funds position was £12.0m (2016: £25.4m), as cash
decreased to £29.4m (2016: £33.4m) principally reflecting capital
expenditure in the UK and investment in the new RDC in Bergheim
offset partly by a positive operating cash‑flow of £3.5m (2016: outflow
of £3.5m), whilst total borrowings (comprising asset finance and bank
borrowings) increased to £17.4m from £8.0m in 2016. The increase
principally reflects the funding for investment in the UK’s logistics
fleet and the new recycling plant in the UK.
In June 2016, the Group put in place a revolving credit facility of £30m
with Lloyds Bank Plc and Barclays Bank Plc in order to fund UK
working capital movements.
Working capital (see table 5)
At 31 March 2017, the Group had net current liabilities of £28.5m
(31 March 2016: net current liabilities of £8.7m) principally as a result of
improved terms with the Group’s suppliers and an increase in inventories.
UK trade and other receivables (both non-current and current) were
£76.9m as at 31 March 2017 (2016: £59.3m) reflecting an increase in
accrued income in respect of commissions due on product protection
plans as a result of the higher retail volumes. UK trade and other
payables increased to £129.0m (2016: £102.8m) reflecting increased
inventory and manufacturers continuing to extend credit on the higher
volume of sales.
At 31 March 2017, European inventories were £9.1m (2016: £3.1m)
principally as a result of the increase in sales volumes in both
territories during the year. This is also reflected in the increase in trade
and other payables from £6.3m to £11.2m. Trade and other receivables
remained broadly in line with the prior year at £4.0m (2016: £4.6m)
with the increase in trade being offset by improvement in terms with
certain payment providers.
Capital expenditure
Total capital expenditure for the year was £16.9m (2016: £8.7m), which
comprised expenditure in relation to our new distribution centre in
Bergheim and two new outbases in the UK, our recycling facility at AO
recycling in Telford and the refresh of trailers in our logistics operation.
£10.9m of such expenditure has been financed by financing leases.
Events after the reporting period
On 3 April 2017 we completed a placing of 37,735,849 new ordinary
shares in the Company to raise £50m gross proceeds to suitably
capitalise the business to support our continued growth and
increasing scale.
Mark Higgins
Chief Financial Officer
5 June 2017
The Company’s Strategic Report is set out on pages 16 to 51.
Approved by the Board on 5 June 2017 and signed on its behalf by:
Julie Finnemore
Company Secretary
AO World Plc
5 June 2017
Table 5:
Year ended 31 March (£m)
Inventories
As % of COGS
Trade and other receivables
As a % of revenue
Trade and other payables
As a % of COGS
2017
2016
UK
Europe
Total
UK
Europe
Total
35.7
7.2%
76.9
12.2%
(129.0)
26.0%
9.1
11.9%
4.0
5.6%
(11.2)
14.8%
44.8
7.8%
80.9
11.5%
(140.2)
24.5%
30.9
6.9%
59.3
10.6%
(102.8)
23.0%
3.1
6.8%
4.6
11.2%
(6.3)
13.7%
34.0
6.9%
63.9
10.7%
(109.0)
22.1%
(11.2)
Net working capital
(3.4)
Change in net working capital
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.
(16.3)
(3.7)
(12.6)
(4.2)
(14.5)
(3.3)
1.4
0.8
1.8
0.4
AO World Plc
AO World Plc
Annual Report and Accounts 2017
Annual Report and Accounts 2017
51
51
Overview Strategic Report Our Governance Our Results Shareholders’ InformationOverview Strategic Report Our Governance Our Results Shareholders’ Information Corporate Governance Statement
Chairman’s letter to shareholders
Geoff Cooper
Chairman
Dear shareholder
I am pleased to report to you on the Board’s activities and
development during my first year as Chairman.
Since IPO in March 2014 the Group has made great progress in
developing its governance framework and, as your new Chairman,
one of my key responsibilities will be to continue to build on this by
supporting and promoting good practice and applying relevant
requirements and guidelines in a pragmatic way to aid the long‑term
success of AO.
Following my appointment I conducted an in‑depth review of the
current workings of the Board, including its role in Group strategy,
its composition and its strengths in debate and challenge. My findings
were largely positive, and the Board as a whole believes that we have
the right mix of skills to supervise our business and to meet our
governance responsibilities. However, our business is developing
and growing rapidly and whilst our key processes for audit, risk,
remuneration and general Board governance are working well, the
Board is aware that it does not currently meet The UK Corporate
Governance Code 2014 (“the Code”) independence requirements in
respect of the composition of the Board and the Audit and Nomination
Committees. Under the recommendation of the Nomination Committee
the Board has instructed a specialist search consultancy to identify
two individuals with the experience to broaden and strengthen the
Board and to support the executive team in achieving the Group’s
strategic ambitions, whilst at the same time addressing our Code
compliance issues. We expect the details of these appointments to
be announced in the coming months.
As outlined elsewhere in this report there have been some important
changes to the structure of the Board during the year. In February 2017
we announced that Steve Caunce, previously Chief Operating Officer,
would succeed John Roberts as Chief Executive Officer, and that John
would adopt a new role on the Board as Founder, Executive Director.
Steve will therefore be responsible for leading the Company,
accountable for strategy and performance delivery. John will focus
on innovation and inspiring AO’s people. Both will be responsible for
maintaining and developing our unique culture. Since this change was
a natural evolution of our executive team, the transition has been
seamless, as expected, with no disruption to the business and with
both Steve and John now comfortably executing their roles.
My predecessor, Richard Rose, resigned from the Board as Chairman
at the Company’s AGM in July 2016 after eight years with the Company,
leading the Board through the Company’s rapid stages of growth and
most significantly its IPO on the London Stock Exchange. In February
2017, having served on the Company since its IPO in March 2014, by
agreement, Rudi Lamprecht retired. On behalf of the Board I would
again like to thank Richard and Rudi for their significant contributions
to the business.
Following Rudi’s departure, Brian McBride replaced him as a member
of the Audit Committee and I became a member of the Remuneration
Committee. I also succeeded Richard Rose as Chair of the Nomination
Committee and whilst we are confident that both of these Committees
are well constituted and working effectively, having regard to the
requirements of the Code, we will review the composition of each
following the appointment of our new Non-Executive Directors
outlined above.
During the year we have continued to build our UK business and
to grow into new territories where we can leverage our existing
knowledge and skills. Our success will depend on our ability to deliver
our four supporting strategic elements: culture & brand, customers,
categories and countries. I believe that AO has strong governance
foundations required for sustainable, long‑term success and over the
coming financial year we will continue to work towards implementing
the appropriate requirements and policies for the Company.
As was the case last year, all Directors wishing to remain in office will
seek election and re-election at the AGM.
Since my appointment in July last year, I have engaged with a number
of AO’s shareholders and I look forward to meeting many more at our
forthcoming AGM.
My review also included an assessment of the Board’s role in strategy.
To increase the Board’s focus on our future, Board strategy days have
now been formally scheduled to allow focused time for enhanced
debate, challenge and understanding of the opportunities ahead and
how our strategy can be affected and complemented by the strategic
aims of our chosen partners.
Geoff Cooper
Chairman
AO World Plc
5 June 2017
The following pages
set out how AO has applied
the main principles of the
Code and its compliance with
the various provisions.
AO World Plc
Annual Report and Accounts 2017
52
Introduction
This Corporate Governance Statement explains key features of the Company’s governance structure and how it complies with The UK
Corporate Governance Code (“the Code”) published in September 2014 by the Financial Reporting Council. This Statement also includes items
required by the Listing Rules and the Disclosure Guidance and Transparency Rules. The Code is available on the Financial Reporting Council
website at www.frc.org.uk.
Compliance with the Code
The Directors consider that the Company has, throughout the reporting period, complied with the provisions of the Code save as noted below:
Code provision
Detail
Explanation of non-compliance
A.4.2
B.6.3
B.1.2
B.2.1
B.6.2
C.3.1
Led by the Senior Independent Director, the
Non-Executive Directors did not meet
without the Chairman present to appraise
and evaluate his performance.
Less than half of the Board, excluding the
Chairman, are independent Non-Executive
Directors.
The Nomination Committee does not
comprise a majority of independent
Non-Executive Directors.
An externally facilitated evaluation of the
Board has not taken place within the last
three years.
The Audit Committee does not comprise
three independent Non-Executive Directors.
Geoff Cooper became Chairman at the conclusion of the
Company’s AGM in July 2016. It was therefore not appropriate
to appraise his performance until he had been in the role for
an appropriate length of time. However, an appraisal of his
performance was conducted by the Non-Executive Directors
shortly following the Company’s reporting period in May 2017.
Excluding the Chairman who was deemed independent on
appointment, the Board currently has two experienced independent
Non-Executive Directors. As discussed elsewhere in this report,
the Board is currently seeking to add to its independent component
through the appointment of two new Non-Executive Directors and
therefore expects to comply with this Code provision in the near
future. However, notwithstanding these appointments, the Board is
satisfied that no individual has dominated its decision making, no
undue reliance has been placed on particular individuals, there has
been sufficient challenge of executive management in meetings of
the Board and the Board has operated effectively.
Only Brian McBride is considered independent and while Geoff
Cooper, Chairman of the Company and the Committee, was
considered to be independent on appointment, and remains so,
the Code provides that thereafter the test of independence is not
appropriate in relation to the Chairman. However, the Board
considers that it has a strong independent non‑executive
component and that the continuity, experience and knowledge of
Chris Hopkinson ensures that he made a significant contribution
to the work of the Committee over the period under review. The
composition of the Committee will be continually reviewed to
ensure it remains effective.
The Company had intended to conduct an externally facilitated
evaluation of the Board during the reporting period; however, given
the appointment of the new Chairman, Geoff Cooper, in July 2016,
who conducted his own evaluation, this review was not considered
necessary. The Board intends to conduct an externally facilitated
evaluation during the year ending 31 March 2018.
Chris Hopkinson is not considered to be independent for the
purposes of the Code given his long-term involvement with the
business. The Board considers that the composition of the Audit
Committee has a strong independent non-executive component
and that the continuity, experience and knowledge of Chris
Hopkinson ensured that he made a significant contribution to the
work of the Committee and that it ran effectively over the period
under review. The composition of this Committee will be
continually reviewed to ensure it remains effective.
More information on our approach to governance is included in the introduction, the report on corporate governance and the reports of the
Committees set out on page 53 to 79. These reports describe how we have applied the main principles of the Code. In addition this information
is set out in detail on our website at www.ao.com/corporate.
AO World Plc
Annual Report and Accounts 2017
53
Overview Strategic Report Our Governance Our Results Shareholders’ Information Corporate Governance Statement
Board of Directors
This year we gave Board members a
camera each and asked them to take a
photograph on the Board tour in Bergheim.
We asked each of them to select an image
that summed up their experience.
1. Geoff Cooper
Non-Executive Chairman
2. John Roberts
Founder, Executive Director
3. Steve Caunce
Chief Executive Officer
4. Mark Higgins
Chief Financial Officer
Appointment to the Board
2 August 2005 (AO Retail Limited
19 April 2000)
Relevant skills & experience
– Co-founded the business
over 16 years ago giving him
thorough knowledge and
understanding of the
Group’s business
– Extensive CEO experience;
led the management team to
successfully develop and
expand the business during
periods of challenging
market conditions
– Innovator and visionary lead
– Significant market knowledge
and understanding
Committee membership
John attends the Remuneration,
Audit and Nomination
Committees by invitation.
What impressed me most
It just felt like AO.
Appointment to the Board
13 October 2005
Appointment to the Board
1 August 2015
Relevant skills & experience
– Thorough knowledge and
Relevant skills & experience
– Group Finance Director for
four years prior to
appointment as AO’s Chief
Financial Officer
– Senior finance roles held at
Enterprise Managed Services
Ltd and the Caudwell Group
– Member of the Chartered
Institute of Management
Accountants
Committee membership
Mark attends the Remuneration,
Audit and Nomination
Committees by invitation.
What impressed me most
It’s a fantastic operation which we
can leverage for future growth.
understanding of the Group’s
business having held Chief
Operating and Chief Financial
Officer positions from 2005
until 2017
– Substantial experience in
growth businesses with a
strong consumer focus
– Significant Board and
management experience:
previously Finance Director at
Phones 4U Limited and senior
positions held at MyTravel Plc
and Preston North End Plc
– Associate of the Institute of
Chartered Accountants in
England and Wales
Committee membership
Steve attends the Remuneration,
Audit and Nomination
Committees by invitation.
What impressed me most
The values are really
shining through.
Appointment to the Board
1 July 2016
Relevant skills & experience
– Over 20 years UK public
company Board experience
including Chair and Chief
Executive Officer roles
– Significant retail and customer
facing industry experience
across the UK
– Ability to steer Boards through
high growth strategies and
overseas expansion
– Currently Non-Executive
Chairman of Card Factory plc
and Bourne Leisure Holdings
and adviser to Charterhouse
Capital Partners LLP, former
Non-Executive Chairman
of Dunelm Group plc and
former Chief Executive Officer
of Travis Perkins Plc
Significant current external
appointments
Non-Executive Chairman of Card
Factory plc and Bourne Leisure
Holdings Limited
Committee membership
Geoff chairs the Nomination
Committee and is a member of
the Remuneration Committee.
Independent
Yes
What impressed me most
The sheer scale of the operation.
AO World Plc
Annual Report and Accounts 2017
54
To find out more about
the changes in Board
composition go to “Current
composition of our Board”
on pages 56-57.
5. Brian McBride
Senior Independent Director
6. Chris Hopkinson
Non-Executive Director
7. Marisa Cassoni
Non-Executive Director
Appointment to the Board
6 February 2014
Appointment to the Board
12 December 2005
Appointment to the Board
5 February 2014
Relevant skills & experience
– Former City Financial Analyst
– Significant industry
experience
– Holds a Masters degree
in Logistics
Significant external
appointments
Executive Director of Better
Business Support Ltd and
Clifton Trade Bathrooms Ltd
Independent
No.
Committee membership
Chris is a member of the Audit
and Nomination Committees.
What impressed me most
The streamlined processes in
the warehouse.
Relevant skills & experience
– Extensive online retail
experience – former
Managing Director of
Amazon.co.uk and Chair of
ASOS Plc and Wiggle Ltd
– Significant non-executive and
governance experience
– Masters degree in Economics,
History and Politics
Significant external
appointments
Chairman of ASOS Plc and
Wiggle Ltd.
Independent
Yes.
Committee membership
Brian is Chair of the
Remuneration Committee and
a member of the Audit and
Nomination Committees.
What impressed me most
The investment in producing
our own content.
Relevant skills & experience
– ICAEW chartered accountant
with extensive financial and
governance experience in
both private and
public companies
– Previously finance director
of John Lewis Partnership Ltd,
Royal Mail Group and the UK
division of Prudential Group
– Panel member of the
Competition and Markets
Authority
– Wealth of Board experience
Significant external
appointments
Non-Executive Director of
Skipton Group Holdings Ltd,
Enterprise Inns Plc and
The People’s Operator Plc
Independent
Yes.
Committee membership
Marisa is the Chair of the Audit
Committee and is a member of
the Remuneration Committee.
What impressed me most
It felt like a business mature
beyond its years.
AO World Plc
Annual Report and Accounts 2017
55
Overview Strategic Report Our Governance Our Results Shareholders’ Information
Corporate Governance Statement
continued
Overview of Governance structure
AO World Plc Board
The Company is led and controlled by the Board. The structure and business of the Board is designed to ensure that the Directors
focus on strategy, monitoring, governance and the performance of the Group. The Board is collectively responsible to shareholders
for the long-term success of the Company. The Board has delegated certain responsibilities to Board Committees to assist it with
discharging its duties, and delegates the detailed implementation of matters approved by the Board and the day‑to‑day operational
aspects of the business to the Executive Directors who cascade this responsibility to the Group Executive Team (“GET”) and
throughout the Group. The Reports of each Committee can be found on pages 60 to 79.
Group Executive Team
Committees
Senior Management Team
Audit
Remuneration
Nomination
see page 63
see page 67
see page 60
Insurance
see page 40
The Board
Role of the Board
Our Board is collectively responsible for the Group’s performance
and meets as often as necessary to effectively conduct its business.
The Board is responsible for supervising the management of the
business and approving the strategic direction of the Company with
three Committees to which it delegates key governance and
compliance procedures.
The Board has an annual rolling plan of items for discussion which
is reviewed and adapted regularly to ensure all matters reserved to
the Board, with other items as appropriate, are discussed. At each
meeting, the Chief Executive Officer updates the Board on key
operational developments, provides an overview of the market,
reports on Health and Safety and other key operational risks and
highlights the important milestones reached in the delivery of the
Group’s strategic objectives. The Founder provides an update and
insight on market dynamics and the Chief Financial Officer provides
an update on the Group’s financial performance, banking
arrangements and provides an update on AO’s relationships with
investors and potential investors and shareholder analysis. Meeting
proceedings and any unresolved concerns expressed by any Director
are minuted by the Company Secretary who, as Director of Group
Legal, provides the Board with an update on any legal issues.
Members of the Group Executive Team are also invited to attend Board
meetings to present on specific business issues and proposals. This
way the Board is given the opportunity to meet with the next layers of
management and gain a more in‑depth understanding of key areas
of the business. Additionally, over the current financial year, external
speakers will be invited to present to Board on topical industry issues.
All of these topics lead to discussion, debate and challenge amongst
the Directors.
The formal schedule of matters reserved to our Board for decision
making includes:
– Setting and reviewing the Group’s long‑term objectives,
commercial strategy, business plan and annual budget.
– Overseeing the Group’s operations and management.
– Governance and risk control issues.
– Major capital projects.
A full list of those matters reserved for the Board is available on the
Company’s website at www.ao.com/corporate and from the Company
Secretary upon request.
Current composition of our Board
As at the date of this Annual Report the Board comprises seven
members: the Chairman, three Executive Directors and three
Non-Executive Directors, which includes the Senior Independent
Director. All our Directors served throughout the year, with the
exception of Geoff Cooper who was appointed to the Board on
1 July 2016 and became Chairman following the Company’s AGM on
21 July 2016, succeeding Richard Rose. Further details of the relevant
skills and experience of the Board are set out in their biographical
details set out on pages 54 and 55. The Board regularly reviews its
composition, experience and skills to ensure that the Board and its
Committees continue to work effectively and that the Directors are
demonstrating a commitment to their roles.
AO World Plc
Annual Report and Accounts 2017
56
Steve Caunce and Mark Higgins are together responsible for the
day‑to‑day running of the Group, carrying out our agreed strategy
and implementing specific Board decisions. John Roberts is
responsible for innovation and inspiring AO’s people.
The Senior Independent Director (“SID”) is Brian McBride, who is
available to shareholders if they have concerns that the normal
channels of Chairman or Chief Executive Officer have failed to resolve,
or for which such channels of communication are inappropriate. The
SID also acts as an internal sounding board for the Chairman and
serves as intermediary for the other Directors, with the Chairman,
when necessary. The role of the SID is considered to be an important
check and balance in the Group’s governance structure. In accordance
with the Code, neither the Chairman nor the SID are employed as
executives of the Group.
Diversity
We fully support the aims, objectives and recommendations outlined
in Lord Davies’ Report “Women on Boards” and are aware of the need
to increase the number of women on our Board and in senior positions
throughout the Group. However, we do not consider that it is in the best
interests of the Company and its shareholders to set prescriptive
targets for gender on the Board and we will continue to make
appointments based on merit, against objective criteria to ensure we
appoint the best individual for each role whilst maintaining an overall
objective to have a Board of mixed gender and background that has
an instinctive feel for our customers and people. As at 31 March 2017
across our business there were 668 female employees out of a total
of 2,490 employees and we have one female on the Board.
Directors’ conflicts of interest
Directors have a statutory duty to avoid situations in which they have
or may have interests that conflict with those of the Company, unless
that conflict is first authorised by the Board. This includes potential
conflicts that may arise when a Director takes up a position with
another company. The Company’s Articles of Association, which are
in line with the Companies Act 2006, allow the Board to authorise
potential conflicts of interest that may arise and to impose limits or
conditions, as appropriate, when giving any authorisation. Any
decision of the Board to authorise a conflict of interest is only effective
if it is agreed without the conflicted Directors voting or without their
votes being counted. In making such a decision, the Directors must act
in a way they consider in good faith will be most likely to promote the
success of the Company.
The Company has established a procedure for the appropriate
authorisation to be sought prior to the appointment of any new
Director, or prior to a new conflict arising and for the regular review of
actual or potential conflicts of interest. An Interests Register records
any authorised potential conflicts and will be reviewed by the Board
on a regular basis to ensure that the procedure is working effectively.
On 22 February 2017 the Company announced that as part of the
natural evolution of the Board and executive management structure,
Steve Caunce would succeed John Roberts as Chief Executive Officer
and John would adopt the new role of Founder, Executive Director,
providing focus on innovation and inspiring AO’s people. On
26 January 2017, the Company announced that the initial three-year
term of Rudi Lamprecht’s appointment as a Non-Executive Director,
by agreement, would not be renewed. On the recommendation of the
Nomination Committee, the Board has instructed a specialist search
consultancy to identify two individuals with the experience and
knowledge to broaden and strengthen the Board’s existing
composition and to support the executive team in achieving the
Group’s strategic ambitions whilst at the same time addressing its
Code compliance issues. We expect the details of these appointments
to the Board to be announced in the coming months.
Further details about these changes and the work of the Nomination
Committee is disclosed on pages 60 and 61.
For information on our procedures concerning the appointment and
replacement of Directors, please see the Directors’ Report on page 81.
Board meetings and attendance
Nine Board meetings (scheduled in the ordinary course of business)
were held during the year ended 31 March 2017 and there are currently
nine meetings scheduled for the year ending 31 March 2017.
Unscheduled supplementary meetings take place as and when
necessary. The table below summarises the attendance of the
Directors during the reporting period.
Director
Meetings eligible to attend Meetings attended
7
Geoff Cooper*
9
John Roberts
9
Steve Caunce
9
Mark Higgins
9
Brian McBride
9
Chris Hopkinson
9
Marisa Cassoni
3
Richard Rose**
7
Rudi Lamprecht***
* Geoff Cooper was appointed to the Board on 1 July 2016.
** Richard Rose retired from the Board following the AGM on 21 July 2016.
*** Rudi Lamprecht’s three-year term of appointment to the Board was not
renewed with effect from 16 February 2017.
7
9
9
9
9
9
9
3
5
Where Directors are unable to attend meetings, they receive the
papers scheduled for discussion at the relevant meetings, giving them
the opportunity to raise any issues and give any comments to the
Chairman in advance of the meeting.
Division of responsibilities
The positions of our Chairman and Chief Executive Officer are not
exercised by the same person, ensuring a clear division of responsibility
at the head of the Company. The division of roles and responsibilities
between Geoff Cooper and Steve Caunce is clearly established.
As Chairman of the Board, Geoff Cooper is responsible for its leadership,
setting its agenda, monitoring its effectiveness and ensuring good
governance. He facilitates both the contribution of the Non-Executive
Directors and constructive relations between the Executive and
Non-Executive Directors.
AO World Plc
Annual Report and Accounts 2017
57
Overview Strategic Report Our Governance Our Results Shareholders’ Information Corporate Governance Statement
continued
Committees of the Board
The Board has delegated authority to its Committees to carry out certain tasks on its behalf and to ensure compliance with regulatory requirements
including the Companies Act 2006, the Listing Rules, the Disclosure Guidance and Transparency Rules and the Code. This also allows the Board to
operate efficiently and to give the right level of attention and consideration to relevant matters. A summary of the terms of reference of each
Committee is set out below.
Committee
Role and terms of reference
Audit
Remuneration
Reviews and reports to the Board on the Group’s
financial reporting, internal control and risk
management systems, whistleblowing, internal
audit and the independence and effectiveness
of the external auditors.
Responsible for all elements of the remuneration
of the Executive Directors and the Chairman,
the Company Secretary and the Group
Executive Team.
Nomination
Reviews the structure, size and composition
of the Board and its Committees and makes
appropriate recommendations to the Board.
Membership required
under terms of reference
Minimum number of
meetings per year
Committee report
on pages
At least three members
Three
63 to 65
At least two should
be independent
Non-Executive Directors
At least three members
At least two should
be independent
Non-Executive Directors
At least three members
At least one should
be an independent
Non-Executive Director
Three
67 to 79
Two
60 and 61
The full terms of reference for each Committee
are available on the Company’s website at
www.ao.com/corporate and from the
Company Secretary upon request.
AO World Plc
Annual Report and Accounts 2017
58
Board evaluation and effectiveness
The effectiveness and performance of the Board is vital to our success.
An in‑depth internal evaluation of the performance of the Board and its
Committees was carried out by the Company’s new Chairman, Geoff
Cooper during the year. As part of this process one-to-one meetings were
conducted with all Directors who were given the opportunity to express
their views about:
– The performance of the Board and its Committees, including how
the Directors work together as a whole.
– The balance of skills, experience, independence and knowledge
of the Directors.
– Individual performance and whether each Director continues
to make an effective contribution.
The results of the evaluation were collated by the Chairman who made
appropriate recommendations which were considered by the Board.
The results of the evaluation indicated that the Board is working well
and that there are no significant concerns among the Directors about its
effectiveness. Some actions were agreed and will be progressed over
the coming year, for example strengthening the Non-Executive Director
component of the Board to ensure the correct mix of skills and to provide
appropriate support to the Executive Directors in pursuit of achieving the
Group’s strategic objectives and scheduling a number of Board strategy
days to enhance debate, challenge and understanding of the
opportunities ahead.
During the year, the Chairman met with the Non-Executive Directors
without the Executive Directors present to discuss Board balance, monitor
the powers of individual Executive Directors and raise any issues between
themselves as appropriate. Geoff Cooper became Chairman in July 2016
and given the relatively short amount of time from his appointment to the
end of the Group’s reporting period, an appraisal of his performance by
the Non-Executive Directors, led by the Senior Independent Director, did
not occur until shortly after the end of the reporting period.
Following evaluation, it was agreed that all Directors contribute effectively,
demonstrate a high level of commitment to their role and together provide
the skills and experience that are relevant and necessary for the
leadership and direction of the Company.
Independence
For the purposes of assessing compliance with the Code, the Board
considers that Marisa Cassoni and Brian McBride are Non-Executive
Directors who are independent of management and free from any
business or other relationship that could materially interfere with the
exercise of their independent judgement. The Board also considers that
Geoff Cooper, Chairman of the Company, was independent at the time
of his appointment in July 2016 and remains so. As previously stated the
Board is currently conducting a search for the addition of two independent
Non-Executive Directors to broaden the skills of the Board and strengthen
its independent component.
Having regard to the character, judgement, commitment and
performance of the Board and Committees to date, and following the
Board evaluation conducted during the year, the Board is satisfied that no
one individual will dominate the Board’s decision taking and considers
that all of the Non-Executive Directors are able to provide objective
challenges to management. A key objective of the Board is to ensure that
its composition is sufficiently diverse and reflects a broad range of skills,
knowledge and experience to enable it to meet its responsibilities. As can
been seen from the biographies on pages 54 and 55, the Chairman and
the Non-Executive Directors collectively have significant industry, public
company and international experience which will support the Company
in executing its strategy.
Director election
Following the Board evaluation process and the subsequent
recommendations from the Nomination Committee the Board considers
that all Directors continue to be effective, committed to their roles and are
able to devote sufficient time to their duties. Accordingly, all Directors will
seek election and re-election at the Company’s AGM.
Annual General Meeting
The AGM of the Company will take place at 11.00 am on Friday 21 July 2017
at the Company’s registered office at AO Park, 5A The Parklands, Lostock,
Bolton BL6 4SD. All shareholders have the opportunity to attend and vote,
in person or by proxy, at the AGM. The notice of the AGM can be found in a
booklet which is being mailed out at the same time as this Report and can
also be found on our website www.ao.com/corporate. The notice of the
AGM sets out the business of the meeting and an explanatory note on all
resolutions. Separate resolutions are proposed in respect of each
substantive issue.
Geoff Cooper, the Chair of each of the Committees and the Executive
Directors will be present at the AGM and will be available to answer
shareholders’ questions.
Information, support and development opportunities
available to Directors
All Board Directors have access to the Company Secretary, who advises
them on governance matters. The Chairman and the Company Secretary
work together to ensure that Board papers are clear, accurate, delivered in
a timely manner to Directors and of sufficient quality to enable the Board
to discharge its duties. Specific business-related presentations are given
by members of the Group Executive Team when appropriate, and going
forward it is also intended that external speakers will attend Board
meetings to present on relevant topics. As well as the support of the
Company Secretary, there is a procedure in place for any Director to take
independent professional advice at the Company’s expense in the
furtherance of their duties, where considered necessary, for example
New Bridge Street consultants advise on remuneration matters and Audit
Committee members have received guidance from the external auditors
on their duties as members of this Committee and new developments in
reporting standards. As part of the Board Evaluation process, training and
development needs are considered and training courses are arranged,
where appropriate.
In line with the Code, we ensure that any new Directors joining the
Board receives appropriate support and are given a comprehensive,
formal and tailored induction programme organised through the
Company Secretary, including the provision of background material
on the Company and briefings with the Group Executive Team where
appropriate. Each Director’s individual experience and background are
taken into account in developing a programme tailored to his or her own
requirements. Any new Director will also be expected to meet with major
shareholders if required.
External directorships
Any external appointments or other significant commitments of the
Directors require the prior approval of the Board. Details of the Directors’
significant external directorships can be found on pages 54 and 55.
No new appointments were made during the year.
While all Non-Executive Directors have external directorships, the Board
is comfortable that these do not impact on the time that any Director
devotes to the Company and we believe that this experience only
enhances the capability of the Board. Save for Crystalcraft Limited, a
dormant company, and the charities Onside Youth Zones and AO Smile
Charitable Foundation, for which he receives no fees, John Roberts does
not hold any external directorships. Save for Crystalcraft Limited and
Aghoco 1283 Limited, dormant companies, and the AO Smile Charitable
Foundation, for which he receives no fees, Steve Caunce does not hold
any external directorships. Mark Higgins holds no external directorships.
AO World Plc
Annual Report and Accounts 2017
59
Overview Strategic Report Our Governance Our Results Shareholders’ Information Corporate Governance Statement
continued
Report of the Nomination Committee
Geoff Cooper
Chairman
Geoff Cooper
Chairman, Nomination Committee
I am pleased to introduce the report of the Nomination Committee for
the year. Full details of the Committee and its activities during the year
are given below.
Composition and attendance of the Committee
The members of the Nomination Committee who served during the
year ended 31 March 2017 and their attendance at Committee meetings
is as follows:
Geoff Cooper*
Brian McBride
Chris Hopkinson
Richard Rose**
Chairman and
Chairman of the Board
Senior Independent
Non-Executive Director
Non-Executive Director
Previous Chairman and
Chairman of the Board
Meetings
eligible to
attend
Meetings
attended
1
3
3
1
1
3
3
1
* Geoff joined the Board on 1 July 2016.
** Until his retirement from the Board at the Company’s AGM in July 2016.
The Code recommends that the Nomination Committee is comprised
of a majority of independent Non-Executive Directors. Only Brian
McBride is deemed as independent as whilst I was considered to be
independent on appointment, the Code provides that thereafter the
test of independence is not appropriate in relation to the Chairman,
as was similarly the case with Richard Rose, my predecessor. Chris
Hopkinson is not deemed as independent for the purposes of the Code
due to his historic involvement with the Company. However, during
the year the Board considered that it had a strong independent
non‑executive component and that the continuity, experience and
knowledge of Chris made a significant contribution to the work of the
Committee, ensuring the Committee is run effectively.
Julie Finnemore (Director of Group Legal and Company Secretary)
serves as Secretary to the Committee. By invitation, the meetings of
the Nomination Committee may be attended by the Chief Executive
Officer, Chief Financial Officer, Founder Executive Director and
Marisa Cassoni.
Role of the Nomination Committee
The Committee is responsible for regularly reviewing the structure,
size and composition of the Board and has responsibility for
nominating candidates for appointment as Directors to the Board,
having regard to its composition in terms of diversity (including
gender) and ensuring it reflects a broad range of skills, knowledge
and experience to enable it to meet its responsibilities.
The Nomination Committee also makes recommendations to the
Board concerning the reappointment of any Non-Executive Director
as he or she reaches the end of the period of their initial appointment
(three years) and at appropriate intervals during their tenure. The
Committee also considers and makes recommendations to the Board
on the annual election and re‑election of any Director by shareholders
including Executive Directors (and changes to the Group Executive
Team), after evaluating the balance of skills, knowledge and
experience of each Director. Such appointments are made on merit,
against objective criteria and with due regard to the benefits of
diversity on the Board. The Company uses a combination of external
recruitment consultants and personal referrals in making any
required appointments to the Board.
The Nomination Committee takes into account the provisions of the Code
and any regulatory requirements that are applicable to the Company.
The Company had intended to conduct an externally facilitated
evaluation of the Board during the reporting period in accordance
with the provisions of the Code. However given that I conducted my
own in‑depth evaluation of the Board following my appointment,
it was deemed appropriate to delay the externally facilitated review
until the current financial year. The Nomination Committee will be
responsible for ensuring that future external evaluations of the
Board are carried out according to applicable regulations.
The Chairman does not chair the Nomination Committee when
it is dealing with the appointment of a successor Chair. In these
circumstances the Committee is chaired by an independent member
of the Nomination Committee elected by the remaining members.
AO World Plc
Annual Report and Accounts 2017
60
On the recommendation of the Nomination Committee and in line
with the Code, all currently appointed Directors will retire at the 2017
AGM and offer themselves for reappointment. The biographical
details of the current Directors can be found on pages 54 and 55. The
Committee considers that the performance of the Directors standing
for election and re‑election continues to be effective and that they each
demonstrate commitment to their role and devote sufficient time to
attend Board and Committee meetings and any other duties.
The terms and conditions of appointment of Non-Executive Directors,
including the expected time commitment, are available for inspection
at the Company’s registered office.
Diversity
The Committee takes into account a variety of factors before
recommending any new appointments to the Board, including
relevant skills to perform the role, experience, knowledge, ethnicity
and gender and concurs with the recommendations of Lord Davies’
review. The Company currently has one female Board member out of
seven and AO endeavours to achieve appropriate diversity, including
gender diversity, and notably, The Zygos Partnership (who we are
currently working with to help identify two new Non-Executive
Directors) are well-known for their work in the appointment of women.
However, the most important priority of the Committee has been and
will continue to be ensuring that members of the Board should
collectively possess the broad range of skills, expertise and industry
knowledge, and business and other experience necessary for the
effective oversight of the Group.
Our policy is, therefore, to ensure that the best candidate is selected
to join the Board and this approach will remain in place going forward,
without prescriptive or quantitative targets.
I will be available at the AGM to answer any questions on the work of
the Nomination Committee.
Geoff Cooper
Chairman, Nomination Committee
AO World Plc
5 June 2017
Main activities of the Committee during the year
A number of important changes have been made to the Board
during the period under review. Having regard to the growth and
development of the Company, it became apparent that some natural
evolutionary changes to the roles of the Executive Directors were
required and, following the recommendation of the Nomination
Committee, in February 2017 we announced that Steve Caunce,
previously Chief Operating Officer, would succeed John Roberts
as Chief Executive Officer, and that John would adopt a new role on
the Board as Founder, Executive Director. Steve will therefore be
responsible for leading the Company, accountable for strategy and
performance delivery. John will focus on innovation and inspiring
AO’s people. Both will be responsible for maintaining and developing
our unique culture. As expected the transition has been seamless
with no disruption to the business and with both Steve and John now
comfortably executing their roles.
The three-year initial term of the appointments of our Non-Executive
Directors expired on or around February 2017 (the Directors having
been first appointed shortly before the Company’s IPO). Marisa
Cassoni and Brian McBride’s appointments were extended but by
agreement, the three-year term of appointment of Rudi Lamprecht
to the Board was not renewed. Led by myself as Chairman and in
consultation with an external independent non‑executive search
consultancy (The Zygos Partnership) we are currently seeking the
appointment of two new independent Non-Executive Directors. These
appointments will seek to help expand the Board’s skill set in terms of
internationalising the AO brand, providing a new avenue of thought to
drive growth and increase Board diversity whilst also addressing our
Code non-compliance issues with respect to independence criteria.
We have been impressed by the calibre of candidates we have met
with thus far, and hope to be able to announce these appointments
over the coming months.
During the year the Nomination Committee assessed the composition
and effectiveness of the Board and its Committees, having regard to
the internal Board evaluation carried out by myself, and considered
renewal of appointments and the proposal for election and re‑election
of all the Directors at the forthcoming AGM. Feedback from my Board
evaluation, which includes the views of Executive and Non-Executive
Board members, was largely positive and did not expose major issues
although highlighted a number of areas to be strengthened such as the
Non-Executive component of the Board and more formalised Board
strategy days. As outlined above these areas are being addressed and
progress will be made over the coming year. The Committee also
reviewed succession planning of senior management; it recognises
that effective succession planning is fundamental to the success of the
Company and that ensuring the continued development of talented
employees and appropriately rewarding them helps to mitigate the
risks associated with unforeseen events, such as key individuals
leaving the business. Accordingly, below the PLC Board, our business
divisions have been restructured giving more responsibility and
accountability to members of the Group Executive Team and their
respective management teams. This has helped highlight areas in
need of strengthening and gaps in our succession plans. Our people
and culture (including succession planning) will continue to be a key
area of consideration in the year ahead.
AO World Plc
Annual Report and Accounts 2017
61
Overview Strategic Report Our Governance Our Results Shareholders’ Information Corporate Governance Statement
continued
– Financial reporting: Monthly management accounts provide
relevant, reliable and up-to-date financial and non-financial
information to management and the Board. Analysis is undertaken
of the differences between actual results and budgeted results on
a monthly basis. Annual plans, forecasts, performance targets
and long-range financial plans allow management to monitor the
key business and financial activities, and the progress towards
achieving the financial objectives. The annual budget is approved
by the Board. The Group reports half-yearly based on a
standardised reporting process.
– Information systems: Information systems are developed to
support the Group’s long‑term objectives and are managed
by professionally staffed teams. The integration of Microsoft
Dynamics, our new financial reporting system, is continuing and
is working to improve internal controls and the efficiency of our
processes, assist with the segregation of duties and standardise
procedures across the Group. Appropriate policies and procedures
are in place covering all significant areas of the business.
– Contractual commitments: There are clearly defined policies
and procedures for entering into contractual commitments.
These include detailed requirements that must be completed
prior to submitting proposals and/or tenders for work, both in
respect of the commercial, control and risk management aspects
of the obligations being entered into. Significant contractual
commitments, capital projects and acquisitions and disposals
require Board approval.
– Monitoring of controls: The Audit Committee receives regular
reports from the internal and external auditors and assures itself
that the internal control environment of the Group is operating
effectively. There are formal policies and procedures in place to
ensure the integrity and accuracy of the accounting records and
to safeguard the Group’s assets. There are formal procedures by
which staff can, in confidence, raise concerns about possible
improprieties in financial and pensions administration and other
matters – often referred to as “whistleblowing” procedures.
Internal controls
The Board acknowledges its responsibility for establishing and
maintaining the Group’s system of internal controls and it receives
regular reports from management identifying, evaluating and
managing the risks within the business. The system of internal
controls is designed to manage, rather than eliminate, the risk of
failure to achieve business objectives and can provide only reasonable
and not absolute assurance against material misstatement or loss.
This system of internal controls complies with the Financial Reporting
Council’s Internal Control: Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting. The Audit
Committee reviews the system of internal controls through reports
received from management, along with those from both internal and
external auditors. Management continues to focus on how internal
control and risk management can be further embedded into the
operations of the business and to deal with areas of improvement
which come to the attention of management and the Board.
The Board and the Audit Committee review on an ongoing basis the
effectiveness of the system of internal controls and did so during the
year ended 31 March 2017 and for the period up to the date of approval
of the consolidated financial statements contained in the Annual
Report. The review covered all material controls, including financial,
operational and compliance controls and risk management systems.
The Board confirms that no significant failings or weaknesses have
been identified from its review of the system of internal control. This
has involved considering the matters reported to it and developing
plans and programmes that it considers are reasonable in the
circumstances. The Board also confirms that it has not been advised
of material weaknesses in the part of the internal control system that
relates to financial reporting.
The key elements of the Group’s system of internal controls, which
have been in place throughout the year under review and up to the
date of this report, include:
– Risk management: Our Risk Management Committee has a clear
framework for identifying, evaluating and managing risk faced by
the Group on an ongoing basis, both at an operational and strategic
level. This internal control process starts with the identification
of risks through regular routine reviews with our AO team
representatives facilitated by our internal audit team with
appropriate action taken to manage and mitigate the risks
identified. These risks are recorded in the Group’s Corporate Risk
Register and the implications and consequences for the Group
together with the likelihood of occurrence are assessed. This
register is reviewed and discussed at least quarterly by the Risk
Management Committee and follow-up actions are assigned as
appropriate. The Risk Management Committee issues a report to
the Audit Committee and the key risks are included within the
Group’s Corporate Risk Register which is then reviewed and
scrutinised by the Board and from which the Group’s principal
risks are determined. For further details of our risk management
and risk appetite please see pages 40 to 44.
– Management structure: There is a clearly defined organisational
structure throughout the Group with established lines of reporting
and delegation of authority based on job responsibilities and
experience. Within the businesses, Group Executive Team
meetings occur regularly to allow prompt discussion of relevant
business issues and to ensure alignment on strategy. Please see
page 56 for further details on our management structure.
AO World Plc
Annual Report and Accounts 2017
62
Report of the Audit Committee
Marisa Cassoni
Chair, Audit Committee
I am pleased to report on the role and activities of the Audit Committee
for the year.
Composition and attendance of the Committee
The members of the Audit Committee who served during the year
ended 31 March 2017 and their attendance at Committee meetings is
as follows:
Marisa Cassoni
Chris Hopkinson
Brian McBride*
Chair
Non-Executive Director
Senior Independent
Non-Executive Director
Independent
Rudi Lamprecht**
*
From his appointment to the Committee with effect from 16 February 2017.
** Until the expiration of his tenure on the Board with effect from 16 February 2017.
Meetings
eligible to
attend
Meetings
attended
5
5
5
5
1
4
1
3
Two meetings are scheduled per year to review each of the Annual
Report and Accounts and the half-yearly report. Other meetings are
scheduled as required.
The Code recommends that the Audit Committee should comprise
at least three members, all of whom should be independent
Non-Executive Directors with at least one member having recent and
relevant financial experience. I am the independent Non-Executive
Director considered to have recent and relevant financial experience
and am pleased to confirm that all members have had extensive and
relevant experience (Directors’ biographies appear on pages 54 and 55).
Following Rudi Lamprecht leaving the Board on 16 February 2017,
Brian McBride, Senior Independent Non-Executive Director replaced
him as a member of the Audit Committee. Chris Hopkinson is not
regarded as an independent Non-Executive Director for the purposes
of the Code and therefore during the year the Committee was not fully
compliant in this respect. However, Chris’ financial experience and
knowledge is valuable to the Committee and will help to ensure that
the Committee is run effectively.
Julie Finnemore (Director of Group Legal and Company Secretary)
serves as Secretary to the Committee. By invitation, the meetings of the
Audit Committee may be attended by the Chairman, Chief Executive
Officer, Chief Financial Officer, Director of Financial Control and the
Head of Internal Audit. The external audit engagement partner and team
are also invited to attend Audit Committee meetings to ensure full
communication of matters relating to the audit. As Chair of the Audit
Committee, I met regularly with both the internal and external auditors
during the year.
Role of Audit Committee
The Audit Committee has particular responsibility for monitoring the
Group’s financial reporting process, the adequacy and effectiveness of the
operation of internal controls and the integrity of the financial statements.
This includes a review of significant issues and judgements, policies and
disclosures. The Committee reviews the Company’s risk management
and viability disclosure for recommendation to the Board for approval.
Our duties also include keeping under review the scope and results of the
audit and its cost effectiveness, consideration of management’s response
to any major external or internal audit recommendations and the
independence and objectivity of the internal and external auditors.
Additionally, the Board requests that the Audit Committee advises
whether we believe the Annual Report and Accounts, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position and
performance, business model and strategy.
A forward agenda will be used for the coming year’s activities focused
around the review of the annual financial statements, the results of the
external annual audit and interim reviews and internal audit quarterly
updates, relevant interim financial reporting and the external audit plan;
review of risk management reports; review of internal audit plans and
findings and recommendations.
A key responsibility of the Audit Committee is to ensure that the external
audit process and audit quality are effective. We do this by relying on:
the engagement with the Audit Committee Chair and the lead
(i)
audit engagement partner which will generally be through
face‑to‑face meetings;
(ii) the reports which are brought to the Committee by the lead audit
engagement partner and other senior members of the audit team;
(iii) the quality of the management responses to audit queries; meetings
held with the Chief Financial Officer, Director of Financial Control and
the Chairman with the lead audit engagement partner which are
reported to myself as Audit Chair and the Committee; and
(iv) a review of the independence and objectivity of the audit firm and
also the quality of the formal audit report given by the Auditor to
shareholders. Feedback is also sought from members of the finance
team, the Company Secretary and the Group Internal Audit Manager.
Audit Committee meetings are generally scheduled to take place in
advance of a Company Board meeting. As the Committee’s Chair, I report
to the Board as part of a separate agenda item on the activity of the
Committee and matters of particular relevance to the Board in the conduct
of their work. All members of the Board have access to Audit Committee
papers and minutes of meetings, and may, on request to the Chair, attend
the meetings.
AO World Plc
Annual Report and Accounts 2017
63
Overview Strategic Report Our Governance Our Results Shareholders’ Information
Corporate Governance Statement
continued
Significant financial accounting matters
Commercial
income
arrangements
The Group has a number of contracts with its
suppliers where additional discounts can be
applied based on purchase levels. The Group
accrues the additional discounts by reference
to the expected level of purchases. The
percentage discount accrued may differ to the
current run rate of purchases as the calculation
takes seasonality into account. There is a risk
therefore that the level of discounts provided
for at the year‑end could materially differ from
the actual number of purchases when compared
to assumptions made by management.
The management team has prepared detailed
policies setting out the key assumptions and
judgements in this area. The Committee has
reviewed the judgements made in this area by
management and, after due challenge and
debate, was content with the assumptions
made and the judgements applied.
Training
During the year the Audit Committee members have received
guidance from the external Auditors on their duties as members
of this Committee together with advice on new developments in
reporting standards.
Going Concern Assumption and Viability Statement
The Committee reviewed the Going Concern Assumption and Viability
Statement reported by the Group, as required by the UK Corporate
Governance Code 2014. Further information on the Going Concern
Assumption can be found on pages 44 and 94. The Committee was
satisfied that the Viability Statement, noted on page 44 of the Strategic
Report, presented a reasonable outlook for the Group to March 2020.
Fair, balanced and understandable assessment
The Committee has reviewed the financial statements together with
the narrative contained within the Strategic Report set out on pages
16 to 51 and believes that the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable. In arriving at this
conclusion the Committee undertook the following:
– review of early drafts of the Annual Report and Accounts,
providing relevant feedback;
– regular review and discussion of the financial results during the year;
– receipt and review of reports from the external and internal Auditors.
The Committee advised that the Annual Report and Accounts, taken
as a whole, were fair, balanced and understandable at a meeting of the
Directors on 5 June 2017.
Significant work undertaken by the Committee
during the year
Review of the 2017 Financial Statements
During the year to 31 March 2017 the Audit Committee reviewed
and endorsed, prior to submission to the Board, full-year financial
statements and the preliminary, interim results and trading update
announcements. We considered internal audit reports and risk
management updates, agreed external and internal audit plans,
approved the review of accounting policies and ensured appropriate
whistleblowing arrangements and associated policies were in place.
The internal audit annual plan was reviewed and approved by the
Committee and all reports arising therefrom were reviewed and
assessed, along with management’s actions to findings and
recommendations.
In reviewing the financial statements with management and the
Auditors, the Committee has discussed and debated the critical
accounting judgements and key sources of estimation uncertainty set
out in note 4 to the financial statements. As a result of our review, the
Committee has identified the following issues that require a high level
of judgement or have significant impact on interpretation of this
Annual Report.
Significant financial accounting matters
Revenue
recognition,
debtor
recoverability
and legal risk
in respect of
product
protection
plans
The Company sells product protection plans
to customers purchasing electrical appliances,
as agent for Domestic and General, who
administer the plans, collect money from the
customers and pay a commission to the
Company for each plan sold. Commission
receivable for sales of product protection plans
for which the Group acts as an agent are included
within revenue based on the estimated fair value
of future commissions receivable over the life
of the product protection plan. Revenue is
recognised up front on the basis that the Group
has fulfilled its obligations to the customer in line
with accounting standards relating to revenue
recognition. The fair value calculation takes into
consideration the anticipated length of the plan
and the historical rate of customer attrition and
is discounted to reflect the time value of money
but also risks around the recoverability of the
receivable balance attributable to the product
protection plans.
The Company accounts for this income on the
basis that it is agent. The basis upon which the
Company offers and sells product protection
plans could change due to (i) a change in law or
regulation or the interpretation of existing law or
regulation, or (ii) a change in how the plans are
managed or controlled or the level of risk that the
Company assumes in relation thereto. Any such
change could affect the Company’s accounting of
such income and/or could subject the Company
to claims or proceedings in relation to such
product protection plans.
Whilst this is an area of estimate and judgement,
the management team has prepared detailed
policies setting out the key assumptions in the
model. The Committee has reviewed the
judgements made in this area by management
and following appropriate challenge, we consider
the policy and practice appropriate.
AO World Plc
Annual Report and Accounts 2017
64
KPMG charged the Group £42,750 plus VAT for non-audit related
services relating to the year under review. £12,750 of these fees related
to some customer insight analysis performed by KPMG Nunwood, a
customer experience consultancy and a member of the KPMG group,
which is distinctively separate from KPMG’s audit arm and £30,000
related to the half-year review.
It is the Company’s practice that it will seek quotes from several firms,
which may include the incumbent Auditor, before work on non‑audit
projects is awarded. Contracts are awarded to our suppliers based on
individual merits.
We receive advice from other firms for specific projects. In particular,
the Company will regularly seek advice from an independent third
party on tax matters.
I will be available at the Company’s forthcoming AGM to answer any
questions on the work of the Audit Committee.
Marisa Cassoni
Chair, Audit Committee
AO World Plc
5 June 2017
Internal Audit
The Committee receives reports from the Internal Audit department
and reviews the internal audit process and effectiveness as part of the
Group’s risk assessment programme and as part of its sign off on
internal controls. An annual programme of internal audit assignments
is reviewed by the Committee. The Committee met with the Head of
Internal Audit without the presence of the Executive Directors on three
occasions during the year.
External Auditor
The Audit Committee has primary responsibility for leading the
process for selecting the external Auditor. It is required to make
appropriate recommendations on the external Auditor through the
Board to the shareholders to consider at the Company’s AGM.
Following approval by shareholders at the AGM held on 21 July 2016,
KPMG LLP was appointed as AO’s external Auditor for the financial
year ending 31 March 2017. The Committee has been satisfied with the
quality of the audit provided, as well as with the independence of
KPMG as Auditor. During the year, KPMG charged the Group £0.3m
(2016: n/a) for audit-related services.
Internal controls
During the year the Committee continued to oversee and review
AO’s internal financial controls and risk management processes,
risk appetite statement and principal risks, details of which are set
out in the Risk section of the Strategic Report on pages 40 to 44.
Non-audit services
The Company’s external Auditor may also be used to provide
specialist advice where, as a result of their position as Auditor, they
either must, or are best placed to, perform the work in question,
subject always to EU audit rules surrounding prohibited non-audit
services. The Company’s general policy is not to use the appointed
external Auditor for any non‑audit services, however, a formal policy
is in place in relation to ad‑hoc occurrences to ensure that there is
adequate protection of their independence and objectivity and any
such use requires approval of the Audit Committee. Further, any fees
for non-audit services must fall within the limits specified by EU
legislation, and various services are wholly prohibited; including tax,
legal, valuation and payroll services.
Fees charged by KPMG in respect of non‑audit services generally
require the prior approval of the Audit Committee. A breakdown of
the fees paid to KPMG during the year is set out in note 9 to the
consolidated financial statements.
AO World Plc
Annual Report and Accounts 2017
65
Overview Strategic Report Our Governance Our Results Shareholders’ Information
Corporate Governance Statement
continued
The Company recognises the importance of communicating with
its shareholders to ensure that its strategy and performance are
understood and that it remains accountable to shareholders. The
Company has established an Investor Relations function, headed
by the Chief Financial Officer.
The Investor Relations function deals with queries from individual
shareholders with support as appropriate from the Executive
Directors. The Investor Relations team ensures that there is effective
communications with shareholders on matters such as strategy and,
together with the Chief Executive Officer and Chief Financial Officer,
is responsible for ensuring that the Board understands the views of
major shareholders on such matters.
There is an ongoing programme of dialogue and meetings between
the Executive Directors and institutional investors, fund managers
and analysts. This includes formal meetings with investors to discuss
interim and final results and maintaining an ongoing dialogue with
the investment community through regular contact with existing and
potential shareholders, attendance at investment conferences and
holding investor roadshows as required. At these meetings, a wide
range of relevant issues including strategy, performance, management
and governance are discussed within the constraints of information
which has already been made public. The Board is aware that
institutional shareholders may be in more regular contact with the
Company than other shareholders, but care is exercised to ensure
that any price‑sensitive information is released to all shareholders,
institutional and private, at the same time in accordance with legal
and regulatory requirements.
The Senior Independent Director, Brian McBride, is available to
shareholders if they have concerns which cannot be raised through
the normal channels or if such concerns have not been resolved.
Arrangements can be made to meet with him through the
Company Secretary.
Following his appointment as Chairman, Geoff Cooper met with
a number of key shareholders to introduce himself and discuss
governance and strategy and to feedback any key issues such
shareholders raised to the Board. He also attended a number of
roadshow meetings and intends to continue to attend investor
meetings as appropriate, particularly where new major investors
come on board.
The Board obtains feedback from its joint corporate brokers,
J.P. Morgan Cazenove, Jefferies Hoare Govett and Numis Securities,
on the views of institutional investors on a non‑attributed and
attributed basis. Any concerns of major shareholders would be
communicated to the Board by the Executive Directors. As a matter
of routine, the Board receives regular reports on issues relating to
share price and trading activity, and details of movements in
institutional investor shareholdings. The Board is also provided
with current analyst opinions and forecasts.
All shareholders can access announcements,
investor presentations and the Annual Report
on the Company’s corporate website
(www.ao.com/corporate).
AO World Plc
Annual Report and Accounts 2017
66
Directors’ Remuneration Report
Report of the Remuneration Committee
Brian McBride
Chairman,
Remuneration Committee
Our Remuneration Policy was last approved by shareholders at the 2014
AGM when it received a positive vote in favour of 99.6%. This Directors’
Remuneration Report sets out details of the proposed remuneration
policy for Executive and Non-Executive Directors for the next three
years, as set out in full on pages 69 to 74, that will be the subject of a
binding vote at the Company’s forthcoming AGM on 21 July 2017.
The Directors’ Remuneration Report includes the Annual Report on
Remuneration (on pages 75 to 79) which discloses the amounts paid to
the Executive and Non-Executive Directors for the financial year ended
31 March 2017 under the current Remuneration Policy that was put in
place at IPO and approved by shareholders at our AGM on 17 July 2014.
It also describes how the proposed new policy will be implemented in
the year ahead, and will be subject to an advisory vote at the
forthcoming AGM along with the Remuneration Committee
Chairman’s Annual Statement.
Annual Statement by the Chairman of the
Remuneration Committee
Dear Shareholder,
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for our financial year ended 31 March 2017.
Proposed Remuneration Policy
At our IPO, we undertook a full review of our remuneration structure
to ensure that, as a public company, we would be operating within a
framework consistent with best practice, while being mindful of the
need to pay no more than is necessary to retain and attract high‑
quality talent. It has been three years since the policy was approved
and accordingly, during the year, we have assessed its effectiveness
and the levels of remuneration paid thereunder, in particular to the
Executive Directors, mindful of the changing landscape surrounding
Executive Pay and increased shareholder and proxy body activism in
this field. In particular, we have considered whether the policy truly
supports the delivery of our strategy, sustainable growth and
shareholder returns whilst properly rewarding and incentivising our
executives, whether it has been optimally implemented and whether
alternative pay models would be more suitable.
Following the review, we have concluded that, whilst we believe
that there are benefits in using an alternative model for AO World
in view of the difficulties in forecasting robust long-term targets, it is
not the right time to introduce a markedly different policy this year,
given volatile market sentiment. The Committee is therefore
considering an alternative approach to setting three‑year targets for
financial measures based around cumulative annual measurement,
or similar methodologies that help reduce the sensitivity of vesting
to “forecasting error”, but we are still forming our thinking on this
and will consult with shareholders prior to any implementation.
The Committee is aware that the executive remuneration landscape
is changing, and will continue to monitor developments as they
arise – the possibility of introducing an alternative pay model will
be re-visited at a later date should it become appropriate.
Accordingly, it is proposed to continue with substantially the same
policy for 2017 but with key proposed changes to introduce some of
the latest developments in best practice, as follows:
– Increase to shareholding guidelines – the minimum level of
shareholding which the Executive Directors will be expected to
build up will be increased from 100% to 200% of base salary; and
– Requirement for any bonus earned above 100% of salary to be
delivered in shares to be held for two years.
We believe that the above proposed changes strike an appropriate
balance between properly incentivising our Executives and
alignment with shareholders, however we are aware that the
executive remuneration landscape is evolving and will continue
to assess this over the years ahead, mindful of the desire to align
Executive and shareholders as much as is reasonably practicable.
This proposed revised policy (“the Policy”) continues to be
straightforward, transparent and aligned with the strategic and
financial objectives of the business; it delivers market competitive
packages to the senior executives at base level and rewards the
achievement of stretching targets at the other end. The aim is simple
– to align executive pay with the interests of shareholders and to
promote the long-term success of the AO Group for all stakeholders.
Put simply, we pay for performance and we will not reward failure.
Performance and reward for 2016/17
The Annual Report on Remuneration (set out on pages 75 to 79),
describes how the policy put in place at IPO has been implemented
in the year under review. It will be the subject of an advisory vote at
the forthcoming AGM.
Whilst the Group performed well over the financial year, with total
Group revenue increasing by 17% to £701.2m and Group Adjusted
EBITDA losses cut by over 40% to £2.1m, our overall expectations
of financial performance were not met. However, good progress
was made against the Company’s strategic objectives, notably with
the launch of additional categories in both the UK and Europe which
is a fundamental part of our 4Cs strategy and should deliver both
revenue and profit growth. The year’s annual bonus scheme
consisted mainly of financial targets, addressing both top-line
growth and profit. For Group revenue, the threshold target (at which
a quarter of the applicable bonus would be payable) was £705m,
which was narrowly missed. Similarly for Group Adjusted EBITDA
the threshold target (again at which a quarter of applicable bonus
would be payable) was losses of £300,000, which was missed and
the year-end cash balance of £29.4m did not meet the required
target of £32m. Nonetheless, our Executive Team has continued to
focus on the execution of our 4Cs strategy and solid performance has
been achieved (see pages 23 to 27 and page 76). Accordingly, 10%
of the maximum bonus was payable for launching our computing
category, which was achieved in October 2016 and which is trading
well. Details of bonuses paid are disclosed on page 75 and 76.
AO World Plc
Annual Report and Accounts 2017
67
Overview Strategic Report Our Governance Our Results Shareholders’ Information Directors’ Remuneration Report
continued
This is the first year we have had a completed PSP award cycle, with
the performance period of our IPO LTIP Award spanning the three
financial years ended 31 March 2017. Both Steve and John waived their
entitlements to participate in this award back in 2014, given their gains
from the IPO itself, however Mark Higgins, who was not a member of
the PLC Board at the time, did participate. The stretching targets set at
IPO, which encompassed an absolute TSR element (requiring the
share price to increase from £2.85 by 33% for a quarter to vest and by
100% for full vesting) and an EPS growth element (requiring adjusted
earnings per share to increase from £1.50 by 66% for a third to vest
and by 200% for full vesting), were not met (with the share price
currently tracking below £2 and the Company delivering adjusted loss
per share) and therefore no awards have vested.
During the course of the year, there was a transition in the roles of our
Executives with Steve Caunce taking over from John Roberts as CEO,
and John moving to an Executive Director role, as Founder. Whilst the
Committee reviewed the CEO package, it was felt there was no need
to make any changes, it being already appropriately competitive.
However, the Founder role needed greater consideration and the
Committee spent time understanding what this new role would
encompass and how remuneration would be best structured. The
package agreed for John delivers (i) a reduction in basic pay and
(ii) a significant reduction in total reward. The change to base salary is
reflective of a reduction in formal responsibilities, whilst appropriately
remunerating him for being a fundamental component of our
Executive team. We also agreed that, going forward, John’s
remuneration should not contain any variable elements. Given his
significant shareholding already aligns his interests with longer-term
performance of the Company and shareholders, the Committee
believes he is sufficiently incentivised. The overall effect of these
changes will mean shareholders see an extremely dedicated and
ambitious Executive Team, playing to their respective strengths, but
with total on target remuneration costs of c.£427,000 less per annum
(see charts on page 73 for the Executive remuneration opportunities
at target which equate to £2.758m in aggregate compared to the prior
year on target remuneration total of £3.185m).
Approach to Remuneration for 2017/18
Executives
As discussed above, for the year ahead base salaries have been
reviewed and, following his promotion to CEO, Steve Caunce will
receive a salary commensurate with that of the previous CEO, an
increase of 15% on his previous salary as COO. This increase relates
to the increased responsibility, scope and complexity of his role as
a result of his promotion to CEO. John Roberts will receive a salary
reduction of 13% to reflect his reduced responsibilities as his role
transitions from CEO to Founder Executive Director. The Committee
has reviewed the base salary level for Mark Higgins and increased it
to £340,000 (from £300,000). On his promotion to CFO in July 2015,
Mark’s salary was set at below market‑competitive levels for the role
and, as I set out last year, we anticipated increases to the level of basic
salary over the two to three years following his appointment as Mark
continues to grow into the role and gains experience and to ensure his
salary level (and package overall) are positioned at the appropriate
level relative to executive colleagues. The further increase to Mark’s
pay this year stems from that and his individual performance
demonstrated over the last year (notably the completion of the
revolving credit facility, the recent equity placing and progress made
within our investor relations function), and is supported by an external
benchmarking exercise. In particular, the successful facilitation and
implementation of the Revolving Credit Facility has enhanced the
working capital available to the Group and this together with the
strengthened balance sheet (following the equity-raising) have
greatly improved the financial position of the Company and given the
directors the ability to drive growth in the right way for shareholders.
In addition, the successful facilitation and implementation of the
Revolving Credit facility has enhanced the working capital available
to the Group and this together with the strengthened balance sheet
following the equity raising) have greatly improved the financial
position of the company and given the directors the ability to drive
growth in the right way for shareholders. We would not expect to
make increases of this magnitude in the future, rather would expect
increases in salary in line with the broader workforce. Other elements
of fixed pay remain unchanged.
In terms of variable pay, the Executives (other than John Roberts) will
be entitled to participate in the annual bonus scheme where, as last
year, performance conditions have been set in line with the Company’s
strategic and financial goals. Financial metrics – including revenue,
Group Adjusted EBITDA and cash flow – represent the majority of
targets, with the remainder based on achievement of key strategic
milestones (see page 77 for further details). The bonus opportunity will
be unchanged from last year at 150% of salary, and any bonus earned
above 100% of salary will be delivered in shares to be held for
two years.
Steve, CEO, will be entitled to participate in our long-term incentive
plan as last year with an award level unchanged at 150% of salary.
For Mark, CFO, we believe it is appropriate to make one further award
at the 300% level of salary. As I explained last year, following Mark’s
promotion to the Board, the Committee was minded to approve an
enhanced level of awards for the first two years he was in the role
(reflecting his initial below-median salary positioning and so ensuring
that in achieving a market competitive overall package, a higher
proportion of his overall remuneration is share‑based and subject to
long-term performance). We have reconsidered this intention in the
light of the strategic progress made by the Company and individual
performance, as noted above, over the last year, taking into account
feedback from shareholders around our AGM last year. As noted
above, Mark’s promotion and his role on the Board have proven to
have a significant impact on the business and the Committee believes
he is critical to the successful execution of our strategy going forward.
Accordingly, we believe a further award at the enhanced level is
appropriate in the circumstances and will give an opportunity for
Mark’s interests and those of shareholders to be further aligned. This
is the final year we are intending to make an award at this enhanced
level, with his awards returning to normal levels in future years.
The PSP performance conditions will continue to comprise a relative
TSR metric, Revenue and Adjusted EBITDA growth targets (see page
77 for further details). The Committee believes these metrics provide
the appropriate balance vis‑à‑vis the long‑term growth of the
Company and shareholder return.
Further details of the variable elements of remuneration for the
Executive Directors are set out on page 77.
Non-Executives
The base fee for the Non-Executive Directors (excluding the
Chairman) has been reviewed during the year and has been kept
unchanged at £50,000. Fees for additional responsibilities (such as
chairing committees and for holding the role of Senior Independent
Director) remain unchanged. Geoff Cooper’s fee, as Company
Chairman, also remains unchanged at £165,000 per annum. This is a
consolidated all‑inclusive fee for all Board responsibilities, including
chairing the Nomination Committee.
Brian McBride
Chairman, Remuneration Committee
AO World Plc
5 June 2017
AO World Plc
Annual Report and Accounts 2017
68
How the views of shareholders are taken into account
The Committee understands that constructive dialogue with
shareholders plays a key role in informing the development of a
successful remuneration policy and will seek to actively engage
with shareholders in these matters. The Committee will consider
shareholder feedback received in relation to the AGM each year.
Any such feedback, plus any additional feedback received from time
to time, will be considered as part of the Company’s annual review
of the policy.
In addition, when it is proposed that any material changes are to be
made to the remuneration policy, the Remuneration Committee
Chairman will inform major shareholders of these in advance and will
ensure that there is opportunity for discussion, in order that any views
can be properly reflected in the policy formulation process.
Consideration of employment conditions elsewhere in
the Group
The Company does not formally consult with employees on executive
remuneration. However, when setting the remuneration policy for
Executive Directors, the Committee takes into account the overall
approach to reward for, and the pay and employment conditions of,
other employees in the Group. This process ensures that any increase
to the pay of Executive Directors is set in an appropriate context and
is appropriate relative to increases proposed for other employees.
The Committee is also provided with periodic updates on employee
remuneration practices and trends across the Group.
Consideration of the impact of remuneration on risk
The Committee is committed to keeping the balance between reward
and risk under review to ensure the remuneration policy is aligned
appropriately with the risk appetite of the Company. The Committee
remains satisfied that the proposed Policy is appropriately aligned
with the risk profile of the Company and that the remuneration
arrangements do not encourage excessive risk taking.
This part of the Directors’ Remuneration Report sets out the
remuneration policy for the Company (“the Policy”) and has been
prepared in accordance with the Companies Act 2006, Schedule 8 of
The Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013 and the UKLA’s Listing
Rules. The Policy has been developed taking into account the
principles of the UK Corporate Governance Code (“the Code”) as it
currently applies.
This Policy will be put to a binding shareholder vote at the 2017 AGM
and, subject to approval, will take formal effect from that date. Whilst
it is currently intended that the policy will apply for three‑years
following approval, as noted in the Remuneration Committee
Chairman’s introduction, the Policy will be kept under review given
the volatility and uncertainty in the executive remuneration landscape
which may result in a new Policy being required before the end of the
three-year period.
Role of the Remuneration Committee in setting policy
The Committee is responsible for determining, on behalf of the Board,
the Company’s policy on the remuneration of the Executive Directors,
the Chairman and other senior executives of the Group.
The Committee’s overarching aims in setting the remuneration policy
are to attract, retain and motivate high‑calibre senior management
and to focus them on the delivery of the Group’s strategic and business
objectives, to promote a strong and sustainable performance culture,
to incentivise growth and to align the interests of Executive Directors
and senior managers with those of shareholders. In promoting these
objectives the Committee aims to ensure that no more than is
necessary is paid and has set a policy framework that is structured
so as to adhere to the principles of good corporate governance and
appropriate risk management. The Committee also recognises the
importance of promoting a strong “collegiate culture” and this is
reflected in the approach to consistency in the application of the
policy across the whole senior management population.
The Committee’s terms of reference
are available on the Company’s website
at www.ao.com/corporate.
AO World Plc
Annual Report and Accounts 2017
69
Overview Strategic Report Our Governance Our Results Shareholders’ Information Directors’ Remuneration Report
continued
Summary of our remuneration policy
The table below provides a summary of the key aspects of the Company’s remuneration policy for Executive Directors.
Element
Base salary
Annual bonus
Performance Share Plan (“PSP”)
Pension
Other benefits
Purpose and
link to strategy
– To aid the recruitment and retention of
– To reward the delivery of annual objectives relating
high-calibre Executives
– To reflect experience and expertise
– To provide an appropriate level of fixed basic
income
to the business strategy
– Intended to align the long‑term interests
of Executives with those of shareholders
– To incentivise the delivery of key strategic
objectives over the longer term
– To aid recruitment and
– To provide a competitive benefits package
to aid recruitment and retention
retention
– To provide an appropriate
level of fixed income
Operation
– Normally reviewed annually, with any increase
– All bonus payments are at the discretion of the
– The PSP was introduced on Admission in 2014.
– Executive Directors may
– Directors are entitled to benefits including
normally effective 1 April
– Set initially at a level required to recruit suitable
executives reflecting their experience and expertise
– Any subsequent increase influenced by (a) scope of
the role; (b) experience and personal performance
in the role; (c) average change in total workforce
salary; (d) performance of the Company; and (e)
external economic conditions, such as inflation
– Periodic account of practice in comparable
companies (e.g. those of a similar size and
complexity) taken
– No clawback or recovery provisions apply
Committee
– Not pensionable
– Determined by the Committee following the end of
the year based on targets set at the start of the year
– Bonuses up to 100% of salary are paid in cash.
Amounts in excess of 100% are delivered in shares
to be then held for at least two years
– Targets are set and reviewed annually
– The cash and deferred elements of the bonus are
subject to recovery provisions that enable the
Committee to recover cash paid (clawback) or to lapse
deferred shares (withhold payments) in certain
circumstances, including where there has been a
misstatement of accounts, an error in assessing any
applicable performance condition, or in the event of
misconduct on the part of the participant
Awards of free performance shares may be granted
annually in the form of conditional awards or nil
cost options
receive an employer’s
pension contribution,
and/or a cash payment
– Vesting is dependent on performance targets being
in lieu of pension
met during the performance period and continued
service of the Directors
– A dividend equivalent provision exists which allows
the Committee to pay dividends on vested shares at
the time of vesting
– Clawback and withholding provisions apply in
certain circumstances (including where there has
been a misstatement of accounts, an error in
assessing any applicable performance condition,
or in the event of misconduct on the part of
the participant)
Maximum
opportunity
Framework used
to assess
performance
– Annual increases will generally be linked to those
– Up to 150% of salary for all Executive Directors,
of the average of the wider workforce
– Increases beyond those awarded to the wider
workforce (in percentage of salary terms) may be
awarded in certain circumstances such as where
there is a change in responsibility, experience or a
significant increase in the scale of the role and/or
size, value and/or complexity of the Group
– The Committee retains the flexibility to set the
salary of a new hire at a discount to the market
initially, and implement a series of planned
increases over the subsequent few years,
potentially higher than for the wider workforce,
in order to bring the salary to the desired position,
subject to Group and/or individual performance
– The Committee reviews the salaries of Executive
Directors each year taking due account of all the
factors described in how the salary policy operates
dependent on performance, but a lower maximum
may be operated
– Bonuses are based on performance measures with
stretching targets as set and assessed by the
Committee in its discretion
– Financial measures (e.g. EBITDA) will represent the
majority (at least 70%) of bonus, with any other
measures representing the balance
– Up to 25% of bonus will be payable for achievement of
a threshold level of performance against the financial
measures, and up to 50% for on-target performance
– Measures and weightings may change each year
to reflect any year-on-year changes to business
priorities and ensure they continue to be aligned to
the business strategy
– The Committee has discretion to adjust the outcome
if it is not deemed to reflect appropriately the overall
performance of the Company over the performance
period. Any use of discretion will be detailed in the
following year’s annual report on remuneration
AO World Plc
Annual Report and Accounts 2017
70
Bonuses are based on
performance measures with
stretching targets.
– Maximum limit contained within the plan rules is
– Employer’s defined
200% of salary although up to 300% of salary may
be made in exceptional circumstances
contribution and/or cash
supplement of up to 12.75%
– Normal policy awards may be made at lower levels
of salary
than this
– Awards vest after three years, based on challenging
– N/A
– N/A
targets measured over a three‑year period, the
majority of which (at least 70%) will normally be
based on financial performance metrics
– Performance measures and weightings will be
reviewed annually by the Committee prior to each
grant and the Committee has discretion to vary
measures and weightings as appropriate to ensure
they continue to be aligned to the business strategy
– No more than 25% vests at threshold
– The Committee has discretion to adjust the vesting
outcome in exceptional circumstances to ensure it
is a true reflection of the overall performance of the
Company over the performance period. Any use of
discretion will be detailed in the following year’s
annual report on remuneration
a car allowance or company car, private
family medical cover, death in service, life
assurance and other Group-wide benefits
offered by the Company. Executive
Directors are also eligible to participate in
any all‑employee share plans operated by
the Company, in line with HMRC
guidelines currently prevailing (where
relevant), on the same basis as for other
eligible employees
– In certain circumstances the Committee
may also approve additional allowances
relating to relocation of an Executive
Director or other expatriate benefits
required to perform the role
– The Committee may provide other
employee benefits to Executive Directors
on broadly similar terms to the wider
workforce.
– The Committee has the ability to
reimburse reasonable business related
expenses and any tax thereon
– The value of benefits may vary from
year to year depending on the cost to
the Company
– The Committee has discretion to approve
a higher cost in exceptional circumstances
(such as relocation), or where factors
outside of the Committee’s control have
changed materially (such as increases
in insurance premiums)
Element
Base salary
Annual bonus
Performance Share Plan (“PSP”)
Pension
Other benefits
Performance metrics
and targets are carefully
selected and aligned to the
Company’s strategic plan.
– To aid recruitment and
– To provide a competitive benefits package
Summary of our remuneration policy
The table below provides a summary of the key aspects of the Company’s remuneration policy for Executive Directors.
Purpose and
link to strategy
– To aid the recruitment and retention of
– To reward the delivery of annual objectives relating
to the business strategy
high-calibre Executives
– To reflect experience and expertise
– To provide an appropriate level of fixed basic
income
Operation
– Normally reviewed annually, with any increase
– All bonus payments are at the discretion of the
normally effective 1 April
Committee
– Set initially at a level required to recruit suitable
– Not pensionable
executives reflecting their experience and expertise
– Determined by the Committee following the end of
– Any subsequent increase influenced by (a) scope of
the year based on targets set at the start of the year
the role; (b) experience and personal performance
– Bonuses up to 100% of salary are paid in cash.
in the role; (c) average change in total workforce
salary; (d) performance of the Company; and (e)
external economic conditions, such as inflation
Amounts in excess of 100% are delivered in shares
to be then held for at least two years
– Targets are set and reviewed annually
– Periodic account of practice in comparable
companies (e.g. those of a similar size and
– The cash and deferred elements of the bonus are
subject to recovery provisions that enable the
complexity) taken
– No clawback or recovery provisions apply
Committee to recover cash paid (clawback) or to lapse
deferred shares (withhold payments) in certain
circumstances, including where there has been a
misstatement of accounts, an error in assessing any
applicable performance condition, or in the event of
misconduct on the part of the participant
workforce (in percentage of salary terms) may be
awarded in certain circumstances such as where
there is a change in responsibility, experience or a
significant increase in the scale of the role and/or
size, value and/or complexity of the Group
– The Committee retains the flexibility to set the
salary of a new hire at a discount to the market
initially, and implement a series of planned
increases over the subsequent few years,
potentially higher than for the wider workforce,
in order to bring the salary to the desired position,
subject to Group and/or individual performance
Framework used
– The Committee reviews the salaries of Executive
– Bonuses are based on performance measures with
to assess
performance
Directors each year taking due account of all the
stretching targets as set and assessed by the
factors described in how the salary policy operates
Committee in its discretion
– Financial measures (e.g. EBITDA) will represent the
majority (at least 70%) of bonus, with any other
measures representing the balance
– Up to 25% of bonus will be payable for achievement of
a threshold level of performance against the financial
measures, and up to 50% for on-target performance
– Measures and weightings may change each year
to reflect any year-on-year changes to business
priorities and ensure they continue to be aligned to
the business strategy
– The Committee has discretion to adjust the outcome
if it is not deemed to reflect appropriately the overall
performance of the Company over the performance
period. Any use of discretion will be detailed in the
following year’s annual report on remuneration
retention
– To provide an appropriate
level of fixed income
– Executive Directors may
receive an employer’s
pension contribution,
and/or a cash payment
in lieu of pension
– Intended to align the long‑term interests
of Executives with those of shareholders
– To incentivise the delivery of key strategic
objectives over the longer term
– The PSP was introduced on Admission in 2014.
Awards of free performance shares may be granted
annually in the form of conditional awards or nil
cost options
– Vesting is dependent on performance targets being
met during the performance period and continued
service of the Directors
– A dividend equivalent provision exists which allows
the Committee to pay dividends on vested shares at
the time of vesting
– Clawback and withholding provisions apply in
certain circumstances (including where there has
been a misstatement of accounts, an error in
assessing any applicable performance condition,
or in the event of misconduct on the part of
the participant)
to aid recruitment and retention
– Directors are entitled to benefits including
a car allowance or company car, private
family medical cover, death in service, life
assurance and other Group-wide benefits
offered by the Company. Executive
Directors are also eligible to participate in
any all‑employee share plans operated by
the Company, in line with HMRC
guidelines currently prevailing (where
relevant), on the same basis as for other
eligible employees
– In certain circumstances the Committee
may also approve additional allowances
relating to relocation of an Executive
Director or other expatriate benefits
required to perform the role
– The Committee may provide other
employee benefits to Executive Directors
on broadly similar terms to the wider
workforce.
– The Committee has the ability to
reimburse reasonable business related
expenses and any tax thereon
– The value of benefits may vary from
year to year depending on the cost to
the Company
– The Committee has discretion to approve
a higher cost in exceptional circumstances
(such as relocation), or where factors
outside of the Committee’s control have
changed materially (such as increases
in insurance premiums)
– N/A
– N/A
– Awards vest after three years, based on challenging
targets measured over a three‑year period, the
majority of which (at least 70%) will normally be
based on financial performance metrics
– Performance measures and weightings will be
reviewed annually by the Committee prior to each
grant and the Committee has discretion to vary
measures and weightings as appropriate to ensure
they continue to be aligned to the business strategy
– No more than 25% vests at threshold
– The Committee has discretion to adjust the vesting
outcome in exceptional circumstances to ensure it
is a true reflection of the overall performance of the
Company over the performance period. Any use of
discretion will be detailed in the following year’s
annual report on remuneration
AO World Plc
Annual Report and Accounts 2017
71
Maximum
opportunity
– Annual increases will generally be linked to those
– Up to 150% of salary for all Executive Directors,
of the average of the wider workforce
dependent on performance, but a lower maximum
– Increases beyond those awarded to the wider
may be operated
– Maximum limit contained within the plan rules is
– Employer’s defined
200% of salary although up to 300% of salary may
be made in exceptional circumstances
– Normal policy awards may be made at lower levels
contribution and/or cash
supplement of up to 12.75%
of salary
than this
Overview Strategic Report Our Governance Our Results Shareholders’ Information Directors’ Remuneration Report
continued
Changes to the proposed Remuneration Policy from the
current Policy
Following a comprehensive review of remuneration over the last year,
supported by independent external advice, the Committee
determined that there should be no significant changes to the Policy,
including to variable pay opportunities. The changes in the proposed
Policy are largely to incorporate the latest developments in best
practice, including the following:
– Requirement for any bonus earned above 100% of salary to be
delivered in shares to be held for two years; and
– Increased share ownership guidelines of 200% of salary for all
Executive Directors.
In terms of the long‑term performance targets, PSP awards will be
set at the time of each grant but will normally include a majority based
on financial performance in line with our key objectives of delivering
profitable growth and delivering superior returns to our shareholders.
Where possible, the Committee will disclose the targets for each of
the Executive Directors’ awards in advance in the Annual Report on
Remuneration, but targets will generally be disclosed retrospectively
where they are considered to be commercially sensitive. The
Committee will review the choice of performance measures and the
appropriateness of the performance targets prior to each PSP grant
and will consult with major shareholders in the event of any significant
proposed change.
Awards granted prior to the effective date
For the avoidance of doubt, authority is given to the Company to
honour any commitments entered into with Directors prior to adoption
of the Policy.
Challenging targets are set whereby modest rewards are payable for
the delivery of threshold levels of performance, rising to maximum
rewards for the delivery of substantial out‑performance of our
financial and operating plans.
Annual bonus plan and PSP policy
The Committee will operate the annual bonus plan and PSP according
to the rules of each respective plan and taking into account normal
market practice and the Listing Rules, including flexibility in a number
of regards. While it does not intend to alter the operation of these plans
frequently, the Committee retains discretion over the following areas
(working within the Policy):
– Who participates in the plans.
– When to make awards and payments.
– How to determine the size of an award, a payment, or when and
how much of an award should vest.
– How to deal with a change of control or restructuring of the Group.
– Whether a Director is a good/bad leaver for incentive plan
purposes and whether and what proportion of awards vest at the
time of leaving or at the original vesting date(s).
– How and whether an award may be adjusted in certain
circumstances (e.g. for a rights issue, a corporate restructuring or
for special dividends).
– What the weighting, measures and targets should be for the annual
bonus plan and PSP from year to year.
The Committee also retains the discretion within the policy to adjust
targets and/or set different measures and alter weightings for the
annual bonus plan and to adjust targets for the PSP if events happen
that cause it to determine that the conditions are unable to fulfil their
original intended purpose.
Choice of performance measures and approach to
target setting
The performance metrics and targets that are set for the Executive
Directors via the annual bonus plan and PSP are carefully selected to
align closely with the Company’s strategic plan.
In terms of annual performance targets the bonus is determined on the
basis of performance against specific performance indicators and
strategic objectives set annually. The precise metrics chosen, along
with the weightings of each, may vary in line with the Company’s
evolving strategy from year to year. The Committee will review the
performance measures and targets each year and vary them as
appropriate to reflect the priorities for the business in the year ahead.
Share ownership guidelines
The Committee’s policy is to have formal shareholding guidelines for
the Executive Directors which create alignment between their interests
and those of shareholders.
The required level is set at at least 200% of salary. Where the holding
is not already attained it is required to be achieved through retention
of at least 50% of shares or the vesting of awards (on a net of tax basis)
from share plans.
Differences in remuneration policy for Executive
Directors compared to other employees
The Committee has regard to pay structures across the wider Group
when setting the remuneration policy for Executive Directors. The
Committee considers the general basic salary increase for the broader
workforce when determining the annual salary review for the
Executive Directors.
Overall, the remuneration policy for the Executive Directors is more
heavily weighted towards performance‑related pay than for other
employees. In particular, performance-related long-term incentives
are generally not provided outside of senior management as they are
reserved for those considered to have the greatest potential to
influence overall levels of performance. That said, whilst the use of the
PSP is confined to the senior managers in the Group, the Company is
committed to widespread equity ownership, and it has historically
rolled out, and intends in the future to roll-out, an all-employee SAYE
scheme on an annual basis, in which Executive Directors are eligible
to participate on a consistent basis to all other employees.
The level of performance‑related pay varies within the Group by grade
of employee, but the Policy is applied consistently across each grade
of the senior management population.
Reward scenarios (Unaudited)
Under the Policy, a significant proportion of remuneration received
by Executive Directors is variable and dependent on the performance
of the Company. The charts opposite illustrate how the total pay
opportunities for the Executive Directors vary under three different
performance scenarios: below target, on‑target and maximum, based
on implementation of the bonus and PSP for the year ahead.
AO World Plc
Annual Report and Accounts 2017
72
The charts are indicative
as share price movement
and dividend accrual have
been excluded.
CEO total remuneration opportunity at different
levels of performance
(£000)
£1,164
29%
26%
45%
£522
100%
£1,872
36%
36%
28%
2,000
1,500
1,000
500
0
Below threshold
Target
Maximum
Fixed pay
Annual bonus
PSP
Founder total remuneration opportunity at different
levels of performance
(£000)
2,000
1,500
1,000
500
0
£453
100%
£453
100%
£453
100%
Assumptions:
– Below threshold = fixed pay only (i.e. basic salary, benefits
and pension).
– Target = fixed pay plus 45% of maximum bonus payout and
50% vesting under the PSP.
– Maximum = fixed pay plus 100% of bonus payout and 100%
PSP vesting.
– Fixed pay includes the base salaries for each Executive Director
applying on 1 April 2017 together with pension (at 12.75% of base
salary), a car allowance of £12,000 for each Executive Director and
the value of other taxable benefits (such as gym membership and
medical cover) based on the cost of supplying those benefits in the
2017 financial year.
– Maximum bonus is equivalent to 150% of salary and PSP award
level is equivalent to 150% of base salary, save for Mark Higgins
where the PSP award in respect of the current financial year is
300% of salary.
Service contracts and loss of office payments
Service contracts normally continue until the Executive Director’s
agreed retirement date or such other date as the parties agree. The
Company’s policy is that Executive Directors’ service contracts must
provide that no more than 12 months’ notice to terminate employment
(by either party) must be given.
A Director’s service contract may be terminated without notice and
without any further payment or compensation, except for sums
earned up to the date of termination, on the occurrence of certain
events such as gross misconduct. The circumstances of the
termination (taking into account the individual’s performance) and
an individual’s duty and opportunity to mitigate losses are taken
into account by the Committee when determining amounts payable
on/following termination. Our Policy is to reduce compensatory
payments to former Executive Directors where they receive
remuneration from other employment during the notice period.
The Committee will consider the particular circumstances of each
leaver on a case-by-case basis and retains flexibility as to at what
point, and the extent to which, payments would be reduced. Details
will be provided in the relevant Annual Report on Remuneration
should such circumstances arise.
In summary, the contractual provisions are as follows:
Below threshold
Target
Maximum
Provision
Detailed terms
Fixed pay
Annual bonus
PSP
CFO total remuneration opportunity at different
levels of performance
(£000)
2,000
1,500
1,000
500
0
£1,141
45%
20%
35%
£401
100%
£1,931
53%
26%
21%
Below threshold
Target
Maximum
Fixed pay
Annual bonus
PSP
Notice period
Termination
payment
Change of control
12 months from both the Company and the
Executive Directors
Payment in lieu of notice of 115% of base salary,
which is calculated so as to cover the value of
contractual benefits and pension, normally
subject to mitigation and paid monthly*
In addition, any statutory entitlements would
be paid as necessary
There will be no enhanced provisions on a
change of control
*
The Committee may elect to make a lump sum termination payment (up to a
maximum of 12 months’ base salary and contractual benefits) as part of an
Executive Director’s termination arrangements where it considers it appropriate
to do so.
Annual bonus on termination
There is no contractual entitlement to any part of the annual bonus on
termination. At the discretion of the Committee, in certain circumstances
(where the leaver is considered by the Committee to be a “good leaver”
(determined on the same basis as it is determined in connection with
the PSP – see overleaf)) a pro-rata bonus may become payable at the
normal payment date for the period of active service only. In all cases
performance targets would apply, normally measured over the whole
financial year.
AO World Plc
Annual Report and Accounts 2017
73
Overview Strategic Report Our Governance Our Results Shareholders’ Information Directors’ Remuneration Report
continued
PSP on termination
Any share-based entitlements granted under the Company’s share
plans will be determined on the basis of the relevant plan rules. In
determining whether an Executive Director should be treated as a
good leaver under the plan rules the Committee will take into account
the performance of the individual and the reasons for their departure.
The default position is that where employment ceases due to injury or
disability, redundancy or retirement, the transfer of employment in
connection with the disposal of the whole or part of a Group business
division or otherwise where the employing company ceases to be a
Group company, the “leaving” employee will be deemed to be a good
leaver. In all other circumstances (unless the Committee has exercised
its discretion to the contrary) the “leaving employee” will be classed as
a bad leaver (in which case PSP awards lapse). In the event that the
Committee does class an Executive as a good leaver, the Committee
will set out its rationale in the Annual Report on Remuneration
following departure. For good leavers, awards will continue to vest in
accordance with the original vesting date unless the Committee
determined that they should vest as soon as is reasonably practicable
following the date of cessation. Further awards ordinarily vest on a
time pro‑rata basis subject to the satisfaction of the relevant
performance criteria with the balance of the awards lapsing. The
Committee retains discretion to alter the basis of time pro-rating if it
deems this appropriate. However, if the time pro-rating is varied from
the default position, an explanation will be set out in the Annual Report
on Remuneration following departure. For the avoidance of doubt,
performance conditions will always apply to awards for good leavers,
although the Committee may determine that it is appropriate to assess
performance over a different period than the default three-year period.
Approach to recruitment and promotions
The remuneration package for any new Executive Director would
be set in accordance with the terms of the Company’s approved
remuneration policy in force at the time of appointment. In addition,
with specific regard to the recruitment of new Executive Directors
(whether by external recruitment or internal promotion), the
remuneration policy will allow for the following:
– Where new joiners or recent promotions have been given a starting
salary at a discount to the mid‑market level, a series of increases
above those granted to the wider workforce (in percentage of salary
terms) may be awarded over the proceeding few years, subject to
satisfactory individual performance and development in the role.
– The Policy permits PSP awards of up to 300% of salary in
exceptional circumstances such as recruitment. The Committee
may also offer additional cash and/or share-based elements when
it considers these to be in the best interests of the Company and
shareholders. Any such additional payments would be based
solely on remuneration relinquished when leaving the former
employer and would reflect (as far as possible) the nature and time
horizons attaching to that remuneration and the impact of any
performance conditions. Replacement share awards, if used, will
be granted using the Company’s PSP (up to the plan limit of 300%
of salary) to the extent possible. Awards may also be granted
outside of the Company’s existing PSP if necessary and as
permitted under the Listing Rules. Shareholders will be informed
of any such payments at the time of appointment.
– The maximum variable pay that could be awarded (excluding
buy-out awards) is 450% of salary (bonus of 150% of salary and
PSP of 300% of salary).
– The annual bonus would operate in accordance with the terms
of the approved policy then in force, albeit with the opportunity
pro-rated for the period of employment. Depending on the timing
and responsibilities of the appointment it may be necessary to set
different performance measures and targets in the first year.
– For an internal executive appointment, any variable pay element
awarded in respect of the former role would be allowed to pay out
according to its terms, adjusted as relevant to take into account the
appointment. In addition, any other ongoing remuneration
obligations existing prior to appointment would continue.
– For external and internal appointments, the Committee may
agree that the Company will meet certain relocation expenses
as appropriate.
For the appointment of a new Chairman or Non-Executive Director,
the fee arrangement would be set in accordance with the approved fee
structure policy in force at that time.
Chairman and Non-Executive Directors’ letters
of appointment
The Chairman and Non-Executive Directors do not have service
contracts with the Company, but instead have letters of appointment.
The letters of appointment are usually renewed every three years.
Termination of the appointment may be earlier at the discretion of
either party on three months’ written notice. None of the
Non-Executive Directors is entitled to any compensation if their
appointment is terminated. Appointments will be subject to
re-election at the AGM.
Non-Executive Directors’ fees
The Non-Executive Directors’ fees policy is described below:
Element
Purpose and link to strategy
Operation
Fees
To recruit and retain high calibre
non‑executives
– Fees are determined by the Board, with Non-Executive
Directors abstaining from any discussion or decision in
relation to their fees.
– Non-Executive Directors are paid an annual fee and do
not participate in any of the Company’s incentive
arrangements or receive any pension provision.
– The Chairman is paid a consolidated all-inclusive fee
for all Board responsibilities.
– The Non-Executive Directors receive a basic Board
fee, with additional fees payable for chairing the Audit,
Nomination and Remuneration Committees and for
performing the Senior Independent Director role.
– The fee levels are reviewed on a periodic basis, with
reference to the time commitment of the role and market
levels in companies of comparable size and complexity.
– Non-Executive Directors shall be entitled to have
reimbursed all fees (including travel expenses) that
they reasonably incur in the performance of their
duties, including tax.
AO World Plc
Annual Report and Accounts 2017
74
Maximum opportunity
There is no cap on fees.
Non-Executive Directors are
eligible for fee increases
during the three‑year period
that the remuneration policy
operates to ensure they
continue to appropriately
recognise the time
commitment of the role,
increases to fee levels for
Non-Executive Directors in
general and fee levels in
companies of a similar size
and complexity.
As set out in our last Annual Report, the Annual Remuneration for the year ended 31 March 2017 was structured within the framework of the
remuneration policy adopted by shareholders in 2014 and has been implemented accordingly. This will be put to an advisory vote at the
Company’s AGM on 21 July 2017.
Single figure of total remuneration for 2016/2017 (Audited)
The audited table below shows the aggregate emoluments earned by the Directors of the Company during the period 1 April 2016 to 31 March
2017 and those earned during the period 1 April 2015 to 31 March 2016.
Chairman
Geoff Cooper7
Executive Directors
Steve Caunce
John Roberts
Mark Higgins8
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
Salaries
and fees 1
£
116,692
–
395,000
390,000
445,000
450,000
300,000
173,333
Benefits 2
£
Pension3
£
Bonus4
£
Value
of SAYE5
£
Value
of PSP6
£
98
–
14,895
14,686
13,253
13,289
17,807
11,791
–
–
42,559
49,725
47,601
57,375
32,756
22,100
–
–
58,700
58,500
67,700
67,500
45,200
39,000
–
–
–
4,484
4,487
–
–
–
–
–
–
–
–
–
–
–
Total
£
116,791
–
511,904
517,395
572,804
588,164
395,762
246,224
Non-Executive Directors
Christopher Hopkinson
Brian McBride
Marisa Cassoni
Rudolf Lamprecht
Richard Rose9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,494
891
1,664
793
5,940
3,224
223
2,264
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
2016/17
2015/16
50,000
45,000
65,000
60,000
60,000
55,000
50,000
45,000
45,000
135,000
50,000
45,000
66,494
60,891
61,664
55,524
55,940
48,224
45,223
137,264
Steve Caunce became CEO of the Company in February 2017 and John Roberts transitioned to the role of Founder. Accordingly the basic salary reported for Steve Caunce
is calculated at 11 months’ pay at the COO/£390,000 rate of pay and one month pay at the CEO/£450,000 rate of pay. Similarly, the basic salary reported for John Roberts
is based on 11 months’ pay at the CEO/£450,000 rate and one month at the Founder/£390,000 rate.
For John Roberts and Steve Caunce, benefits include gym membership, medical and life assurance and a car allowance of £12,000 paid in cash for both years reported.
For Mark Higgins, benefits include gym membership, medical and life assurance, car allowance and private fuel since his appointment on 1 August 2015. Benefits for the
Non-Executive Directors are the values of expenses incurred in connection with attending Board meetings and Company events which the Company has paid for, and in
the case of Richard Rose, the value of assets given for private use.
Executive Directors are entitled to Company pension contributions of 12.75% of basic salary. However given the new pension rules only £10,000 is paid into a pension
and the balance is paid in cash (after deducting employer National Insurance contributions at 12.8%).
Bonuses are paid post year end but relate to the year under review (and include an attendance bonus of £200 which is paid Group-wide to employees with the relevant
attendance). Bonuses were calculated on salaries in force prior to the change in CEO (given this was when the bonus objective was achieved).
John Roberts participated in full in the 2017 AO Sharesave Scheme (launched in January 2017) on the same basis as other employees and was granted 12,080 SAYE
options. Steve Caunce participated in full in the 2016 AO Sharesave Scheme (launched in January 2016) on the same basis as other employees and was granted 14,400
SAYE options. Mark Higgins has not participated in any SAYE Schemes. In all cases the SAYE value is calculated by multiplying the number of shares under option by the
value of discount (in pounds) at the time the scheme was launched. The exercise price for each award was set at 80% of the market value of the share price prior to the
scheme launch.
The performance conditions relating to the IPO LTIP were not met and accordingly no share options vested in year 2016/2017 (and in any event neither John Roberts nor
Steve Caunce participated in the IPO LTIP). Mark Higgins participated in the PSP prior to his appointment to the Board.
Geoff Cooper was appointed as a Non-Executive Director on 1 July 2016 and took the role of Chairman following Richard Rose’s retirement at the AGM, on 21 July 2016.
His aggregate salary therefore reflects a period at the basic Non-Executive Director rate and the relevant period at the agreed Chairman fee of £165,000 per annum.
Mark Higgins was appointed to the Board of Directors of the Company on 1 August 2015. Reported remuneration for 2015/16 is that earned in that year since the date of
his appointment. The figures for 2016/17 reflect a full year in the role.
Richard Rose stepped down as Chairman and Director of the Company on 21 July 2016.
1
2
3
4
5
6
7
8
9
AO World Plc
Annual Report and Accounts 2017
75
Overview Strategic Report Our Governance Our Results Shareholders’ Information
Directors’ Remuneration Report
continued
However, the Company has seen great success with the launch of the
computing category, which is critical to future success for the reasons
given above. Therefore, the Committee has decided to award 10% of
the maximum bonus available for this measure. Please refer to the table
“Bonus Targets and Performance” for a summary of the performance
conditions, performance achieved against them and accordingly
bonus payments made.
Long-term incentive payments
The IPO LTIP Award was subject to performance over the three-year
period ended 31 March 2017. Both John and Steve waived their
entitlement to participate at the time, but Mark Higgins was granted
options over 526,315 shares whilst in his previous role before joining
the Board. The stretching targets set at IPO were based two-thirds on
absolute TSR (requiring the share price to increase from £2.85 by 33%
for a quarter to vest and by 100% for full vesting) and one-third on EPS
growth (requiring Adjusted EPS to increase from £1.50 by 66% for a
third to vest and by 200% for full vesting). These targets were not met
and therefore no awards have vested.
Details of long-term incentive awards granted
during 2016/17
In the year, the Committee made awards to Executive Directors under
the PSP, see table 1 below.
The awards were granted on 21 July 2016 and will, subject to
performance, vest three years after the grant date. Performance will
be assessed over the three financial years starting on 1 April 2016 and
ending on 31 March 2019, and the measures, weightings and targets
are as set out in table 2, below.
Implementation of remuneration policy for 2017/18
Salary
Following the transition of the roles of John Roberts and Steve Caunce
in February 2017, the Committee approved an increase to Steve’s base
salary to be commensurate with what John Roberts was paid as CEO,
reflecting his promotion and the resulting increased responsibility, scope
and complexity of his role, and a decrease in John’s salary to £390,000
to reflect the reduction in responsibility but acknowledging that his
Founder role is still an important component of our Executive team.
Details of variable pay earned in 2016/17
Annual bonus payments
The targets for the annual bonus scheme for the year ended 31 March
2017 were weighted towards financial metrics, with 35% of maximum
bonus subject to Group Revenue performance conditions, 35% of
maximum bonus subject to Group Adjusted EBITDA performance
conditions, 10% of maximum bonus subject to a cash flow target with
the remaining 20% subject to the achievement of strategic objectives,
split equally against the achievement of a successful launch of a new
category and growing brand awareness to 35% or more. The strategic
targets of growing, brand awareness and rolling out new categories
are critical drivers of sustainable growth. Brand awareness is a lead
indication to future sales and is a direct driver for long-term growth.
We look to incentivise our Executives to drive this long-term metric
(which does not necessarily increase short-term revenue or profits).
Rolling out new categories should increase overall sales and gives us
the ability to cross‑sell to customers on our database whilst, from a
customer point of view, gives a much broader offering.
For Group Revenue, the threshold target (at which a quarter of the
applicable bonus would be payable) was £705m, which was narrowly
missed. Similarly for Group Adjusted EBITDA the threshold target
(again at which a quarter of applicable bonus would be payable) was
losses of £300,000, which was missed and the year-end cash balance
(£29.4m) did not meet the required target of £32m. (Targets above the
threshold are still considered to be commercially sensitive and should
be disclosed in next year’s Annual Report.)
Bonus Targets and Performance
% payout at
threshold
(for this
element)
Performance
achieved Payout
25%
£701.2m
0%
0%
0%
Losses of
£2.1m
£29.4m
25%
100%
100%
Met
10%
100%
Not met
Measure
(weighting)
Group Revenue
(35%)
Group Adjusted
EBITDA (35%)
Year‑end cash
balance (10%)
Strategic
objectives
(20%)
Threshold
target
£705m
Losses of
£300,000
£32m
Successful
launch of new
category.
Growing brand
awareness to
35% or more
Table 1
Executive Director
Steve Caunce
John Roberts
Mark Higgins
* Based on share price at the date of grant of £1.344.
Type of award
Nil‑cost option
Nil‑cost option
Nil‑cost option
Basis of award
granted
(% of salary)
Share price
at date of grant
(£)
Number of
shares
awarded
Face value of
award
(£)*
% of face value
that vests at
threshold
150%
150%
300%
1.344
1.344
1.344
502,232
435,268
669,643
675,000
585,000
900,000
25%
25%
25%
Table 2
Metric
Group Revenue growth
Group Adjusted EBITDA for FY19
Relative TSR
Weighting
(% of award)
One‑third
One‑third
One‑third
Threshold
Target
Stretch performance
Target
50%
£23m
Median
% Vesting
Target
% Vesting
Target
% Vesting
25%
25%
25%
85%
£29m
Not applicable
62.5%
62.5%
120%
£35m
Upper quartile
100%
100%
100%
AO World Plc
Annual Report and Accounts 2017
76
During the annual salary review, these salaries were reviewed but
no further increases were awarded, however, the Committee has
approved a salary increase for Mark Higgins for the current financial
year, based on his broadening duties as CFO and performance over
the year (notably the completion of the revolving credit facility, the
recent equity placing and progress made within our investor relations
function), as further set out in the Chairman’s letter, as further set out
in the Chairman’s Letter. The Board continues to see Mark as hugely
important to the execution of our strategy moving forward. He has
developed significantly over the last 12 months and fully stepped up
to fulfil the role of CFO. Ongoing, we see him as an important partner
to Steve (having recently stepped up to the CEO role) due to their
collaborative working relationship, thorough understanding of each
other’s skill set and mutual respect. In combination the Committee
believes Steve and Mark will drive the future success of the business
creating sustainable value for shareholders.
The Executive Directors will next be eligible for a salary review in early
2018, with any changes effective from 1 April 2018. For comparison,
the average salary increase provided to UK employees in the 2016
financial year was 3%.
The current salaries as at 1 April 2017 (and those as at 1 April 2016) are
as follows:
Individual
Role
Base salary at
1 April 2017
Base salary at
1 April 2016
for equivalent
position
Steve Caunce*
John Roberts**
Mark Higgins
*
CEO
Founder
CFO
£450,000
£390,000
£340,000
£390,000
£450,000
£300,000
Steve Caunce’s salary as COO was £390,000 and this was increased on his
promotion to CEO, to be commensurate with the salary of the previous CEO,
from 1 March 2017
John Roberts became Founder Executive Director on 22 February 2017 and his
salary was reduced from £450,000 following the transition of his role from CEO,
effective from 1 March 2017
**
%
increase
15%
-13%
13%
Pension and other benefits
Executive Directors will continue to receive an employer’s pension
contribution (or a cash allowance in lieu of pension) at the rate of
12.75% of base salary.
Executives will also continue to receive benefits comprising a car
allowance of £12,000 each, private family medical cover, gym
membership and death in service life assurance and the Company
will continue to pay for Mark Higgins’ private fuel.
Annual bonus
The operation of the bonus plan for 2017/18 will be consistent with the
framework detailed in the proposed Policy. For Executive Directors
(excluding John Roberts), the maximum bonus opportunity for 2017/18
will be capped at 150% of basic salary. Any bonus earned above 100%
of salary will delivered in shares to be held for two years.
Performance measures have been selected to support the key
strategic objectives and goals of the Company.
For 2017/18, three financial metrics will be used to determine the
bonus payments of the Executive Directors, split as follows:
35% of the maximum bonus will relate to Group Revenue achievements,
35% to Group Adjusted EBITDA and a further 10% to a cash-flow
performance target. In addition, 20% of the notional bonus pool will be
subject to an assessment of performance against key strategic
milestones; being the delivery of an international transactional mobile
application and brand awareness growth. As mentioned previously,
growing brand awareness is critical to delivering sustainable growth
and is one of our strategic pillars for growth. Improving the mobile
journey for our customers across the Group is also key to development
of our offering for customers which we see as a long‑term driver of
revenue. The performance metrics are stand-alone and will be
assessed independently.
In accordance with Policy, no more than 25% of the maximum bonus
entitlement will be payable at threshold level; for “on target”
performance across the Group 45% will be payable, rising to 100% of
maximum on a straight-line basis for significantly outperforming the
Group’s plans and consensus forecasts, based on the Committee’s
assessment of achievement against the targets set.
The Committee considers that the targets themselves, in relation to the
2017/18 financial year, are commercially sensitive and therefore plans
to disclose them only on a retrospective basis. Details of the targets,
performance against those targets, and any payments resulting, will
be disclosed, as far as possible, in next year’s Annual Report on
Remuneration, save where they remain commercially sensitive.
As part of the remuneration package agreed by the Committee
following the transition in roles, John Roberts is not entitled to
participate in the annual bonus scheme.
Long-term incentives
It is intended Steve Caunce will be granted a PSP award with a value
equivalent to 150% of salary at the award date, in line with the normal
application of the Policy. However, for Mark Higgins, as discussed in
last year’s Annual Report, the Committee intends to make a further
enhanced award of 300% of salary as part of his remuneration
package for the reasons set out in the Chairman’s statement at the
start of this report.
The performance conditions proposed this year comprise a relative
TSR metric together with Revenue and Group Adjusted EBITDA
targets. The Committee believes these metrics provide the appropriate
balance vis a vis long-term growth of the Company and shareholder
return and that the targets themselves are suitably stretching and in
line with the Company’s three-year plan.
The relative TSR measure is calculated based on three‑year
performance against the general retailer constituents of the FTSE 250,
with vesting commencing at median (25% of this part of the award) and
with full vesting at upper quartile levels. For the Group Adjusted
EBITDA (“GAE”) and revenue growth measures, we have set targets
having regard to the Company’s three year plan. Details of these
targets are set out below. Awards will vest on a straight-line basis
between the different levels of performance, see table 3 below.
Table 3
Metric
Group Revenue for FY20
Group Adjusted EBITDA for FY20
Relative TSR
Weighting
(% of award)
One‑third
One‑third
One‑third
Threshold
Target
Stretch performance
Target
£921m
£15.3m
Median
% Vesting
Target
% Vesting
Target
% Vesting
25%
25%
25%
£970m
£21.9m
Not applicable
62.5%
62.5%
£1,018m
£28.5m
Upper quartile
100%
100%
100%
AO World Plc
Annual Report and Accounts 2017
77
Overview Strategic Report Our Governance Our Results Shareholders’ Information
Directors’ Remuneration Report
continued
As part of the package agreed by the Committee following the
transition in roles, John Roberts is not entitled to participate in the
Performance Share Plan.
All-employee share plans
The Company proposes to roll-out a new SAYE Scheme each year and
all Executive Directors will be entitled to participate on the same basis
as other employees.
Share ownership requirements
The required share ownership level for the Executive Directors for
2017/18 will be 200% of salary. There are no share ownership
requirements for the Non-Executive Directors.
Non-Executive Director fees
No changes to Non-Executive Director fees are proposed. Accordingly,
the fees payable per annum for 2017/18 are shown in the table below.
Directors’ shareholdings (Audited)
Directors’ shareholdings as at 31 March 2017 are set out below in table 4.
In the period from 1 April 2017 to the date of this report, John Roberts
gifted 1,407,407 shares in the Company to charity and Steve Caunce
and Linda Caunce (Steve’s spouse) made gifts to charity of 600,000
and 220,000 shares in the Company, respectively. Geoff Cooper
purchased 28,573 on 4 April 2017.
Percentage change in remuneration levels (Unaudited)
The table below shows the movement in the salary, benefits and
annual bonus for the Chief Executive between the current and
previous financial year compared to that for the average employee.
For the benefits and bonus per employee, this is based on those
employees eligible to participate in such schemes.
Chief
Executive
Average per
employee
£165,000
£50,000
£10,000
£10,000
£5,000
2
3
Salary
Benefits
Bonus
1
0%
0%
0%
3%1
0%2
-41%3
Reflects the average change in pay for employees, calculated by reference to the
aggregate remuneration for all employees in each year divided by the average
number of employees.
There are no changes to benefit entitlements.
The Chief Executive Officer received a bonus of 15% of salary (10% of maximum
entitlement) for the year ended 31 March 2016 as did the other Executive
Directors. Members of the Group Executive Team received a 20% bonus and
other employees eligible to participate in the Group’s bonus scheme received
a 6% bonus plus a flat £5,000 each. For the year ended 31 March 2017 the CEO
received a bonus of 15% of salary. Members of the Group Executive Team and
other employees eligible to participate in the Group’s bonus scheme received
10% of their maximum bonus entitlement (10% and 3% of salary respectively).
Non-Executive Director fees
Chairman fee covering all Board duties
Non-Executive Director basic fee
Supplementary fees to Non-Executive
Directors covering additional Board duties
Audit Committee Chairman fee
Remuneration Committee Chairman fee
Senior Independent Director fee
Payments to past Directors and loss of office payments
There were no payments to past Directors or loss of office payments
made in the year ended 31 March 2017.
Table 4
Shares held
beneficially 1
at 31 March 2017
Target
shareholding
guidelines
(% of salary)2
Target
shareholding
achieved
100,000
109,243,583
52,116,382
23,928
22,201,590
52,628
52,628
52,628
723,443
N/A
200%
200%
200%
N/A
N/A
N/A
N/A
N/A
N/A
Yes
Yes
No
N/A
N/A
N/A
N/A
N/A
PSP
Options3
N/A
502,232
435,268
1,306,915
N/A
N/A
N/A
N/A
N/A
SAYE
Options4
N/A
12,080
14,400
N/A
N/A
N/A
N/A
N/A
N/A
Geoff Cooper
John Roberts
Steve Caunce
Mark Higgins
Christopher Hopkinson
Brian McBride
Marisa Cassoni
Rudolf Lamprecht5
Richard Rose5
1
2
3
4
5
Includes shares held by connected persons.
Comprises shares held beneficially only (and excludes options or deferred bonus shares).
None of these PSP options (which have performance conditions) have vested.
None of these SAYE options (which have no performance conditions) have vested.
Richard Rose and Rudi Lamprecht were Directors during the year but have since retired.
AO World Plc
Annual Report and Accounts 2017
78
Performance graph and pay table (Unaudited)
The chart below shows the Company’s TSR performance against the
performance of the FTSE 250 Index from 25 February 2014 (the date
on which the Company’s shares were first conditionally traded) to
31 March 2017. This index was chosen as it represents a broad equity
market index which includes companies of a broadly comparable size
and complexity.
Total Shareholder Return
(Rebased)
140
120
100
80
60
40
20
0
26
Feb
2014
31
Mar
2014
31
Mar
2015
31
Mar
2016
31
Mar
2017
This graph shows the value, by 31 March 2017, of £100 invested in AO World plc
on 26 February 2014 (being the date that shares were first admitted to trading)
compared with the value of £100 invested in the FTSE 250 Index.
AO World
FTSE 250
Source: Datastream (Thomson Reuters)
The table below shows the total remuneration figure for the Chief
Executive during the financial years ending 31 March 2010 to 31 March
2017. The total remuneration figure includes the annual bonus payable
for performance in each of those years. No long-term incentives were
eligible for vesting based on performance ending in any of those years.
The annual bonus percentage shows the payout for each year as a
percentage of the maximum (i.e. 150% of salary).
2009/
2010
2010/
2011
2011/
2012
2012/
2013
2013/
2014
2014/
2015
2015/
2016
2016/
2017
Total
remuneration
(£’000)1
Annual bonus
(% of
maximum)
PSP vesting
(% of
maximum)
1
680
292
243
227
537
537
588
575
59% 18% 0% 0% 0% 0% 10% 10%
–
–
–
The total remuneration each year is that of John Roberts, save for 2016/2017
where the total remuneration is that which Steve Caunce would have earned for
2016/2017 had he been CEO for the full year (at the basic salary of £450,000
per annum).
–
–
–
–
–
Relative importance of the spend on pay (Unaudited)
The table below shows the movement in spend on staff costs versus
that in distributions to shareholders.
2015/16
2016/17
% change
Staff costs (£m)1
Distributions to
shareholders
1
£60.9
24.1%
No distributions were made to shareholders
in the year
£75.6
Includes base salaries, social security and pension, but excludes share‑based
payment charges.
Details of Directors’ service contracts and letters
of appointment
Details of the service contracts and letters of appointment in place
as at 31 March 2017 for Directors are as follows:
Director and
date of service
contract or letter
of appointment Unexpired term
Notice
period by
Company
(months)
Notice
period by
Director
(months)
Date joined
Group
Marisa
Cassoni
31/01/2014
Steve
Caunce
14/02/2014
Geoff Cooper
01/07/2016
Mark Higgins
31/05/2014
Christopher
Hopkinson
14/02/2014
Brian
McBride
17/02/2014
John Roberts
14/02/2014
Initial term of
three years from
date of letter
subject to notice
Continuous
employment
until terminated
by either party
Initial term of
three years
from date of
letter subject to
notice
Continuous
employment
until terminated
by either party
Initial term of
three years from
date of letter
subject to notice
Initial term of
three years from
date of letter
subject to notice
Continuous
employment
until terminated
by either party
3
12
3
12
3
3
3 05/02/2014
12
13/10/2005
3
01/07/2016
12
10/07/2011
3
12/12/2005
3 06/02/2014
12
12
19/04/2000
All Non-Executive Directors (with the exception of Rudolf Lamprecht
who indicated his desire to step down) agreed to an extension of the
term of their appointments for one further year in February 2017,
following expiry of the initial three‑year terms which commenced
around IPO. The extension of such appointment is subject to the terms
of the letters of appointment in force.
AO World Plc
Annual Report and Accounts 2017
79
Overview Strategic Report Our Governance Our Results Shareholders’ Information Directors’ Remuneration Report
continued
Shareholder feedback (Unaudited)
At the 2016 AGM, the Annual Remuneration Report for the year ended
31 March 2016 was put to shareholders by way of an advisory vote, with
votes cast as follows:
Number of votes
% of votes cast
Votes cast in favour
Votes cast against
Total votes cast
(excluding withheld votes)
Abstentions
270,074,308
50,341,028
320,415,336
6,395,081
84.29
15.71
100
–
The Committee will continue to monitor developments in market
trends and the best practice expectations of investors as part of the
ongoing review of how the Policy is implemented. As ever, the
Committee welcomes any enquiries or feedback shareholders may
have on the Policy or the work of the Committee.
Brian McBride
Chairman, Remuneration Committee
AO World Plc
5 June 2017
External appointments
No fees were received by Executive Directors for external
appointments during the year ended 31 March 2017.
Remuneration Committee membership
The members of the Committee were for the year in question Brian
McBride (Chairman), Marisa Cassoni, Rudi Lamprecht (until his
retirement in February 2016) and Geoff Cooper (since Rudi’s
retirement) on an interim basis as we conduct a search for two new
Non-Executive Directors. All current members of the Committee are
deemed to be independent. Accordingly, the Committee continues to
comply with the independence requirements set out in the Code.
During the year to 31 March 2017 there were four formal meetings of
the Remuneration Committee, all of which achieved full attendance
by the relevant committee members.
The responsibilities of the Committee are set out in the Corporate
Governance section of the Annual Report on page 58. The Executive
Directors may be invited to attend meetings to assist the Committee in
its deliberations as appropriate. The Committee may also invite other
members of the management team to assist as appropriate. No person
is present during any discussion relating to their own remuneration or
is involved in deciding their own remuneration.
Advisers to the Committee
New Bridge Street (“NBS”) provides advice in relation to remuneration
and share plans both for Executive Directors and the wider senior
management population and was appointed by the Committee.
NBS are signatories to the Remuneration Consultants Group Code of
Conduct and any advice provided by them is governed by that code.
NBS’s terms of engagement are available on request from the
Company Secretary. NBS is a trading name of Aon Hewitt Limited (an
Aon Plc company) which, other than acting as independent consultant
to the Committee, provided no further services to the Company during
the year. The Committee is committed to regularly reviewing the
external advisor relationship and is comfortable that NBS’s advice
remains objective and independent. For the year under review NBS’s
total fees charged were £29,301 plus VAT.
AO World Plc
Annual Report and Accounts 2017
80
Directors’ Report
The Directors have pleasure in submitting their report and the audited
financial statements of AO World Plc (the “Company”) and its subsidiaries
(together the “Group”) for the financial year to 31 March 2017.
Statutory Information
Information required to be part of the Directors’ Report can be found
elsewhere in this document, as indicated in the table below, and is
incorporated into this Report by reference:
Page
82
81
54 and 55
82
30 to 33
83
78
84
84
30 to 33
31
16 to 51
44
33
83
83
83
83
82
82
83
82
82
40 to 44,
64 and
107 to 111
82
Statutory Information
Section
Amendment of the Articles
Appointment and
replacement of Directors
Board of Directors
Change of control
Community
Directors’ indemnities
Directors’ interests
Directors’ responsibility
statement
Disclosure of information
to Auditors
Employee involvement
Directors’ Report
Directors’ Report
Corporate Governance
Statement
Directors’ Report
Strategic Report;
Corporate Social
Responsibility
Directors’ Report
Remuneration Report
Directors’ Report
Directors’ Report
Strategic Report;
Corporate Social
Responsibility
Employees with disabilities Strategic Report;
Corporate Social
Responsibility
Strategic Report
Future developments
of the business
Strategic Report
Going concern
Greenhouse gas emissions Corporate Social
Responsibility
Directors’ Report
Independent Auditor
Directors’ Report
Results and dividends
Political donations
Directors’ Report
Post‑balance sheet events Directors’ Report
Directors’ Report
Powers for the Company to
issue or buy back its shares
Powers of the Directors
Research and development
activities
Restrictions on transfer
of securities
Rights attaching to shares
Risk management
Directors’ Report
Directors’ Report
Directors’ Report
Directors’ Report
Strategic Report;
note 35 to the consolidated
financial statements
Directors’ Report
Note 36 to the consolidated
financial statements
Directors’ Report
Corporate Governance
Statement
Directors’ Report
Share capital
Significant related party
agreements
Significant shareholders
Statement of corporate
governance
Voting rights
Management Report
This Directors’ Report, on pages 81 to 84, together with the Strategic
Report on pages 16 to 51, form the Management Report for the
purposes of DTR 4.1.5R.
The Strategic Report
The Strategic Report, which can be found on pages 16 to 51, sets out
the development and performance of the Group’s business during the
financial year, the position of the Group at the end of the year, strategic
KPIs and a description of the principal risks and uncertainties which
is set out on pages 40 to 44.
UK Corporate Governance Code
The Company’s statement on corporate governance can be found in
the Corporate Governance Statement, the Audit Committee Report,
the Nomination Committee Report and the Directors’ Remuneration
Report on pages 52 to 79. The Corporate Governance Statement, the
Audit Committee Report and the Nomination Committee Report form
part of this Directors’ Report and are incorporated into the Directors’
Report by reference.
Appointment and replacement of Directors
The appointment and replacement of Directors of the Company is
governed by the Articles.
Appointment of Directors: A Director may be appointed by the
Company by ordinary resolution of the shareholders or by the Board
(having regard to the recommendation of the Nomination Committee).
A Director appointed by the Board holds office only until the next
Annual General Meeting of the Company and is then eligible for
reappointment.
The Directors may appoint one or more of their number to the office
of CEO or to any other executive office of the Company and any such
appointment may be made for such term, at such remuneration and
on such other conditions as the Directors think fit.
Retirement of Directors: At every Annual General Meeting of the
Company, at least all Directors who held office at the time of the two
preceding AGMs and did not retire at either of them shall retire from
office but may offer themselves for re-election and if the number of
retiring Directors is less than one‑third of Directors then additional
Directors shall be required to retire. However, in accordance with the
Code, all Directors will retire and be subject to re-election at the
forthcoming AGM.
Removal of Directors by special resolution: The Company may
by special resolution remove any Director before the expiration of his
period of office.
Termination of a Director’s appointment: A person ceases to be
a Director if:
(i) that person ceases to be a Director by virtue of any provision of the
Companies Act 2006 or is prohibited from being a Director by law;
(ii) a bankruptcy order is made against that person;
(iii) a composition is made with that person’s creditors generally in
satisfaction of that person’s debts;
(iv) that person resigns or retires from office;
(v) in the case of a Director who holds any executive office, his
appointment as such is terminated or expires and the Directors
resolve that he should cease to be a Director;
111
83
(vi) that person is absent without permission of the Board from Board
meetings for more than six consecutive months and the Directors
resolve that he should cease to be a Director; or
(vii) a notice in writing is served upon him personally, or at his
52 to 79
82
residential address provided to the Company for the purposes of
section 165 of the Companies Act 2006, signed by all the other
Directors stating that he shall cease to be a Director with
immediate effect.
AO World Plc
Annual Report and Accounts 2017
81
Overview Strategic Report Our Governance Our Results Shareholders’ Information Directors’ Report
continued
For further details of our Directors please refer to pages 54 and 55.
Amendment of the Articles
The Company’s Articles of Association may only be amended by a
special resolution at a general meeting of shareholders. No amendments
are proposed to be made to the existing Articles of Association at the
forthcoming Annual General Meeting.
Share capital and control
The Company’s issued share capital comprises of ordinary shares
of 0.25p each which are listed on the London Stock Exchange (LSE:
AO.L). The ISIN of the shares is GB00BJTNFH41. As at 31 March 2017,
the issued share capital of the Company was £1,052,632 comprising
421,052,631 ordinary shares of 0.25p each. As announced on
30 March 2017, following the allotment of 37,735,849 shares pursuant
to a Placing of new shares in the Company, as at the date of publication
of this report, the issued share capital of the Company was £1,146,971
comprising 458,788,480 ordinary shares of 0.25p each
Details of the issued share capital of the Company, together with
movements in the issued share capital during the year, can be found
in note 29 to the financial statements on page 104. All the information
detailed in note 29 on page 104 forms part of this Directors’ Report
and is incorporated into it by reference.
Details of employee share schemes are provided in note 32 to the
financial statements on pages 105 to 107.
At the Annual General Meeting of the Company to be held on 21 July
2017 the Directors will seek authority from shareholders to allot shares
in the capital of the Company up to a maximum nominal amount of
£763,882.82 (305,553,127 shares (representing approximately 66.6%
of the Company’s issued ordinary share capital)) of which 152,776,563
shares (representing approximately 33% of the Company’s issued
ordinary share capital (excluding treasury shares)) can only be allotted
pursuant to a rights issue.
Authority to purchase own shares
The Directors will seek authority from shareholders at the
forthcoming Annual General Meeting for the Company to purchase,
in the market, up to a maximum of 45,878,848 of its own ordinary
shares either to be cancelled or retained as treasury shares. The
Directors will only use this power after careful consideration, taking
into account the financial resources of the Company, the Company’s
share price and future funding opportunities. The Directors will also
take into account the effects on earnings per share and the interests
of shareholders generally.
Rights attaching to shares
All shares have the same rights (including voting and dividend
rights and rights on a return of capital) and restrictions as set out in
the Articles, described below. Except in relation to dividends which
have been declared and rights on a liquidation of the Company, the
shareholders have no rights to share in the profits of the Company.
The Company’s shares are not redeemable. However, following any
grant of authority from shareholders, the Company may purchase or
contract to purchase any of the shares on or off‑market, subject to
the Companies Act 2006 and the requirements of the Listing Rules.
No shareholder holds shares in the Company which carry special
rights with regard to control of the Company. There are no shares
relating to an employee share scheme which have rights with regard to
control of the Company that are not exercisable directly and solely by
the employees, other than in the case of the AO Sharesave Scheme,
the AO Performance Share Plan (“PSP”) and the Employee Reward
Plan (“ERP”) where share interests of a participant in such scheme
can be exercised by the personal representatives of a deceased
participant in accordance with the Scheme rules.
Voting rights
Each ordinary share entitles the holder to vote at general meetings
of the Company. A resolution put to the vote of the meeting shall be
decided on a show of hands unless a poll is demanded. On a show
of hands, every member who is present in person or by proxy at a
general meeting of the Company shall have one vote. On a poll, every
member who is present in person or by proxy shall have one vote for
every share of which they are a holder. The Articles provide a deadline
for submission of proxy forms of not than less than 48 hours before the
time appointed for the holding of the meeting or adjourned meeting.
No member shall be entitled to vote at any general meeting either in
person or by proxy, in respect of any share held by him unless all
amounts presently payable by him in respect of that share have been
paid. Save as noted, there are no restrictions on voting rights nor any
agreement that may result in such restrictions.
Restrictions on transfer of securities
There are no restrictions on the free transferability of the Company’s
shares save that the Directors may, in their absolute discretion, refuse
to register the transfer of a share:
(1) in certificated form which is not fully paid provided that if the share
is listed on the Official List of the UK Listing Authority such refusal
does not prevent dealings in the shares from taking place on an
open and proper basis; or
(2) in certificated form (whether fully paid or not) unless the
instrument of transfer (a) is lodged, duly stamped, at the Office or
at such other place as the Directors may appoint and (except in the
case of a transfer by a financial institution where a certificate has
not been issued in respect of the share) is accompanied by the
certificate for the share to which it relates and such other evidence
as the Directors may reasonably require to show the right of the
transferor to make the transfer; (b) is in respect of only one class of
share and (c) is in favour of not more than four transferees; or
(3) in uncertificated form to a person who is to hold it thereafter in
certificated form in any case where the Company is entitled to
refuse (or is excepted from the requirement) under the
Uncertificated Securities Regulations to register the transfer; or
(4) where restrictions are imposed by laws and regulations from time
to time apply (for example insider trading laws).
In relation to awards/options under the PSP, ERP and the AO
Sharesave Scheme, rights are not transferable (other than to a
participant’s personal representatives in the event of death).
The Directors are not aware of any arrangements between
shareholders that may result in restrictions on the transfer of securities
or on voting rights. No person has any special rights of control over the
Company’s share capital and all issued shares are fully paid.
Change of control
Save in respect of a provision of the Company’s share schemes which
may cause options and awards granted to employees under such
schemes to vest on takeover, there are no agreements between the
Company and its Directors or employees providing for compensation
for loss of office or employment (whether through resignation,
purported redundancy or otherwise) because of a takeover bid.
Save in respect of the Company’s share schemes and also the
revolving credit facility agreement entered into with Lloyds Bank Plc
and Barclays Bank Plc on 3 June 2016, there are no significant
agreements to which the Company is a party that take effect, alter or
terminate upon a change of control.
AO World Plc
Annual Report and Accounts 2017
82
2017 Annual General Meeting
The Annual General Meeting will be held at 11.00 am on 21 July 2017
at AO Park, 5A The Parklands, Lostock, Bolton BL6 4SD. The Notice
of Meeting which sets out the resolutions to be proposed at the
forthcoming AGM is enclosed with this Annual Report. The Notice
specifies deadlines for exercising voting rights and appointing a proxy
or proxies to vote in relation to resolutions to be passed at the AGM.
All proxy votes will be counted and the numbers for, against or
withheld in relation to each resolution will be announced at the
Annual General Meeting and published on the Company’s website.
Interests in voting rights
At the date of this report the Company had been notified, or was aware
of, in accordance with chapter 5 of the Financial Services Authority’s
Disclosure Guidance and Transparency Rules, of the following
significant interests:
Shareholder
John Roberts
Steve Caunce (excluding Persons
Closely Associated)
Odey Asset Management LLP
Baron Capital Group, Inc, BAMCO,
Baron Capital Management &
Ronald Baron
Ruane, Cunniff & Goldfarb Inc.
Chris Hopkinson
Rovida Holdings
Julie Holroyd
Camelot Capital Partners LLC
Baillie Gifford & Co Ltd
N K Stoller
Number of
ordinary
shares/voting
rights notified
109,339,261
52,145,815
40,099,295
39,473,998/
36,694,698
32,674,857
22,605,429
21,470,991
19,461,670
18,729,276
18,173,720
17,629,098
Percentage of
voting rights
over ordinary
shares of
0.25p each
23.83%
11.37%
8.74%
8.00%
7.12%
4.93%
4.68%
4.24%
4.08%
3.96%
3.84%
Results and dividends
The Group’s and Company’s audited financial statements for the year
are set out on pages 88 to 118.
No dividend was paid by the Company during the year to 31 March 2017.
Post-balance sheet events
The Company completed a placing of shares on 3 April 2017, raising
c.£50m before expenses by the issue of 37,735,849 ordinary shares.
There have been no other balance sheet events that either require
adjustment to the financial statements or are important in the
understanding of the Company’s current position.
Research and development
Innovation, specifically in IT, is a critical element of AO’s strategy and
therefore to the future success of the Group. Accordingly, the majority
of the Group’s research and development expenditure is
predominantly related to the Group’s IT systems.
Indemnities and insurance
The Company maintains appropriate insurance to cover Directors’
and Officers’ liability for itself and its subsidiaries. The Company also
indemnifies the Directors under an indemnity, in the case of the
Non-Executive Directors in their respective letters of appointment and
in the case of the Executive Directors in a separate deed of indemnity.
Such indemnities contain provisions that are permitted by the director
liability provisions of the Companies Act and the Company’s Articles.
Environmental
Information on the Group’s greenhouse gas emissions is set out in the
Corporate Social Responsibility section on page 33 and forms part of
this report by reference.
Political donations
During the year, no political donations were made.
External branches
As part of its strategy on international expansion, the Group
established a branch in Germany on 18 July 2014 via its subsidiary
AO Deutschland Limited, registered in Bergheim. Group companies
have also been incorporated in the Netherlands and Belgium.
Financial instruments
Details of the financial risk management objectives and policies of the
Group, including hedging policies and exposure of the entity to price
risk, credit risk, liquidity risk and cash flow risk, are given on pages
108 to 111 in note 35 to the consolidated financial statements.
Independent Auditor
KPMG LLP was appointed as the external auditor of the Company with
effect from 21 July 2016 in place of Deloitte LLP, following shareholder
approval. Resolutions to authorise the Audit Committee to determine
their remuneration are to be proposed at the forthcoming AGM.
AO World Plc
Annual Report and Accounts 2017
83
Overview Strategic Report Our Governance Our Results Shareholders’ Information
Directors’ Report
continued
Disclosure of information to Auditor
Each of the Directors has confirmed that:
(i) So far as the Director is aware, there is no relevant audit
information of which the Company’s Auditor is unaware; and
(ii) The Director has taken all the steps that he/she ought to have taken
as a Director to make him/herself aware of any relevant audit
information and to establish that the Company’s Auditor is aware
of that information.
This confirmation is given and should be interpreted in accordance
with the provisions of s418 of the Companies Act 2006.
Statement of Directors’ responsibilities in respect of
the Annual Report and the financial statements
The Directors are responsible for preparing the Annual Report and the
Group and parent company financial statements in accordance with
applicable law and regulations.
Responsibility statement of the Directors in respect
of the annual financial report
We confirm that to the best of our knowledge:
– the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss of the
company and the undertakings included in the consolidation
taken as a whole; and
– the strategic report includes a fair review of the development and
performance of the business and the position of the issuer and the
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties
that they face.
We consider the Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Group’s position and performance,
business model and strategy.
Company law requires the Directors to prepare Group and parent
company financial statements for each financial year. Under that law
they are required to prepare the Group financial statements in
accordance with IFRSs as adopted by the EU and applicable law and
have elected to prepare the parent company financial statements on
the same basis.
Julie Finnemore
Company Secretary
AO World Plc
5 June 2017
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and parent company and of their
profit or loss for that period. In preparing each of the Group and parent
company financial statements, the Directors are required to:
– select suitable accounting policies and then apply them
consistently;
– make judgements and estimates that are reasonable and prudent;
– state whether they have been prepared in accordance with IFRSs
as adopted by the EU; and
– prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Group and the parent
company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the parent company and enable them to ensure
that its financial statements comply with the Companies Act 2006.
They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group and
to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
AO World Plc
Annual Report and Accounts 2017
84
Independent Auditors’ Report
to the members of AO World Plc only
Opinions and conclusions arising from our audit
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of AO World plc for the year ended 31 March 2017 set out on pages 88 to 119. In our opinion:
– the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March 2017 and of the
group’s loss for the year then ended;
– the group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted
by the European Union (IFRSs as adopted by the EU);
– the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in
accordance with the provisions of the Companies Act 2006; and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the group
financial statements, Article 4 of the IAS Regulation.
Overview
Materiality:
group financial statements as a whole
Coverage
Risks of material misstatement
Recurring risks
£2.0m
0.3% of total revenues
99% of group total revenues
Product protection plans accrued income
Volume rebates receivable
2. Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements, the risks of material misstatement that had the greatest effect on our audit,
in decreasing order of audit significance, were as follows:
Product protection plans accrued
income (£50.9m accrued income;
2016: £39.0m accrued income)
Accrued income is recognised based on
the fair value of commissions due over the
expected life of the plans.
The risk
Refer to page 64 (Audit Committee Report),
page 97 (accounting policy) and page 103
(financial disclosures).
Data capture
Completeness and accuracy of data used in
the model used to calculate the fair value
because of the complexities and manual
nature involved in the data transfer into the
model.
Calculation error
An arithmetic error in the model.
Our response
Our procedures included:
Data comparisons: With the assistance
of our own data modelling specialists we
performed reconciliations between the third
party data to the database system which
stores this data and onwards into the model.
We agreed a sample of new plans to both bank
statements and the database system.
Methodology implementation: With the
assistance of our own data modelling
specialists we examined whether the model
appropriately applies the relevant principles.
Subjective estimate
Subjective inputs into the product protection
plan accrued income calculation, such as
the life of the plans and cancellation rates
require judgement.
Historical comparisons: Evaluating the
historical accuracy of the model with
reference to past data e.g. cumulative cash
received.
Benchmarking assumptions: Assessing
the directors’ assumptions behind the average
life of the products against externally available
market data.
Sensitivity analysis: Performing sensitivity
analysis on judgemental assumptions.
Assessing transparency: Assessing the
adequacy of the group’s disclosures about of
the subjectivity of the unobservable measures
and the sensitivity of the outcome of the
calculation to changes in key assumptions
reflected the risks inherent in the valuation
of accrued income.
AO World Plc
Annual Report and Accounts 2017
85
Overview Strategic Report Our Governance Our Results Shareholders’ Information Independent Auditors’ Report
to the members of AO World Plc only continued
Volume rebates receivable
(£9.6m; 2016: £8.5m )
Refer to page 64 (Audit Committee Report),
page 97 (accounting policy) and page 103
(financial disclosures).
The risk
Data capture
Completeness and accuracy of data used in
the calculations including supplier turnover
and agreed contractual percentages
because of the complexities and manual
nature of the data transfer.
Subjective estimate
Volume rebates recognised are significant
and the receivable outstanding at the year
end represents an estimate for amounts
receivable based on forecasts in relation to
factors such as future volumes.
Our response
Our procedures included:
Control reperformance: Testing the
operating effectiveness of controls over
supplier statements reconciliations to
evidence that the costs and related rebates
are being monitored and reconciled on a
regular basis.
Historical comparisons: Evaluating the
accuracy of the Group’s product volume
forecasting against actual out-turns.
Tests of detail: Recalculate a sample of
rebates based on agreed supplier turnover
and the contractual percentages. Agree a
sample of the year end receivable back to post
year end confirmatory evidence, including
credit notes and supplier email confirmation
to assess the accuracy of the estimate.
3. Our application of materiality and an overview of the scope of our audit
Materiality for the group financial statements as a whole was set at £2.0 million, determined with reference to a benchmark of total revenues
of £701.2 million, of which it represents 0.3%.
We consider total revenues to be the most appropriate benchmark as it provides a more stable measure year on year than group loss or profit
before tax. This reflects the growth stage of the business and management’s focus on growing the brand and expanding into Europe.
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.1 million, in addition to other
identified misstatements that warranted reporting on qualitative grounds.
Of the group’s 9 components, we subjected 5 to full scope audits for group reporting purposes, all of which were performed by the group audit
team. We performed a review of financial information (including enquiry) on 1 component which was not individually significant enough to
require an audit for group reporting purposes but a review was performed in order to provide further coverage over relevant account balances.
For the 3 remaining components, we performed analysis at an aggregated group level to re-examine our assessment that there were no
significant risks of material misstatement within these.
The components within the scope of our work accounted for the percentages illustrated on the right.
Total revenues
£701.2m
Materiality
£2.0m
£2.0m
Whole financial
statements materiality
£1.4m
Range of materiality
at 5 components
(£0.2m to £1.7m)
Group revenue
Group total assets
99%
99%
Total revenues
Group materiality
Group loss before tax
£0.1m
Misstatements reported
to the audit committee
99%
Full scope audit for group purposes
Review of financial information for
group purposes
Residual components
AO World Plc
Annual Report and Accounts 2017
86
4. Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion:
– the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
– the information given in the Strategic Report and the Directors’ Report for the financial year is consistent with the financial statements.
Based solely on the work required to be undertaken in the course of the audit of the financial statements and from reading the Strategic Report
and the Directors’ Report:
– we have not identified material misstatements in those reports; and
– in our opinion, those reports have been prepared in accordance with the Companies Act 2006.
5. We have nothing to report on the disclosures of principal risks
Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to:
– the directors’ statement of Viability Assessment on pages 44, concerning the principal risks, their management, and, based on that,
the directors’ assessment and expectations of the group’s continuing in operation over the 3 years to 31 March 2020; or
– the disclosures in note 3of the financial statements concerning the use of the going concern basis of accounting.
6. We have nothing to report in respect of the matters on which we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other
information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material
misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
– we have identified material inconsistencies between the knowledge we acquired during our audit and the directors’ statement that they
consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information
necessary for shareholders to assess the group’s position and performance, business model and strategy; or
– the Report of the Audit Committee does not appropriately address matters communicated by us to the audit committee.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
– adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
– the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
– certain disclosures of directors’ remuneration specified by law are not made; or
– we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
– the directors’ statements, set out on pages 44, in relation to going concern and longer-term viability; and
– the part of the Corporate Governance Statement on page 53 relating to the company’s compliance with the eleven provisions of the 2014 UK
Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope and responsibilities
As explained more fully in the Directors’ Responsibilities Statement set out on page 84, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is
provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the Company’s
members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at
www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as if set out in full and should be read to provide an
understanding of the purpose of this report, the work we have undertaken and the basis of our opinions.
Mick Davies (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 St Peters Square
Manchester
M2 3AE
5 June 2017
AO World Plc
Annual Report and Accounts 2017
87
Group total assets
99%
Overview Strategic Report Our Governance Our Results Shareholders’ Information Consolidated income statement
For the year ended 31 March 2017
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Other operating income
Operating loss
Finance income
Finance costs
Loss before tax
Tax (charge)/credit
Loss for the year
Loss for the year attributable to:
Owners of the parent company
Non-controlling interest
Loss per share (pence)
Basic loss per share
Diluted loss per share
Note
5,6
6
6,7
8
6,8
11
12
13
30
15
15
2017
£m
701.2
(572.0)
129.2
(142.4)
1.2
(12.0)
6.8
(1.8)
(7.0)
(0.4)
(7.4)
(6.6)
(0.8)
(7.4)
(1.56)
(1.55)
2016
£m
599.2
(493.3)
105.9
(116.5)
–
(10.6)
4.2
(0.3)
(6.7)
0.6
(6.1)
(6.0)
(0.1)
(6.1)
(1.44)
(1.44)
AO World Plc
Annual Report and Accounts 2017
88
Consolidated statement of comprehensive income
For the year ended 31 March 2017
Loss for the year
Items that may subsequently be recycled to income statement
Exchange differences on translation of foreign operations
Total comprehensive loss for the year
Total comprehensive loss for the year attributable to:
Owners of the parent company
Non-controlling interest
2017
£m
(7.4)
(3.5)
(10.9)
(10.1)
(0.8)
(10.9)
2016
£m
(6.1)
(2.5)
(8.6)
(8.5)
(0.1)
(8.6)
AO World Plc
Annual Report and Accounts 2017
89
Overview Strategic Report Our Governance Our Results Shareholders’ Information Consolidated statement of financial position
As at 31 March 2017
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Trade and other receivables
Derivative financial asset
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Corporation tax receivable
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Provisions
Net current liabilities
Non-current liabilities
Borrowings
Derivative financial liability
Provisions
Total liabilities
Net assets
Equity attributable to owners of the parent
Share capital
Share premium account
Other reserves
Retained losses
Total
Non-controlling interest
Total equity
Note
16
18
19
23
35
21
22
23
24
25
26
28
26
35
28
29
31
30
2017
£m
13.5
1.8
29.3
39.8
1.3
1.8
87.5
44.8
41.1
0.2
29.4
115.5
203.0
(140.2)
(3.7)
(0.1)
(144.0)
(28.5)
(13.7)
(3.4)
(1.4)
(162.5)
40.5
1.1
55.7
1.0
(15.6)
42.2
(1.7)
40.5
2016
£m
13.5
2.1
18.0
29.5
0.8
1.5
65.4
34.0
34.4
0.7
33.4
102.5
167.9
(109.0)
(2.2)
–
(111.2)
(8.7)
(5.8)
(2.7)
(0.8)
(120.5)
47.4
1.1
55.7
3.8
(12.3)
48.3
(0.9)
47.4
The financial statements of AO World Plc, registered number 05525751 on pages 88 to 118 were approved by the Board of Directors and
authorised for issue on 5 June 2017. They were signed on its behalf by:
Steve Caunce
CEO
AO World Plc
CFO
Mark Higgins
AO World Plc
AO World Plc
Annual Report and Accounts 2017
90
Non-
controlling
interest
£m
–
(0.1)
–
–
–
–
(0.8)
(0.9)
(0.8)
–
–
–
(1.7)
Total
£m
58.6
(6.0)
(2.5)
0.3
(2.1)
–
–
48.3
(6.6)
4.0
(3.5)
–
42.2
Total
£m
58.6
(6.1)
(2.5)
0.3
(2.1)
–
(0.8)
47.4
(7.4)
4.0
(3.5)
–
40.5
Balance at 1 April 2015
Loss for the year
Foreign currency gains
arising on consolidation
Share-based payments
charge net of tax
Put option over
non-controlling interest
Transfer between reserves
Acquisition of subsidiary
Balance at 31 March 2016
Loss for the year
Share-based payments
charge net of tax (see note 32)
Foreign currency gains
arising on consolidation
Movement between reserves
(see note 32)
Balance at 31 March 2017
Consolidated statement of changes in equity
As at 31 March 2017
Share
capital
£m
1.1
–
Share
premium
account
£m
55.7
–
Capital
redemption
reserve
£m
(1.1)
–
Other reserves
Share-based
payments
reserve
£m
2.8
–
Merger
reserve
£m
4.4
–
Translation
reserve
£m
0.4
–
Other
reserve
£m
–
–
Retained
losses
£m
(4.7)
(6.0)
–
–
–
–
–
1.1
–
–
–
–
1.1
–
–
–
–
–
55.7
–
–
–
–
–
–
–
–
–
4.4
–
–
–
–
–
–
–
1.6
–
0.5
–
–
–
–
55.7
4.4
0.5
–
0.3
–
–
–
3.1
–
4.0
–
(3.3)
3.8
(2.5)
–
–
–
–
(2.1)
–
–
(3.5)
–
–
–
(2.1)
–
–
(2.1)
–
–
–
–
–
–
–
(1.6)
–
(12.3)
(6.6)
–
–
3.3
(5.6)
(2.1)
(15.6)
AO World Plc
Annual Report and Accounts 2017
91
Overview Strategic Report Our Governance Our Results Shareholders’ Information Consolidated statement of cash flows
For the year ended 31 March 2017
Cash flows from operating activities
Loss for the year
Adjustments for:
Depreciation and amortisation
Finance income
Finance costs
Profit on disposal of property, plant and equipment
Taxation charge/(credit)
Share-based payment charge
Increase in provisions
Operating cash flows before movement in working capital
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
Taxation paid
Cash generated/(used) in operating activities
Cash flows from investing activities
Interest received
Proceeds from sale of property, plant and equipment
Acquisition of property, plant and equipment
Acquisition of intangible assets
Cash used in investing activities
Cash flows from financing activities
Proceeds from new borrowings
Interest paid
Repayments of borrowings
Payment of finance lease liabilities
Net cash used in financing activities
Net decrease in cash
Cash and cash equivalents at beginning of year
Exchange gains on cash and cash equivalents
Cash and cash equivalents at end of year
Note
11
12
32
28
11
12
24
2017
£m
(7.4)
6.0
(6.8)
1.8
(0.3)
0.4
4.0
0.7
(1.6)
(10.3)
(13.3)
28.9
5.3
(0.2)
3.5
0.2
0.9
(5.7)
(0.3)
(4.9)
8.1
(1.1)
(6.4)
(3.4)
(2.8)
(4.2)
33.4
0.2
29.4
2016
£m
(6.1)
4.8
(4.2)
0.3
–
(0.6)
0.2
–
(5.6)
(2.4)
(15.8)
20.3
2.1
–
(3.5)
0.2
–
(6.1)
(0.5)
(6.4)
0.9
(0.3)
–
(2.4)
(1.8)
(11.7)
44.9
0.2
33.4
AO World Plc
Annual Report and Accounts 2017
92
Notes to the consolidated financial statements
For the year ended 31 March 2017
1. Authorisation of financial statements and statement
of compliance with IFRSs
AO World Plc is a public limited company and is incorporated in the
United Kingdom under the Companies Act. The Company’s ordinary
shares are traded on the London Stock Exchange. The Group’s
financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the
European Union as they apply to the financial statements of the Group
for the year ended 31 March 2017, and as such comply with Article 4 of
the EU IAS regulation.
IFRS 15
IFRS 15, “Revenues from Contracts with Customers” is effective for
periods commencing 1 January 2018. IFRS 15 introduces a five-step
approach to the timing of revenue recognition based on performance
obligations in customer contracts. We are assessing the impact of IFRS
15 and conducting a systematic review to ensure that the impact of the
new standard is fully understood in advance of the effective date.
We intend to quantify the impact of the changes (if any) no later than
in the Annual Report and Financial Statements for the year ended
31 March 2018.
IFRS 16
IFRS 16, “Leases” provides guidance on the classification, recognition
and measurement of leases to help provide useful information to the
users of financial statements. The main aim of this standard is to ensure
material leases will be reflected on the balance sheet. The new standard
will replace IAS 17 “Leases” and is effective for annual periods beginning
on or after 1 January 2019 unless adopted early. We anticipate the
changes will have a significant impact on the financial statements and
are currently carrying out a review to quantify this.
3. Significant accounting policies
Basis of consolidation
The Group’s financial statements consolidate those of the Company
and its subsidiaries (together referred to as the “Group”).
Subsidiary undertakings are all entities over which the Group has
control. The Group controls an entity where the Group is exposed to,
or has rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power to direct
the activities of the entity. Subsidiaries are fully consolidated from
the date on which control is transferred to the Group and are
deconsolidated from the date on which control ceases.
Subsidiary undertakings acquired during the period are recorded
under the acquisition method of accounting. The cost of the acquisition
is measured at the aggregate fair value of the consideration given.
The acquiree’s identifiable assets, liabilities and contingent liabilities
that meet the conditions for recognition under IFRS 3 “Business
Combinations” are recognised at their fair value at the date the Group
assumes control of the acquiree. Acquisition-related costs are
recognised in the consolidated income statement as incurred.
Any non-controlling interest acquired on acquisition of a subsidiary
is recognised at the proportionate share of the acquired net assets.
Subsequent to acquisition, the carrying amount of non-controlling
interest equals the amount of those interests at initial recognition plus
the non-controlling share of changes in equity since acquisition. Total
comprehensive income is attributed to a non-controlling interest even
if this results in the non-controlling interest having a deficit balance.
All intercompany balances and transactions have been eliminated
in full.
A list of all the subsidiaries of the Group is included in note 20 of the
Group financial statements. All apply accounting policies which are
consistent with those of the rest of the Group.
The address of the registered office is given on page 119. The nature of
the Group’s operations and its principal activities are set out in note 20
and in the Strategic Report on pages 16 to 51.
These financial statements are presented in pounds sterling (£m)
because that is the currency of the primary economic environment
in which the Group operates.
2. Adoption of new and revised standards
The accounting policies set out in note 3 have been applied in
preparing these financial statements.
The Group has adopted the following standards, amendments and
interpretations which have not had a significant impact on the
Group’s results:
Amendments to IAS 1 Disclosure initiative
Amendments to IAS 16
and IAS 38
Annual improvements
to IFRSs
2012-2014 cycle (Sept 2014)
Clarification of acceptable methods of
depreciation and amortisation
At the date of authorisation of these financial statements, the following
standards and interpretations which have not been applied in these
financial statements were in issue but not yet effective (and in some
cases had not yet been adopted by the EU):
Financial Instruments
IFRS 9
Regulatory Deferral Accounts
IFRS 14
Revenue From Customers With Contracts
IFRS 15
Leases
IFRS 16
The application of the investment entities
Amendments to IFRS
exemptions
10, IFRS 12, and IAS 28
Sale or contribution of assets between an
Amendments to
investor and its associate or joint venture
IFRS 10 and IAS 28
Amendments to IFRS 11 Accounting for acquisitions of interest in
joint operations
Amendments to IAS 27 Equity method in separate financial
statements
Amendments to IAS 19 Defined Benefit Plans: Employee
Contributions
Management are reviewing the impact of the above on the Group’s
financial statements. The main changes which may have an impact are:
IFRS 9
IFRS 9, “Financial Instruments” is effective for periods commencing on
or after 1 January 2018. The revised standard replaces IAS 39 Financial
Instruments: Recognition and Measurement and introduces new
guidance for classification and measurement, impairment of financial
instruments and hedge accounting. We intend to quantify the impact of
the changes (if any) no later than in the Annual Report and Financial
Statements for the year ended 31 March 2018.
AO World Plc
Annual Report and Accounts 2017
93
Overview Strategic Report Our Governance Our Results Shareholders’ Information Notes to the consolidated financial statements
For the year ended 31 March 2017 continued
3. Significant accounting policies (continued)
Going concern
The Directors have, at the time of approving the financial statements,
a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for a period
of not less than 12 months from the date of this Report. This takes into
consideration the forecasted cash flow of the Group, the availability
of a £30.0m Revolving Credit Facility and funds from the £50.0m
(gross) share placing (see note 37). Thus they continue to adopt the
going concern basis of accounting in preparing the financial
statements. Further detail on this and the viability statement is
contained in the Directors’ Report on page 80.
Revenue recognition
Revenue represents the value of goods and services delivered to
the customers during the year, net of value added tax. Revenue is
recognised on orders received when the goods and related services
have been delivered to customers. The exception to this is revenue
in respect of product protection plans and commercial income which
is dealt with in the section below.
Finance costs comprise of:
– Foreign exchange losses arising on financing (principally
intra-Group loans)
– Movement in the valuation of the put and call options
– Finance costs incurred on finance leases are recognised in profit
or loss using the effective interest method
– Financing costs of raising debt
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at the
consideration less attributable transaction costs.
Impairment of tangible and intangible assets
At each statement of financial position date, the Group reviews the
carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an
impairment loss. Where the asset does not generate cash flows
that are independent from other assets, the Group estimates the
recoverable amount of the cash-generating unit (“CGU”) to which
the asset belongs.
Commission receivable
Commission receivable for sales of product protection plans for which
the Group acts as an agent (on the basis that the plan is a contract
between the customer and Domestic and General and the Group has
no ongoing obligations following the sale of such plans) is included
within revenue based on the estimated fair value of future
commissions receivable over the life of the product protection plan.
Revenue is recognised on the basis that the Group has fulfilled its
obligations to the customer. The fair value calculation takes into
consideration the length of the plan and the historical rate of customer
attrition and is discounted (see note 23).
Commercial income
At the year-end the Group is required to estimate supplier income due
from annual agreements for volume rebates, which span across the
year-end date. Estimates are required where firm confirmation of
some amounts due are received after the year-end. Where estimates
are required these are calculated based on historical data, adjusted for
expected changes in future purchases from suppliers, and reviewed in
line with current supplier contracts.
Commercial income can be recognised as volume rebates or as
strategic marketing investment funding. Volume rebates are
recognised in the income statement as a reduction in cost of sales in
line with the recognition of the sale of a product. Strategic marketing
investment funding is recognised in one of two ways:
– in advertising costs to offset directly attributable marketing costs
incurred by the Group on behalf of the suppliers; and
– the remainder of funding is recognised in revenue.
Finance income and costs
Finance income is recognised in the consolidated income statement in
the period to which it relates using the effective interest rate method.
Finance income comprises of:
– Interest receivable which is recognised in the consolidated income
statement as it accrues using the effective interest method
– Income arising from the unwinding of the accrued income in
relation to product protection plans in excess of their previously
recognised fair value
– Movement in the valuation of the put and call options
– Foreign exchange gains arising on financing (principally
intra-Group loans)
Finance costs are recognised in the consolidated income statement
in the period in which they occur.
Goodwill is not amortised but is reviewed for impairment annually,
or more frequently where there is an indication that the goodwill may
be impaired. For the purpose of impairment testing, goodwill is
allocated to each of the Group’s CGU expected to benefit from
synergies of the combination.
The recoverable amount of an asset or cash-generating unit is the
greater of its value in use and its fair value less costs to sell. In assessing
value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific
to the asset.
An impairment loss is recognised if the carrying amount of an asset or its
CGU exceeds its estimated recoverable amount. Impairment losses are
recognised in profit or loss. Impairment losses recognised in respect of
CGUs are allocated first to reduce the carrying amount of any goodwill
allocated to the units, and then to reduce the carrying amounts of the
other assets in the unit (group of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of
other assets, impairment losses recognised in prior years are assessed
at each reporting date for any indications that the loss has decreased
or no longer exists. An impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable amount. An
impairment loss is reversed only to the extent that the asset’s carrying
amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment loss
had been recognised.
Goodwill impairment review
Goodwill is required to be tested for impairment annually. Impairment
testing on goodwill is carried out in accordance with the methodology
described in note 16. Such calculations require judgement relating to
the appropriate discount factors and long-term growth prevalent in a
particular market as well as short and medium-term business plans.
The Directors draw upon experience as well as external resources in
making these judgements.
Intangible assets
Goodwill represents the excess of the total consideration transferred
for an acquired entity, over the net of the acquisition date amounts of
the identifiable assets acquired and liabilities assumed. Goodwill is
stated at cost. Goodwill is allocated to CGUs and is not amortised but
is tested annually for impairment.
AO World Plc
Annual Report and Accounts 2017
94
Other intangible assets are stated at cost less accumulated amortisation.
Amortisation is charged to the consolidated income statement in
administrative expenses on the basis stated below over the estimated
useful lives of each asset. The estimated useful lives are as follows:
Asset Class
Domain names
Computer software
Amortisation method and rate
5 years straight-line
3 to 5 years straight-line
Trade and other receivables
Trade and other receivables are recorded at fair value which is
estimated to be equivalent to book value, less any impairment. Further
information is included within the revenue recognition policy and note
4, critical accounting judgements and key sources of estimation
uncertainty. A provision for bad and doubtful debt is made when there
is objective evidence that the Group will not be able to collect all of the
amounts due under the original terms of the invoice. Bad debts are
written off when identified.
Amortisation methods, useful lives and residual values are reviewed
at each statement of financial position date.
Property, plant and equipment
All fixed assets are stated at cost less accumulated depreciation and
any recognised impairment loss.
Depreciation is recognised so as to write off the cost or valuation of
assets (other than freehold land) less their residual values over their
useful lives on the following bases:
Asset Class
Property alterations
Fixtures, fittings and
plant and machinery
Motor vehicles
Computer equipment
Office equipment
Leasehold property
Freehold property
Depreciation method and rate
10 years straight-line or over the life of the
lease to which the assets relate
15% reducing balance or 3 to 10 years straight
line
2 to 10 years straight-line
3 to 5 years straight-line
15% reducing balance or 3 to 5 years straight
line
Depreciated on a straight-line basis over the
life of the lease
25 years straight-line
Freehold land is not depreciated.
The estimated useful lives, residual values and depreciation method
are reviewed at the end of each reporting year, with the effect of any
changes in estimate accounted for on a prospective basis.
Assets held under finance leases are depreciated over their expected
useful lives on the same basis as owned assets.
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected to arise
from the continued use of the asset. The gain or loss arising on the
disposal of an asset is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognised in
the income statement.
Inventories
Inventories are stated at the lower of cost and net realisable value.
Cost comprises direct purchase cost net of rebates. Net realisable
value represents the estimated selling price less all estimated and
directly attributable costs of selling and distribution. Net realisable
value includes, where necessary, provisions for slow-moving and
damaged inventory.
Financial instruments
Financial assets and financial liabilities are recognised in the Group’s
statement of financial position when the Group becomes a party to the
contractual provisions of the instrument.
Financial assets and liabilities
Financial assets and liabilities comprise trade and other receivables,
cash and cash equivalents, loans and borrowings, trade and other
payables and call and put options.
For other receivables arising from commission for sales of product
protection plans, measurement is at fair value. This is based on the
Group having a contractual right to receive cash (in the form of
commission following the sale of a plan) and a financial asset is
recognised in accordance with IAS 32 Financial Instruments
Presentation. Any gain or loss on remeasurement of fair value is
recognised immediately in the consolidated income statement
within revenue.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand.
Trade and other payables
Trade and other payables are recorded at fair value which is estimated
to be equivalent to book value.
Financial liabilities and equity components
Debt and equity instruments are classified as either financial liabilities
or as equity in accordance with the substance of the contractual
arrangement and in conjunction with the application of IFRSs. Financial
instruments issued by the Group are treated as equity only to the extent
that they meet the following two conditions:
(a) they include no contractual obligations upon the Company (or
Group as the case may be) to deliver cash or other financial assets
or to exchange financial assets or financial liabilities with another
party under conditions that are potentially unfavourable to the
Company (or Group); and
(b) where the instrument will or may be settled in the Company’s own
equity instruments, it is either a non-derivative that includes no
obligation to deliver a variable number of the Company’s own
equity instruments or is a derivative that will be settled by the
Company exchanging a fixed amount of cash or other financial
assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are
classified as a financial liability. Where the instrument so classified takes
the legal form of the Company’s own shares, the amounts presented in
these financial statements for called-up share capital and share
premium account exclude amounts in relation to those shares.
Call and put option
The fair value of the call and put options (arising on the acquisition of
TRG) are based upon an independent valuation at the year-end using
the Monte Carlo model.
The carrying value of the put option is based on an estimate of the
maximum amount payable over the life of the option based on
discounted future cash flows.
Provisions
Provisions are recognised when the Group has a present obligation
(legal or constructive) as a result of a past event, it is probable that the
Group will be required to settle that obligation and a reliable estimate
can be made of the amount of the obligation.
AO World Plc
Annual Report and Accounts 2017
95
Overview Strategic Report Our Governance Our Results Shareholders’ Information Notes to the consolidated financial statements
For the year ended 31 March 2017 continued
3. Significant accounting policies (continued)
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the statement
of financial position date, taking into account the risks and uncertainties
surrounding the obligation. The estimated cash outflow is discounted
to net present value.
Share-based payments
The cost of share-based payment transactions with employees are
measured by reference to the fair value of the equity instruments at the
date on which they are granted and is recognised as an expense over
the vesting period, which ends on the date on which the relevant
employees become fully entitled to the award.
Leases
Leases in which the Group assumes substantially all the risks and
rewards of ownership of the leased asset are classified as finance
leases. Where land and buildings are held under leases the accounting
treatment of the land is considered separately from that of the buildings.
Leased assets acquired by way of finance lease are stated at an amount
equal to the lower of their fair value and the present value of the
minimum lease payments at inception of the lease, each determined
at the inception of the lease and depreciated over their estimated
useful lives or the lease term if shorter. Finance charges are charged
to income over the year of the lease in proportion to the capital
element outstanding.
Rentals payable under operating leases are charged to the income
statement on a straight-line basis over the fixed term of the lease.
Benefits received or receivable as an incentive to enter into an
operating lease are also spread straight-line over the lease term.
Sublease rent is credited to the income statement in other
operating income.
Taxation
Tax on the profit or loss for the year comprises current and deferred
tax. Tax is recognised in the income statement except to the extent
that it relates to items recognised directly in equity, in which case it
is recognised in equity.
Current tax is the expected tax payable or receivable on the taxable
income or loss for the year, using tax rates enacted or substantively
enacted at the statement of financial position date, and any adjustment
for items of income or expense that are taxable or deductible in other
years or that are never taxable or deductible.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following
temporary differences are not provided for: the initial recognition of
goodwill; and the initial recognition of assets or liabilities that affect
neither accounting nor taxable profit (other than in a business
combination) to the extent that they will probably not reverse in the
foreseeable future. The amount of deferred tax provided is based on
the expected manner of realisation or settlement of the carrying
amount of assets and liabilities, using tax rates enacted or substantively
enacted at the statement of financial position date.
A deferred tax asset is recognised only to the extent that it is probable
that future taxable profits will be available against which the temporary
difference can be utilised. Deferred tax assets and liabilities are offset
when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes
levied by the same taxation authority and the Group intends to settle
its current tax assets and liabilities on a net basis.
Employee benefits
The Group contributes to a defined contribution pension scheme, for
employees who have enrolled in the scheme. A defined contribution
scheme is a post-employment benefit plan under which the Group
pays fixed contributions into a separate entity and will have no legal or
constructive obligation to pay further amounts. Obligations for
contributions to defined contribution pension plans are recognised as
an expense in the income statement in the years during which services
are rendered by employees.
Fair value is determined by an external valuer using an appropriate
pricing model (see note 32). In valuing equity-settled transactions, no
account is taken of any service and performance (vesting) conditions,
other than performance conditions linked to the price of the shares of
the Company (market conditions). Any other conditions which are
required to be met in order for an employee to become fully entitled to
an award are considered to be non-vesting conditions. Like market
performance conditions, non-vesting conditions are taken into
account in determining the grant date fair value.
The amount recognised as an expense is adjusted to reflect the actual
number of awards for which the related service and non-market
vesting conditions are expected to be met, such that the amount
ultimately recognised as an expense is based on the number of awards
that do meet the related service and non-market performance
conditions at the vesting date. For share-based payment awards with
non-vesting conditions, the grant date fair value of the share-based
payment is measured to reflect such conditions and there is no
true-up for differences between expected and actual outcomes.
At each statement of financial position date before vesting, the
cumulative expense is calculated, representing the extent to which
the vesting period has expired and management’s best estimate of
the achievement or otherwise of service and non-market vesting
conditions and of the number of equity instruments that will ultimately
vest or, in the case of cancelled options in the AO Sharesave scheme,
be treated as vesting as described above. The movement in cumulative
expense since the previous statement of financial position date is
recognised in the consolidated income statement with a
corresponding entry in equity.
Foreign currency translation
The individual financial statements of each Group company are
presented in the currency of the primary economic environment in
which it operates (its functional currency). For the purpose of the
consolidated financial statements, the results and financial position
of each Group company are expressed in pounds sterling, which is
the presentational currency of the Group and its consolidated
financial statements.
The trading results and cash flows of overseas subsidiaries are
translated at the average monthly exchange rates during the period.
The Statement of Financial Position of each overseas subsidiary is
translated at year-end exchange rates with the exception of equity
balances which are translated at historic rates. The resulting exchange
differences are recognised in a separate translation reserve within
equity and are reported in other comprehensive income.
Transactions denominated in foreign currencies are translated into the
functional currency at the exchange rates prevailing on the date of the
transaction. Monetary assets and liabilities denominated in foreign
currencies are retranslated into functional currency at the rates of
exchange at the reporting date. Exchange differences on monetary
items are recognised in the income statement.
Intra-Group loans are translated at the year-end exchange rate with
the resulting exchange differences recognised within interest.
AO World Plc
Annual Report and Accounts 2017
96
Non statutory measures
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 both the Executive
management’s annual bonus and recent LTIP awards. Whilst we
recognise that the measure is an alternative (non-Generally Accepted
Accounting Practice (“non-GAAP”)) performance measure which is
also not defined within IFRS, this measure is important and should be
considered alongside the IFRS measures.
EBITDA is defined by the Group as earnings before interest, tax,
depreciation, amortisation and profit/loss on disposal. EBITDA is
adjusted for one off items that do not reflect the underlying trading
of the business. Such adjustments are:
– LTIP awards were made to a number of senior staff under the
Performance Share Plan at the time of the Company’s IPO in 2014
and also 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/(credit) in arriving at
Adjusted EBITDA. The difference in the add-back year on year
reflects the cumulative adjustment to the LTIP charge based on the
assessment of certain performance criteria during the period (with
the credit in 2016’s numbers reflecting the likelihood that the IPO
award would not vest, whilst the charge this year relates to the ERP
which, having been granted during the year under review, was not
in the previous year). AO Sharesave scheme charges and LTIP
charges relating to the LTIP awards which are not considered to
be one-off in nature are included in trading numbers.
– Europe set-up costs are costs incurred in connection with our
European expansion strategy prior to the “go-live” of that territory,
namely the launch of AO.de and AO.nl and our continuing research
into other further countries along with strategic post “go-live” costs.
4. Critical accounting judgements and key sources
of estimation uncertainty
In the application of the Group’s accounting policies, which are
described in note 3, 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
estimate reliably based upon a number of assumptions including the
length of the policies, 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 as at 31 March 2017 was £50.9m (2016: £39.0m). The discount
rate used to unwind the commission receivable is 4.6% (2016: 4.9%).
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
31 March 2017 are £9.6m (2016: £8.5m). At 31 May 2017 the balance
outstanding was £1.1m.
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 31 March 2017 £1.4m
remains as an outstanding receivable (2016: £0.9m). As at 31 March
2017 the Directors do not believe that there is a material risk regarding
the judgements made for the purposes of calculating both volume
rebates and the strategic marketing fund. At 31 May 2017 the
outstanding balance was £nil.
5. Revenue
An analysis of the Group’s revenue is as follows:
Year ended 31 March
AO website sales
Third-party website sales and trade sales
Other sales*
2017
£m
629.4
46.0
25.8
701.2
* Other sales includes third-party logistics and recycling services.
2016
£m
527.8
53.6
17.8
599.2
Revenue split between sale of goods and services:
Year ended (£m)
31 March 2017
Product sales
Service sales
552.5
77.2
629.7
UK Europe
Total
67.7 620.2
81.0
3.8
701.2
71.5
31 March 2016
Europe
37.9
2.8
40.7
UK
497.6
60.9
558.5
Total
535.5
63.7
599.2
Product sales relate to the sale of electrical products through our own
website and for third parties. Service sales relate to ancillary services
including delivery, connection and disconnections, product protection
plan commission, recycling services, strategic marketing income and
third-party logistics.
AO World Plc
Annual Report and Accounts 2017
97
Overview Strategic Report Our Governance Our Results Shareholders’ Information Notes to the consolidated financial statements
For the year ended 31 March 2017 continued
6. 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 has determined that the primary segmental reporting format of the Group is geographical by customer
location, based on the Group’s management and internal reporting structure.
Transactions between segments are undertaken on an arms-length basis using appropriate transfer pricing policies.
a. Income statement
The following is an analysis of the Group’s revenue and results by reportable segments.
Year ended (£m)
AO website sales
Third-party website sales
Other sales
Total revenue
Cost of sales
Gross profit/(loss)
Administrative expenses
Other operating income
Operating profit/(loss)
Finance income
Finance costs
Profit/(loss) before tax
Tax (charge)/credit
Profit/(loss) after tax
31 March 2017
UK
557.9
46.0
25.8
629.7
(496.5)
133.2
(118.6)
1.1
15.6
3.3
(1.7)
17.2
(0.5)
16.7
Europe
71.5
–
–
71.5
(75.5)
(4.0)
(23.8)
0.1
(27.6)
3.5
(0.1)
(24.2)
0.1
(24.1)
Total
629.4
46.0
25.8
701.2
(572.0)
129.2
(142.4)
1.2
(12.0)
6.8
(1.8)
(7.0)
(0.4)
(7.4)
31 March 2016
Europe
40.7
–
–
40.7
(45.6)
(4.9)
(18.1)
–
(23.0)
2.7
–
(20.3)
0.1
(20.2)
UK
487.1
53.6
17.8
558.5
(447.7)
110.8
(98.4)
–
12.4
1.5
(0.3)
13.6
0.5
14.1
Total
527.8
53.6
17.8
599.2
(493.3)
105.9
(116.5)
–
(10.6)
4.2
(0.3)
(6.7)
0.6
(6.1)
The Group uses alternative performance measures which are not defined within IFRS, as well as IFRS 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 material items of income and expense 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:
– LTIP awards were made to a number of senior staff under the Performance Share Plan at the time of the Company’s IPO in 2014 and also
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/(credit) in arriving at Adjusted EBITDA. The difference in the add-back year on year reflects the
cumulative adjustment to the LTIP charge based on the assessment of certain performance criteria during the period (with the credit in
2016’s numbers reflecting the likelihood that the IPO award would not vest, whilst the charge this year relates to the ERP which, having been
granted during the year under review, was not in the previous year). AO Sharesave scheme charges and LTIP charges relating to the LTIP
awards which are not considered to be one-off in nature are included in trading numbers.
– Europe set-up costs are costs incurred in connection with our European expansion strategy prior to the “go-live” of that territory, namely the
launch of AO.de and AO.nl and our continuing research into other further countries along with strategic post “go-live” costs.
Year ended (£m)
Operating profit/(loss)
Depreciation
Amortisation
Profit on disposal of non-current assets
EBITDA
Share-based payment charge/(credit) attributable to
exceptional LTIP awards
Europe set-up costs
Adjusted EBITDA
31 March 2017
(27.6)
1.0
0.1
–
(26.5)
15.6
4.3
0.6
(0.3)
20.1
3.6
0.7
24.4
–
–
(26.5)
(12.0)
5.3
0.7
(0.3)
(6.4)
3.6
0.7
(2.1)
31 March 2016
(23.0)
0.5
0.2
–
(22.3)
–
1.2
(21.1)
12.4
3.8
0.3
–
16.5
(0.4)
1.1
17.2
(10.6)
4.3
0.5
–
(5.8)
(0.4)
2.3
(3.9)
AO World Plc
Annual Report and Accounts 2017
98
b. Geographical analysis
Revenue by location is the same as that shown in section (a) by
reportable segment. Information on non-current assets is shown
in section (c).
9. Auditor’s remuneration
The analysis of the Auditor’s remuneration is as follows:
c. Other information
Additions
2017 (£m)
UK
Europe
Intangible
assets
0.2
–
0.2
PP&E Depreciation Amortisation
0.6
4.3
0.1
1.0
0.7
5.3
14.1
2.6
16.7
Profit on
disposal
(0.3)
–
(0.3)
Fees payable to the Company’s Auditor and
their associates for the audit of the
Company’s annual accounts
Fees payable to the Company’s Auditor and
their associates for other services to the Group
– the audit of the Company’s subsidiaries
Total audit fees
2016 (£m)
UK
Europe
Additions
Intangible
assets
0.4
0.1
0.5
PP&E Depreciation Amortisation
0.3
3.8
0.2
0.5
0.5
4.3
4.4
3.8
8.2
Non-audit fees
Review of interim statements
Other services
Non-audit fee
Total Auditor’s remuneration
2017
£m
2016
£m
0.1
0.2
0.3
–
–
–
0.3
0.1
0.2
0.3
–
–
–
0.3
Due to the nature of its activities, the Group is not reliant on any
individual major customer or group of customers.
No analysis of the assets and liabilities of each operating segment is
provided to the Chief Operating Decision Maker in the monthly Board
presentation, therefore no measure of segmental assets or liabilities
is disclosed in this note.
Details of the Company’s policy on the use of auditors for non-audit
services, the reasons why the Auditor was used rather than another
supplier and how the Auditor’s independence and objectivity was
safeguarded are set out in the Audit Committee Report on page 63.
No services were provided on a contingent fee basis.
KPMG LLP were newly appointed as auditors for the year ending
31 March 2017. The 2017 column reflects KPMG LLP audit fees of
£255,000, non-audit fees of £30,000 in relation to the review of the
interim financial statements and other non-audit services of £12,500.
7. Administrative expenses
Marketing and advertising expenses
Warehousing expenses
Other administrative expenses
2017
£m
31.9
31.3
79.2
142.4
2016
£m
30.4
23.3
62.8
116.5
Deloitte LLP were the Group’s auditors for the year ending 31 March
2016. The 2016 column reflects audit fees of £258,000, non-audit fees
of £30,000 in relation to the review of the interim financial statements
and other non-audit services of £14,000.
10. Staff costs
The average monthly number of employees (including Directors) was:
8. Operating loss for the year
Operating loss for the year has been arrived at after charging/(crediting):
Depreciation of:
Owned assets
Assets held under finance leases
Amortisation
Operating lease expenses of:
Motor vehicles
Other assets
Profit on disposal of property, plant and
equipment
Cost of inventories
Staff costs (see note 10)
Other operating income from short-term sublets
2017
£m
3.3
2.0
0.7
6.4
6.9
(0.3)
492.8
80.0
(1.2)
2016
£m
2.3
2.0
0.5
5.1
3.5
–
445.1
61.1
–
Sales, marketing and distribution
Directors (Executive and Non-Executive)
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Contributions to defined contribution plans
(see note 34)
Share-based payment charge (see note 32)
Social security contributions related to share
awards
11. Finance income
Bank interest
Foreign exchange gains on intra-Group loans
Movement in valuation of put and call option
Unwind of discounting on long-term
receivables
AO World Plc
Annual Report and Accounts 2017
99
2017
Number
2,498
8
2,506
2016
Number
2,093
8
2,101
2017
£m
66.3
6.5
2.8
4.0
0.4
80.0
2017
£m
0.2
4.4
0.5
1.7
6.8
2016
£m
53.7
5.1
2.1
0.2
–
61.1
2016
£m
0.2
2.7
0.2
1.1
4.2
Overview Strategic Report Our Governance Our Results Shareholders’ Information
Notes to the consolidated financial statements
For the year ended 31 March 2017 continued
12. Finance costs
Interest on obligations under finance leases
Finance cost of raising debt
Movement in valuation of put and call option
13. Tax
Corporation tax:
Current year
Deferred tax (see note 21)
Total tax charge/(credit)
2017
£m
0.5
0.6
0.7
1.8
2017
£m
0.6
(0.2)
0.4
15. Loss per share
The calculation of the basic and diluted loss per share is based on the
following data:
Loss for the purposes of basic and diluted
earnings per share being loss attributable
to owners of the parent company
Number of shares
Weighted average shares in issue for the
purposes of basic loss per share
Potentially dilutive shares options
Weighted average number of diluted
ordinary shares
Loss per share (pence per share)
Basic loss per share
Diluted loss per share
2017
£m
2016
£m
(6.6)
(6.0)
421,052,631 421,052,631
–
1,337,071
422,389,702 421,052,631
(1.56)
(1.55)
(1.44)
(1.44)
2016
£m
0.3
–
–
0.3
2016
£m
–
(0.6)
(0.6)
Corporation tax is calculated at 20% (2016: 20%) of the taxable profit
for the year.
Provisions to reduce the main rate of corporation tax from 20% to 19%
from 1 April 2017 and to 17% from 1 April 2020 are contained within the
Finance Act 2015 and the Finance Act 2016 respectively. Under IFRS,
companies are required to measure deferred tax at the rate at which it
is most likely to reverse based upon rates substantively enacted at the
balance sheet date. As both Finance Acts received royal assent prior to
the end of the year, deferred tax has been measured at either 19% or
17% depending on the period in which the deferred tax asset or liability
is expected to be reversed.
Taxation for other jurisdictions is calculated at the rates prevailing
in the respective jurisdictions.
The charge/(credit) for the year can be reconciled to the loss in the
statement of comprehensive income as follows:
The basic loss per share is positively affected by foreign exchange
gains arising from intra-Group funding arrangements therefore an
adjusted basic loss per share has been calculated below excluding
this impact. 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.
Adjusted loss per share
Year ended 31 March
Loss
Loss attributable to owners of the parent
company
Foreign exchange gains on intra-Group
loans
Adjusted loss attributable to owners of the
parent company
2017
£m
(6.6)
(4.4)
(11.0)
2016
£m
(6.0)
(2.7)
(8.7)
Year ended 31 March
Loss before tax on continuing operations
Tax at the UK corporation tax rate of 20%
(2016: 20%)
Non deductible expenses/Non Taxable
Iincome
Movement in unrecognised deferred tax
Impact of difference in current and
deferred tax rates
Difference in overseas and UK tax rates
Income not taxable
Share-based payments
Tax charge/(credit) for the year
2017
£m
(7.0)
(1.4)
0.3
1.7
0.1
(0.3)
(0.8)
0.8
0.4
2016
£m
(6.7)
(1.3)
0.2
0.5
0.1
(0.1)
–
–
(0.6)
14. Dividends
The Directors do not propose a dividend for the year ended 31 March
2017 (2016: £nil).
Number of shares
Basic and adjusted weighted average
421,052,631 421,052,631
number of ordinary shares
Potentially dilutive shares options
–
Diluted weighted average number of shares 422,389,702 421,052,631
Loss per share (in pence)
Basic loss per share
Diluted loss per share
Adjusted basic loss per share
(1.56)
(1.55)
(2.62)
(1.44)
(1.44)
(2.07)
1,337,071
16. Goodwill
Carrying value at 1 April 2015
Additions
Carrying value at 31 March 2016
Additions
Carrying value at 31 March 2017
£m
12.2
1.3
13.5
–
13.5
Historic goodwill relates to purchase of Expert Logistics Limited and
the purchase by DRL Holdings Limited (now AO World plc) of DRL
Limited (now AO Retail Limited). Additions during the prior year relate
to the acquisition of The Recycling Group Limited.
AO World Plc
Annual Report and Accounts 2017
100
Impairment of goodwill
At 31 March 2017, goodwill acquired through UK business
combinations was allocated to the UK cash-generating unit (“CGU”)
which is also the UK operating segment.
This represents the lowest level within the Group at which goodwill
is monitored for internal management purposes.
The Group performed its annual impairment test as at 31 March 2017.
The recoverable amount of the CGU has been determined based on
the value in use calculations. The Group prepares cash flow forecasts
derived from the most recent approved financial budget and financial
plan, for three years and extrapolates cash flows for the following
years, up until year five, based on an estimated growth rate of 1%.
This rate does not exceed the average long-term growth rate for the
market. The final year cash-flow is used to calculate a terminal value.
Management estimates discount rates using pre-tax rates that reflect
current market assessments of the time value of money and the risks
specific to this CGU. In arriving at the appropriate discount rate to use,
we adjust the CGU’s post-tax weighted average cost of capital of 10% to
reflect the impact of risks and tax effects specific to the cash flows. The
weighted average pre-tax discount rate we used was approximately
10.8% (2016: 11.1%).
The key assumptions, which take account of historic trends, upon
which management have based their cash flow projections are sales
growth rates, selling prices, product margin and discount rates.
Sensitivity to changes in assumptions
Management believes that no reasonably possible change in any of the
above key assumptions would cause the carrying value of the unit to
exceed its recoverable amount.
17. Acquisition of subsidiary – prior year
On 6 November 2015, the Group acquired 60% of the issued share
capital of The Recycling Group Limited (TRG). AO World Plc
subscribed for 300 shares at nominal value paying £3 in aggregate at
the date of acquisition with the remaining 200 shares being retained
by the founders.
AO World Plc also entered into a put and call option agreement in
relation to the remaining shares held by the founders, which provides
for their shares to be bought/sold in five separate tranches under five
put and call options to be exercised following the approval of accounts
for the financial years ending 31 March 2017 to 31 March 2021 inclusive.
As at 31 March 2017 the option agreement was re-drafted to apply to
the 5 year period ended 31 March 2022. This is subject to certain
performance conditions.
TRG specialises in the collection and recycling of Waste Electrical and
Electronic Equipment (WEEE) and other recycling initiatives. It holds
fully licensed waste permits which allow transportation and
processing of non-hazardous and hazardous WEEE. This includes
waste commercial refrigeration equipment and household fridges.
Prior to the acquisition, AO held a commercial relationship with TRG
whereby TRG collected and treated all AO’s UK WEEE with AO being
TRG’s single largest supplier of WEEE. This relationship had been in
place since 2009.
Management considered whether any previously unrecognised
intangible fixed assets should be recognised on acquisition but,
following review, concluded that none arose.
The table below details the amounts recognised in respect of the
identifiable assets acquired and the liabilities assumed on acquisition.
Other than property, plant and equipment which included an
adjustment to reflect the alignment of depreciation to the AO Group
accounting policies (£0.1m), book value equates to fair value.
Net liabilities acquired
Trade and other receivables
Property, plant and equipment
Cash and cash equivalents
Inventory
Trade and other payables
Borrowings
Total identifiable net liabilities
Amounts attributable to non-controlling interest
Goodwill (see note 16)
Total consideration
Satisfied by:
Cash
Net cash inflow arising on acquisition
Cash consideration
Cash and cash equivalent balances acquired
Cash and cash equivalent balances acquired
£m
0.2
0.6
–
0.1
(2.6)
(0.4)
(2.1)
0.8
1.3
–
–
–
–
–
The goodwill recognised as a result of the business combination represents
the anticipated synergies which AO have gained from the combination.
A non-controlling interest in the net liabilities was recognised at the
acquisition date, based on the proportionate share of the net liabilities
acquired (being 40%). Acquisition related costs of £0.02m were
recognised in administrative expenses in the income statement.
At the acquisition date, the Group recognised a financial asset of £0.8m
in relation to the fair value of the call option and a gross liability of
£2.8m in relation to the put option in place to acquire the remaining
40% of TRG issued share capital.
In accordance with IAS 32, the fair value of the put option is also
recognised within the parent company balance sheet as described in
note 35. An external independent valuation was used to determine the
fair value of the put and the call option. The difference between the gross
and fair valuation of the put option, is recognised in other reserves on
acquisition (£2.1m). Subsequent changes to the carrying value of the
asset and liability are recognised within the income statement.
TRG contributed revenue of £2.4m and a loss of £0.1m to the Group
between the date of acquisition and 31 March 2016. If the acquisition
had been completed on the first day of the 2016 financial year, Group
revenues for the year ended 31 March 2016 would have been £601.6m
and Group losses would have been £7.6m.
18. Other intangible assets
Domain names
£m
Software
£m
Total
£m
Cost
At 1 April 2015
Additions
At 31 March 2016
Additions
At 31 March 2017
Amortisation
At 1 April 2015
Charge for the year
At 31 March 2016
Charge for the year
At 31 March 2017
1.3
0.1
1.4
–
1.4
0.2
0.1
0.3
0.2
0.5
1.3
0.4
1.7
0.3
2.0
0.3
0.4
0.7
0.5
1.1
2.6
0.5
3.1
0.3
3.4
0.5
0.5
1.0
0.7
1.6
Carrying amount
At 31 March 2017
At 31 March 2016
At 1 April 2015
Amortisation is charged to Administrative costs in the consolidated
income statement.
0.9
1.0
1.0
0.9
1.1
1.1
1.8
2.1
2.1
AO World Plc
Annual Report and Accounts 2017
101
Overview Strategic Report Our Governance Our Results Shareholders’ Information
Notes to the consolidated financial statements
For the year ended 31 March 2017 continued
19. Property, plant and equipment
Cost
At 1 April 2015
Additions
Disposals
Additions from acquisition of subsidiary
At 31 March 2016
Additions
Disposals
Exchange differences
At 31 March 2017
Accumulated depreciation
At 1 April 2015
Charge for the year
Disposals
Exchange differences
At 31 March 2016
Charge for the year
Disposals
At 31 March 2017
Carrying amount
At 31 March 2017
At 31 March 2016
At 31 March 2015
Land and
buildings
£m
Property
alterations
£m
Fixtures,
fittings, plant
and
machinery
£m
Motor
vehicles
£m
Computer
and office
equipment
£m
0.5
1.9
–
–
2.4
0.3
–
0.4
3.1
–
–
–
–
–
0.2
–
0.2
2.9
2.4
0.5
6.5
2.6
–
–
9.1
1.0
–
0.1
10.2
1.6
0.4
–
(0.1)
1.9
0.9
–
2.8
7.4
7.2
4.9
2.0
0.9
(0.1)
0.2
3.0
7.9
–
0.1
11.0
0.7
1.1
–
–
1.8
0.8
–
2.6
8.4
1.2
1.3
5.4
1.7
–
0.4
7.5
6.4
(3.8)
0.1
10.2
2.1
1.3
–
–
3.4
1.8
(3.2)
2.0
8.2
4.1
3.3
5.9
1.1
(0.1)
–
6.9
1.0
(1.0)
–
6.9
2.4
1.5
(0.1)
–
3.8
1.5
(0.9)
4.5
2.4
3.1
3.5
Total
£m
20.3
8.2
(0.2)
0.6
28.9
16.7
(4.8)
0.7
41.5
6.8
4.3
(0.1)
(0.1)
10.9
5.3
(4.1)
12.1
29.3
18.0
13.5
At 31 March 2017 the net carrying amount of finance leased plant and machinery was £13.3m (2016: £6.2m). The leased equipment secures lease
obligations (see note 27).
20. Subsidiaries
The Group consists of the parent Company, AO World Plc, incorporated in the UK and a number of subsidiaries held directly by AO World plc.
The table below shows details of all subsidiaries of the Group as at 31 March 2017.
Name of subsidiary
AO Retail Limited
Expert Logistics Limited
Worry Free Limited
Elekdirect Limited
Appliances Online Limited
AO Deutschland Limited
AO Limited
AO.BE SA
AO.NL BV
AO Logistics (Netherlands) BV
The Recycling Group Limited
WEEE Collect It Limited
WEEE Re-use It Limited
Electrical Appliance Outlet Limited
Principal place of business Class of shares held
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Germany
United Kingdom
Belgium
The Netherlands
The Netherlands
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary and redeemable
preference
BERE Ltd
Jersey
Proportion of ownership
interests and voting rights
held by AO World Plc
100%
100%
100%
100%
100%
100%
100%
99.99%*
100%
100%
60%
60%
60%
100%
Principal activity
Retail
Logistics and transport
Dormant
Retail
Dormant
Retail
Holding company
Dormant
Retail
Logistics and transport
WEEE recycling
Dormant
WEEE recycling
Retail
89%
Investment company
All companies within the Group are registered at the same address disclosed on page 119 apart from BERE Ltd, AO.NL BV, AO Logistics
(Netherlands) BV, AO.BE SA and Elekdirect Limited who are registered at the addresses listed below.
BERE Ltd
44
Esplanade
St Helier
Jersey
JE4 9WG
*
AO.NL BV
Nijverheidsweg
33
Utrecht
The Netherlands
AO Logistics (Netherlands) BV
Nijverheidsweg
33
Utrecht
The Netherlands
AO.BE SA
Naamloze Vennootschap
Esplanade
Heysel 1
Bus 94
1020 Brussel
Elekdirect Limited
Unit G/G 14-16
Gilnow Mill Industrial Estate
Spa Road
Bolton
BL1 4SF
On 3 June 2016 a proportion (0.01%) of the investment held in AO.BE SA was transferred to AO Deutschland from AO Limited.
AO World Plc
Annual Report and Accounts 2017
102
BERE Limited was incorporated to facilitate our placing of shares.
At 31 March 2017, AO World Plc held 89% of the total issued share
capital. Following the balance sheet date and completion of the
placing, AO World Plc acquired the remaining issued share capital
(both ordinary and redeemable preference shares) and accordingly
BERE Limited is now a wholly owned subsidiary.
21. Deferred tax
The following is the asset recognised by the Group and movements
thereon during the current and prior reporting year.
Share
options
£m
0.4
Accelerated
depreciation
£m
0.2
Short-term
timing
difference
£m
0.2
–
0.1
0.5
0.2
0.1
0.8
0.6
–
0.8
(0.1)
–
0.7
–
–
0.2
0.1
–
0.3
Total
£m
0.8
0.6
0.1
1.5
0.2
0.1
1.8
At 1 April 2015
Credit to income
statement
Credit to reserves
At 31 March 2016
Credit/(debit) to
income statement
Credit to reserves
At 31 March 2017
A deferred tax asset is recognised to the extent that it is probable that future
taxable profits will be available against which the asset can be utilised.
The Group has an unrecognised deferred tax asset of £3.1m (2016:
£1.3m) in respect of unused losses carried forward.
22. Inventories
Finished goods
2017
£m
44.8
2016
£m
34.0
Included within inventories are stock provisions of £0.4m (2016: £0.7m).
23. Trade and other receivables
Trade receivables
Other receivables:
– Accrued income
– Prepayments
– Other
The trade and other receivables are classified as:
Non-current assets – Accrued income
Current assets
2017
£m
6.3
51.4
18.8
4.4
80.9
2017
£m
39.8
41.1
80.9
2016
£m
9.7
39.4
14.5
0.3
63.9
2016
£m
29.5
34.4
63.9
Accrued income
Reconciliation of opening and closing balances for accrued income
can be found in the table below:
Balance brought forward
Commission earned, cash received and
revisions to estimates
Unwind of discounting on long term
receivables
Other accrued income (see note below)
Balance carried forward
2017
£m
39.4
10.2
1.7
0.1
51.4
2016
£m
26.1
11.3
1.6
0.4
39.4
Accrued income principally represents the expected future commission
payments in respect of product protection plans. As set out in note 4,
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 3rd 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 10
years based on over 1.2m 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 c.7-16 years included in
the calculation;
– historical rate of customer attrition ; and
– contractually agreed margins based on actual historical margins earned.
Expected future commission payments in respect of product
protection plans are discounted at 4.6% (2016: 4.9%).
Other accrued income relates to Expert Logistics revenue from third
parties not invoiced at 31 March 2017 of £0.5m (2016: £0.4m).
There has been no change to the fair valuation methodology adopted
in the year ended 31 March 2017.
Sensitivity analysis has been conducted to assess the effect on the
accrued income balance:
Sensitivity
Cancellation rate increases by 5%
Cancellation rate decreases by 5%
Margin decreases by 5%
Margin increases by 5%
Impact on Accrued Income
£m
(2.3)
2.3
(2.5)
2.5
Prepayments
At 31 March 2017 there is £11.0m (2016: £9.4m) included in prepayments
in relation to commercial income.
At 31 May 2017 the balance outstanding was £1.1m (2016: £0.4m).
24. Net funds
Cash and cash equivalents at year end
Borrowings – Repayable within one year
Borrowings – Repayable after one year
Net funds
2017
£m
29.4
(3.7)
(13.7)
12.0
Reconciliation of net cash flow to movement in net funds:
Net decrease in cash and equivalents
Net increase debt and lease financing
New loans in the year
Acquired debt on acquisition
Non cash movements
– Asset acquired under finance leases
Foreign exchange on cash and cash
–
equivalents
Movement in net funds
Opening net funds
Net funds at the year end
2017
£m
(4.0)
9.8
(8.1)
–
(10.9)
(0.2)
(13.4)
25.4
12.0
2016
£m
33.4
(2.2)
(5.8)
25.4
2016
£m
(11.6)
2.4
(0.9)
(0.4)
(1.9)
(0.1)
(12.5)
37.9
25.4
AO World Plc
Annual Report and Accounts 2017
103
Overview Strategic Report Our Governance Our Results Shareholders’ Information Notes to the consolidated financial statements
For the year ended 31 March 2017 continued
25. Trade and other payables
Trade payables
Other payables:
– Accruals
– Deferred income
– Other
2017
£m
105.9
17.8
7.8
8.7
140.2
2016
£m
79.3
12.9
8.6
8.2
109.0
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases is 63 days (2016: 49 days).
All values are payable within 12 months.
26. Borrowings
Secured borrowing at amortised cost
Bank loans
Finance lease liabilities (see note 27)
Total borrowings
Amount due for settlement within 12 months
Amount due for settlement after 12 months
Total borrowings
2017
£m
4.3
13.1
17.4
3.7
13.7
17.4
2016
£m
2.5
5.5
8.0
2.2
5.8
8.0
At 1 April 2016
Utilised
Released during the year
Provisions created in the year
At 31 March 2017
Dilapidations
provision
£m
0.8
(0.3)
(0.1)
1.1
1.5
The dilapidations provision is created for operating leases where the
Group is liable to return the assets to their original state at the end of
the lease. The provision will be utilised as leased assets expire.
29. Share capital
Issued and fully paid:
421,052,631 ordinary shares of £0.0025 each
2017
£m
1.1
On 3 April 2017 the Company completed a placing of new shares
(37,735,849 ordinary shares) to raise £50.0m (gross) to suitably
capitalise the business to support our continued growth and
increasing scale.
30. Non-controlling interest
2016
£m
1.1
2016
£m
–
0.8
0.1
0.9
2017
£m
0.9
–
0.8
1.7
Finance leases relate primarily to certain fixtures and fittings, plant
and machinery and motor vehicles.
On 3 June 2016, the Group put in place a £30.0m revolving credit facility.
Balance at 31 March 2016
Acquisition of subsidiary
Share of loss for the period
Balance at 31 March 2017
27. Obligations under finance leases
Amounts payable under finance leases:
Within one year
In the second to fifth years inclusive
Amounts payable under finance leases:
Within one year
In the second to fifth years inclusive
28. Provisions
Provisions
Provisions are classified as:
Non-current liabilities
Current liabilities
Minimum lease payments
2016
£m
2017
£m
3.7
10.5
14.2
2.6
3.4
6.0
Present value of minimum
lease payments
2017
£m
3.3
9.8
13.1
2017
£m
1.5
2017
£m
1.4
0.1
1.5
2016
£m
2.4
3.1
5.5
2016
£m
0.8
2016
£m
0.8
–
0.8
The Non-controlling interest relates to 40% of the share capital of The
Recycling Group Limited (“TRG”) not currently owned by the AO Group.
At 31 March 2017, TRG had non-current assets of £7.0m, net current
liabilities of £7.3m and non-current liabilities of £4.2m. During the
year, TRG contributed £4.0m and (£0.7m) to the Group’s revenue and
Adjusted EBITDA respectively. Net cash outflow was £0.1m.
31. Reserves
The analysis of movements in reserves is shown in the statement of
changes in equity. Details of the amounts included in other reserves
(excluding share-based payment reserve and translation reserve) are
set out below.
The merger reserve arose on the purchase of DRL Limited (now AO
Retail Limited) in the year ended 31 March 2008.
The capital redemption reserve arose as a result of the redemption of
ordinary and preference shares in the years ended 31 March 2012 and
2014 respectively.
The other reserve arose on the acquisition of TRG (see note 17) and
relates to the difference between the gross and fair valuation of the
put option.
AO World Plc
Annual Report and Accounts 2017
104
32. Share-based payments
Performance Share Plan
The table below summarises the amounts recognised in the income
statement during the year.
The fair value of the share options granted under the IPO LTIP scheme
which are dependent on TSR performance is estimated as at the date
of grant using the Monte Carlo model. The following table gives the
assumptions for the years ended 31 March 2017 and 31 March 2016:
IPO LTIP
2015 LTIP
2016 LTIP
ERP
Sharesave scheme
2017
£m
0.9
(0.1)
0.4
2.4
0.4
4.0
2016
£m
(0.4)
0.2
–
–
0.4
0.2
The table below shows the share-based payment charge/(credit) in
relation to exceptional LTIP awards.
IPO LTIP
ERP
Employers NI on the above schemes
Exceptional LTIP awards
2017
£m
0.9
2.4
0.3
3.6
2016
£m
(0.4)
–
–
(0.4)
IPO LTIP Award
The awards under the IPO LTIP have been made to senior employees.
The vesting of awards under the IPO LTIP is subject to the attainment
of performance conditions.
Two thirds of the IPO LTIP Award is based on Total Shareholder
Return (TSR) performance measured against the price per share
offered to investors under the terms of the flotation.
Risk-free rate
Expected volatility
Expected dividend yield
Option life
0.76%
28.17%
0.00%
3 years
The fair value of the share options granted under the IPO LTIP scheme
which are dependent on EPS performance was estimated as at the
date of grant using the Black-Scholes model. The following table gives
the assumptions for the years ended 31 March 2017 and 31 March 2016:
Risk-free rate
Expected volatility
Expected dividend yield
Option life
0.00%
N/A
0.00%
3 years
At 31 March 2017 the vesting period ended. As no performance criteria
were met no options were exercised and the awards in relation to TSR
(£3.3m) were transferred from the share option reserve to the profit
and loss reserve.
2015 LTIP Awards
One third of the 2015 LTIP Award is based on Total Shareholder Return
(TSR) performance condition based on the growth in the Company’s
net return index over the performance period.
Threshold (25% vesting)
Threshold (50% vesting)
Maximum (100% vesting)
Absolute TSR performance
against the comparator
Group over the three-year
performance period
33%
66%
100%
Threshold (25% vesting)
Threshold (50% vesting)
Maximum (100% vesting)
The remaining third of the awards granted under this plan vest
depending on EPS. As per IFRS 2, these grants have been valued
using a Black-Scholes model.
Threshold (33% vesting)
Threshold (75% vesting)
Maximum (100% vesting)
EPS growth required
over the three-year
performance period
66%
150%
200%
Threshold (25% vesting)
Threshold (62.5% vesting)
Maximum (100% vesting)
One third of the awards are subject to an EPS performance condition
over the performance period. As per IFRS 2, these grants have been
valued using a Black-Scholes model.
Absolute TSR performance
against the comparator
Group over the three-year
performance period
33%
66%
100%
EPS growth required
over the three-year
performance period
50%
100%
120%
The awards vest on a straight-line basis between each threshold in all
cases.
The following table illustrates the number and weighted average
exercise price (WAEP) of, and movements in, share options granted
under the IPO LTIP scheme:
2017
No. of
options
2017
WAEP(£)*
2016
No. of
options
2016
WAEP(£)*
3,480,976
Outstanding at the
beginning of the
year
Forfeited during
the year
Lapsed
Outstanding at the
end of the year
–
* Weighted average exercise price
(76,022)
(3,404,954)
–
–
3,526,296
(45,320)
–
3,480,976
–
–
–
The final third of the awards are subject to a Sales performance
condition which is linked to the growth in sales of the Group over the
performance period.
Threshold (25% vesting)
Threshold (62.5% vesting)
Maximum (100% vesting)
Sales growth over the
three-year performance
period
100%
120%
140%
The awards vest on a straight-line basis between each threshold in
all cases.
The following table illustrates the number and weighted average
exercise price (WAEP) of, and movements in, share options granted
under the 2015 LTIP Awards.
AO World Plc
Annual Report and Accounts 2017
105
Overview Strategic Report Our Governance Our Results Shareholders’ Information Notes to the consolidated financial statements
For the year ended 31 March 2017 continued
32. Share-based payments (continued)
2017
No. of
options
2017
WAEP(£)*
2016
No. of
options
2016
WAEP(£)*
1,224,239
Outstanding at the
beginning of the
year
Granted during
the year
Forfeited during
the year
Outstanding at the
end of the year
1,166,543
* Weighted average exercise price
–
(57,696)
–
–
–
–
–
1,249,517
(25,278)
1,224,239
–
–
–
–
The fair value of the share options granted under the 2015 LTIP Award
which are dependent on TSR performance is estimated as at the date
of grant using the Monte Carlo model. The following table gives the
assumptions for the years ended 31 March 2016 and 31 March 2017.
Percentage of shares subject to vesting
(straight-line vesting between each point)
0%
25%
62.5%
100%
Group Adjusted EBITDA for
the financial year ending
31 March 2019
<£23m
£23m
£29m
£35m+
The final third of the awards are subject to a Sales performance
condition which is linked to the growth in sales of the Group over the
performance period.
Percentage of shares subject to vesting
(straight-line vesting between each point)
0%
25%
62.5%
100%
Sales growth over
the three-year
performance period
Below 50%
50%
85%
120% +
Risk-free rate
Expected volatility
Expected dividend yield
Option life
0.80%
50.00%
N/A
3 years
The awards vest on a straight-line basis between each threshold
in all cases.
The following table illustrates the number and weighted average
exercise price (WAEP) of, and movements in, share options granted
under the 2016 LTIP Awards.
The fair value of the share options granted under the 2015 LTIP Award
which are dependent on EPS and Sales performance was estimated
as at the date of grant using the Black-Scholes model. The following
table gives the assumptions for the years ended 31 March 2016 and
31 March 2017.
Risk-free rate
Expected volatility
Expected dividend yield
Option life
0.00%
N/A
0.00%
3 years
The weighted average fair value of options granted was £0.49.
For the shares outstanding at 31 March 2017, the remaining average
contractual life is 1.25 years.
There were no awards exercisable as at 31 March 2017.
2016 LTIP Awards
During the year the Group made further conditional awards of nil-cost
options to select members of senior management and Directors.
One third of the 2016 LTIP Award is based on Total Shareholder
Return (TSR) performance condition based on ranking of the
Company’s TSR during the performance period in comparison to the
TSR of companies in the FTSE All Share Retail Index (comparator
group or peer group) over the performance period.
Percentage of shares subject to vesting
(straight-line vesting between each point)
0%
25%
100%
Company’s TSR
percentile ranking against
comparator group
Below Median
Median
Upper Quartile
One third of the awards are subject to a Group Adjusted EBITDA
performance condition over the performance period.
2017
No. of
options
2017
WAEP(£)*
2016
No. of
options
2016
WAEP(£)*
–
Outstanding at the
beginning of the
year
Granted during
the year
Forfeited during
the year
Outstanding at the
end of the year
3,009,888
* Weighted average exercise price.
3,047,820
(37,932)
–
–
–
–
–
–
–
–
–
–
–
–
The fair value of the share options granted under the 2016 LTIP Award
which are dependent on TSR performance is estimated as at the date
of grant using the Monte Carlo model. The following table gives the
assumptions for the year ended 31 March 2017.
Risk-free rate
Expected volatility
Expected dividend yield
Option life
0.21%
52.2%
N/A
3 years
The share options granted under the 2016 LTIP Award which are
dependent on Group Adjusted EBITDA and Sales performance have
a fair value equal to the share price at grant date of £1.48.
The weighted average fair value of options granted during the year
was £1.06. For the shares outstanding at 31 March 2017, the remaining
average contractual life is 2.3 years.
There were no awards exercisable as at 31 March 2017.
Employee Reward Plan (ERP)
During the year the Group made conditional awards of nil-cost options
to select members of senior management and Directors.
The Awards are based on one performance condition which requires
that the Company’s Sales growth over the performance period be
greater than 10% per annum compound.
The fair value was determined to be the share price at grant date of £1.48.
AO World Plc
Annual Report and Accounts 2017
106
The following table illustrates the number and weighted average
exercise price (WAEP) of, and movements in, share options granted
under the ERP.
Expected volatility under both the LTIP and the SAYE schemes was
calculated by using the historical daily share price data of the constituent
companies of the FTSE 250 index over the previous 3 years.
2017
No. of
options
2017
WAEP(£)*
2016
No. of
options
2016
WAEP(£)*
33. Operating lease arrangements
Non-cancellable operating lease rentals are payable as follows:
Outstanding at the
beginning of the
year
Granted during
the year
Forfeited during
the year
Outstanding at the
end of the year
–
6,466,667
(122,222)
6,344,445
–
–
–
–
–
–
–
–
–
–
–
–
Within one year
In the second to fifth years inclusive
After five years
2017
£m
15.0
46.0
34.5
95.5
2016
£m
7.8
24.6
30.2
62.6
During the year to 31 March 2017 £13.3m (2016: £8.6m) was recognised
as an expense in the income statement in respect of operating leases.
The weighted average fair value of options granted during the year
was £1.48. For the shares outstanding at 31 March 2017, the remaining
average contractual life is 2.3 years.
Principally operating leases payments represent rentals in respect
of motor vehicles, office buildings and warehouses properties.
There were no awards exercisable as at 31 March 2017.
AO Sharesave scheme (referred to as SAYE scheme)
The Group has a savings-related share option plan under which
employees save on a monthly basis, over a three-year period, towards
the purchase of shares at a fixed price determined when the option is
granted. The price is set at a discount being 20% of the average share
price during a specified averaging period prior to the grant date. The
option must be exercised within six months of maturity of the SAYE
contract, otherwise it lapses.
As per IFRS 2, these grants have been valued using a Binomial (2014
and 2015) and a Black-Scholes (2016 and 2017) model. The difference
in valuations for the 2014 and 2015 schemes between the Binomial and
Black-Scholes model is not significant.
The following table illustrates the number and weighted average
exercise price (WAEP) of, and movements in, share options granted
under the Sharesave scheme:
2017
No. of
options
2017
WAEP(£)*
2016
No. of
options
2016
WAEP(£)*
1,388,617
Outstanding at the
beginning of the
year
Granted during
the year
Forfeited during
the year
Outstanding at the
end of the year
1,479,535
* Weighted average exercise price
506,252
(415,334)
1.56
867,366
1.49
1,047,533
2.42
1.25
(1.57)
(526,282)
(2.35)
1.54
1,388,617
1.56
34. Retirement benefit schemes
Defined contribution schemes
The pension cost charge for the year represents contributions payable
by the Group and amounted to £2.8m (2016: £2.1m).
Contributions totalling £0.3m (2016: £0.2m) were payable at the end
of the year and are included in accruals.
35. Financial instruments
a) Fair values of financial instruments
Receivables and payables
For receivables and payables classified as financial assets and
liabilities in accordance with IAS 32, fair value is estimated to be
equivalent to book value. These values are shown in notes 23 and 25,
respectively. The categories of financial assets and liabilities and their
related accounting policy are set out in note 3.
Cash and cash equivalents
The fair value of cash and cash equivalents is estimated as its carrying
amount.
Call and put option
The fair value of the call and put options (arising on the acquisition
of TRG in 2016) are based upon an independent valuation at the
year-end using the Monte Carlo model.
The carrying value of the put option is based on an estimate of the
maximum amount payable over the life of the option based on
discounted future cash flows.
Borrowings
The fair value of interest-bearing borrowings is calculated based
on the present value of future principal and interest cash flows,
discounted at the market rate of interest at the date of inception.
During the year ended 31 March 2017, options were granted on 1 March
2017. For the shares outstanding at 31 March 2017, the remaining
weighted average contractual life is 1.95 years (2016: 2.45 years).
The weighted average fair value of options granted during the year
was £0.49 per share (2016: £0.47).
The following table gives the assumptions made during the year ended
31 March 2017:
For options granted on
Risk-free rate
Expected volatility
Expected dividend yield
Option life
28 April
2014
1.41%
27.99%
0.00%
3 years
30 January
2015
0.64%
24.74%
0.00%
3 years
29 January
2016
0.54%
43.53%
0.00%
3 years
1 March
2017
0.41%
49.9%
0.00%
3 years
AO World Plc
Annual Report and Accounts 2017
107
Overview Strategic Report Our Governance Our Results Shareholders’ Information
Notes to the consolidated financial statements
For the year ended 31 March 2017 continued
35. Financial instruments (continued)
Fair values
The fair values of all financial assets and financial liabilities by class together with their carrying amounts shown in the statement of financial
position are as follows:
Financial assets designated as fair value through profit or loss
Accrued income (see note 23)
Call option (see note 17)
Loans and receivables
Cash and cash equivalents
Trade receivables (see note 23)
Prepayments and other receivables (see note 23)
Total financial assets
Financial liabilities measured at amortised cost
Trade payables (see note 25)
Other payables (see note 25)
Borrowings (see note 26)
Financial liabilities at fair value through profit and loss
Put option to acquire non-controlling interest (see note 17)
Total financial liabilities
Total financial instruments
2017
Carrying
amount
£m
2017
Fair value
£m
2016
Carrying
amount
£m
2016
Fair value
£m
51.4
1.3
29.4
6.3
23.2
111.6
(105.9)
(34.3)
(17.4)
(3.4)
(161.0)
(48.4)
51.4
1.3
29.4
6.3
23.2
111.6
(105.9)
(34.3)
(17.4)
(0.5)
(158.2)
(46.6)
39.4
0.8
33.4
9.7
14.8
98.1
(79.3)
(29.7)
(8.0)
(2.7)
(119.7)
(21.6)
39.4
0.8
33.4
9.7
14.8
98.1
(79.3)
(29.7)
(8.0)
(0.7)
(117.7)
(19.6)
Fair value hierarchy
Financial instruments are measured at fair value and are split into a fair value hierarchy based on the valuation technique used to determine
fair value. The hierarchies are:
– Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
– Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices)
or indirectly (i.e., derived from prices).
– Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Financial assets
At 31 March 2017
Accrued income (see note 23)
Call option
At 31 March 2017
At 31 March 2016
Accrued income (see note 23)
Call option
At 31 March 2016
Financial liabilities
At 31 March 2017
Put option to acquire non-controlling interest
At 31 March 2017
At 31 March 2016
Put option to acquire non-controlling interest
At 31 March 2016
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
–
–
–
–
–
–
51.4
1.3
52.7
39.4
0.8
40.2
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
–
–
3.4
3.4
2.7
2.7
Total
£m
51.4
1.3
52.7
39.4
0.8
40.2
Total
£m
3.4
3.4
2.7
2.7
AO World Plc
Annual Report and Accounts 2017
108
Tables below show the movement in valuation for both the call and put option during the year.
Call option
At 1 April 2015
On acquisition of subsidiary
Change in valuation
At 31 March 2016
Change in valuation
At 31 March 2017
Put option
At 1 April 2015
On acquisition of subsidiary
Change in valuation
At 31 March 2016
Change in valuation
At 31 March 2017
£m
–
0.7
0.1
0.8
0.5
1.3
£m
–
2.8
(0.1)
2.7
0.7
3.4
b) Credit risk
Financial risk management
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations,
and arises principally from the Group’s receivables from customers, with a maximum exposure equal to the book value of these assets.
The Group’s receivable balance primarily comprises accrued income representing the expected future commission payments in relation to the
product protection plans sold by the Group on behalf of one customer. The Directors have assessed and considered the credit risk in respect of
this amount and do not consider it to be of significance. The Group’s trade receivable balances comprise a number of individually small amounts
from unrelated customers, operating within the same industry but over a number of geographical areas. Concentration of risk is therefore
limited. Sales to retail customers are made predominantly in cash or via major credit cards. It is Group policy that all customers who wish to
trade on credit terms are subject to credit verification procedures. New credit customers are assessed using an external rating report which is
used to establish a credit limit. Such limits are reviewed periodically on both a proactive and reactive basis, for example, when a customer
wishes to place an order in excess of their existing credit limit. Receivable balances are monitored regularly with the result that the Group’s
exposure to bad debts is not significant. Management therefore believe that there is no further credit risk provision required in excess of the
normal provision for doubtful receivables.
Exposure to credit risk
The maximum exposure to credit risk at the statement of financial position date by class of financial instrument was:
Accrued income
Trade receivables
Credit quality of financial assets and impairment losses
The ageing of trade receivables at the statement of financial position date was:
Not past due
Past due 0–30 days
Past due 31–120 days
More than 120 days
At 31 March 2017
Not past due
Past due 0–30 days
Past due 31–120 days
More than 120 days
At 31 March 2016
There has been no impairment charged to trade receivables in the current year.
AO World Plc
Annual Report and Accounts 2017
109
2017
£m
51.4
6.3
57.7
Gross
£m
6.0
0.2
0.1
–
6.3
9.0
0.6
–
0.1
9.7
2016
£m
39.4
9.7
49.1
Net
£m
6.0
0.2
0.1
–
6.3
9.0
0.6
–
0.1
9.7
Overview Strategic Report Our Governance Our Results Shareholders’ Information Notes to the consolidated financial statements
For the year ended 31 March 2017 continued
35. Financial instruments (continued)
c) Liquidity risk
Financial risk management
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
It is Group policy to maintain a balance of funds, borrowings, committed bank and other facilities sufficient to meet anticipated short-term and
long-term financial requirements. In applying this policy the Group continuously monitors forecast and actual cash flows against the maturity
profiles of financial assets and liabilities. Uncommitted facilities are used if available on advantageous terms. It is Group treasury policy to ensure
that a specific level of committed facilities is always available based on forecast working capital requirements. Cash forecasts identifying the
Group’s liquidity requirements are produced and are stress tested for different scenarios including, but not limited to, reasonably possible
decreases in profit margins and increases in interest rates on the Group’s borrowing facilities and the weakening of sterling against other
functional currencies within the Group.
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the effect of
netting agreements:
Non-derivative financial liabilities
Finance lease liabilities
Trade and other payables
Bank loans
At 31 March 2017
Non-derivative financial liabilities
Finance lease liabilities
Trade and other payables
Bank loans
At 31 March 2016
Carrying
amount
£m
Contractual
cash flows
£m
Within
1 year
£m
Between
1 and 5 years
£m
In more than
5 years
£m
13.1
132.4
4.3
149.8
14.2
132.4
4.5
151.1
3.7
132.4
0.8
136.9
10.5
–
3.7
14.2
–
–
–
–
Carrying
amount
£m
Contractual
cash flows
£m
Within
1 year
£m
Between
1 and 5 years
£m
In more than
5 years
£m
5.5
100.4
2.5
108.4
6.0
100.4
2.8
109.2
2.7
100.4
0.1
103.2
3.3
–
2.7
6.0
–
–
–
–
d) Market risk
Financial risk management
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s
income or the value of its holdings of financial instruments (and hence no sensitivity analysis is performed).
Foreign currency risk
Refer to note 35f.
Interest rate risk
The principal interest rate risks of the Group arise in respect of borrowings. As the interest expense on variable rate financial instruments
is immaterial, the Group does not actively manage the exposure to this risk.
At the statement of financial position date the interest rate profile of the Group’s interest-bearing financial instruments was:
Fixed and variable rate instruments
Finance lease liabilities
Bank loans
2017
£m
13.1
4.3
17.4
2016
£m
5.5
2.5
8.0
e) Capital management
It is the Group’s policy to maintain an appropriate equity capital base so as to maintain investor, creditor and market confidence and to sustain
the future development of the business.
The capital structure of the Group consists of the net cash (borrowings disclosed in note 26) and equity of the Group. The Group is not subject
to any externally imposed capital requirements.
The Board has delegated responsibility for routine capital expenditure to the management of the business. All significant expenditure is
approved by the Board.
AO World Plc
Annual Report and Accounts 2017
110
f) Foreign currency risk management
The Group undertakes transactions denominated in foreign currencies,
consequently exposure to exchange rate fluctuations arise.
The Group’s presentational currency is sterling; as a result the
Group is exposed to foreign currency translation risk due to
movements in foreign exchange rates on the translation of
non-sterling assets and liabilities.
The carrying amount of the Group’s foreign currency denominated
monetary assets and monetary liabilities at the reporting date are
as follows:
Euros
Liabilities
2017
£m
68.6
2016
£m
29.0
Assets
2017
£m
11.5
2016
£m
10.2
The balances shown above include intercompany loan balances held
between Group companies which create a foreign currency exposure
to the income statement. These differences are recognised in finance
income or costs.
The following table details the Group’s sensitivity to a 10% increase
and decrease in sterling against the relevant foreign currencies.
The sensitivity rate of 10% represents the Director’s assessment of a
reasonably possible change. The sensitivity analysis includes only
outstanding foreign currency denominated monetary items and
adjusts their translation at the year-end for a 10% change in foreign
currency rates. The sensitivity analysis includes external loans as well
as loans to foreign operations within the Group where the denomination
of the loan is in a currency other than the currency of the lender or the
borrower. A positive number below represents an increase in profit
before tax.
Euro currency impact
36. Related party transactions
Balances and transactions between the Company and its subsidiaries,
which are related parties, have been eliminated on consolidation and
are not disclosed in this note. Transactions between the Group and its
related parties are disclosed below.
Trading transactions
During the year, Group companies entered into the following
transactions with related parties who are not members of the Group:
Sale of goods
and services
2017
£m
Re-Gen (Logistics)
Limited
Booker Limited
The Recycling
Group Limited
WEEE Re-use it
Limited
–
–
–
–
Purchase of goods
and services
2017
£m
2016
£m
–
0.1
–
–
–
0.2
0.9
–
2016
£m
0.2
–
0.7
0.2
There were no outstanding amounts at the statement of financial
position date (2016: £nil).
Re-Gen (Logistics) Limited is a Company which J Roberts’ (a Director)
close family has an interest in.
Booker Limited is a Company which R Rose (a Director, resigned on
21 July 2016) has an interest in.
The Recycling Group Limited and WEEE Re-use It Limited are related
parties due to common ownership. The Recycling Group Limited and
WEEE Re-use It Limited were acquired in November 2015 and
therefore intercompany transactions are eliminated on consolidation.
Sterling strengthens by 10%
Sterling weakens by 10%
2017
£m
(5.2)
6.3
2016
£m
(1.7)
2.1
Transactions with Directors and key management
personnel
The compensation of key management personnel (including the
Directors) is as follows:
The Group’s sensitivity to foreign currency has increased during the
current year due to increasing trade in Europe. The impact above is
mainly as a result of intercompany loans held in a foreign currency.
In management’s opinion, the sensitivity analysis is unrepresentative
of the inherent foreign exchange risk as the year-end exposure does
not reflect the exposure during the year.
Key management emoluments including
social security costs
Awards granted under a long-term incentive
plan
Company contributions to money purchase
plans
2017
£m
4.2
3.1
0.1
7.4
2016
£m
3.1
(0.2)
0.3
3.2
Further information about the remuneration of individual Directors is
provided in the audited part of the Directors’ Remuneration Report on
pages 67 to 80.
37. Events after the reporting period
On 3 April 2017 the Company completed a placing of new shares
(37,735,849 ordinary shares) in the Company to raise £50.0m (gross)
to suitably capitalise the business to support our continued growth
and increasing scale.
AO World Plc
Annual Report and Accounts 2017
111
Overview Strategic Report Our Governance Our Results Shareholders’ Information
Company statement of financial position
As at 31 March 2017
Non-current assets
Intangible assets
Property, plant and equipment
Investment in subsidiaries
Deferred tax asset
Derivative financial asset
Current assets
Corporation tax receivable
Trade and other receivables
Total assets
Current liabilities
Bank overdraft
Trade and other payables
Net current assets
Non-current liabilities
Derivative financial liability
Total liabilities
Net assets
Equity
Share capital
Share premium
Merger reserve
Capital redemption reserve
Share-based payments reserve
Retained losses
Total equity
Note
5
6
7
8
12
9
10
12
2017
£m
1.2
0.5
12.2
0.8
1.3
16.0
0.3
58.2
58.5
74.5
(0.1)
(11.0)
(11.1)
47.4
(0.5)
(11.6)
62.9
1.1
55.7
4.4
0.5
3.8
(2.6)
62.9
2016
£m
1.5
0.6
11.5
0.7
0.8
15.1
–
31.5
31.5
46.6
–
(1.7)
(1.7)
29.8
(0.7)
(2.4)
44.2
1.1
55.7
4.4
0.5
3.1
(20.6)
44.2
The financial statements of AO World Plc, registered number 05525751 were approved by the Board of Directors and authorised for issue on
6 June 2017. They were signed on its behalf by:
Steve Caunce
CEO
AO World Plc
CFO
Mark Higgins
AO World Plc
AO World Plc
Annual Report and Accounts 2017
112
Company statement of changes in equity
As at 31 March 2017
At 1 April 2015
Loss for the year
Share-based payments charge net of tax
Transfer between reserves
Balance at 31 March 2016
Profit for the year
Share-based payments charge net of tax
(see note 32 of consolidated accounts)
Transfer between reserves
(see note 32 of consolidated accounts)
Balance at 31 March 2017
Share
capital
£m
1.1
–
–
–
1.1
–
–
–
1.1
Share
premium
account
£m
55.7
–
–
–
55.7
–
–
–
55.7
Merger
reserve
£m
4.4
–
–
–
4.4
–
–
–
4.4
Capital
redemption
reserve
£m
(1.1)
–
–
1.6
0.5
–
–
–
0.5
Share-
based
payments
reserve
£m
2.8
–
0.3
–
3.1
–
4.0
(3.3)
3.8
Retained
losses
£m
(16.4)
(2.6)
–
(1.6)
(20.6)
14.7
–
3.3
(2.6)
Total
£m
46.5
(2.6)
0.3
–
44.2
14.7
4.0
–
62.9
AO World Plc
Annual Report and Accounts 2017
113
Overview Strategic Report Our Governance Our Results Shareholders’ Information Company statement of cash flows
For the year ended 31 March 2017
Cash flows from operating activities
Profit/(loss) for the year
Adjustments for:
Depreciation and amortisation
Finance income
Taxation credit
Share-based payment charge/(credit)
Dividend received
Operating cash flows before movement in working capital
Increase in trade and other receivables
Increase in trade and other payables
(Increase)/Decrease in intercompany receivable
Taxation paid
Cash (used)/generated in operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment
Acquisition of intangible assets
Dividend received from subsidiary
Cash generated/(used) in investing activities
Net decrease in cash
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
2017
£m
14.7
0.6
(0.7)
(0.1)
3.3
(15.0)
2.8
(2.1)
2.8
(18.1)
(17.4)
(0.3)
(14.9)
(0.1)
(0.1)
15.0
14.8
(0.1)
–
(0.1)
2016
£m
(2.6)
0.4
(0.1)
(0.1)
(0.3)
–
(2.7)
(0.5)
1.5
1.9
2.9
–
0.2
(0.1)
(0.1)
–
(0.2)
–
–
–
AO World Plc
Annual Report and Accounts 2017
114
Notes to the Company financial statements
For the year ended 31 March 2017
1. Adoption of new and revised standards
The Company’s financial statements have been prepared in accordance
with International Financial Reporting Standards as adopted by the EU
(“Adopted IFRSs”), and as such comply with Article 4 of the EU IAS
regulation. The accounting policies set out in note 2 have been applied
in preparing these financial statements.
No new accounting standards or amendments issued during the year
have had or are expected to have any significant impact on the Company.
2. Significant accounting policies
The separate financial statements of the Company are presented as
required by the Companies Act 2006. As permitted by that Act, the
separate financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs) adopted by the
European Union.
The financial statements have been prepared on the historical cost
basis except for the remeasurement of certain financial instruments to
fair value. The principal accounting policies adopted are the same as
those set out in note 3 to the consolidated financial statements except
as noted below.
Investments
Investments in subsidiaries are stated at cost less, where appropriate,
provisions for impairment.
3. Operating profit/(loss)
The Auditor’s remuneration for audit and other services is disclosed
in note 9 to the consolidated financial statements.
4. Profit /(loss) for the year
The Company has not presented its own Statement of Comprehensive
Income as permitted by section 408 of the Companies Act 2006.
The profit for the year and total comprehensive profit attributable for
shareholders was £14.7m of which £15.0m was dividend income
(2016: £2.6m loss).
5. Intangible assets
Cost
At 1 April 2015
Additions
At 31 March 2016
Additions
At 31 March 2017
Amortisation
At 1 April 2015
Charge for the year
At 31 March 2016
Charge for the year
At 31 March 2017
Carrying amount
At 31 March 2017
At 31 March 2016
At 1 April 2015
Domain
names
£m
Software
£m
Total
£m
1.1
–
1.1
–
1.1
–
0.1
0.1
0.2
0.3
0.8
1.0
1.1
0.5
0.1
0.6
0.1
0.7
–
0.1
0.1
0.2
0.3
0.4
0.5
0.5
6. Property, plant and equipment
Cost
At 1 April 2015
Additions
At 31 March 2016
Additions
At 31 March 2017
Accumulated depreciation
At 1 April 2015
Charge for the year
At 31 March 2016
Charge for the year
At 31 March 2017
Carrying amount
At 31 March 2017
At 31 March 2016
At 1 April 2015
1.6
0.1
1.7
0.1
1.8
–
0.2
0.2
0.4
0.6
1.2
1.5
1.6
Computer
and office
equipment
£m
0.7
0.1
0.8
0.1
0.9
–
0.2
0.2
0.2
0.4
0.5
0.6
0.7
At 31 March 2017, the net carrying amount of property, plant and
equipment held under finance lease was £0.4m (2016: £0.6m).
AO World Plc
Annual Report and Accounts 2017
115
Overview Strategic Report Our Governance Our Results Shareholders’ Information Notes to the Company financial statements
For the year ended 31 March 2017 continued
7. Subsidiaries
Details of the Company’s subsidiaries at 31 March 2017 are as follows:
Class of Shares Held
Principal place of
Name of subsidiary
business
AO Retail Limited
United Kingdom Ordinary
Expert Logistics Limited
United Kingdom Ordinary
Worry Free Limited
United Kingdom Ordinary
Elekdirect Limited
United Kingdom Ordinary
Appliances Online Limited
United Kingdom Ordinary
AO Deutschland Limited
Germany
Ordinary
AO Limited
United Kingdom Ordinary
AO.BE SA
Belgium
Ordinary
AO.NL BV
The Netherlands Ordinary
AO Logistics (Netherlands) BV
The Netherlands Ordinary
The Recycling Group Limited
United Kingdom Ordinary
WEEE Collect It Limited
United Kingdom Ordinary
United Kingdom Ordinary
WEEE Re-use It Limited
Electrical Appliance Outlet Limited United Kingdom Ordinary
Proportion of ownership interests and
voting rights held by AO World Plc
100%
100%
100%
100%
100%
100%
100%
99.99%*
100%
100%
60%
60%
60%
100%
BERE Ltd
* On 3 June 2016 a proportion (0.01%) of the investment held in AO.BE SA was transferred to AO Deutschland from AO Limited.
Jersey
89%
Ordinary and redeemable
preference share
Principal activity
Retail
Logistics and transport
Dormant
Retail
Dormant
Retail
Holding company
Dormant
Retail
Logistics and transport
WEEE recycling
Dormant
WEEE recycling
Retail
Investment company
On 26 July 2016 the company acquired 100% of the incorporated share capital of Electrical Appliance Outlet Limited.
BERE Limited was incorporated to facilitate our placing of shares. At 31 March 2017, AO World Plc held 89% of the total issued share capital.
Following the balance sheet date and completion of the placing, AO World Plc acquired the remaining issued share capital (both ordinary and
redeemable preference shares) and accordingly BERE Limited is now a wholly owned subsidiary.
All companies within the Group are registered at the same address disclosed on page 119 apart from BERE Ltd, AO.NL BV, AO Logistics
(Netherlands) BV, AO.BE SA and Elekdirect Limited who are registered at the addresses listed below.
BERE Ltd
44
Esplanade
St Helier
Jersey
JE4 9WG
AO.NL BV
Nijverheidsweg
33
Utrecht
The Netherlands
AO Logistics (Netherlands) BV
Nijverheidsweg
33
Utrecht
The Netherlands
AO.BE SA
Naamloze Vennootschap
Esplanade
Heysel 1
Bus 94
1020
Brussel
Elekdirect Limited
Unit G/G 14-16
Gilnow Mill Industrial Estate
Spa Road
Bolton
BL1 4SF
In addition, the Company has made capital contributions to its subsidiaries of £0.7m (2016: £0.5m) in relation to the allocation of share-based
payment charges as required by IFRS 2.
8. Deferred tax
The following is the asset recognised by the Company and movements thereon during the current and prior reporting year.
Deferred tax asset at 1 April 2015
Credit to income statement
Credit to reserves
Deferred tax asset at 31 March 2016
Credit to income statement
Deferred tax asset at 31 March 2017
Other timing
difference
£m
–
–
–
–
0.1
0.1
Share
options
£m
0.5
0.1
0.1
0.7
–
0.7
A deferred income tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the asset
can be utilised.
The Company has an unrecognised deferred tax asset of £0.1m (2016: £0.3m) in respect of share options.
9. Trade and other receivables
Prepayments
Other receivables
Amounts owed by Group undertakings
2017
£m
2.2
0.2
55.8
58.2
AO World Plc
Annual Report and Accounts 2017
116
Total
£m
0.5
0.1
0.1
0.7
0.1
0.8
2016
£m
0.2
0.1
31.2
31.5
Amounts owed by Group undertakings are short term and carry
no interest.
10. Trade and other payables
Trade payables
Accruals
Other payables
Amounts owed to Group undertakings
2017
£m
0.3
3.8
0.4
6.5
11.0
2016
£m
0.3
1.1
0.3
–
1.7
The carrying amount of trade payables approximates to their fair value.
11. Share-based payments
The Company recognised total expenses of £3.3m (2016: £0.2m)
in the year in relation to both the Performance Share Plans (referred
to as LTIP) and the AO Sharesave scheme (referred to as SAYE).
Details of both schemes are described in note 32 to the consolidated
financial statements.
12. Financial instruments
a) Fair values of financial instruments
Receivables and payables
For receivables and payables classified as financial assets and
liabilities in accordance with IAS 32, fair value is estimated to be
equivalent to book value. These values are shown in notes 9 and 10,
respectively. The categories of financial assets and liabilities and their
related accounting policy are set out in note 3 of the consolidated
financial statements.
Cash and cash equivalents
The fair value of cash and cash equivalents is estimated as its
carrying amount.
Call and put option
The fair value of the call and put options (arising on the acquisition of TRG)
are based upon an independent valuation at the year-end using
the Monte Carlo model.
Fair values
The fair values of all financial assets and financial liabilities, by class are
shown in the table below. The fair value and carrying amounts are equal.
Financial assets designated as fair
value through profit or loss
Call option
Loans and receivables
Amounts owed by Group undertakings
(see note 9)
Prepayments (see note 9)
Other receivables (see note 9)
Total financial assets
Financial liabilities measured at
amortised cost
Trade and other payables (see note 10)
Bank overdraft
Financial liabilities at fair value
through profit and loss
Put option to acquire non-controlling
interest
Total financial liabilities
Total financial instruments
2017
£m
2016
£m
1.3
0.8
55.8
2.2
0.2
59.5
(11.0)
(0.1)
(0.5)
(11.6)
47.9
31.2
0.2
0.1
32.3
(1.7)
–
(0.7)
(2.4)
29.9
Fair value hierarchy
Financial instruments are measured at fair value and are split into
a fair value hierarchy based on the valuation technique used to
determine fair value. The hierarchies are:
– Level 1: quoted prices (unadjusted) in active markets for identical
assets or liabilities.
– Level 2: inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly
(i.e., as prices) or indirectly (i.e., derived from prices).
– Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
Financial assets
At 31 March 2016
Call option
At 31 March 2017
Financial liabilities
At 31 March 2016
Put option to acquire
non-controlling interest
At 31 March 2017
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
–
–
0.8
0.5
1.3
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
0.8
0.5
1.3
Total
£m
–
–
–
–
–
–
0.7
0.7
(0.2)
0.5
(0.2)
0.5
Tables below show the movement in valuation for both the call and put
option during the year.
Call option
At 1 April 2015
On acquisition of subsidiary
Movement in valuation
At 31 March 2016
Movement in valuation
At 31 March 2017
£m
–
0.7
0.1
0.8
0.5
1.3
AO World Plc
Annual Report and Accounts 2017
117
Overview Strategic Report Our Governance Our Results Shareholders’ Information Notes to the Company financial statements
For the year ended 31 March 2017 continued
12. Financial instruments (continued)
Put option
At 1 April 2015
On acquisition of subsidiary
Movement in valuation
At 31 March 2016
Movement in valuation
At 31 March 2017
£m
–
0.7
–
0.7
(0.2)
0.5
b) Credit risk
Financial risk management
The Company’s credit risk is considered to be the same as the Group. The Group’s approach to financial risk management is discussed in
note 35 to the consolidated financial statements.
Exposure to credit risk
The maximum exposure to credit risk at the statement of financial position date by class of financial instrument was:
Net amounts owed by Group undertakings
2017
£m
49.3
2016
£m
31.2
There has been no impairment charged to amounts owed by Group undertakings in the current year.
c) Liquidity risk
Financial risk management
The Company’s liquidity risk is considered to be the same as the Group. The Group’s approach to financial risk management is discussed in note
35 to the consolidated financial statements.
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the effect of netting
agreements:
Non-derivative financial liabilities
Trade and other payables
Amounts owed to Group undertakings
At 31 March 2017
Trade and other payables
At 31 March 2016
Carrying
amount
£m
Contractual
cash flows
£m
Within
1 year
£m
Between
1 and 5 years
£m
In more than
5 years
£m
4.5
6.5
11.0
4.5
6.5
11.0
4.5
6.5
11.0
–
–
–
–
–
–
Carrying
amount
£m
1.7
1.7
Contractual
cash flows
£m
1.7
1.7
Within
1 year
£m
1.7
1.7
Between
1 and 5 years
£m
–
–
In more than
5 years
£m
–
–
d) Capital management
The Company’s capital management is considered to be the same as the Group. The Group’s approach to capital management is discussed
in note 35 to the consolidated financial statements.
13. Related parties
During the year the Company entered into transactions with Group entities as follows:
Cost recharged to subsidiary undertakings
Transactions with subsidiaries relate to management charges.
2017
£m
23.3
2016
£m
14.3
14. Events after the reporting period
On 3 April 2017 the Company completed a placing of new shares (37,735,849 ordinary shares) in the Company to raise £50.0m (gross) to
suitably capitalise the business to support our continued growth and increasing scale.
AO World Plc
Annual Report and Accounts 2017
118
Important information
Enquiring about your shareholding
If you want to ask, or need any information, about your shareholding,
please contact our registrar (see contact details in the opposite
column). Alternatively, if you have internet access, you can access the
Group’s shareholder portal via www.aoshareportal.com where you
can view and manage all aspects of your shareholding securely.
Investor relations website
The investor relations section of our website, www.ao.com/corporate,
provides further information for anyone interested in AO. In addition
to the Annual Report and share price, Company announcements
including the full year results announcements and associated
presentations are also published there.
Share dealing service
You can buy or sell the Company’s shares in a simple and
convenient way via the Capita share dealing service either online
(www.capitadeal.com) or by telephone (0371 664 0445). Calls are
charged at the standard geographic rate and will vary by provider.
Calls outside the UK are charged at the applicable international rate.
Lines are open between 8am and 4.30pm, Monday to Friday
excluding public holidays in England and Wales.
Please note that the Directors of the Company are not seeking to
encourage shareholders to either buy or sell shares in the Company.
Shareholders in any doubt about what action to take are recommended
to seek financial advice from an independent financial advisor
authorised by the Financial Services and Markets Act 2000.
Cautionary note regarding forward-looking statements
Certain statements made in this report are forward-looking
statements. Such statements are based on current expectations and
assumptions and are subject to a number of risks and uncertainties
that could cause actual events or results to differ materially from any
expected future events or results expressed or implied in these
forward-looking statements. They appear in a number of places
throughout this Report and include statements regarding the
intentions, beliefs or current expectations of the Directors concerning,
amongst other things, the Group’s results of operations, financial
condition, liquidity, prospects, growth, strategies and the business.
Persons receiving this Report should not place undue reliance on
forward-looking statements. Unless otherwise required by applicable
law, regulation or accounting standard, AO does not undertake to
update or revise any forward-looking statements, whether as a
result of new information, future developments or otherwise.
Registered office and headquarters
AO Park
5A The Parklands
Lostock
Bolton BL6 4SD
Registered number: 5525751
Tel: 01204 672400
Web: www.ao.com
Company Secretary
Julie Finnemore
Email: cosec@ao.com
Joint Stockbrokers
J.P. Morgan Securities plc
25 Bank Street
Canary Wharf
London E14 5JP
Jefferies International Limited
Vintners Place
68 Upper Thames Street
London EC3V 3BJ
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
Independent Auditor
KPMG LLP
1 St Peter’s Square
Manchester
M2 3AE
Bankers
Barclays Bank plc
51 Mosley Street
Manchester M60 2AU
Lloyds Bank Plc
25 Gresham Street
London EC2V 7HN
Registrar
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Tel UK: +44 (0) 871 664 0300
(calls cost 12p per minute plus phone company’s access charge)
Tel INTL: +44 (0) 371 664 0300
(calls charged at the applicable international rate)
Lines are open 9.00am to 5.30pm Monday to Friday excluding public
holidays in England and Wales.
Fax: +44 (0) 20 8639 2200
Web: www.capitaassetservices.com
Email: shareholder.services@capita.co.uk
AO World Plc
Annual Report and Accounts 2017
119
Overview Strategic Report Our Governance Our Results Shareholders’ Information Glossary
3D animation means animating objects that appear in a three-
dimensional space
4Cs strategy means how we will achieve our mission to become the
best electrical retailer in Europe, through focusing on culture and
brand, customers, categories and countries
Adjusted EBITDA means Profit/(loss) before tax, depreciation,
amortisation, net finance costs, “adjustments” and exceptional items
Adjustments means set-up costs relating to overseas expansion and
share-based payment charges/(credits) attributable to exceptional
LTIP awards which the Board considers one-off in nature.
AGM means the Group’s Annual General Meeting
An AO’er means a member of our amazing employees
AO World, AO or the Group means AO World plc and its subsidiary
undertakings
AV means audio visual products
Best electrical retailer in Europe means having a market-leading
proposition and a brand that customers love
BGT means Britain’s Got Talent
Board means the Board of Directors of the Company or its subsidiaries
from time to time as the context may require.
Code means the UK Corporate Governance code published by the
FRC in 2014
Companies Act means the Companies Act 2006
Company means AO World plc, a company incorporated in England
and Wales with registered number 05525751 whose registered office
is at 5A The Parklands, Lostock BL6 4SD
CRM means customer relationship management
CRR mean Corporate Risk Register
Customer means an individual customer who has purchased from us
D&G means Domestic and General
DofE means Duke of Edinburgh scheme
ERP means Employee Reward Plan
EPS means earnings per share
Europe means the Group’s entities operating within the European
Union, but outside the UK
GAAP means Generally Accepted Accounting Practice
GET means our Group Executive Team
GHG means greenhouse gas
HD means high definition
IAS means International Accounting Standards
IFRS means International Financial Reporting Standards
IPO means the Group’s Initial Public Offering in March 2014
IVR means our interactive voice response system
KPMG means KPMG LLP
LSE means London Stock Exchange
LTIP means Long-term Incentive Plan
MDA means major domestic appliances
MyAO means AO’s app
Nano chat means an automated alternative to live chat
NPS means Net Promoter Score which is an industry measure of
customer loyalty and satisfaction
PSP means the AO Performance Share Plan, a form of LTIP
RDC means regional distribution centre
RMC means our Risk Management Committee
SDA means small domestic appliances
SEO means Search Engine Optimisation
SG&A means Selling, General & Administrative Expenses
SID means Senior Independent Director
SKUs means stock keeping units
The AO Way means the Group’s business model
UK means the Group’s entities operating within the United Kingdom
WEEE means Waste Electrical and Electronic Equipment
Floorcare market size Germany
Vacuum Cleaners
AV market size all countries
Audio Home Systems excluding home theatre, docking/mini speaker,
headphones and mobile headsets, Loudspeakers non soundbar,
radio devices (table top), tuner/amplifier/receiver, turntable, cables,
home theatre systems, ptv/flat, set-top-boxes, soundbar/base, AV
mounting solutions and furniture, universal remote control, video
player/recorder.
Computing market size all countries
Mobile computing, media tablets, desk computing, storage,
monitors, memory cards, communication device, software,
visual cams, USB memory, pointing devices, keying devices,
multimedia devices, power management, communication cards,
multidisc drive
Market overview, GfK definitions
MDA market size UK
Cooling, cooking, dishwashers, drink chillers, freezers, built in
microwave ovens, tumble dryers, washing machines, wine cabinets,
hobs, hoods
MDA market size all other countries
Cooling, cooking, dishwashers, drink chillers, freezers, microwave
ovens, tumble dryers, washing machines, wine cabinets, hobs, hoods
SDA market size UK
Air treatment, bread makers, can openers, coffee grinders, deep
fryers, electric heating, electric blankets, electric fans, electric knives,
electrical cooking pots, food steamers, food preparation, hot beverage
maker, ice cream maker, irons, juicers/presses, kettles, kitchen scales,
free standing microwave ovens, milk frother, mini ovens, rice cookers,
sandwich makers/waffle makers/electric grills, steam cleaners,
toasters, vacuum cleaners, water filters, window cleaner
SDA market size all other countries
Air treatment, bread makers, can openers, coffee grinders, deep
fryers, electric heating, electric blankets, electric fans, electric knives,
electrical cooking pots, food steamers, food preparation, hot beverage
maker, ice cream maker, irons, juicers/presses, kettles, kitchen scales,
milk frother, mini ovens, rice cookers, sandwich makers/waffle
makers/electric grills, steam cleaners, toasters, vacuum cleaners,
water filters, window cleaner
AO World Plc
Annual Report and Accounts 2017
120
There’s lots more online:
UK sites:
Customer
www.ao.com
Corporate
www.ao.com/corporate
German site:
Customer
www.ao.de
The Netherlands site:
Customer
www.ao.nl
This Report is printed on materials which
are FSC® certified from well-managed forests.
These materials contain ECF (Elemental
Chlorine Free) pulp and are 100% recyclable.
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+44 (0)20 7610 6140
www.gather.london
AO World Plc
AO Park
5A The Parklands
Lostock
Bolton BL6 4SD
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