Relentlessly striving
for a better way
AO World Plc
Annual Report and Accounts 2018
How we performed in 2017/18
Contents
£796.8m
Group revenue up 13.6%
£(16.2)m
Operating Loss increased by 35.5%
£22.6m
UK Adjusted EBITDA down 7.1%
£(3.4)m
Group Adjusted EBITDA losses
increased by 65.9%
Operational Highlights
— Transactional Mobile App
successfully launched across
all territories
— Competencies being leveraged:
recycling facilities fully operational
and new categories rolled out
— Excellent customer service
demonstrated by high NPS and
recent UK Trustpilot achievement
driving pleasing repeat metrics
across all territories
Independent Auditors’ Report
Our Results
95
100 Consolidated income statement
101 Consolidated statement
of comprehensive income
102 Consolidated statement
of financial position
103 Consolidated statement
of changes in equity
104 Consolidated statement
of cash flows
105 Notes to the consolidated
financial statements
126 Company statement of financial
position
127 Company statement of changes
in equity
128 Notes to the Company financial
statements
Shareholder information
131 Important information
132 Glossary
Overview
2
4
AO at a glance
Relentlessly striving for
a better way
Strategic Report
16 Chairman’s statement
18 Our purpose
20 Chief Executive Officer’s
strategic review
22 Our strategy: the 3Cs
32 Our business model
35 Our resources and relationships
38 Corporate social responsibility
40 How we manage our risks
47 Assessment of Group’s prospects
48 Chief Financial Officer’s Report
50 Trends and insights in our markets
52 Financial Review
56 A letter from our founder
Governance
60 Corporate Governance Statement
60 Chairman’s letter to shareholders
62 Leadership
64 Board of Directors
67 Effectiveness
68 Report of the Nomination
Committee
70 Strengthening our team
72 Accountability
73 Report of the Audit Committee
76 Shareholder relations
77 Report of the Remuneration
Committee
79 Policy Report
86 Annual Report on Remuneration
91 Directors’ report
Our purpose
is to have
the happiest
customers
by relentlessly
striving for
a better way.
AO World Plc
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OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information AO at a glance
Who we are and
what we do
We sell electricals 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
appliances that have reached the
end of their lives.
We have a unique and vibrant
culture and a team of people who
genuinely care more about our
business and its customers.
Where we operate
We operate across three countries: the UK, Germany and
the Netherlands, offering a broad range of electricals and
related services.
See page 50 for further information on the trends, insights and
opportunities in our markets.
Our scalable business model
Our business model is the result of years of expertise and
investment in delivering the best service for our customers.
This has resulted in the development of core competencies
which provide us with a platform for the execution of our
purpose: to have the happiest customers by relentlessly
striving for a better way.
Our business model and proposition is scalable and provides us
with a platform to enter new countries and vertically integrate
our supply chain where we can leverage our core competencies.
See pages 32 to 35 for further information on how we create
and capture value.
Our strategy
— Customers: Consolidate a leading position in our core UK
markets through continuing to grow our market share in
white goods and adding further complementary categories
to our offering
— Competencies: Leverage our competencies in the UK to
extract further value from our supply chain and develop new
business streams
— Countries: Establish a profitable business in Europe
See pages 22 to 31 for information on progress against our
strategic objectives and how our culture is driving us forward.
Customers
Competencies
Countries
AO World Plc
Annual Report and Accounts 2018
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Our investment case
1 A leading position in the online
electricals market
2 Compelling customer proposition
3 Control of the end-to-end
customer experience
4 Strong culture
5 Multiple growth opportunities
6 Track record of growth/ability
to replicate model
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Relentlessly striving for a better way
AO World Plc
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Zab
Customer Experience
Zab is a shining example of how our
customer experience team goes
above and beyond for our customers.
When contacted by a customer
looking for a laptop for their son, who
has dyspraxia, Zab made sure he
found one that fit the customer’s very
specific requirements. Zab didn’t stop
there. After the customer made a
donation to charity to say thank you
to Zab for his help, Zab decided he
wanted to do something nice for
them too.
After doing some research online to
understand dyspraxia better, Zab
found a balancing board that can
help people living with this condition
and sent it out to the family.
The customer was blown away
with Zab’s generosity. Another
happy customer.
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Relentlessly striving for a better way
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Sophie
Trade
Sophie is an integral part of the
trade buying team, based at our
headquarters in Bolton. Responsible
for liaising with our key
manufacturers on a daily basis,
Sophie has been inspirational over
the last year, relentlessly working to
improve current working processes,
after her role changed to cover
a maternity leave.
Having to manage a full team of
buyers in a category different to her
usual area, Sophie has moved into
this role with determination and
passion, stepped out of her comfort
zone and embraced the challenge.
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OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Relentlessly striving for a better way
Maciej
Recycling
Maciej works at our recycling plant in
Telford. He is responsible for sorting
through all the fridges that come into
the site on AO vans after they have
been collected from customers’
homes. Recently promoted to Yard
supervisor, Maciej makes sure that
this important step in the recycling
process runs like clockwork.
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Relentlessly striving for a better way
AO World Plc
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Kyle
Marketing
Kyle is a senior motion graphics
designer, working in our multimedia
team. Following his team’s move to
our new offices in Manchester City
Centre in 2017, Kyle has been
instrumental in bedding the team into
their new premises. Not only has he
taken on the role of ‘social exec’,
organising nights out for the team
and helping integrate new starters
but he has played a huge role in
keeping the team motivated.
Throughout busy periods Kyle has
continually given up his own time and
took on extra responsibility to get
projects finished.
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Relentlessly striving for a better way
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Gillian
Legal
No matter how big or small a
problem, Gill, a solicitor in our legal
team, treats all tasks with vigour and
enthusiasm, and her ‘can-do’ attitude
means she is always striving to find
the best solution for AO.
Gill has a true passion for her job,
and many have expressed they’re
glad to have her in their corner when
dealing with projects.
A true fighter and a true AOer.
AO World Plc
Annual Report and Accounts 2018
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AO World Plc
Annual Report and Accounts 2018
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Section 1
Strategic report:
In this section we
describe how our
revised strategy
works and how
we create value.
As well as
what makes
us unique.
In this section:
16 Chairman’s statement
18 Our purpose
20 Chief Executive Officer’s
strategic review
22 Our strategy: the 3Cs
32 Our business model
35 Our resources and relationships
38 Corporate social responsibility
40 How we manage our risks
47 Assessment of Group’s prospects
48 Chief Financial Officer’s Report
50 Trends and insights in our markets
52 Financial Review
56 A letter from our founder
AO World Plc
Annual Report and Accounts 2018
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OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information AO World Plc
Annual Report and Accounts 2018
16
Chairman’s statement
An evolving
business
Geoff Cooper
Chairman
Later in the year, our business will turn 18. Having started life
as a retailer of major domestic appliances in the UK, we are
now a multi-category electrical retailer with operations across
three countries, we have market-leading logistics and recycling
businesses in the UK and we are now leveraging our core
competencies to drive growth through new opportunities.
As I walk around the business and see what we have created
and the opportunities ahead, I can’t help but be impressed by
the progress we have made during the last two years I have
been with AO.
This year, during his first full year as Chief Executive Officer,
Steve Caunce has focused on ensuring that AO’s reason for
existing and its strategy is appropriate to the AO business of
today and for its future aspirations. Details of the process
undertaken to define our Purpose are set out in the case study on
page 18 with further details of our evolved strategy and business
model on pages 22 to 34. The Board’s objective now is to ensure
we execute effectively against this strategy and to capitalise on
the opportunities we have created.
We have continued to grow revenue in the UK, against the
backdrop of a continuingly competitive market. Group revenue
increased by 13.6% to £796.8m. Year-on-year UK revenue was
up 8.1% to £680.8m (with UK AO website sales accounting for
£606.6m, up 8.7% year on year) in a particularly challenging
market, especially in MDA, and a tough prior year comparable
in the first and last quarters of our reporting period. Revenue
for our European business was £116.0m/€131.2m, up 54.8%
year-on-year on a constant currency basis as both of our
businesses continue to perform to plan (despite limited
marketing expenditure).
Group Adjusted EBITDA losses for the period were £3.4m (2017:
£2.1m), with the UK impacted by market pressure on margins,
and we therefore experienced a £1.8m year-on-year reduction
in Adjusted EBITDA to £22.6m. Our Europe business reduced
its Adjusted EBITDA losses year-on-year on a sterling basis
(following foreign exchange translation) from £26.5m to £26.0m
and on a constant currency basis from €31.5m to €29.6m. Group
operating loss for the year was £16.2m (2017: £12.0m) as it
started to benefit from building scale and critical mass.
Mindful of the continued uncertainty in the UK markets, and
to provide the Group with appropriate financial resources to
continue its growth, we took steps in the year to strengthen the
balance sheet as well as securing additional facilities to provide
the Group with liquidity headroom. In April 2017 we successfully
raised £50m of gross proceeds via a share placing with existing
and new investors, and in November 2017 we increased our
Revolving Credit Facility by £30m to £60m.
We have also made progress during the year to increase the
strength and diversity of our Board following the appointment
of Jacqueline de Rojas CBE as a Non-Executive Director in
November 2017. Jacqueline brings a wealth of global experience,
specifically in fast moving and global technology businesses,
and is also a passionate advocate for diversity, supporting the
Group’s work in this area. We continue to work to identify two
additional Non-Executive Directors to develop the Board’s skill
set, and we hope to be able to announce further appointments
over the coming months.
Towards the end of our reporting period, and against our
review of Purpose and Strategy, our organisational structure
was further refined to give the business stability and the freedom
to grow in line with our evolved strategy. This will also allow
Steve, as he puts it, to focus on the business rather than being
in the business.
In summary, the Group has continued to make good progress over
the year. We have a unique culture at AO, centred on our five
values, which will continue to drive our performance in the future.
Geoff Cooper
Chairman
4 June 2018
AO World Plc
Annual Report and Accounts 2018
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OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Our purpose.
Uncovered from
100s of stories,
collected from
250 people, 26
workshops and
7 locations.
The AO way.
AO World Plc
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Finding our way
Our purpose was uncovered by talking
to our people, by asking for examples
of when they felt proud to work at AO.
During this process, in total, we spoke
to 250 AOers, during 26 internal
workshops, at seven different sites so
that we could answer the question…
Why does AO exist?
We collected hundreds of stories, and
when we looked at all of them collectively,
we could see what it is that makes
AOers unique:
AO is at its best when three
things happen
We understand what
customers really want and
then work out how to do it:
We make it work for
customers, then we make
it work for us.
We are true to our roots as
a human business: We
genuinely care about
people, and we empower
our own people to always
do what’s right for the
customer NOT just what’s
right for us.
We roll our sleeves up and
make things happen…
together, in a way
that is not constrained
by convention or rules.
From the hundreds of stories we heard,
our purpose “to have the happiest
customers by relentlessly striving for
a better way” was defined.
AO World Plc
Annual Report and Accounts 2018
19
Chief Executive Officer’s strategic review
Using what we
know to grow
Steve Caunce
Chief Executive Officer
Our brand in the UK
The potential for the AO brand is significant; we are an exciting
brand with an offering which we believe appeals to a variety
of consumer demographics. Over the reporting period, whilst
our levels of promoted and spontaneous brand awareness
experienced growth, this was modest and in line with our
historical growth trajectory. Our data shows that once customers
experience AO they shop with us again but overall our levels
of spontaneous and promoted brand awareness are relatively
low. Effective marketing should therefore provide us with a
significant opportunity.
We are an innovative company operating in a rapidly developing
market. As such we are always testing new ways of connecting
with our customers and driving our brand to attract new
consumers. As reported at the time of our half-year results in
November 2017, the sponsorship of ITV’s Britain’s Got Talent in
the first half of the year was undertaken in that light and was
designed to build brand awareness in the UK rather to directly
drive sales. While the initiative generated incremental traffic
to our site over the period, it fell short of our expectations.
In the second half of the year, our marketing expenditure in the
UK has been limited but we have experienced good growth in
a challenging market, demonstrating the underlying strength of
our brand. During this period, we have been through a rigorous
process, looking at what’s important to customers. We have
implemented extensive consumer research looking at our
proposition, messaging, positioning and creative routes. This
research has revealed key insights, enabling a new direction
aimed at illustrating our strengths. The new UK brand platform
will be brought to life through all channels and all customer
touch points; it is going to shape our thinking on all aspects of the
brand, not just TV advertising. We are set to launch a new creative
campaign in the first half of FY19, with our brand about to embark
on a really exciting journey; becoming even more widely trusted,
famous for our difference and loved by our customers.
Overview
In the UK we have executed against our plan and proven the
strength of our business in an increasingly competitive market.
Our European operations continue to build scale and confidence
as we remain on track to achieve our FY21 profitable run rate*
objective, and we are evolving our strategy to accommodate
the growing complexity of the Group; it’s been an exciting year!
Our Purpose
In my first year as CEO I’ve focused on reviewing our purpose.
Our purpose from inception was “to change the face of the white
goods industry.” I truly feel that we achieved this before adapting
it to allow for additional categories and countries to become
“The Best Electrical Retailer in Europe”. As we have grown in
scale and complexity (for example, our recycling business) that
purpose seems no longer appropriate.
I wanted to revisit what it was that drives and connects our people
to AO. We now employ over 2,800 people across three countries,
and we must make sure that our purpose and reason for existing
is clear and relatable to every employee, regardless of where in
the business they work. Our people and culture underpin our
business model; they are key to us attracting and retaining our
customers and the physical representation of our brand.
I didn’t want the purpose to be something dictated from me or
our Board; it had to be and feel real. We conducted workshops
across all our sites and asked our people to tell us where they felt
the AO culture had truly shone through. From the hundreds of
stories we heard, our new purpose was born: “to have the
happiest customers by relentlessly striving for a better way”.
When we unveiled this to our staff, it didn’t feel new to them; it
was what we were doing and how we were living and breathing
all along. However, having a clearly defined purpose has allowed
us to really set the tone to the business of why we are here and
what we are here to achieve and it will allow us to pursue our
strategic objectives through one common and simple goal. You
can see more about the process and what we uncovered in the
Purpose case study on page 19.
*
By “run rate” we mean achieving a positive Adjusted EBITDA for the
Europe segment in at least one month of the financial year ending
31 March 2021, as we set out in our Capital Markets Day in February 2017.
UK Brand Awareness (%)
UK Spontaneous Brand Awareness
UK Prompted Brand Awareness
70
60
50
40
30
20
10
0
07/13
11/13
03/14
07/14
11/14
03/15
07/15
11/15
03/16
07/16
11/16
03/17
07/17
11/17
03/18
Source: Mediacom Brand Tracking survey, Large Kitchen Appliances.
AO World Plc
Annual Report and Accounts 2018
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Our values
Bold
We have always been Bold from
day one. We dare to be different
and we thrive in a seriously
competitive sector. Still, we don’t
follow trends we set them.
Smart
To make our bold aims work we’re
Smart – anyone can promise the
earth, but we aim to find a way to
do what looks impossible.
Driven
To turn impossible-sounding ideas
into reality you have to be Driven.
Things may get tough but we’ve
never done anything just because
it’s easy.
Fun
Doing challenging things with
like-minded people is what gets us
out of bed and give our best. That’s
what makes AO a place where you
can really have Fun.
Care
Underpinning everything is the way
we Care, about people, about our
work and about building something
that really makes a difference.
AO World Plc
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OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Chief Executive Officer’s strategic review
continued
One of our key strategic aims during the year was to significantly
increase the number of MDA deliveries from ao.com in the UK
to be delivered on AO liveried vans. I am pleased that the vast
majority of these customers now receive their products on a
green AO van promoting and reinforcing our brand.
Our business model & strategy
At the time of our IPO in March 2014, AO was a one country, one
category business and our strategy and model fitted that profile.
Over time we have grown in both scale and complexity. We now
serve not only retail customers, but logistics customers, recycling
customers and more. In conjunction with our purpose work, and
given the growth and development of the business, I’ve reviewed
our business model and our strategic objectives to ensure that
these are still applicable to the AO of today.
Our business model is set out on pages 32 to 34 and highlights
how we have diversified, developing our competencies in the UK
and leveraging our core assets to drive opportunities whilst
always looking to accelerate growth in the AO brand through
using what we know to grow. For example, we are exploring
opportunities in the appliance rental market, the B2B market and
further recycling opportunities – areas where we can look to
leverage our infrastructure and the knowledge we have gained.
Our approach is always to learn before we take the next step
and be led by our customers.
Our strategic objectives
In recent years we have described our strategy through the
use of our 4Cs: Customers, Countries, Culture & Brand and
Categories. Following my review, I determined that this over-
arching strategy should remain broadly unaltered; focusing on
growing our brand and customer base through delivering a
market-leading proposition in both the UK and in new territories
whilst protecting our unique culture. However, we are now at a
stage in our development where we are able to look not only at
expanding our UK retail category offering but diversifying into
new opportunities that fit within our supply chain where we can
leverage our brand, our core competencies and our culture and
infrastructure, as we are currently doing with our UK Recycling
business. Our previous “Category” objective has now therefore
evolved into “Competencies”. Our strategic objectives are
illustrated below:
Each of our strategic objectives, Customers, Competencies and
Countries, has its own value drivers with our customer, culture
and brand proposition underpinning each. Our performance
against each of our objectives, together with our priorities for
the medium term, is discussed in the following pages.
Leveraging our
expertise
AO World Plc
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AO World Plc
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Chief Executive Officer’s strategic review
continued
Customers
We continue to focus on our market-leading proposition across all
our competencies. We have invested over the years to create a
delivery and service infrastructure that customers can depend on
when they need it most. Our key offering in our core retail business
remains strong; unbeatable prices, huge range, wide availability,
smart and innovative web content and amazing service.
As a result, we made good progress across our key customer metrics
over the period. We are now approaching five million customers,
which provides us with a fantastic asset from which to leverage our
brand. Our repeat business remains strong and we continue to
attract new customers. Our customer satisfaction levels remain
exceptional as our Net Promoter Score (NPS is an industry measure
of customer loyalty and satisfaction) has been maintained at a
consistently high level of over 80. There is no better testament to
our service than the feedback from our customers, and we were
delighted to reach over 100,000 reviews on customer feedback
website Trustpilot in the UK, being one of only 20 companies to achieve
this. Our continual obsession over our customer service means that
we also currently have a 95% “great” or “excellent” score on this
platform which places us in the top 0.01% of companies to achieve
this threshold. In November 2017 we were also very proud to be voted
third best online shop by Which? and to win UK IT Team of the year
at the BCS & Computing UK IT Industry Awards, demonstrating
how IT has been fundamental to developing our offering.
UK customers (000s)*
5,000
4,000
3,000
2,000
1,000
0
FY14
FY15
FY16
FY17
FY18
*
A customer is defined as an individual customer who has purchased
from us.
UK – New Customers vs Repeat Customers (%)
New Customers
Repeat Customers
Repeat %
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C
We have made many improvements to our customer proposition
over the reporting period reflecting our values, our “care-more”
culture and our purpose to have the happiest customers by
relentlessly striving for a better way. Those customers that use us
again and again do so because we make the experience a great
one, from the website, to the products, to the people – we just
make it an easy choice to pick AO.
Every week thousands of new customers are discovering who we
are and what it means to shop with us. We continue to evolve the
customer journey, adding more features and providing easier
ways to shop and get the most from our products and services.
We have worked to make the customer journey easier and have
enhanced the retail experience with the launch of our fully
transactional app on both iOS and android operating systems,
which is highly rated on the app store and Google Play. This
means that our customers now have the ability to shop from
their desktop, tablet or mobile. We will continue to ensure that
we evolve to keep up with changes in consumer preferences.
Early in the year we opened a new outbase in Bridgend which will
help improve delivery availability and services to our south-west
customers whilst reducing our stem mileage and improving
efficiencies in our logistics business. Our outbase infrastructure
has increased from 4 in 2012 to 14 by 31 March 2018. Our premium
installation fleet, which offers a full installation service on integrated
products, has experienced strong growth over the period with
improved lead times and an improving proposition. We have also
developed a traineeship programme offering newly qualified gas
engineers the opportunity to complete a 16-week programme and
become experienced enough to install for us at the end. Towards
the end of the year our logistics business also won a distribution
contract with a new third-party client as we look to refocus on this
income stream and leverage our existing competencies.
We have made lots of progress over the last year to expand the
products we offer our customers as we have bolted on complementary
categories and expanded ranges within existing categories.
Our strategic priority for the coming year will be to continue our
focus on our core UK AO Retail business, to ensure we are ready
to launch into other territories when the time is right and to
leverage into further categories. We will continue to deliver
amazing customer service to have the happiest customers who
will return to AO time and time again.
We are also working to further improve our product protection
plan that we sell as agent for Domestic and General to ensure
we have a product that is appropriate for all categories and
territories that demonstrates our values and excels in service
delivery and care. We expect that the legal form of our product
protection plans will transform from being purely service backed
to insurance or hybrid insurance and service plans later in the
year. Following this, the existing AO Aftercare business will be
rebranded as AO Care, which will provide ongoing, in-life
experience to match that of the initial purchase and provide AO
with a point of contact with our customers that continues to build
our relationship and generate repeat business.
60%
50%
40%
30%
20%
10%
0%
%
o
f
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e
p
e
a
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09/08 03/09 09/09
03/10
09/10
03/11
09/11
03/12
09/12
03/13
09/13
03/14
09/14
03/15
09/15
03/16
09/16
03/17
09/17
03/18
AO World Plc
Annual Report and Accounts 2018
24
AO World Plc
Annual Report and Accounts 2018
25
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Chief Executive Officer’s strategic review
continued
AO World Plc
Annual Report and Accounts 2018
26
B2B is an important opportunity for us to further leverage our
group logistics and recycling competencies in a market where
nationwide next day delivery or removal of products is not
necessarily standard. Our suppliers have been fantastically
supportive in this venture – their support is pivotal to its success.
They recognise the power of AO’s offering and the difference we
can make in this market.
Our UK recycling facility became fully operational during the
first half of the year, building upon our vertically integrated
infrastructure and helping our environmental credentials as we
move towards a circular economy. You can read more about this
in our CSR section on page 38.
Our priority next year will be to leverage our existing competencies
whilst exploring others where we can apply our skills and
knowledge and increase profitability. For example, we will focus
more on our third party logistics and recycling businesses, which
we expect to invest in further over the coming years.
Our end-to-end proposition is best in class and there is demand
for our services from third parties both within and outside of our
market. A good example is our retail website capabilities, which
we are able to sell to third parties illustrating our ability to
leverage AO’s group competencies into new markets. We are
confident that our culture and service levels are being replicated
and appreciated by our trade customers.
These developments give us more addressable markets, more
opportunities to cross-sell and more reasons for our customers to
come back to us, helping us reinforce our brand credentials and
build trust and loyalty. We benefit from increased volume in our
core business and at the same time improve quality of earnings.
We also get the opportunity to learn about new and adjacent
markets, which is a powerful research tool.
Competencies
This objective not only includes the categories we offer as an
electrical retailer but also how we can leverage our competencies
into new opportunities and expand into our supply chain.
We have added a second drop ship vendor to our infrastructure,
which has helped us to increase our computing range and allowed
us to bolt on new categories to ao.com. We now retail Gaming,
Mobile, Smart Home devices and Photography, adding key brand
names such as xBox, PlayStation, Hive, Nest and Go Pro to our
brand portfolio. We are encouraged by the progress made in
these categories so far. In our core major domestic appliances
market, we believe we have maintained share, reflecting our
approach to foreign exchange-driven price increases by
manufacturers, where we sought to protect our gross margins
whilst still offering great value to our customers. Whilst
competition in the Audio-Visual (“AV”) and computing markets
has been fierce, market share has been gained, and our small
domestic appliances (“SDA”) category is performing very well.
Trade customers (or Business-to-Business “B2B”) have been
buying from our ao.com website for years, from schools and
offices to large landlords and housebuilders. This year we have
formalised this offering with the launch of ao-business.com and
a dedicated team. Our proposition remains centred on AO’s
amazing customer service but tailored to trade customers. Our
agents and account managers are specialists in dealing with
complex orders and offline queries. We have also made changes
to payment methods; for example, offering credit accounts and
BACs payments.
Our end-to-end competencies
Retail –
Domestic
Finance &
Aftercare
Distribution
Delivery
Recycling &
Re-use
End-to-end value chain
Warehousing
Retail –
B2B Trade
Premium
installation
Collection
AO World Plc
Annual Report and Accounts 2018
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OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Chief Executive Officer’s strategic review
continued
AO World Plc
Annual Report and Accounts 2018
28
During the period we launched our transactional app, the “help
me choose” function that we have in the UK, and we now sell
warranties in the Netherlands, providing customers with
protection for their products. In Germany the SDA category now
has a broader complement of products, with the addition of food
preparation appliances, and in the Netherlands customers are
now able to shop for AV products. Work continues with a German
distributor as we look to broaden our categories in these
territories much as we have in the UK.
We have worked hard to transfer our culture across to our
European operations, always respectful of different customs
and ways. In essence this has been achieved; although certain
aspects of our UK culture may not exactly be mirrored in our
overseas territories it is enormously satisfying to know that the
values shine in each and every one of our European AOers and
that they strive for exactly the same purpose as those in the UK:
to have the happiest customers by relentlessly striving for a
better way.
Our key priority over the coming year will be to deliver the
second year of our European plan to achieve a profitable
adjusted EBITDA run rate by FY21.
Countries
In recent years the Group has launched its retail business in
Germany and the Netherlands. Progress made in territories
subsequent to the UK continues to give us confidence of the
value of our retail business model and shows how we are able
to leverage our brand and competencies, giving us a strong
platform for future growth.
We continue to drive our European operations responsibly in
a controlled manner. As planned, our growth in Europe has yet
again been delivered with very little investment in traditional
marketing and we are pleased with the awareness generated by
customer recommendations. Launching our proposition through
marketplaces with Amazon in Germany and through Blokker and
BOL in the Netherlands is giving our brand more visibility and the
opportunity to reach new customers.
Category competencies; Relentlessly offering more to our customers
APPLIANCES
ONLINE
BECOMES
AO.COM
HEATING
AIR TREATMENT
GAMES CONSOLES
MOBILE PHONES
APPLIANCES
ONLINE
LAUNCHED
com
SDA
AV
COMPUTING
SMART HOME
CAMERAS
2000
2012
2013
2014
2015
2016
2017
de
MDA
AV
SDA
FLOORCARE
nl
MDA
AV
SDA
AO World Plc
Annual Report and Accounts 2018
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OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Chief Executive Officer’s strategic review
continued
AO World Plc
Annual Report and Accounts 2018
30
Our People
Last year I reported that our business divisions had been
restructured to give greater responsibility and accountability
to senior management and their respective teams. In line with
defining our purpose and reviewing our business model and
strategy, we further refined the senior organisational structure at
the end of the reporting period. To better support our growth, a
new UK Chief Operating Officer role has been created into which
the UK divisional managing directors will report and we have
created a Europe Chief Operating Officer role under which we
will look to diversify our business, much as we have done in the
UK. Our Chief Brand and People Officer will have responsibility
for communicating and protecting our brand together with
ensuring our culture remains true to AO across our entire Group.
Importantly, this structure will also allow me to spend more time
focusing on the business rather than being in the business.
FY18 has been a year of fantastic
progress for AO and I want to thank
all our AOers for their hard work and
dedication this year. There has been
amazing collaboration across our
business as we have come together
to define what we really stand for.
I’ve never been so excited about AO
and look forward to the future
with confidence.
Steve Caunce
Group Chief Executive Officer
4 June 2018
Our people and culture is at the heart of our brand and provides
us with a real advantage over our competitors; as always we will
protect it fiercely. To achieve our goal, we will nurture it, attract
the best people who live our five values and then retain them.
That means being the best employer we can be for our people,
so high employee engagement and development is fundamental
to achieving our objectives. Our values are set out on page 21.
It is the combination of each of our values: Bold, Driven, Smart,
Fun and Care that creates our behaviour and gives us our
competitive advantage.
You can read more about our People in the Resources and
Relationships section on page 35.
Summary & Outlook
Great things have happened operationally in our business during
the year which reflect our purpose and values. We have continued
to successfully launch new categories across our territories and
formalised our B2B offering to leverage our proposition. Further,
we have opened a new office in Manchester for our IT, media and
financial services AOers and our UK recycling facility became
fully operational, building upon our vertically integrated
infrastructure and helping our environmental credentials as
we move towards a circular economy.
In the UK we have maintained market share in our core UK MDA
business despite a competitive electricals market and limited
marketing expenditure in the second half of the year, adding new
customers whilst experiencing healthy repeat purchase rates.
These metrics highlight the underlying strength of our business
model and the AO brand; once a customer shops with us they
remain loyal and they go on to recommend us because we make
their experience a great one.
In Europe towards the end of the period we reached an inflexion
point where incremental revenues reduce losses.
Our over-riding objective remains to continue to deliver amazing
customer service to ensure we have the happiest customers who
will return to AO time and time again. Our consistently high NPS
scores and our amazing Trustpilot achievement proves we are
firmly on track.
Our Trustpilot achievement
AO World Plc
Annual Report and Accounts 2018
31
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Our business model
How our model has developed
At the time of our IPO we operated in one country and principally
in one category, the retail of Major Domestic Appliances in the
UK. Since this time our business model has become more
complex as we have broadened our offering into new categories
and countries. We have also expanded vertically into our supply
chain, leveraging our brand and competencies and successfully
replicating our culture, always striving for a better way.
The AO business model reflects the core competencies we
have built over the years to support our purpose; to have the
happiest customers.
As our brand grows, and we make more customers happy,
we should consolidate a loyal customer base to enable us
to continually reinvest in and develop these competencies
to support further growth and profitability, thereby creating
sustainable value for all our stakeholders.
AO’s culture and values are the most important aspect of our
competitive advantage as we relentlessly strive for a better way
for our customers. Underpinned by our continued investment in
people, infrastructure and systems and our relationships with our
suppliers, our culture and values provide the glue that binds our
model together.
Creating value: having the happiest customers by relentlessly striving for a better way
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At the heart of our model are our
resources and relationships (the things
we are really good at): People, culture
and values, our scalable systems and
processes and our supplier relationships.
You can read more about them on
page 35.
AO World Plc
Annual Report and Accounts 2018
32
Inputs
Our business model comprises the following core competencies:
Business-to-Business (“B2B”)
Retail
In 2000 the AO business was born as our founder, John Roberts,
sought to change the way white goods are purchased in the UK.
Since this time our offering has broadened to include the sale of
more and more categories and ranges, ancillary services, and
we have also expanded into new territories. This core retail
competency, and its customers, remain at the heart of what
we do with simply excellent execution in both our core UK and
European Retail businesses through our ao.com, ao.de and
ao.nl websites. We have a market-leading customer proposition
through our website platform with rich and innovative content
across a huge range of products, supported by a full service and
delivery proposition, all at a competitive price.
We continually obsess over our customer service and as such
we recently achieved 100,000 reviews on customer feedback
site Trustpilot, making ao.com the 20th company to break this
threshold globally and the first online appliance retailer. We
currently have a 95% “great” or “excellent” score on the Trustpilot
platform, which places us in the top 0.01% of companies to
achieve this threshold whilst managing to keep the highest
accolade available.
Logistics
Our logistics business is one of the leading home delivery
providers of white goods in the UK. From our ‘hub’ in Crewe,
comprising two distribution centres with a total of over 700,000
square foot of space via our network of 14 delivery depots, we
deliver millions of products to customers each year, both for our
retail business and third-party clients. We currently operate
around 450 trucks and 150 trailers, delivering nationwide seven
days a week from 7 am to 7 pm and offer end customers the
benefit of dynamic timeslots. Our service is broad, from the
basics of unpacking and inspecting customers products, to
complex gas cooking and integrated installations.
Financial Services
Our financial services business currently encompasses the sale
and promotion of product protection plans and consumer credit
products (where we act as agent and broker respectively). As
with the core retail proposition, we strive to have the happiest
customers and so naturally the financial products we promote
need to offer great value and benefits. The pay-monthly product
protection plan (which we promote as agent for D&G) can last
indefinitely and gives customers the opportunity to receive a
repair or replacement product should their protected product
breakdown at any point in its life, providing security and peace
of mind. We promote a range of credit products with a
competitive general credit product offering at 19.9%, but also use
0% interest free offerings and buy now pay later for promotional
purposes; we adhere to responsible lending practices and
provide simple and clear finance options for our customers.
As with our core retail business, we are very much led by the
wants and needs of our customers, and we are evolving our
existing financial products to ensure that we are able to offer a
market-leading proposition which demonstrates our values and
excels in service delivery and care.
Trade customers have been buying from our ao.com website for
years, from schools and offices to large landlords and house
builders. This year we have formalised our B2B offering through
the launch of our ao-business.com website and dedicated team.
Our proposition remains centred on AO’s amazing customer
service but is tailored to “trade” customers. Our agents and
account managers are specialists in dealing with complex orders
and offline queries. B2B is an important opportunity for us to
further leverage our logistics and recycling competencies in a
market where nationwide next-day delivery or the removal of
products is not necessarily standard.
Recycling
Our purpose-built state-of-the-art WEEE recycling facility in
Telford is the biggest in the UK and has the capacity and
capability to process fridges as well as other large domestic
appliances responsibly and correctly, as well as refurbishing
appliances brought in from AO customers for resale. The new
venture aims to recycle 700,000 appliances per year and means
we can play our part as a responsible retailer in ensuring our
customers’ old products don’t end up in landfill but are recycled
or reused. AO Recycling provides us with a number of potential
business opportunities and is a great example of how we can
vertically integrate into our supply chain.
New verticals/Business streams
Our end-to-end proposition is best in class and there is demand
for these services from third parties, both within and outside of
our market; for example, our retail website capabilities.
This year, retail B2B has been an excellent example of our ability
to leverage AO’s group competencies into new markets. We are
pleased with our development in this area and are confident our
culture and service levels are being replicated and appreciated
by our customers. The next step in this journey will be to focus
more on our third-party logistics and recycling B2B opportunities,
which we will develop further over the coming years.
How we will create value
Our business model is the result of years of expertise and
investment in delivering the best service for our customers.
This has resulted in the development of core competencies which
provide us with a platform for the execution of our purpose.
This in turn will further build our brand and reputation to become
one of our greatest assets as we become partner of choice for
customers across our chosen businesses, attracting new and
repeat custom, thereby growing market share, revenue and
profits, in a responsible manner for the benefit of all our
stakeholders. As we continue to grow, we can reinvest in these
competencies for the further benefit of our customers. This will
include the addition of complementary categories, services and
products in the usual AO way.
Our business model and proposition is scalable and provides us
with a platform to enter new countries and vertically integrate
our supply chain where we can leverage our core competencies.
We continue with our strategy of allocating capital generated by
our UK business to be invested in EU operations during its early
growth phase until it reaches critical mass. We will build a scaled
business that is profitable, with our systems and culture, fully
integrated, which will in turn become a future source of capital
generation for the Group.
AO World Plc
Annual Report and Accounts 2018
33
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Our business model
continued
Our competitive advantage or what sets us apart
Our people, culture and values
The most important element binding the competencies in our
business model together is our unique and vibrant culture. We
have a team of people who genuinely care more about our
business and its customers, and who live our five values. AOers
seek to understand what our customers really want and how to
make AO’s offering work for them. They then roll up their sleeves
and make things happen in an innovative, collaborative way
across our business. You can read more about our people in our
Resources and Relationships section on page 35.
We give customers a flexible and personal approach and make
clear commitments to them which we then deliver on. This is true
of customers of our AO branded websites across territories, our
third-party logistics clients and, new for this year, our recycling
customers. There is no stronger testament to this than our recent
Trustpilot achievement. In April 2018, our Retail website ao.com
had received over 100,000 reviews on customer feedback
website Trustpilot, making us the 20th company to break this
threshold. We are very proud to have a 95% “great” or
“excellent” score on Trustpilot’s platform which allows customers
to feedback on the services they have received once they have
made a purchase.
Underpinning our competitive advantage are:
Our scalable systems and processes providing
operational leverage
Our key IT systems are developed in-house. As part of striving
for a better way, we are therefore able to develop and customise
our customer offering in a dynamic and timely manner. We also
benefit as they are scalable and transferable and reduce our
reliance on third parties. This creates a significant barrier to
entry and makes it difficult for competitors to copy our model
but easy for us to replicate in new categories and territories.
Our supplier relationships
We recognise that we form part of a supply chain in all of the
businesses that we operate in. Our belief is that both we and our
suppliers benefit the most where we have long-term mutually
supportive relationships in place. This may manifest itself
differently across our business units; for example, manufacturer
suppliers supporting the formalisation of our B2B offering or the
collaborative approach undertaken with the supplier for the
design and build of our recycling plant. Our relationships with
them are extremely important as we seek to develop new
opportunities, driving value as part of a two-way relationship.
You can find out more about our suppliers in our resources and
relationships on pages 35 to 36.
Who we benefit
Our customers
The customer is at the heart of everything we do. We are
relentlessly striving to improve and transform the services,
journey and products we offer to our customers across all the
territories and verticals in which we operate.
Our employees
We create 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 aim to partner with our suppliers in a collaborative way,
seeking to drive and develop new opportunities that are
beneficial for all. The importance of our suppliers continues
to grow as we look to develop new opportunities.
Our communities
We are an employer of over 2,800 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 operate 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 businesses, which we expect to achieve a profitable
run rate during the financial year ending 31 March 2021. As the
Company intends to retain any earnings to support the growth
and development of the business, we do not anticipate paying
any dividends in the foreseeable future.
We go to great lengths to offer our customers a first-class experience
at every touch point, whether that’s through delivery, our website or
customer service.
We have continued our commitment to the Duke of Edinburgh Award.
This year, 16 of our apprentices received their gold award.
AO World Plc
Annual Report and Accounts 2018
34
Our resources and relationships
Our success to date has been based on a number of key
elements, including: our customer service which is driven by
people and culture; our supplier relationships; and our systems
and processes.
Customer relationships
Our online platforms include detailed technical information,
customer reviews, product and price comparison tools and an
enhanced retail experience, which are not always available
in stores.
One of our aims is to become the “destination for information”
helping our retail customers (both consumers and trade) 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 developed the AO app to be fully transactional and
customers are 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 8,400 SKUs in the UK, nearly 4,000 in Germany
and nearly 1,700 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
across all territories in which we operate. In the UK we also offer
a growing range of computing, gaming, phone and smart
appliance products. 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, is also growing.
Customers are looking for the 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. In April 2018, our UK retail website ao.com
had received over 100,000 reviews on customer feedback
website Trustpilot, making us the 20th company to break this
threshold. We are very proud to have a 95% “great” or
“excellent” score on Trustpilot’s platform which allows customers
to feedback on the services they have received once they have
made a purchase. Our AO app currently has a 4.8 out of 5 rating,
and as at 31 March 2018 we had 4.8 out of 5 stars on Trusted
Shops for AO.de. Our NPS scores remain consistently high.
As we’ve developed our supply-chain capabilities to support
the retail business, we now have excellent logistics and recycling
businesses which we can leverage with third-party clients. Over
the last few years we have been focusing on growing our green
fleet and so third-party logistics sales reduced. However, we are
looking to leverage our capabilities and brand to grow this
business once more, giving amazing service to customers and
making the experience of having a delivery from us as enjoyable
and stress free as possible. In recycling, our plant processes MDA
WEEE from our UK retail business and we have opened up our
spare capacity to third parties, providing them with best-in-class
recycling to ensure waste is dealt with efficiently and responsibly.
Supplier relationships
Historically, our supplier relationships have been focused on the
product manufacturers for our retail business. As we diversify
and leverage our competencies in the UK, supplier relationships
have broadened and we now see our key relationships as:
— The manufacturers and distributors that supply products
to us;
— Our delivery providers (ranging from national organisations
e.g. DPD and Collect+) to whom we now outsource deliveries
of smaller products to individual contracted drivers and
small/local businesses who provide the two-man home
delivery service for our MDA products); and
— Third-party providers of significant plant and infrastructure
(particularly in our recycling business and IT systems).
These relationships also include our relationship with D&G, for
whom we provide product protection plans as agent
Our belief is that both we and our suppliers benefit the most
where we have long-term mutually supportive relationships in
place; we recognise that driving a fair bargain rather than a hard
bargain will build long-lasting and fruitful relationships.
We are careful to listen to the concerns of all suppliers and act
accordingly, have regular meetings at both operational and
strategic levels with key suppliers and put in place clear service
level agreements to ensure suppliers have a good understanding
of, and are able to meet our expectations.
This may manifest itself differently across our business units; for
example, manufacturer suppliers supporting the formalisation of
our B2B offering or the collaborative approach undertaken with
the supplier for the design and build of our recycling plant. Our
relationships with them are extremely important as we seek to
develop new opportunities, driving value as part of a two-way
relationship.
This photo was taken recently when we took our suppliers on a tour
around our recycling facility. They were very impressed.
This spring, we once again turned our customer service centre into
donation lines for Sport Relief; helping raise money for our communities.
AO World Plc
Annual Report and Accounts 2018
35
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Our resources and relationships
continued
We recognise that we form part of a supply chain in all of the
businesses that we operate in. 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 our
competencies. We aim to work in partnership with them, sharing
insight and knowledge, innovating categories and changing the
normal course of retailing.
We understand that our manufacturer suppliers invest
significantly 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 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.
Our people and culture
AO employs over 2,800 people across three countries. We
believe that 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. 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 our suppliers or other employees and,
of course, do it all with a sense of fun.
Last year saw a huge focus on defining what our Purpose was
as a business and this was uncovered by talking to our people,
by asking for examples of when they felt proud to work at AO.
From the hundreds of stories we heard, our Purpose “to have the
happiest customers by relentlessly striving for a better way” was
defined. You can read more about why and how we defined our
Purpose on pages 18 to 20.
Having a clearly defined Purpose has allowed us to really set the
tone to the business of why we are here and what we are here to
achieve. The Purpose has sharpened the lenses through which we
operate and has allowed us to align our people with a renewed
sense of direction and motivation.
Our Purpose has also allowed us to refresh our people experience
and to truly understand how our people feel working at AO. In
2018 we took a step away from an annual employee engagement
survey approach and opted for an “always on” strategy that
enables us to keep our finger on the pulse of what our employees
are feeling. This level of analysis will improve and steer our people
strategy about where we are as an employer and where we want
to be. Our last survey has focused our attention on a number of
areas, one of which included our internal communication strategy,
specifically our communications channels.
The Company intranet has seen a shift in its design and usability
and traditional internal communication channels, print, visual
and email have all undergone a design overhaul to ensure a
consistency in look and feel, with the new look materials entering
circulation at the beginning of the year.
We have also introduced new feedback loops into the business,
driving two-way communication with employees. Our ‘People
Labs’ allow us to explore business topics that impact our people
as part of our decision making and planning. The second
feedback loop that we have introduced is ‘AO Ideas’. This is
a virtual suggestion box where we ask employees to submit
their suggestions on how we as a business can improve through
a channel that is always open and non-topical.
AO is committed to maintaining good practice in relation to
equal opportunities and reviews its policies on a regular basis
in line with legislative changes and best practice benchmarking.
It is Company policy that no individual (including job applicants)
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.
The Company aims to ensure that:
— Recruitment practices and selection procedures are free from
discrimination or bias;
— Working practices, career progression and promotion
opportunities are free from discrimination or bias; and
— Employees are aware of their own personal responsibility in
ensuring the support of the policy in practice.
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.
There are now over 2,800 AOers working across our business. We want
to encourage our people to collaborate and share ideas as much as possible,
which is why our offices offer lots of areas of open space for creative thinking.
We continue to do what we believe is best for employees, particularly when
it comes to providing working environments where they can really flourish.
AO World Plc
Annual Report and Accounts 2018
36
Female representation on our Group and senior leadership team
(excluding the Executive Directors) was 32% at the end of the
reporting period, whilst the number of female employees across
the whole of our business was 26%. Understanding how we can
further diversify our workforce has formed a key part of our 2018
people agenda. Creating an environment where people can
succeed and deliver their best every day is central to this. To
kick-start this, a series of workshops have been delivered across
the business to help us further understand our positioning on
diversity. We have spoken to numerous employees in all areas
of our business and at all levels to understand their stories and
experiences. This has ensured that all action plans are built on
insight, focused on creating an inclusive environment and
delivered to effect real change.
Investing for the Future
We understand that our people are the reason behind our
success and we also recognise that our people need support and
leadership to guide them as we move our business forward. For
this reason, we have made leadership strength and capability
development a priority in the last six months. We are currently
working with our executive leaders to build on their existing
strengths as individuals and develop a solid executive leadership
unit that takes our business forward together.
We are taking careful steps to ensure our areas of focus stay
aligned to our business and we are able to adapt as our business
changes. This next financial year will see us continue this work
and widen our reach to our next level of leaders, so they too are
armed with the critical skills to lead our fantastic business.
In line with our work on the AO Purpose, we have reviewed our
training and development strategy for our Customer Experience
agents. To ensure we have the “Happiest Customers…” we have
designed a new induction and training programme catered
specifically for our customer contact employees focusing on our
values. The new programme gives our agents the essential skills
they need to hit the ground running. Incorporating a 12-month
view of the training and development of our customer-facing
employees, we are aiming to equip them with the right level of
knowledge to help our customers more effectively. This covers
essential product knowledge so they can provide the exceptional
advice and assistance that our customers expect from AO. It is
important that we train and encourage our customer agents to
care, and nurture their soft skills and problem-solving abilities to
ensure that every contact they have with our customers is both
efficient and effective.
The opening of AO Manchester in Baskerville House during
the year has been key in our plans to create an environment that
is attractive to talent in our IT and Digital Skills teams. The
state-of-the-art central Manchester location is enabling us to tap
into talent pools previously unavailable to AO in Bolton. With its
central location, great design, the facilities available and
proximity to public transport hubs, we are now able to compete
for talent with North West businesses, to attract the best in the
market and prevent us missing out on those that are unable to
travel to Bolton. The new offices are set up to promote
collaborative working and the impressive design of the workspace
is a vital part of the strategy to attract talent, especially in the IT
and digital skills sectors.
Our investment in emerging talent is a focus as we continue
to support the next generation of talent. Our apprenticeship
programme provides the opportunity to build both life and
workplace skills, and we currently have around 30 apprentices
across our business completing a range of qualifications such as
project management, digital, marketing and finance. In the year
to 31 March 2018 we have seen five apprentices complete their
apprenticeship qualification and move into a permanent junior
role, 16 apprentices complete the Duke of Edinburgh Gold Award
(helping to build important life skills) and 12 apprentices embark
on their second qualification with us.
The next year will see more of our apprentices complete their
Duke of Edinburgh Gold Award and their apprenticeship
qualifications, and we will continue to work with our emerging
talent on work skills to prepare them for their future roles.
Supporting our Employees Needs
We continue to do what is best for our employees, providing
a supportive and nurturing environment in which they are given
the encouragement, support and training to develop their skills.
In addition to provide a supportive environment, we are working
on developing our employee wellbeing proposition to ensure that
employees are happy. We have run ad hoc wellbeing activities in
the workplace during 2017, to gauge employee attitudes towards
workplace Health and Wellbeing initiatives. This has been
received well amongst employees, and we are working on a
strategic and aligned Health & Wellbeing programme to deliver
services, advice, products and awareness in a consistent and
holistic manner. Developing a coherent programme of wellbeing
initiatives, rather than running ad hoc activities, is a vital part of
our People strategy for next year.
We have increased support, activities and communication about
Health & Wellbeing issues, to ensure employees feel engaged
with their work, understand AO’s challenges and priorities, and
recognise the importance and value of their contribution and
involvement. This strategy lends itself to the overarching people
plan and is underpinned by our values.
Systems and processes
Distribution
Our UK in-house delivery network runs from Crewe and 13
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.
AO World Plc
Annual Report and Accounts 2018
37
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Corporate social responsibility
A modern company with old fashioned
values. Our values are what set us apart.
Responsible retailing
The Board considers that the development, wellbeing and
safekeeping of people is central to supporting its strategy and
this, coupled with our social and environmental credentials, is
fundamental in creating a sustainable business. You can read
more about the importance of our People on page 31.
Keeping people safe
We are committed to maintaining the highest standards of
Health and Safety practice for anyone affected by our business
activities. We have rapidly grown the health and safety culture
alongside the continued growth of the business.
Over the year we further invested in various forms of recognised
external training and internal education to ensure we are even
more knowledgeable on the subject. This enables us to have a
workplace where employees take individual responsibility for
their actions and promote safety on a daily basis.
Our Health and Safety policies and procedures include:
— Periodic internal audits on our Health and Safety
performance by an independent expert, which reviews legal
compliance, how we benchmark against best practice and
how we maintain a safe environment.
— Regular internal inspections completed by the department to
monitor performance in each area.
— Managing risk and promoting Health and Safety culture in the
Board’s agenda and Senior Management meetings.
— Consistently supporting the network of Health and Safety
Representatives across the group.
— Seeking accreditation and aligning long-standing Company
programmes and procedures to internationally recognised
Quality Assurance standards.
— Appropriate training and education of all employees to
adhere to legal compliance and best practice.
— Providing 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.
Many of our UK employees make a regular monthly gift to the
charity, and during the year over £56,000 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 receive 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 and
continued to support a number of charities and community
projects, including:
— Manchester One Love concert volunteering
— National 3 peaks Challenge
— Macmillan Coffee Morning
— Big Manchester Sleep out
— Christmas Jumper campaign
We are pleased that our call centre was once again chosen to
be an official call centre for Sport Relief in March 2018. The night
saw AOers from our head office, Manchester office and AO
Logistics taking calls from members of the public making
donations. We received 1,147 calls and collected over £45,000 in
donations. We are also proud to have been named one of Comic
Relief’s fundraisers of the year following this.
Business ethics
Our Modern Slavery statement for the year ended 31 March 2017
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 ao-world.com
We also have in place a formal anti-bribery policy and
whistleblowing procedures.
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.
As a country, annually, we throw away 1.4 million tonnes of
WEEE. This challenging waste stream presents a major problem,
but what’s the best way to deal with this mountain of discarded
metal, plastic and hazardous materials? How can we do it safely,
efficiently and in an environmentally responsible way, while
extracting the most value from it?
In July, we launched AO Recycling in a bid to meet some of these
challenges head on and to take a lead on the issue of WEEE
recycling. Our state-of-the-art new recycling facility at Telford in
Shropshire has set new standards for WEEE reprocessing with
high levels of recyclate, gas, oil and refrigerant recovery.
Our move into recycling has been, in many respects, a natural
progression for the business. We’ve always strived to be more
than just a retailer and, as we have developed our logistics
credentials into a leading business in its own right, so our
recycling business was born. AO Recycling is about taking
responsibility for our customers’ waste electrical appliances. We
also want to make it easier for customers to recycle and for them
to have peace of mind that it will be done to a high standard.
The plant’s focus is on fridge recycling, however other large
WEEE is also brought to Telford. These are either recycled or, if
possible, refurbished for resale as secondhand items. Every year,
the plant will reprocess 700,000 fridges – about one-fifth of the
3.5 million thrown away annually in the UK.
At our plant, compressors, gases and oils, as well as refrigerants,
are carefully and safely removed from the fridges. The remains
are then deposited inside an 80-tonne shredding machine and
broken into small pieces by rotating steel chains inside a sealed
chamber and then separated out into raw materials. The crucial
thing is nothing is wasted – as much value as possible is
extracted from the waste. Even the packaging from a customer’s
new appliance is recycled at the plant.
AO World Plc
Annual Report and Accounts 2018
38
Greenhouse Gas Emissions data
Year ending 31 March
Emissions from operations and
combustion of fuel (Scope 1)
Tonnes of CO2e*
2018
2017
25,608
25,600
Emissions from energy usage (Scope 2)
4,260
3,865
Total
Intensity ratio:
tonnes of CO2e per £m of revenue
29,868
29,465
37.48
42.01
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 including
at our recycling operations (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 UK equivalent CO2 factors have been used.
Steve Caunce
Chief Executive Officer
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 one additional outbase in the UK during the
year to service demand and improve the efficiency of our
fleet, taking our total to 14; and
— We also try to maximise our fuel efficiencies through the use
of vehicle telematics, and, for example, by 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 UK equivalent CO2
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 and our recycling operations.
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.
AO World Plc
Annual Report and Accounts 2018
39
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information How we manage our risks
In common with many businesses, we face 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 factors such as the market environment; and legal risks
given the regulatory frameworks to which we are subject.
Effective risk management allows us to identify, appropriately
monitor and, to the extent possible, mitigate 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.
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
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
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 senior management to ensure
engagement in risk management practice
Critically reviews risk register; assesses
materiality/measurement of risk and monitors
mitigation and controls
Supports business unit leaders and their
teams in assessing risk
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
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
AO World Plc
Annual Report and Accounts 2018
40
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
quarterly 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”).
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, 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 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.
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, being
mindful of our distinct appetite for strategic, operational and
legal risk, 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 we
have already accepted an aggressive or material risk, this would
then limit the acceptance of additional material risks.
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 fine-tune our risk management
processes, developed our risk appetite and its application to
different types of risk, and revisited our scoring mechanisms and
categorisation and the controls and mitigants relating thereto.
Further, we have continued to ensure that appropriate risk
management is embedded in all areas of the business and that
a consistent approach to risk is taken.
We have also spent time understanding where we are currently
acting outside our risk appetite and also where we could improve
risk mitigation; debating whether these are conscious decisions
or where action plans need to be put in place.
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:
— Our ongoing GDPR programme: We have performed an
extensive audit of our data processing activities, completed
privacy impact assessments and legitimate interest
assessments, revisited the basis on which we market to our
customers, redefined retention policies, updated privacy
policies and rolled out training across the Group. We have
also enhanced our IT security and improved access controls.
— Establishing a team to monitor the current political and legal
environment around worker status, including analysing
recommendations of the Taylor Review and what this may
mean for our driver model and participating in BEIS
consultation on this issue.
— Introducing internal rules governing the structure of our
pricing claims to ensure our messaging is clear and
transparent.
— Planning to transition our product protection plans from
purely service-backed warranties to insurance-backed
warranties.
— Continuing to roll out our Business Continuity and Disaster
Recovery Plans across all our sites.
— Reinforced our culture with purpose and values workshops.
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
As we set out last year, Culture and People, Brand Recognition and
Damage, Failure of European Expansion, IT Systems Resilience,
Business Interruption, Compliance with Laws and Regulation,
and the UK Economy pose significant risks to our business.
Given the continuing uncertain outlook for the UK economy and
softening of consumer demand, we have seen an increase in the
amount of promotional activity undertaken by our competitors
in the retail sector. We therefore think a better way to articulate this
principal risk is to rename it “Brexit and the UK electricals market”.
Following our ongoing risk appraisal work, we now think it
appropriate to include “Key Commercial Relationships” as a
principal risk. This includes:
— the manufacturers and distributors that supply products to
us;
— our delivery providers (ranging from national organisations,
e.g. DPD and Collect+) to whom we now outsource deliveries
of smaller products to individual contracted drivers and
small/local businesses who provide the two-man home
delivery service for our MDA products); and
— third-party providers of significant plant and infrastructure
(particularly in our recycling business).
It also includes D&G for whom we act as agent in the promotion
of product protection plans.
Whilst we feel our key commercial relationships are stronger
than ever, the relationships with manufacturers in particular are
critical to the core retail business and therefore to the verticals
that we have created around that business. We are aware that
suppliers often rely on credit insurance to protect their
receivables against the risk of bad debt or insolvency. Should
such cover be materially reduced or withdrawn (as seems to be
more frequently reported in the retail sector as of late), there
would inevitably be an impact on the business. Given the
financial resources available to the Group (including the
proceeds of the placing of shares carried out last year), we
believe we are suitably capitalised and have sufficient funds to
be able to deal with reduced payment terms from suppliers, if
this were to be a consequence of the withdrawal or reduction of
a suppliers’ credit insurance. However, there would probably be
a negative impact, in particular on our purchasing strategy.
For details on the changes to our principal risks over the year,
please see the table overleaf:
AO World Plc
Annual Report and Accounts 2018
41
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information How we manage our risks
continued
Key
risk
Culture and
people
Impact on strategic
objectives:
— Culture & Brand
— Customers
— Competencies
— Countries
Failure of
European
Expansion
Impact on strategic
objectives:
— Countries
Nature of
the risk
Mitigating
activities
Overall change
during the year
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 our senior
leadership team to provide
strategic direction to the
business. Significant erosion
of this team would have a
material 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.
— AO culture is supported by a
Risk decrease
wide range of tools, workshops
and events with a dedicated
employee events team
— The senior leadership team
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 and we have
redesigned our incentive
package to improve retention
— Strengthened operational
management teams in each
business unit give the benefit of
localised decision making and
reduce reliance on individuals
— Some succession planning is
in place
Our purpose work over the
last six months has helped
cement our mission and
values, further instil the culture
amongst our colleagues and
provide greater unity across
the Group.
Our European businesses
have well-developed teams
who are able to apply the
culture and values and to
pass this on to new recruits.
Further refinements to our
leadership structure have also
provided clarity and unity.
— Expansion into new territories
Risk decrease
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
We are on track with our
goal to have a profitable
run rate in the Europe
segment by FY21. Now there
is a roadmap and defined
milestones are in place, our
teams have a clear focus
and, as we see these
milestones being met and the
progress we are making on
product margin, we have
more confidence that the
model can be replicated.
AO World Plc
Annual Report and Accounts 2018
42
Key
risk
Brand recognition
and damage
Impact on strategic
objectives:
— Customers
— Competencies
— Countries
IT systems
resilience and
agility
Impact on strategic
objectives:
— Customers
— Competencies
— Countries
Nature of
the risk
Mitigating
activities
Overall change
during the year
— Ongoing marketing campaigns
No change
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.
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.
— There is a dedicated social
media team in place to
increase brand awareness and
generate consumer interest
in ao.com
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.
— 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
High NPS and Trustpilot
scores in the UK and in
Europe show that our
proposition resonates and
customers continue to love
our brand, and we continue
to enjoy strong repeat
business in all our territories.
Our purpose work should
provide the platform from
which we can make a
step-change in our brand
awareness and help prevent
damage.
Risk increase
Whilst we have improved our
IT systems resilience over the
period, the pace of change
with cyber-crime, in
particular denial of service
and brute force attacks,
appears to be increasing.
Further, as we grow, our IT
systems become more
complex and less agile.
AO World Plc
Annual Report and Accounts 2018
43
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information How we manage our risks
continued
Key
risk
Compliance with
Laws and
Regulation
Impact on strategic
objectives:
— Customers
— Competencies
— Countries
Nature of
the risk
Mitigating
activities
Changes in regulations or
compliance failures may affect
our strategy or operations, in
particular to the following
areas:
— 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.
— Driver employment status
— Health and Safety (“H&S”)
— 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
and tax team who promote
awareness and best practice
and an Internal Audit team
who provide assurance on
compliance
— Third-party specialist advice is
sought where necessary and
any recommendations are
implemented and subject to
ongoing monitoring
— AO’s business is supported by
a qualified H&S team
— Changes to the macro
environment and legislation
are monitored and
implemented promptly
Overall change
during the year
Same overall
Whilst the commencement
of operations at the Group’s
new recycling facility in
Telford has increased the
overall H&S risk to the Group,
we have recruited and
integrated a bespoke H&S to
monitor the operation and
instil the right culture around
H&S at the site.
Continuing scrutiny of the
“gig economy” and
government consultation
on employment status has
increased the risk of
legislation changing in this
area, however during the
year we were successful in
defending the driver’s
employment status at an
employment tribunal, which
decision was upheld by the
Employment Appeal Tribunal.
GDPR poses potential
challenges to working and
marketing practices, and
we are working through
these,designing solutions and
implementing better controls.
We are transitioning the
legal form of our product
protection plans from being
purely service backed to
insurance or a hybrid
insurance and service plan.
Whilst this increases
compliance work and
regulatory risk around the
sale of the product, going
forward the risk of a
challenge on legal form of
the plan (i.e. whether or not
it should be classified as
insurance) should cease
to be relevant.
AO World Plc
Annual Report and Accounts 2018
44
Key
risk
Business
Interruption
Impact on strategic
objectives:
— Customers
— Countries
— Competencies
Brexit and the UK
electricals market
Impact on strategic
objectives:
— Customers
— Culture
Nature of
the risk
Mitigating
activities
Overall change
during the year
— Two NDCs in the UK reduce
Risk decrease
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
— 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
— Long-term recruitment planning
underway to reduce potential
for gaps in worker availability
— We closely monitor competitor
activity and have the ability to
react quickly to ensure our
proposition remains competitive
In the UK we have a new
facility in Manchester that
can be used by staff in the
event of interruption to our
head office facility. We have
continued to increase the
number of outbases in the
UK and are looking to
increase our outbases in
Germany.
We are working to improve
our BCDR plans across all
key sites in both Europe and
the UK.
Risk increase
Continued uncertainty in the
economy and the softening in
consumer demand and the
housing market has caused
the MDA market to shrink
year on year, which in turn
has driven competitive
activity. Whilst we believe we
have maintained our share of
this market (see page 51) (in
spite of limited promotional
activity), the macro-
economic risk is increasing.
A disastrous event occurring at
or around one or more of the
Group’s sites, including our
main distribution centres in
both the UK and Germany,
may affect the ongoing
performance of our operations
and negatively impact the
Group’s finances and our
customers.
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.
Controls on the freedom of
movement of people could add
friction into the supply chain.
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.
Reduced consumer demand
drives increased competitor
promotional activity.
AO World Plc
Annual Report and Accounts 2018
45
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information How we manage our risks
continued
Key
risk
Key Commercial
Relationships
Impact on strategic
objectives:
— Customers
— Competencies
— Countries
Nature of
the risk
Mitigating
activities
Overall change
during the year
The achievement of our
strategy is partly dependent
upon relations, support and
the service provided by key
suppliers. If there was failure on
the part of the suppliers or a
breakdown in our relationship,
this would affect our
proposition to the customer.
Key suppliers include:
— Manufacturers and
Distributors
— Delivery Providers
— Plant and Information
Technology Systems
Suppliers
It also includes our relationship
with D&G, whom we act for as
agent in selling product
protection plans. As well as a
general relationship risk, there is
a credit risk with D&G, given the
size of the debtor and our ability
to recover such debt. See
further on page 119.
The risk includes the ability to
achieve favourable terms,
suppliers’ credit insurance being
maintained, competitive rebates
being agreed and the ability to
attract premium brand suppliers
to work with AO.
— There is ongoing management
New Principal Risk
Whilst we feel our key
supplier relationships are
stronger than ever, the
relationships with
manufacturers in particular
are critical to the core retail
business and therefore to the
verticals that we have
created around that business.
Should a supplier’s credit
insurance cover be materially
reduced or withdrawn (as
seems to be more frequently
reported in the retail sector
as of late), there would
probably be a negative
impact, in particular on our
purchasing strategy.
Further, as we have
diversified our product
offering, we are becoming
increasingly reliant on
third-party carriers for
deliveries of our smaller
products in the UK. In Europe
we are sub-contracting
some deliveries whilst we
build scale.
of relationships with key
suppliers to ensure strong
business relations
— The increased strength of the
ao.com brand has resulted in an
improved negotiation position
with existing key suppliers and
potential new suppliers,
however, we recognise that
driving a fair bargain rather
than a hard bargain will build
long-lasting and fruitful
relationships
— We are careful to listen to the
concerns of all suppliers and act
accordingly, have regular
meetings at both operational
levels and strategic levels with
key suppliers and put in place
clear service level agreements
to ensure suppliers have a good
understanding of and are able
to meet our expectations
— Given the financial resources
available to the Group
(including the proceeds of the
placing of shares carried out
last year), we believe we are
suitably capitalised and have
sufficient funds to be able to
deal with reduced payment
terms from suppliers, if this were
to be a consequence of the
withdrawal or reduction of a
suppliers’ credit insurance
— In terms of rebates, these are
formally agreed with suppliers
via annual trading terms
Details on our significant accounting risks, namely the accounting in relation to product protection plans and commercial income are
set out on page 74.
AO World Plc
Annual Report and Accounts 2018
46
Assessment of Group’s prospects
Viability assessment
In accordance with Code C.2.2 of the UK Corporate Governance
Code 2016 (“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 2021. 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 40 to 46 and in the Corporate Governance
Statement on page 74. 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 46) and internal controls (see page 72), 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 57. The
financial position of the Company and its cash flows are
described in the Chief Financial Officer’s Review on pages 48 to
56. 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 £60m 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 40 to 46.
The Directors have a reasonable expectation that the Company
and the Group as a whole have adequate resources to continue
in operational existence, and meet its liabilities as they fall due,
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.
AO World Plc
Annual Report and Accounts 2018
47
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Operating and financial review
Continued revenue growth
and progress in our
European business
Mark Higgins
Chief Financial Officer
The Group has continued to execute against its strategy in the
year to 31 March 2018. We have continued to grow Group revenue
despite a challenging trading environment in the UK. We are
on track with our plans in Europe and have re-capitalised our
balance sheet and increased our Revolving Credit Facility to give
us headroom to continue our growth both in the UK and Europe.
Going forward we expect to increase revenue and improve
profitability by leveraging the assets we have built, driving out
further efficiencies and, in the short to medium term, reinvesting
our cash in the growth of our European operations.
Our customer base and repeat purchase metrics continue to
be healthy, highlighting the strengths of our model, which will
help drive continued growth across our new territories. Our
expanding range and categories together with our strategy
to leverage our competencies into other opportunities should
ensure resilience as we broaden our revenue streams. This,
together with our strengthened balance sheet and outstanding
customer proposition, will ensure that we are well positioned to
trade well through any potential future/continued challenging
market conditions.
In the UK, against a backdrop of a fiercely competitive market,
total revenue increased by 8.1% to £680.8m. This growth was
achieved despite the core UK MDA market experiencing overall
lower volumes year on year1, set against an environment of lower
consumer confidence associated with the Brexit process2, as well
as our relatively low level of marketing spend in the second half
of the year. In Europe, both businesses continue to perform to
plan, with revenue increasing by 54.8% on a constant currency
basis as the brand attracts both new and repeat customers with
high levels of customer satisfaction.
Adjusted EBITDA losses increased slightly in the year, with the
UK impacted by pressure on margins and investment for future
growth and higher marketing costs in the first half of the year
reflecting TV sponsorship. Europe, on a constant currency basis,
reduced its losses as it starts to benefit from scale. The European
business overall continues to perform to plan and we expect these
losses to continue to reduce. We remain confident of achieving
a profitable run rate during the financial year ending 2021.
Mindful of the continued uncertainty in the UK markets, and to
provide the Group with resources as it continues its growth and
investment, we took steps in the year to strengthen the balance
sheet of the Group as well as securing additional facilities to
provide the Group with liquidity headroom. In April 2017 we
successfully raised £50m of gross proceeds via a share placing
with existing and new investors and in November 2017 we
increased our Revolving Credit Facility by £30m to £60m
(of which £58.6m remains undrawn at the end of March 2018).
Year ended 31 March
Financial KPIs
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)
2018
2017 % change
796.8
680.8
131.2
22.6
(29.6)
(3.4)
(16.2)
701.2
629.7
84.7
24.4
13.6%
8.1%
54.8%
(7.1)%
(31.5)
5.8%
(2.1)
(65.9)%
(12.0)
(35.5)%
Non-Financial KPIs
Non-Financial KPIs, such as Brand Awareness and Trustpilot
scores, are highlighted on pages 24, 27 and 29.
Mark Higgins
Chief Financial Officer
4 June 2018
1 Source: GfK.
2 Source: GfK’s Consumer Confidence Index.
AO World Plc
Annual Report and Accounts 2018
48
2018 performance at a glance
£796.8m
Group revenue up 13.6%
£(16.2)m
Group Operating Loss
increased by 35.5%
£22.6m
UK Adjusted EBITDA
down 7.1%
€(29.6)m
European Adjusted EBITDA
losses reduced by 5.8%
AO World Plc
Annual Report and Accounts 2018
49
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Operating and financial review
Operating and financial review
continued
continued
Trends and insights into our markets
Summary
Over the years, we have expanded from one country and one
category into three countries and six categories. Our primary
business continues to be the retail of Major Domestic Appliances
to individual consumers (“MDA”), however the dependency on
this continues to reduce as we leverage our capabilities into new
markets (representing 70% of total Group revenue in FY18 versus
74% for FY17).
Core market – overview
The MDA opportunity is vast. GfK estimates that the total spend1
on MDA products in the top ten European countries2 is around
£21bn in FY183, or £12.7bn in our current countries of operation
(UK, Germany and the Netherlands)3.
We consider there to be four main factors influencing the size
and shape of our addressable MDA markets, as set out below. In
the last year, a combination of these trends has resulted in these
markets growing in value terms by 1%, 1% and 8% in the UK,
Germany and the Netherlands respectively4.
97%
Washing machine ownership
in UK households
1
2
Total spend is defined as value of sales generated through price paid
at the till
Included in our Europe market size is UK, Germany, the Netherlands,
Ireland, France, Poland, Austria, Belgium, Switzerland and Czech
Republic
3 GfK, inc VAT, 12 months to March 2018
4 GfK, 12 months to March 2018 vs. 12 months to March 2017
5 ONS, 2016
6 ONS, 2017
7 ONS, 2016-17
8 ONS
9 https://www-genesis.destatis.de/genesis
10 https://tradingeconomics.com/netherlands/inflation-cpi
Exchange rates used are the average for the period under review.
GfK UK references are defined as GB.
AO World Plc
Annual Report and Accounts 2018
50
1 Demographic trends and home ownership
There are over 66 million people5 and 27 million households6 in
the UK, and 97% of these households own a washing machine7.
Most MDA products are essentials for modern life, which provides
a level of stability to future volumes.
Further, we believe that the majority of MDA purchases are
replacement in nature. We have invested in a market-leading
delivery and service infrastructure so that customers can depend
on us when they need it most.
Discretionary volumes are impacted by more cyclical factors
such as housing transactions and/or kitchen refurbishments,
which we are responding to through new channels such as B2B.
This has also positioned us well for recent structural demographic
trends such as the increased popularity of rented accommodation.
2 Economic trends and disposable income
CPI inflation (%)
4
3
2
1
0
-1
UK CPI8
DE CPI9
NL CPI10
01/16
03/16
05/16
07/16
09/16
11/16
01/17
03/17 05/17
07/17 09/17
11/17 01/18
03/18
Following the UK referendum in 2016 and ensuing exchange rate
movements, we are experiencing some inflationary pressure
within our supply chain. We have chosen to maintain competitive
prices in this period, supporting our customers with visibility
through price-match commitments, better value alternatives and
trade-up/down options. This has supported transaction volumes
through the period.
MDA is a relatively expensive (and often unforeseen) purchase,
and therefore we are also exploring the launch of innovative and
broader finance options and a rental model to widen the support
available to customers.
However, given the complexity of MDA as a category, price is not
the only consideration and we continue to invest against other
purchasing criteria including range, customer experience,
delivery and services proposition, web content and journey.
Further details of our retail offering can be found in our Business
Model on page 32.
3 Technological trends and product innovation
The continued adoption of new technology and new product
innovation are important drivers of transaction volumes and
average product values (“APVs”). Smart Tech, connected home
and the Internet of Things are valuable and growing markets.
In part, this has led to a growing peak at Black Friday in recent
years, not only for gifting but also for personal consumption. Our
teams at AO have become better at excelling in these seasonal
peaks, and we continue to invest in our infrastructure and
capacity to support this.
4 Consumer trends and competition
The MDA market has seen similar changes in consumer shopping
habits to the broader retail market, with ever increasing
expectations for choice, availability and convenience. This
requires operational and financial capability and flexibility. Our
strong supplier relationships, end-to-end control of our efficient
operating model and relentless focus on the customer means we
are able to adapt and react quickly.
Our services portfolio is becoming ever more important in
supporting this. Our distribution, installation and recycling
infrastructure is optimised to deal with the complexities of MDA,
resulting in a benefit of scale not available to smaller providers.
Customers also expect more choice and flexibility in where
and when they browse and purchase items, across a range of
channels and devices. The primary sales channel for MDA
continues to be bricks and mortar, representing 60% of the MDA
market in the UK, 82% in Germany and 76% in the Netherlands3,
however online migration continues. Online MDA in the UK grew
by 4% in 20184, more quickly than the overall UK market
(comprising online and offline sales) at 1%4. AO are well
positioned to take advantage of these structural trends.
AO faces competition from a small number of specialist MDA
retailers, including Currys, Argos and John Lewis in the UK, Media
Saturn and Notebooksbilliger in Germany and Coolblue and BCC
in the Netherlands. Most of these have large store portfolios to
manage. Some have in-house infrastructure and control over
end-to end-services. There is also a broader selection of generalist
providers over whom we have a structural advantage.
Our MDA market share (in value terms) is still relatively modest
at around 15% in the UK, 1.5% in Germany and 1.2% in the
Netherlands3 – broadly flat year on year4 in a period of tough
market conditions and as we have been preparing for our next
phase of growth in new markets, categories and geographies.
The market remains competitive and the winners will be those
with operational flexibility and a focused and well-invested
brand and customer proposition. Scale will become ever more
key. We continue to believe there is an opportunity to surprise
and excite the customer, become a trusted and loved partner,
and bring humanity and care to what is otherwise quite an
ordinary purchase. It’s this amazing service that our brand will
be famous for.
Market development – Customers and countries
We are now present in three European countries, with
dependence on our UK operations reducing to c.85% of sales
in FY18 (FY17: c.90%). The four growth drivers vary in each,
providing us with some diversification benefits.
This year also saw the formalisation of our B2B/Trade division in
the UK, allowing us to leverage our core capabilities into a whole
new marketplace; our initial research suggests this is a sizeable
and incremental opportunity.
We are also live on eBay, Mail Shop, Bol, Blokker and Amazon
Marketplace which represent an interesting opportunity for
incremental volume throughput, enabling us to invest further
in our core proposition.
Product development – Categories
Diversifying into new categories helps us to attract more
customers to the AO brand, drive average order values and
lessen our dependency on MDA. With the launch of Mobile and
Gaming in September 2017, AO now operates in six categories
in the UK with a combined market size estimated at £16.2bn3.
We are live with three categories in Germany and the Netherlands
(MDA, SDA and AV) with a combined market size of £29bn3.
The market sizes are shown below:
£bn GBP
UK
Germany
The Netherlands
Total
MDA
4.0
7.1
1.6
12.7
SDA
2.0
2.6
0.5
5.1
AV
4.0
6.2
1.0
11.2
Total
10.0
15.9
3.1
29.0
The total European1 market for all six categories (MDA, SDA, AV,
IT, Mobile & Gaming) is £84bn3.
Diversification – Competencies
The steps we have taken to leverage our competencies in adjacent
markets will provide us with increased scope for growth at
limited marginal cost. Recent examples of this include third-party
logistics and recycling (which follows a number of years of
third-party web sales).
These businesses also offer some contractual protection to
earnings – enabling us to invest in greater capacity, and in many
cases provides counter-seasonal benefits. We will explore these
opportunities in detail and focus our investment on the areas of
highest potential for customer and shareholder benefit.
MDA market opportunity in current territories
United Kingdom3
Germany3
Netherlands3
Online
MDA market
£1.6bn
Total
MDA market
£4.0bn
Online
MDA market
£1.3bn
Total
MDA market
£7.1bn
Online
MDA market
£0.4bn
Total
MDA market
£1.6bn
AO World Plc
Annual Report and Accounts 2018
51
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Operating and financial review
continued
Financial Review
Revenue (see table 1)
For the year ended 31 March 2018 total Group revenue increased
by 13.6% to £796.8m (2017: £701.2m).
Revenue in the UK increased by 8.1% to £680.8m (2017: £629.7m).
This growth was largely driven by an 8.7% increase in “AO”
website sales (which includes ao.com and AO branded eBay
shops) to £606.6m (2017: £557.9m) and is in line with our
strategy to consolidate our position in our core UK markets,
driving growth through expanding our offering whilst continuing
to deliver the highest levels of customer service. Progress in the
UK has been achieved despite an increasingly competitive
market as well as a year-on-year decline in the overall MDA
market on a volume basis and is in line with our own expectations.
It has also been achieved with a relatively low level of TV and
marketing spend in the second half of the year following our
levels of expenditure in the first half of the year on the BGT
sponsorship, showing our strengths in repeat purchases and
word of mouth recommendations.
In Europe, AO website sales from our German website AO.de,
and also our Netherlands website, AO.nl, generated revenues,
on a constant currency basis1, of €131.2m (2017: €84.7m),
an increase of 54.8%, which equates to £116.0m (2017: £71.5m)
on a reported currency basis. This growth is in line with our
expectations and is largely driven by recommendations from our
customers who have experienced the AO Way of shopping and
expansion of our categories in both territories and the launch of
new routes to market; for example, through Amazon Marketplace
in Germany. It is also pleasing that growth has been delivered
despite a planned and continued low level of promotional
activity. Growth in the final quarter, however, was at a slightly
slower pace as we consolidated our logistics operations with the
benefits of this experience in the first quarter of our current
financial year.
AO branded website sales (including ao.com, AO.de, AO.nl and
AO branded eBay shops) now account for 88.9% of total Group
revenue (2017: 89.8%).
1
Where euro amounts are disclosed in these financial statements,
they represent the actual euro revenue, costs or loss for the period.
The term constant currency is used by the Group to describe the
increase or decrease as actual euro amounts recorded for the relevant
period. Providing this information eliminates the impact of foreign
exchange movements.
Sales from third-party websites in the UK were broadly in line
with the prior year at £46.7m (2017: £46.0m). Our focus remains
on promoting and investing in the ao.com brand but, in line with
our strategy, we have been able to leverage our competencies to
increase revenue generated from certain third parties.
Included within “Other sales” is revenue from UK third-party
logistics services and our recycling business. This segment
experienced a 7.6% increase in revenue to £27.8m (2017: £25.8m)
driven by increased revenue from our recycling business following
the successful commissioning of the new fridge recycling plan
during the year partly offset by the impact of the completion of
a short-term logistics contract in the prior year.
“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 broadly
consistent with product sales, representing 11.1% of total sales
at £88.6m (2017: 11.5%, £81.0m).
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) reduced to 17.8% for
the reporting period. This was a fall of 0.6ppts against the prior
year with total gross profit increasing by 9.7% to £141.8m
(2017: £129.2m).
Despite the competitive pricing environment in our more mature
categories and the dilutive impact of new categories, in the UK
gross margin increased by 0.1ppts to 21.3% (2017: 21.2%).
Product margins remained in line with the prior year, with the
improvement in the year largely driven by further efficiencies
in delivery and trunking costs realised from our increased
delivery base.
In line with the increase in revenue relative to the prior period,
in the UK the contribution from ancillaries increased with a full
year’s benefit of the new product protection plan agency
agreement with Domestic and General (which became effective
1 December 2016) at higher commissions and with customer
cancellations improving.
Table 1:
Year ended 31 March (£m)
UK
Europe
2018
AO website sales
Third-party website sales
Other sales
Revenue
Table 2:
606.6
46.5
27.7
115.7
0.2
0.1
Total
722.3
46.7
27.8
2017
UK
Europe
Total
629.4
46.0
25.8
71.5
–
–
557.9
46.0
25.8
629.7
% change
UK
Europe
61.7%
–
–
Total
14.8%
1.4%
7.8%
8.7%
1.0%
7.6%
8.1%
680.8
116.0
796.8
71.5
701.2
62.1%
13.6%
2018
2017
% change
Year ended 31 March (£m)
Gross profit/(loss)
Gross margin %
UK
Europe
144.6
21.3%
(2.8)
-2.5%
Total
141.8
17.8%
UK
Europe
133.2
21.2%
(4.0)
-5.6%
Total
129.2
18.4%
UK
Europe
8.5%
-28.4%
Total
9.7%
0.1ppts
3.1ppts -0.6ppts
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.
AO World Plc
Annual Report and Accounts 2018
52
In Europe the gross loss reduced by 28.4% to £2.8m (2017: £4.0m
loss) and gross margin improved by 3.1ppts to -2.5% (2017:
-5.6%). During the period we have continued to make significant
progress with our supplier relationships resulting in further
improvements to product margin. In addition, our costs to make
an individual delivery continue to improve with increasing order
levels and the use of a third-party delivery model to serve some
outlying areas. These have enabled the European operations to
deliver on the first stage of the plans as set out in our Capital
Markets Day in February 2017. As volumes, and therefore drop
densities, continue to increase our Europe business will be able
to leverage its existing cost base to drive further improvement
in gross margin.
Selling, General & Administrative Expenses (“SG&A”)
(see table 3)
Total Group SG&A expenses increased by £17.4m to £159.8m
(2017: £142.4m).
UK SG&A expenses for the year to 31 March 2018 increased by
13.1% to £134.3m (2017: £118.6m) and represented 19.7% of sales
(2017: 18.8%). UK advertising and marketing expenditure as a
percentage of revenue remained broadly unchanged year on
year at 4.2% (2017: 4.1%) with lower than normal spend in the
second half offsetting our Britain’s Got Talent marketing
expenditure in the first half. Despite this, the UK business
achieved sales growth in the second half of the year of 8.9%
compared to the prior year. We expect these costs to revert to
a more normalised average spend in the current financial year
(FY19) as we seek to increase our brand awareness through
investment in a new brand campaign. We continue to achieve a
reduction across our traditional customer acquisition costs due
to an increase in direct traffic as a result of brand advertising
and improved Search Engine Optimisation (“SEO”) performance.
UK warehousing costs increased by £2.7m to £30.0m (2017:
£27.3m), representing 4.4% of revenue (2017: 4.3%) as a result
of a full year’s costs for two outbases opened in the prior year
and the opening of a new outbase in Bridgend in the current
year. The addition of the further outbase helps to reduce stem
mileage thus creating efficiencies in delivery costs which are
reflected in gross margin. As we continue to grow, we should
continue to achieve greater efficiencies due to scale from this
physical structure.
UK other administration expenses increased by £9.3m to £70.7m
(2017: £61.4m) and as a percentage of sales increased to 10.4%
(2017: 9.7%). The increase largely related to investments made in
our IT, ecommerce and aftercare teams, including new premises
costs in Manchester, to support our growing operation and
generate additional revenue from warranty sales.
In Europe, our SG&A costs as a percentage of revenue continue
to decrease as volumes increase and represented 22.2% of
revenue (2017: 33.2%).
Europe advertising and marketing expenses reduced by £1.4m to
£4.8m in the 12 months to 31 March 2018. This reduction is largely
a result of us applying our learnings from our UK business,
particularly in relation to customer acquisition costs and our
continued policy of low TV spend as we seek to grow through
word of mouth and customer recommendations. Warehousing
costs increased slightly to £4.3m (2017: £4.0m) as we experience a
full year of cost from our NDC in Bergheim, and we will continue to
leverage this asset as we grow our volume. Other administration
expenses increased by 21.2% to £16.4m (2017: £13.6m) as we grew
our headcount to support the increased complexity of the
business (but as a % of sales reduced significantly).
Operating loss and Adjusted EBITDA (see table 4 overleaf)
Operating loss was £16.2m for the period increasing by £4.2m
against the prior year. 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
historic annual bonus and LTIP awards (along with other
measures including revenue). Whilst we recognise that the
measure is an alternative (non-Generally Accepted Accounting
Principles (“non-GAAP”)) performance measure which is also not
defined within IFRS, this measure is important and should be
considered alongside the IFRS measures. Operating profit is
reconciled to Adjusted EBITDA as set out in table 4 on page 54.
The adjustments are as follows:
Adjustments
Exceptional share-based payment charges
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 exceptional in nature and so add-back any
charge in arriving at Adjusted EBITDA.
AO Sharesave scheme charges and LTIP charges relating to the
LTIP awards which are not considered to be exceptional in nature
are not adjusted for.
Exceptional restructuring costs
During the year, and following the appointment of Steve Caunce
as Group CEO, the Group has undertaken a restructure of its
executive team. The cost of this restructure, including the impact
of the acceleration of certain share option charges, is considered
to be one-off in nature due to its size and timing, and has
therefore been added back in arriving at Adjusted EBITDA.
Table 3:
Year ended 31 March (£m)
UK
Europe
2018
Advertising and marketing
% of revenue
Warehousing
% of revenue
Other administration
% of revenue
Adjustments1
% of revenue
Administrative expenses
% of revenue
28.4
4.2%
30.0
4.4%
70.7
4.8
4.1%
4.3
3.7%
16.4
10.4%
14.2%
5.2
0.9%
134.3
19.7%
0.1
0.0%
25.5
22.2%
Total
33.2
4.2%
34.3
4.3%
87.1
11.0%
5.3
0.7%
159.8
20.1%
2017
UK
Europe
25.7
4.1%
27.3
4.3%
61.4
9.7%
4.3
0.7%
118.6
6.2
8.6%
4.0
5.6%
13.6
19.0%
–
n/a
23.8
18.8%
33.2%
Total
31.9
4.5%
31.3
4.5%
75.0
10.7%
4.3
0.6%
142.4
20.3%
% change
UK
Europe
10.5%
-22.6%
Total
4.1%
9.6%
6.2%
9.1%
15.2%
21.2%
16.3%
21.9%
–
23.1%
13.1%
7.5%
12.2%
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, share-based payment charges
attributable to exceptional LTIP awards and exceptional restructuring costs which the Board considers one-off in nature.
AO World Plc
Annual Report and Accounts 2018
53
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Operating and financial review
continued
Europe set-up costs
These are costs incurred in connection with our European
expansion strategy and our continuing research into other
further countries along with strategic post “go-live” costs.
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”.
Group Adjusted EBITDA losses increased to £3.4m (2017: £2.1m
losses) after allowing for £26.0m of Europe Adjusted EBITDA
losses (2017: £26.5m). In local currency (removing the impact of
foreign exchange movements), European losses decreased by
5.8% to €29.6m (2017: €31.5m), reflecting the impact of increased
volumes particularly in Germany.
UK Adjusted EBITDA for the 12 months to 31 March 2018 was
£22.6m (2017: £24.4m) with the decrease primarily driven by the
investment in SG&A costs noted above.
Taxation
The tax credit for the year was £0.2m (2017: £0.4m charge).
The effective rate of tax for the year was 1.9% (2017: -6.3%).
The Group is subject to taxes in the UK, Germany and the
Netherlands. The Group continues to be able to offset its German
losses against profits within the UK through its registered branch
structure in Germany. The changes in the UK loss utilisation rules
have not had an impact on this utilisation of current year losses.
No overseas tax is attributable to Germany and the Netherlands
as they continue in the start-up phase of their operations as in
the prior year, the deferred tax asset arising on these carried
forward losses continues to be treated as not recognised on the
basis that the Group does not expect these territories to be
profitable in the short term.
The above, along with movements in the deferred tax asset
arising on share options included in the tax computations for the
year ended 31 March 2018, have resulted in a small tax credit in
the income statement.
Our tax strategy can be found at www.ao-world.com
Retained loss for the year and loss per share
Retained loss for the year was £13.3m (2017: £7.4m). Basic loss
per share was 2.93p (2017: 1.56p loss) which is positively affected
by a foreign exchange gain of £1.1m (2017: £4.4m) arising from
intra-Group funding arrangements.
The foreign exchange gain has arisen as a result of the
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 £1.1m gain referenced above.
Below shows the adjusted basic loss per share excluding the
foreign exchange gain mentioned above.
Year ended 31 March (£m)
2018
2017
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
(13.4)
(1.1)
(6.6)
(4.4)
(14.5)
(11.0)
458,788,480
421,052,631
(2.93)
(3.16)
(1.56)
(2.62)
Diluted loss per share was 2.92p (2017: 1.55p).
Cash resources and cash flow
Net cash balances at 31 March 2018 were £52.9m (2017: £29.4m).
The increase in cash in the year reflects the proceeds from the
successful share placing in April 2017 of £48.1m, principally offset
by a working capital outflow and capital expenditure in the UK
(including investment in our new premises in Manchester).
Borrowings (which comprises bank borrowings and finance
leases) reduced by £2.8m to £14.6m, resulting in net funds at
31 March 2018 of £38.3m (2017: £12.0m).
Table 4:
Year ended 31 March (£m)
Operating profit/(loss)
Add adjustments:
Europe set-up costs
Non-cash share-based
payments charge for
exceptional LTIP awards
Executive restructuring costs
2018
Europe
(27.8)
–
–
0.1
UK
11.6
0.3
3.5
1.4
2017
% change
Total
(16.2)
UK
Europe
15.6
(27.6)
Total
(12.0)
UK
Europe
-25.4%
1.1%
–
–
–
0.7
-57.1%
3.6
–
-4.1%
–
–
–
–
Total
35.5%
-57.1%
-4.1%
–
0.3
0.7
3.5
1.5
3.6
–
19.8
4.9
(0.3)
5.8
–
1.8
(0.1)
22.6
(26.0)
7.6
(0.1)
(3.4)
1.1
–
6.0
(0.3)
(2.1)
18.2%
53.5%
-93.5%
-7.3%
–
-1.4%
25.7%
-77.0%
65.9%
24.4
(26.5)
Adjusted operating profit
16.8
(27.7)
(10.9)
(27.6)
(7.8)
-15.0%
0.7%
40.7%
Add: Depreciation and
amortisation
Less: Profit on disposal
Adjusted EBITDA
Adjusted EBITDA as % of
revenue
3.3%
-22.5%
-0.4%
3.9%
-37.0%
-0.3%
-0.6ppts
14.5ppts
-0.1ppts
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.
AO World Plc
Annual Report and Accounts 2018
54
In November 2017, the Group increased its existing revolving
credit facility by £30m to £60m, with HSBC Bank plc joining
Lloyds Bank Plc and Barclays Bank Plc in the banking syndicate.
The facility is available for general corporate purposes, including
UK working capital movements, with the undrawn amount at
31 March 2018 being £58.6m the balance being allocated against
guarantees.
Working capital (see table 5)
At 31 March 2018, the Group had net current assets of £0.7m
(31 March 2017: net current liabilities of £28.5m) principally as a
result of the increase in cash balances resulting from the share
placing in April 2017.
Movements in working capital in the year were as follows:
Capital expenditure
Total capital expenditure in the year returned to levels previously
experienced at £5.5m (2017: £16.9m). The expenditure in 2018
principally comprised costs in relation to our new office in
Manchester, continued investment in our recycling facility in Telford
and the purchase of a number of delivery vehicles in Germany.
The prior year included significant expenditure in relation to our
distribution centre in Bergheim, the opening of two new outbases
in the UK, the initial investment to develop our recycling facility
and the refresh of trailers in our logistics operation.
Going forward, the Group is assessing the possibility of further
developing our recycling capabilities with an investment in a
plastic recycling plant and therefore expects capital expenditure
levels in the coming year to be higher than usual.
As at 31 March 2018, UK inventories were £42.1m (2017: £35.7m)
reflecting an increase in sales volumes and stock build ahead of
the Easter bank holiday weekend. UK average stock days
decreased to 27 days (2017: 31 days).
Mark Higgins
Group Chief Financial Officer
4 June 2018
UK trade and other receivables (both non-current and current)
were £91.5m as at 31 March 2018 (2017: £76.9m) principally
reflecting an increase in accrued income in respect of
commissions due on product protection plans as a result
of the higher retail volumes.
The Company’s Strategic Report is set out on pages 16 to 55.
Approved by the Board on 4 June 2018 and signed on its
behalf by:
UK trade and other payables increased to £140.9m
(2017: £129.0m) primarily reflecting the increased inventory
noted above.
Julie Finnemore
Company Secretary
4 June 2018
At 31 March 2018, European inventories were £11.1m (2017: £9.1m)
principally as a result of the increase in sales volumes in both
territories during the year. Trade and other receivables increased
to £11.2m (2017: £4.0m), reflecting an increase in trade particularly
through new payment providers and the impact of yearly
supplier agreements.
Trade and other payables increased to £15.1m (2017: £11.2m),
reflecting the increase in such levels and trade.
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
Net working capital
Change in net working capital
2018
UK
Europe
2017
UK
Europe
42.1
7.8%
91.5
13.4%
(140.9)
26.3%
(7.3)
9.0
11.1
9.3%
11.2
9.7%
Total
53.2
8.1%
102.7
12.9%
(15.1)
(156.0)
12.7%
23.8%
7.2
5.4
(0.1)
14.4
35.7
7.2%
76.9
10.6%
(129.0)
23.0%
(16.3)
(3.7)
9.1
11.9%
4.0
11.2%
Total
44.8
7.8%
80.9
10.7%
(11.2)
(140.2)
13.7%
1.8
0.4
22.1%
(14.5)
(3.3)
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.
AO World Plc
Annual Report and Accounts 2018
55
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information A letter from our founder
Welcome back
In 2014, in my first report to you as a publicly listed business, I explained our future plans; what we
would build and how we were going to go about it. It was an uncertain road ahead and we were full
of excitement to get on with it. The key element to our strategy was that we were going to broaden
the existing one-category UK business into new categories and new territories.
It is said that when planning any kind of building work at home, it always takes twice as long and
costs twice as much as you ever think it is going to. Building businesses is similar; it’s messy and it’s
an inexact science. Patience, passion, belief and conviction are critical, and the process of broadening
and vertically integrating a business like AO is not for the faint hearted or for those who expect life
to evolve in a straight line. I am therefore very proud that as a direct result of that patience, passion,
belief and conviction from thousands of AOers we are now well on with completing the heavy lifting
of that journey.
We have built, brick by brick, the confidence with the manufacturers in new categories in the UK such
that we now sell TV’s, computers, phones, coffee machines, floorcare and much more. We have
proven that in these new product spaces, AO adds value to their brands and products. We retail their
technology, I believe, better than the vast majority of store-based retailers and help customers
choose the right product. Customers have voted with their credit cards and sales are growing well in
all categories, which means we are giving more customers more reasons to shop with us more often.
This should only compound. We have added in a vast array of additional services for our customers.
Not content with inventing concepts in our space like next-day delivery and time slots, we have rolled
out a premium fleet offering, which means we now install gas cookers.
Our international expansion has taken longer than we hoped it would and has cost more than we
thought it would. The opportunity ahead of us is also a lot bigger than we imagined it would be. There
have been a lot of things to learn and we have learned them. It is easy to forget how hard start-ups
really are. We now have a 600-strong team in Germany and the Netherlands with a capability to
deliver any product next day to the majority of the population. We can deliver and install a washing
machine as fast as Deutsche Post deliver a letter, which is quite a statement. We have built a business
from scratch in a little over three years that has a market-leading proposition and service reputation
with annual sales running at over €100m. It is a machine that we have built that still gives me goose
bumps every time I visit; one that the team are extremely and rightly proud of. Our job now is to drive
that machine and we have just reached the inflexion point where our scale means that every
additional order now contributes to profit so reducing our investment as we grow. This marks the
move from ‘if’ our international operations will make money (for some) to ‘when’ as Steve and Mark
have updated the market.
We have considered our wider corporate responsibilities as well. We weren’t happy with the way
recycling operated and so invested over the last three years to develop a state-of-the-art recycling
business. It has been a long journey but we are now setting the standards and look forward in time
to rolling out those learnings internationally.
So, the strategy we set out at our IPO is very firmly on track. We are now a multi-category, multi-
country company with an eco-system of businesses that both ensure we are pushing the boundaries
of service and proposition for our retail customers as well as creating distinct businesses in their own
right to create significant resilience and long-term structural advantage. Having all these businesses
living our values and relentlessly striving for a better way in their own specialties, but collaboratively,
is creating multiple flywheels for the benefit of the whole, and everything has our people, culture and
fanatical passion for customer services at its heart.
We now need to raise the bar on our brand awareness. Steve and the team have been busy working
on evolving our Purpose and linking that to our brand campaigns. We have learned some lessons
during the year and have realised that sponsorship is not necessarily the right way to convey our
brand message. So in the short term we will move back to our more traditional marketing channels.
I’m very excited about the direction our creative is moving in, and the early feedback from customers
has been great; I can’t wait to see the reaction in the next few months.
It is time, as we look ahead over the next few years, to realise the returns and compound the
capabilities created. I have every faith in Steve’s ability to make that reality with the support of an
amazing team that lives our values every day and I would like to extend a huge thanks to all AOers
for their grit, spirit and determination over the last few years.
John Roberts
Founder, Executive Director
4 June 2018
AO World Plc
Annual Report and Accounts 2018
56
AO World Plc
Annual Report and Accounts 2018
57
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information AO World Plc
Annual Report and Accounts 2018
58
Section 2
Governance
report:
Our leadership
team make
sure that good
governance is an
integral part of
good peformance.
In this section:
60 Corporate Governance Statement
60 Chairman’s letter to shareholders
62 Leadership
64 Board of Directors
67 Effectiveness
68 Report of the Nomination Committee
70 Strengthening our team
72 Accountability
73 Report of the Audit Committee
76 Shareholder relations
77 Report of the Remuneration
Committee
79 Policy Report
86 Annual Report on Remuneration
91 Directors’ report
AO World Plc
Annual Report and Accounts 2018
59
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Corporate Governance Statement
Chairman’s letter to shareholders
A strong team
leading a great business
Geoff Cooper
Chairman
As reported last year, during the period under review we
undertook a process to appoint two new independent Non-
Executive Directors; the aims being to help expand the Board’s
skill set, provide a new avenue of thought to drive growth; and
increase Board diversity whilst also addressing our existing Code
non-compliance with independence criteria. In November 2017,
we were delighted to welcome Jacqueline de Rojas CBE as a
Non-Executive Director to the Board. Jacqueline brings a wealth
of global experience, specifically in fast moving and global
technology businesses and is also a passionate advocate for
diversity, supporting the Group’s work in this area. Further details
regarding Jacqueline’s appointment are set out in the work of
the Nomination Committee on pages 69 to 71. We are continuing
to work with an external search consultancy to identify an
additional independent Non-Executive Director with suitable
experience to continue to develop the Board’s skill set and also
a further Non-Executive Director to support the work of the Audit
Committee, thus addressing our Code non-compliance issues
and also as part of our succession planning. We hope to be able
to announce further appointments over the coming months.
Last year I reported that, below the plc Board, our business
divisions were restructured to give more responsibility and
accountability to senior management and their respective
teams. This structure was further refined at the end of the
reporting period to provide a senior organisational structure to
give the business stability and the freedom to drive and grow in
line with the Group’s strategy. A new UK Chief Operating Officer
role has been created into which the UK divisional managing
directors will report and we have created a Europe Chief
Operating Officer role under which we will look to diversify our
business, much as we have done in the UK. Our Chief Brand and
People Officer will have responsibility for communicating and
protecting our brand together with ensuring our culture remains
true to AO across our entire Group. Importantly, this structure will
also allow our Chief Executive Officer, Steve Caunce, to increase
his focus on driving the Company’s strategic objectives; as Steve
puts it, focusing on the business rather than being in the
business. Due to the growth and agility of the business, our
people and culture (including succession planning) will continue
to be a key topic for consideration in the year ahead.
Group-wide diversity is a key governance topic for the Board.
With the appointment of Jacqueline de Rojas in November this
year, our Board currently includes two women, representing 25%
of its membership, so we are pleased to have moved closer to the
Hampton-Alexander recommended voluntary target for a minimum
of 33% women’s representation on their Boards by 2020. Whilst
AO endeavours to achieve appropriate diversity, including gender
diversity, we will continue to make appointments based on merit
and against objective criteria, without setting prescriptive targets.
Geoff Cooper
Chairman
On behalf of the Board, I am pleased to present AO’s Statement
of Corporate Governance for the reporting period ended
31 March 2018.
AO is a business experiencing strong growth in a fast-moving
sector. As such, we need to ensure our controls, oversight and
level of risk appetite provide robust Corporate Governance whilst
at the same time allowing for growth and maintaining the
entrepreneurial spirit that has helped the business thrive and
get to where it is today. On the following pages, we explain our
approach to Corporate Governance and set out how the Board
and its Committees have fulfilled their responsibilities during the
reporting period.
Despite not currently being a member of the FTSE350, to
maintain best practice we look to adopt the approach
recommended for these companies as set out in the Code and
other appropriate regulatory guidance. Therefore, during the
year I commissioned our first external evaluation of the Board
through Equity Communications Ltd. The results of the
evaluation indicated that the Board is working well and that
there are no significant concerns about its effectiveness. Specific
actions arising from the review included:
— extending the time allocated to strategic discussions at
Board meetings, providing more opportunity for the Non-
Executive Directors to add more value; and
— encouraging our Non-Executive Directors to spend more time
in the business with our people.
I assessed the Board’s role in strategy following my appointment
as Chairman in July 2016 which resulted in Board strategy days
being formally scheduled to allow the Directors to debate,
challenge and understand the opportunities ahead. These
strategy days have been successful, and readdressing the format
of Board meetings over the coming year should add further value
and increase our effectiveness as a Board. More details on the
external evaluation of the effectiveness of the Board are set out
on page 67.
AO World Plc
Annual Report and Accounts 2018
60
AO is currently in an ambitious growth phase (both through its
core retail businesses but also through new verticals) and as it
establishes its businesses in new territories. Because of this, the
Remuneration Committee has found it difficult to set meaningful
long-term targets – reflected in historic lapsing of PSP awards –
and there is a risk that targets are either simply unachievable
and therefore of no worth or far too easily achieved and
therefore superior reward may be delivered for what transpires
to be insufficiently stretching performance. Accordingly, it
proposes to introduce a new single incentive plan, combining
the annual bonus and current LTIP/PSP into one plan, measured
over one year but with high, compulsory deferral periods. The
aim: to get annual actions and objectives right, which will bear
fruit over the longer term. Naturally, we have consulted our major
shareholders on this issue and I’m pleased to confirm the
proposal has received much support. As the Group’s strategy
and development evolves, we expect to continue to engage with
our shareholders on any required changes to the executive
remuneration arrangements.
Corporate Governance has remained in the spotlight during
our last financial year, especially in the areas of diversity,
remuneration and, significantly, through the consultation on a
revised Corporate Governance Code. The Board is very mindful
of its responsibilities on these aspects of governance and will
continue to look for opportunities to develop and refine its
approach and practices whilst adopting a pragmatic view
of what is appropriate, and what will allow AO to drive value
through achieving its strategic objectives.
As was the case last year, at our Annual General Meeting
(“AGM”) all Directors will seek election and re-election. I look
forward to welcoming shareholders at the Company’s AGM
in July.
Geoff Cooper
Chairman
Introduction
This Corporate Governance Statement explains key features of the Company’s governance structure and how it complies with
provisions set out in the 2016 UK Corporate Governance Code (“the Code”) which is the version of the Code that applies to its 2017/18
financial year. 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
B.1.2
Less than half of the Board, excluding the
Chairman, are independent Non-Executive
Directors.
B.2.1
The Nomination Committee did not comprise
a majority of independent Non-Executive
Directors throughout the reporting period
(but does so now).
C.3.1
The Audit Committee does not comprise
three independent Non-Executive Directors.
Excluding the Chairman who was deemed independent on
appointment, the Board currently has three 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 the Code
provision in the near future. However, notwithstanding these
appointments, the Board is satisfied that during the year 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.
During the first eight months of the reporting period, only Brian
McBride was 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. As set out elsewhere
in this report, during the reporting period the Board conducted
a search for the appointment of two new Non-Executive
Directors, and as a result Jacqueline de Rojas was appointed to
the Board and as a member of the Nomination Committee on
23 November 2017. The Company therefore now complies with
this Code provision.
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. As set out elsewhere in this report, the
Board is currently conducting a search for a suitably
experienced independent Non-Executive Director to support the
work of this Committee.
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 pages 58 to 95. 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-worldcom/.
AO World Plc
Annual Report and Accounts 2018
61
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Corporate Governance Statement
continued
Leadership
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
Leadership Team and throughout the Group. The Reports of each Committee can be found on pages 68 to 91.
Group Leadership
Team
Committees
Senior Leadership
Team
Audit
see page 73
Remuneration
see page 77
Nomination
see page 68
Risk
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, 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. Other members of management
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.
External speakers are also invited to present to the 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-world.com and from the
Company Secretary upon request.
Current composition of our Board
As at the date of this Annual Report, the Board comprises eight
members: the Chairman, three Executive Directors and four
Non-Executive Directors, which includes the Senior Independent
Director. All our Directors served throughout the year with the
exception of Jacqueline de Rojas who was appointed to the Board
as an independent Non-Executive Director on 23 November 2017.
Further details of the relevant skills and experience of the Board
are set out in their biographical details set out on pages 64 and
65. 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. In addition to strengthening the Board
with the appointment of Jacqueline de Rojas in November 2017,
the Board continues to engage with a specialist search
consultancy to identify an additional individual with the skills,
experience and knowledge to further broaden and strengthen
the Board’s existing composition and also a further Non-
Executive Director to support the work of the Audit Committee,
thus addressing our Code non-compliance issues and also as
part of our succession planning. We hope to be able to announce
further appointments over the coming months.
AO World Plc
Annual Report and Accounts 2018
62
Diversity
Following the appointment of Jacqueline de Rojas in November
2017 our Board currently includes two women, representing 25%
of its membership (2017: 14%). We are pleased with the progress
made, having regard to the voluntary target set out in the
Hampton-Alexander 2016 and 2017 reviews for FTSE350
companies to aim for a minimum of 33% women’s representation
on their Boards by 2020. While we are supportive of the aims,
objectives and recommendations outlined in this review and in
Lord Davies’ original report “Women on Boards”, 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.
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.
Further details about the appointment of Jacqueline de Rojas
and the work of the Nomination Committee is disclosed on pages
70 and 71.
For information on our procedures concerning the appointment
and replacement of Directors, please see the Directors’ Report
on page 91.
Board meetings and attendance
Nine Board meetings (scheduled in the ordinary course of
business) were held during the year ended 31 March 2018 and
there are currently eight meetings scheduled for the year ending
31 March 2019. Unscheduled supplementary meetings take place
as and when necessary. The table below summarises the
attendance of the Directors during the reporting period.
Director
Geoff Cooper
John Roberts
Steve Caunce
Mark Higgins
Brian McBride
Chris Hopkinson
Marisa Cassoni
Jacqueline de Rojas*
Meetings eligible
to attend
Meetings
attended
9
9
9
9
9
9
9
3
9
8
9
9
9
9
9
3
* Jacqueline de Rojas was appointed to the Board on 23 November 2017.
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.
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.
AO World Plc
Annual Report and Accounts 2018
63
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Corporate Governance Statement
continued
Board of Directors
After this year’s Board tour, we asked
each Board member to say what they
thought was AO’s point of difference.
Here’s what they said.
What makes AO different?
People work with head and heart.
What makes AO different?
Each and every stakeholder is
treated as if they were our most
important customer.
What makes AO different?
We’re a human business; passion is
in our DNA.
What makes AO different?
Personal ownership is encouraged;
employees have the freedom to
make a difference.
1. Geoff Cooper
Non-Executive Chairman
2. Steve Caunce
Chief Executive Officer
3. John Roberts
Founder, Executive Director
4. Mark Higgins
Chief Financial Officer
Appointment to the Board
1 July 2016
Appointment to the Board
13 October 2005
Appointment to the Board
2 August 2005 (AO Retail
Limited 19 April 2000)
Appointment to the Board
1 August 2015
Relevant skills & experience
— Thorough knowledge and
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.
Relevant skills & experience
— Co-founded the business
over 17 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.
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.
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
— Member of the Chartered
Institute of Management
Accountants
Significant current external
appointments
Non-Executive Chairman of
Card Factory plc and Bourne
Leisure Holdings Limited.
Senior adviser to Charterhouse
Private Equity
Committee membership
Geoff chairs the Nomination
Committee.
Independent
Yes.
AO World Plc
Annual Report and Accounts 2018
64
What makes AO different?
We’re always on the move.
What makes AO different?
We aim to give all customers
a buying experience that is
unexpectedly amazing.
What makes AO different?
We are passionate about
everything we do and being the
very best we can be, all done with
good humour and great courtesy.
What makes AO different?
Innovation is everyone’s
responsibility and comes from right
accross the business – not just from
the top.
5. Brian McBride
Senior Independent Director
6. Chris Hopkinson
Non-Executive Director
7. Marisa Cassoni
Non-Executive Director
8. Jacqueline de Rojas CBE
Non-Executive Director
Appointment to the Board
6 February 2014
Appointment to the Board
12 December 2005
Appointment to the Board
5 February 2014
Appointment to the Board
23 November 2017
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 current external
appointments
Chairman of ASOS Plc and
Wiggle Ltd.
Committee membership
Brian is Chair of the
Remuneration Committee and
a member of the Audit and
Nomination Committees.
Independent
Yes.
Relevant skills & experience
— Former City Financial
Relevant skills & experience
— ICAEW chartered
Analyst
— Significant industry
experience
— Holds a Masters degree
in Logistics
Significant current external
appointments
Executive Director of Better
Business Support Ltd and
Clifton Trade Bathrooms Ltd.
Committee membership
Chris is a member of the Audit
Committee.
Independent
No.
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 current external
appointments
Non-Executive Director of
Skipton Group Holdings Ltd
and Ei Group Plc.
Committee membership
Marisa is the Chair of the Audit
Committee and is a member of
the Remuneration Committee.
Independent
Yes.
Relevant skills & experience
— Significant experience in
fast-moving technology
businesses
— Previous senior roles held at
major global technology
companies, including Sage
Group plc, Citrix Systems
Inc, CA Technologies, Novell
and McAfee International
and Non-Executive Director
at Home Retail Group plc
— President of techUK, Chair
of the Digital Leaders
Technology Group and also
serves on the government’s
Digital Economy Council.
— A passionate advocate for
diversity and inclusion in the
workplace
— Awarded a CBE for services
to international trade in
the technology industry In
the 2018 New Year’s
Honours list
Significant current external
appointments
Non-Executive Director of
Costain Group plc and
Rightmove plc.
Committee membership
Jacqueline is a member of the
Nomination and Remuneration
Committees.
Independent
Yes.
AO World Plc
Annual Report and Accounts 2018
65
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ 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
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.
Remuneration
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.
Minimum number of
meetings per year
Committee report
on pages
Three
73 to 75
Three
77 to 90
Two
68 and 69
Membership required
under terms of
reference
At least three
members
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
The full terms of reference for each Committee are available on the Company’s website at www.ao-world.com and from the
Company Secretary upon request.
AO World Plc
Annual Report and Accounts 2018
66
Effectiveness
Board evaluation and effectiveness
The effectiveness and performance of the Board is vital to our
success. During the year, an external evaluation of the Board and
its Committees was conducted by Equity Communications Ltd.
The evaluation process involved the completion of questionnaires
followed by a Board discussion. 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, extending the time allocated to
strategy to allow the Non-Executive Directors to add more value
and to add qualitative debate and encouraging our Non-
Executives to spend more time in the business with our people.
Further details of this process and the key action areas are set
out in the Report of the Nomination Committee on
pages 68 and 69.
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. Led by the Senior Independent Director an
appraisal of the performance of the Chairman was conducted
by the Non-Executive Directors.
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, Brian McBride and
Jacqueline de Rojas 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 continues to engage with a
specialist search consultancy to identify an additional individual
with the skills, experience and knowledge to further broaden and
strengthen the Board’s existing composition and also a further
Non-Executive Director to support the work of the Audit
Committee, thus addressing our Code non-compliance issues
and also as part of our succession planning.
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
64 and 65, 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 8.00 am on Thursday
19 July 2018 at the Company’s Manchester office at Baskerville
House, Browncross Street, West Riverside, Salford M60 9HP. 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-world.com. 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 senior leadership team when appropriate and external
speakers also 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, Deloitte
advise on remuneration matters and Audit Committee members
have received guidance from the external auditors on 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 receive 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 management as 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 64 and 65. 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 Limited and AO Smile 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 2018
67
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Corporate Governance Statement
continued
Delivering a balanced Board
with the right skills mix
Geoff Cooper
Chairman
The Code recommends that the Nomination Committee is
comprised of a majority of independent Non-Executive Directors.
For the first eight months of the reporting period only Brian
McBride was 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. Chris Hopkinson is not deemed as independent
for the purposes of the Code due to his historic involvement
with the Company. However, following the appointment of
Jacqueline de Rojas to the Board, Chris Hopkinson stepped from
the Committee on 23 November 2017 and Jacqueline became a
member. The Company now complies with the Code’s provision
on independence. Notwithstanding the changes made to the
Committee, 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 it was
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, 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 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.
Report of the Nomination Committee
Geoff Cooper
Chairman
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 2018 and their attendance at
Committee meetings is as follows:
Director
Geoff Cooper
Brian McBride
Chairman and
Chairman of the
Board
Senior Independent
Non-Executive
Director
Chris Hopkinson*
Jacqueline de
Rojas**
Non-Executive
Director
Non-Executive
Director
Meetings
eligible to
attend
Meetings
attended
3
3
2
1
3
3
2
1
*
Chris served on the Committee from 1 April 2017 until the appointment
of Jacqueline de Rojas on 23 November 2017
** Jacqueline joined the Board and the Nomination Committee on
23 November 2017
AO World Plc
Annual Report and Accounts 2018
68
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 supports the recommendations of
Lord Davies’, and other subsequent, reviews. Following the
appointment of Jacqueline de Rojas to the Board in November
2017, the Company has moved closer towards the 2016 and 2017
Hampton-Alexander recommended target of 33% female
representation on the Boards of FTSE350 companies by 2020
now having two female Board members out of eight,
representing 25%. AO endeavours to achieve appropriate
diversity, including gender diversity, and notably, Russell
Reynolds Associates (who we worked with in seeking the
appointment of Jacqueline de Rojas and who we are continuing
to work with to help identify one additional Non-Executive
Director as set out above) 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.
On the recommendation of the Nomination Committee and in
line with the Code, all currently appointed Directors will retire
at the 2018 AGM and offer themselves for reappointment. The
biographical details of the current Directors can be found on
pages 64 and 65. 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.
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
4 June 2018
Main activities of the Committee during the year
During the year, in line with the requirements of the Code, on
behalf of the Board the Nomination Committee instructed an
externally facilitated evaluation of the composition and
effectiveness of the Board and its Committees be undertaken by
Equity Communications Ltd (having no other connection with the
Company). The evaluation process involved the completion of
questionnaires followed by a Board discussion. The results of the
evaluation indicated that the Board is working well and that
there are no significant concerns about its effectiveness. Specific
actions arising from the review, which will be addressed over the
coming year, included:
— extending the time allocated to strategic discussions at
Board meetings providing more opportunity for the Non-
Executive Directors to add more value; and
— encouraging our Non-Executive Directors to spend more time
in the business with our people.
The Committee will continue to review the 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. Last year I reported that, below the PLC Board, our
business divisions were restructured to give more responsibility
and accountability to senior management and their respective
teams. This structure was further refined at the end of the
reporting period to provide a senior organisational structure to
give the business further stability and the freedom to drive and
grow in line with the Group’s strategy. A new UK Chief Operating
Officer role has been created into which the UK divisional
managing directors will report and we have created a Europe
Chief Operating Officer role under which we will look to diversify
our business, much as we have done in the UK. Our Chief Brand
and People Officer will have responsibility for communicating
and protecting our brand together with ensuring our culture
remains true to AO across our entire Group. Importantly, this
structure will also allow our Chief Executive Officer, Steve
Caunce, to increase his focus on driving the Company’s strategic
objectives. Due to the growth and agility of the business, our
people and culture (including succession planning) will continue
to be a key area of consideration in the year ahead.
Under its terms of reference the Nomination Committee is
required to regularly review the structure, size and composition
of the Board (including the balance of skills, experience,
independence and knowledge on the Board) taking into account
the Company’s current requirements, the results of the Board
performance evaluation process that relate to the composition
of the Board and the future development of the Company,
and make recommendations to the Board with regard to any
adjustments that are deemed necessary. As I reported last year,
based on the recommendation of the Nomination Committee,
during the period under review we undertook a process to
appoint two new independent Non-Executive Directors to help
expand the Board’s skill set, seeking to provide a new avenue of
thought to drive growth and increase Board diversity whilst also
addressing our existing Code non-compliance issues with respect
to independence. Led by myself as Chairman and in consultation
with an external independent non-executive search consultancy
(Russell Reynolds Associates) and having met with a number of
high-calibre candidates, in November 2017 the Nomination
Committee recommended the appointment of Jacqueline de
Rojas as a Non-Executive Director to the Board. The Board was
delighted to welcome Jacqueline to the Board as she brings
a wealth of global experience, specifically in fast-moving and
global technology businesses and is also a passionate advocate
for diversity, supporting the Group’s work in this area. Further
details regarding the process undertaken to appoint Jacqueline,
together with her own initial observations of AO are set out in
the case study on page 70. The Board continues to work with an
external search consultancy to identify an additional independent
Non-Executive Director with suitable experience to continue to
develop the Board’s skill set and also a further Non-Executive
Director to support the work of the Audit Committee, thus
addressing our Code non-compliance issues and also as part of
our succession planning. We hope to be able to announce further
appointments over the coming months.
AO World Plc
Annual Report and Accounts 2018
69
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Strengthening
our team.
Bringing fresh
thinking to
our business.
The AO way.
AO World Plc
Annual Report and Accounts 2018
70
Jacqueline de Rojas’ first impressions of AO
Strengthening the team in 2018
“ AO is a very agile business which
views every line as an opportunity.
It’s refreshing that the drive to find
a better way and to innovate comes
from across the business, not just
senior management”
“ It’s pleasing to see that there is work
underway to increase diversity, in
particular gender and ethnicity.”
“ AO has a great culture and operates
with lots of heart. I am excited to join
such a passionate business at this stage
in its growth.”
1 Selection criteria established
Having evaluated the existing balance of skills,
experience and knowledge already on the Board,
a written description of the role, capabilities required
and time commitment expected was prepared. An
individual with relevant industry and public company
experience which would help to expand the Board’s
existing skill set in terms of understanding rapid
developments in the digital world and internationalising
the AO brand was sought to provide a new avenue of
thought. In setting the criteria, the Committee
endeavoured to achieve appropriate diversity,
including gender diversity, and sought to meet
candidates from a wide range of backgrounds.
2 Market search
Based on our brief, external search consultancy, Russell
Reynolds Associates, conducted a search using their
high-level professional networks, industry knowledge
and internal research resources to identify suitable
candidates for the role. Competency interviews,
leadership questionnaires, culture assessments and
references were then undertaken to compile a shortlist
of individuals.
3 Candidates shortlisted
The Committee reviewed the shortlist of candidates
against its selection criteria, having regard to each
candidates’ existing commitments to ensure sufficient
time was available to undertake the role, with advice
sought as appropriate from the external search
consultancy. At each stage of refining the shortlist to
a smaller group of candidates, Russell Reynolds
Associates were asked to look again with the aim
of ensuring we retained a 50:50 male to female
representation.
4 Appointment
The recommendation for Jacqueline’s appointment
was based on merit, against objective criteria and with
due regard for the benefits of diversity on the Board.
Jacqueline’s appointment to the Board was effective
from 23 November 2017 with the appropriate
announcement and disclosures made.
5 Induction and site visits
A tailored induction process was created for
Jacqueline involving the collation of relevant Company,
Board and Committee information. One-to-one
meetings were arranged with key personnel from
across the business and, as our Board meetings are
scheduled to take place at different locations,
Jacqueline has been able to receive tours at a number
of our sites and therefore experience AO’s culture
in action.
AO World Plc
Annual Report and Accounts 2018
71
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information — 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, senior leadership team meetings occur regularly
to allow prompt discussion of relevant business issues and to
ensure alignment on strategy. Please see page 62 for further
details on our management structure.
— 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 financial reporting system, is continuing and
is working to improve internal controls and the efficiency of
our processes, to 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
“whistleblowing” procedures in place, through which staff can,
in confidence, raise concerns about possible improprieties
in financial and pensions administration and other matters.
Corporate Governance Statement
continued
Accountability
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 2018 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
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,
and the developments made during the year, please see
pages 40 to 46.
AO World Plc
Annual Report and Accounts 2018
72
Ensuring effective internal control and
risk management together with fair,
balanced and understandable reporting
Marisa Cassoni
Chair, Audit Committee
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 2018 and their attendance at Committee
meetings is as follows:
Marisa Cassoni
Chair
Chris Hopkinson
Brian McBride
Non-Executive
Director
Senior Independent
Non-Executive
Director
Meetings
eligible to
attend
Meetings
attended
6
6
6
6
6
6
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 64 and 65).
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. As set out elsewhere in this report,
the Board continues to engage with a specialist search
consultancy to identify an additional Non-Executive Director,
with suitable skills and experience, to be appointed to the Audit
Committee, to address its Code compliance issue (and as part
of our succession planning).
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 any
Non-Executive Director, Chief Executive Officer, Chief Financial
Officer, UK Finance Director, 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 meet 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.
AO World Plc
Annual Report and Accounts 2018
73
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Corporate Governance Statement
continued
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:
(i) the engagement with the Audit Committee Chair and the
lead 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;
Significant work undertaken by the Committee during the year
Review of the 2018 Financial Statements
During the year to 31 March 2018, 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 accounting policies and ensured
appropriate whistleblowing arrangements and associated
policies were in place.
meetings are held by the lead audit engagement partner
with the Chief Financial Officer and the Chairman which are
then reported on 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.
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.
Commercial income
arrangements
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.
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.
AO World Plc
Annual Report and Accounts 2018
74
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 46.
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.
During the year under review, KPMG charged the Group £30,000
plus VAT for non-audit related services relating 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
4 June 2018
Training
During the year, the Audit Committee members have received
advice on new developments in reporting standards from the
Company’s Auditors and I have received appropriate training
from Deloitte.
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 2016 including the risks that could
arise from a partial or full withdrawl of suppliers’ credit insurance
(see page 46). Further information on the Going Concern
Assumption can be found on page 47. The Committee was
satisfied that the Viability Statement, noted on page 47 of the
Strategic Report, presented a reasonable outlook for the Group
to March 2021.
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 57 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; and
— 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 4 June 2018.
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 two 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.
In 2016, following a tender process, KPMG LLP were appointed as
the Group’s Auditor for the 12 months ending 31 March 2017.
Following approval by shareholders at the AGM held on 21 July
2017, KPMG LLP was reappointed as AO’s external Auditor for
the financial year ending 31 March 2018. 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 (2017: £0.3m) for audit-related services.
AO World Plc
Annual Report and Accounts 2018
75
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Corporate Governance Statement
continued
Shareholder relations
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.
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-world.com).
AO World Plc
Annual Report and Accounts 2018
76
Directors’ remuneration report
Rewarding performance
and providing long-term
stewardship
Brian McBride
Chair, Remuneration Committee
Report of the Remuneration Committee
Brian McBride
Chair, Remuneration Committee
This report sets out our proposal for a revised remuneration
policy (which incorporates a new incentive plan) for the Directors
of AO World Plc, what we paid our Directors in FY18 and how we
propose to pay them in FY19. The report is structured as follows:
— The annual statement from the Chairman of the
Remuneration Committee.
— The proposed new Directors’ Remuneration Policy (which
is subject to a shareholder vote at the 2018 AGM).
— The Annual Report on Remuneration (which will be subject
to an advisory vote at the 2018 AGM).
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 2018.
Performance and reward for 2017/18
The Annual Report on Remuneration (set out on pages 86 to 90)
describes how the policy approved at last year’s AGM 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 13.6% to £796.8m, our
profitability expectations were not met. We reduced our losses in
our Europe segment but, given the impacts of the competitive UK
electricals market and economic uncertainty, our UK business
did not achieve the UK Adjusted EBITDA as planned. The year’s
annual bonus scheme consisted mainly of financial targets,
addressing both top-line growth and profit. For Group revenue,
the target of £787.1m was reached, with us missing the next
(stretch) target (set at £803.2m). As noted above our profitability
expectations were not met and therefore the Group Adjusted
EBITDA threshold target of £2.1m losses was missed.
The cashflow target was to achieve a cash outflow of less than
£8.6m (before proceeds from the equity placing). Our cash
outflow was £21.4m (before such proceeds) and therefore this
target was not met.
However, good progress was made against the Company’s
strategic objectives, notably:
— the launch of an international transactional app on both iOS
and Android (in the UK, Germany and the Netherlands)
designed to deliver both revenue and profit growth;
— the launch of additional categories in both the UK and Europe
(which is a fundamental part of our strategy);
— our recycling facility becoming fully operational; and
— maintaining exceptional customer satisfaction rates in
all territories.
The launch of the app was one of the strategic bonus targets for
the year, which has been met. We have also done a significant
amount of work around our purposes (see pages 18 to 20) which
will drive our brand messaging and we expect will bear fruit in
the longer term vis-a-vis brand awareness. Whilst our latest
surveys show brand awareness slightly below the targets we set
last year, we do not believe that this is fully reflective of our
current position and we are pleased with all the work achieved
by the team over the year. In total, therefore, we have awarded
37.5% of the maximum bonus to each of CEO and CFO.
Full details of bonuses paid against the bonus targets set last
year are disclosed on page 87.
This is the second year we have had a completed PSP award
cycle, with the performance period of our 2015 LTIP Award
spanning the three financial years ended 31 March 2018. Both
Steve and John waived their entitlements to participate in this
award back in 2015, given their gains from the IPO itself, however
Mark Higgins participated.The stretching targets set in 2015 were
based one-third on absolute TSR (requiring the share price to
increase by 33% (from £1.92) for a quarter to vest and by 100%
for full vesting); one-third on EPS growth (requiring Adjusted EPS
to increase by 50% for a third to vest and by 120% for full
vesting), and the final third on revenue growth (requiring revenue
to increase by 100% for a quarter to vest and by 140% for full
vesting). These targets were not met and therefore no awards
have vested.
Proposed Remuneration Policy
Last year, we undertook a full review of our remuneration
structure to ensure that we would be operating within a
framework consistent with best practice, while being mindful of
the need to retain and attract high-quality talent. As I set out in
my last report, that review was undertaken in light of some of the
challenges that we had experienced in forecasting robust
long-term targets but against a volatile and uncertain landscape
surrounding Executive Pay. I highlighted that the Committee had
considered alternative pay models but felt that it was not the
right time to introduce a markedly different policy. Over the year,
we have continued to review the appropriateness of long-term
incentives and considered an alternative approach to setting
three-year targets for financial measures based around annual
measurement that help reduce the sensitivity of vesting to
“forecasting error” but that align interests between shareholders
and management in the longer term.
AO World Plc
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OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Directors’ remuneration report
continued
Following the review, we have concluded that a change is
needed and propose to adopt a single incentive structure for
our CEO and CFO (and also the layers of management beneath
them) in the place of separate annual bonus and long-term
incentive awards. For the avoidance of doubt, our Founder,
John Roberts (who is an Executive Director), does not participate
in our incentive programs. We believe the proposed single
incentive structure provides alignment with immediate short-
term strategic priorities which are of considerable importance
to generating longer-term value in the business. Long-term
stewardship of the Company will be reinforced via significant
and compulsory deferral for three years following the initial
performance period, and the deferred portion would be subject
to a minimum level of performance, determined by
the Committee.
As AO expands into new markets and diversifies into new
verticals, we believe that it is important to motivate our
Executive team via their remuneration and ensure that this is
aligned closely to our strategy. With our plans for growth and
considering the start-up nature of some of our businesses,
we have reviewed our incentive arrangements to ensure they
continue to be appropriate to support AO’s forward looking
strategy allowing flexibility to overcome any challenges we face.
We believe that with a one-year performance period we retain
the flexibility to focus our executive team on the business
strategy via meaningful, yet stretching targets.
The following sets out our rationale behind the proposed
approach:
— Supporting AO’s business strategy. AO is currently in an
ambitious growth phase. The Committee has found it difficult
to set meaningful long-term targets – reflected in an historic
lapsing of our long-term Performance Share Plan (“PSP”)
awards and very low levels of bonuses being granted – and
there is a risk that targets are either simply unachievable and
therefore of no worth, or far too easily achieved and therefore
superior reward may be delivered for what transpires to be
insufficiently stretching performance. We think it is better to get
annual actions and objectives right, which will bear fruit over
the longer term. The high, compulsory deferral and long-term
time horizons provide long-term stewardship and therefore
alignment for executives with value creation for shareholders.
— Simplification. We currently have two incentive plans, the
annual bonus and the PSP. Under the proposed new structure,
there would only be one incentive plan.
— Reduction in maximum total incentive opportunity. Under the
single incentive model, we are reducing the maximum total
incentive opportunity for the CEO and CFO from 350% to
300% salary.
— High levels of deferral. Two-thirds of the incentive award is
deferred. Previously, the bonus was delivered in cash, with any
awards above 100% of salary deferred into shares. With
recent performance against stretching targets, this deferral
element has had no impact.
— Longer-term time horizons. Both existing annual bonus and
PSP represent a three-year horizon. The proposed plan
extends the time period for the majority of any award
(two-thirds) to four years.
— Cascading beyond the board. We intend to cascade the
incentive structure down through the organisation, with
significant deferral provisions and extended time horizons,
thus retaining alignment between CEO, CFO and senior
management.
— Motivational value. We believe that the approach provides a
greater motivation to our Executive and senior management
participants relative to our existing combination of annual
bonus and PSP. It is deliberately simple in its design and
operation and concentrates our Executives on AO’s
immediate business strategy, which will flow into long-term,
sustainable performance.
The Committee has consulted with our main independent
shareholders (representing c.50% of our shareholder base),
and also with certain shareholder advisory bodies. Many of the
shareholders consulted were supportive of the proposed
structure in general; in particular with the simplified approach
and the longer time horizons. Shareholders have also given
specific feedback on their key priorities for the future of the
business (and the use and weighting of different performance
metrics). We will be considerate of these views when it comes to
(i) setting specific performance conditions for each award and
(ii) exercising our final discretion for the future vesting of
deferred shares granted under awards. I would like to thank
our shareholders and the advisory bodies, for their time and
constructive feedback.
The outcome of our review and consultation, therefore, is the
new Policy which is presented in the following pages for your
approval. It is 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. It allows us to pay for performance, whilst ensuring
that we do not reward failure and will be a better tool with which
we can motivate and retain our Executives and senior
management and provide long-term stewardship.
Approach to Remuneration for 2018/19
Executives
For the year ahead base salaries have been reviewed and no
increases have been awarded. We are also not proposing any
change to pension levels or other benefits. In terms of variable
pay, the Executives (other than John Roberts) will be entitled to
participate in the AO Incentive Plan, if approved, where
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 89 for further details). The
maximum opportunity will be 300% of salary, with no more than
one-third paying out in cash and the remaining being deferred
into shares vesting after a further three-year period.
Further details of the AO Incentive Plan are set out on pages
81 and 89.
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.
Further details regarding the implementation of our proposed
policy in the year ahead are provided on pages 89 to 90.
I hope this sets out clearly how the Committee has implemented
the existing policy during FY18, how we have developed the
remuneration policy and how we propose to move forward and
implement the proposed policy in FY19. I hope that all
shareholders are able to support the decisions we have taken
and would like to again thank those that have given feedback
during consultation. I welcome any comments from shareholders
and will be available to answer any questions at the AGM.
Brian McBride
Chairman, Remuneration Committee
AO World Plc
4 June 2018
AO World Plc
Annual Report and Accounts 2018
78
Policy Report
This part of the Directors’ Remuneration Report sets out the
directors’ 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) Regulations 2008 (as
amended) 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 2018
AGM and, subject to approval, will take formal effect from that
date. We received good support for the Policy at the 2017 AGM
and, whilst this was put to shareholders with the intention of
being applied for the three-year period, we highlighted at the
time we would keep it under review given the volatility and
uncertainty in the executive remuneration landscape and may
propose a new policy before the end of the three-year period.
We have done just that and, following careful consideration of
the remuneration landscape, and taking into account our evolving
strategy and shareholder views, we believe that the proposed new
Policy is more aligned closely to our business strategy.
Again, whilst it is again intended that the Policy will apply for
three years following approval, the Policy will be kept under
review on an annual basis.
Role of the Committee in setting the 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 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 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
setting pay across the whole senior management population.
The Committee’s terms of reference are
available on the Company’s website at
www.ao-world.com
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
any further 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 Policy, the 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.
While deliberating on the proposed incentive structure, we have
actively sought shareholder opinions on the incentive structure
proposed in the Policy and welcomed the opportunity to discuss
our proposals with a number of key investors and shareholder
advisory bodies.
Consideration of employment conditions elsewhere in
the Group
The Company does not formally consult with employees on
executive remuneration. However, when setting the 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 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.
AO World Plc
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OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Directors’ remuneration report
continued
Summary of our remuneration policy
The table below provides a summary of the key aspects of the Policy for Executive Directors.
Element
Base salary
Pension
Other benefits
“AO Incentive Plan”
Purpose and
link to strategy
— To aid the recruitment and retention of
high-calibre Executive Directors
— To reflect experience and expertise
— To provide an appropriate level of fixed basic
— To aid recruitment and retention of Executive
Directors with the expertise and experience to
deliver the Company’s strategy
— To provide an appropriate level of fixed income
Operation
— Normally reviewed annually, with any increase
income
normally effective on 1 April
— Set initially at a level required to recruit
suitable Executive Directors, reflecting their
experience and expertise
— Any subsequent increase determined by the
Committee may be influenced by (a) the 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) may be taken by the Committee
— Whilst no monetary maximum has been set,
annual increases will generally be linked to
those 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 or
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
Maximum
opportunity
— Executive Directors may receive an employer’s
pension contribution and/or a cash payment in
lieu of pension
— Employer’s defined contribution and/or cash
supplement of up to 12.75% of salary
— As the value of benefits may vary from year to year
— Up to 300% of salary for each Executive Director in respect
depending on the cost to the Company and the Executive
of any financial year
Director’s individual circumstances, no monetary maximum
has been set
— 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)
Framework used to
assess performance
— The Committee reviews the salaries of
— N/A
Executive Directors each year taking due
account of all the factors described in how the
salary policy operates
— N/A
— To provide a competitive benefits package to aid
— To reward the delivery of annual objectives relating to the
recruitment and retention of Executive Directors with the
business strategy
expertise and experience to deliver the Company’s strategy
— Through significant deferral into the Company’s shares to
align the long-term interests of Executive Directors with
those of shareholders
— Directors are entitled to benefits, including a car allowance
— The vesting of awards will be subject to the satisfaction of
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
performance conditions set by the Committee at the time
of grant and measured over a performance period
— The performance period will be of at least one year and will
normally be one financial year of the Company
operated by the Company, in line with HMRC guidelines
— Upon completion of the performance period the Committee
currently prevailing (where relevant), on the same basis as
will deliver a portion of the award in cash and defer the
for other eligible employees
remaining portion into an award of shares
— In certain circumstances the Committee may also approve
— No more than one-third of the total award will be delivered
additional allowances relating to relocation of an Executive
in cash
Director or other expatriate benefits required to perform
— Deferred share awards will be subject to additional
performance underpin conditions measured over a period
— The Committee may provide other employee benefits to
of at least three years running from the end of the
Executive Directors on broadly similar terms to the wider
performance period
the role
workforce
— Awards are not pensionable
— The Committee has the ability to reimburse reasonable
— Awards are subject to recovery provisions that enable the
business-related expenses and any tax thereon
Committee to withhold or recover the value of awards
within five years of the grant date where there has been a
misstatement of accounts, an error in assessing any
applicable performance condition or employee misconduct
— Awards are based on performance measures with
stretching targets as set and assessed by the Committee
— Financial measures (e.g. EBITDA, Revenue, Cash flow) will
represent the majority (at least 70%) of the award, with
any other measures representing the balance
— Subject to the above, 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 where
appropriate to ensure it is a true reflection of the overall
performance of the Company during the performance
period. Any use of discretion will be detailed in the
following year’s Annual Report on Remuneration
— The Committee has discretion to adjust the number of
shares if it is not deemed that the value of the award does
not appropriately reflect the underlying performance of the
Company over the vesting period
— No vesting will occur below a threshold level of performance
as set by the Committee on a year-by-year basis
AO World Plc
Annual Report and Accounts 2018
80
Element
Base salary
Pension
Other benefits
“AO Incentive Plan”
— To provide a competitive benefits package to aid
— To reward the delivery of annual objectives relating to the
recruitment and retention of Executive Directors with the
expertise and experience to deliver the Company’s strategy
business strategy
— Through significant deferral into the Company’s shares to
align the long-term interests of Executive Directors with
those of shareholders
— 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
— The vesting of awards will be subject to the satisfaction of
performance conditions set by the Committee at the time
of grant and measured over a performance period
— The performance period will be of at least one year and will
normally be one financial year of the Company
— Upon completion of the performance period the Committee
will deliver a portion of the award in cash and defer the
remaining portion into an award of shares
— In certain circumstances the Committee may also approve
— No more than one-third of the total award will be delivered
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
in cash
— Deferred share awards will be subject to additional
performance underpin conditions measured over a period
of at least three years running from the end of the
performance period
— Awards are not pensionable
— Awards are subject to recovery provisions that enable the
Committee to withhold or recover the value of awards
within five years of the grant date where there has been a
misstatement of accounts, an error in assessing any
applicable performance condition or employee misconduct
Maximum
opportunity
supplement of up to 12.75% of salary
— Whilst no monetary maximum has been set,
— Employer’s defined contribution and/or cash
— As the value of benefits may vary from year to year
— Up to 300% of salary for each Executive Director in respect
depending on the cost to the Company and the Executive
Director’s individual circumstances, no monetary maximum
has been set
— 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)
of any financial year
Summary of our remuneration policy
The table below provides a summary of the key aspects of the Policy for Executive Directors.
Purpose and
link to strategy
— To aid the recruitment and retention of
high-calibre Executive Directors
— To reflect experience and expertise
— To aid recruitment and retention of Executive
Directors with the expertise and experience to
deliver the Company’s strategy
— To provide an appropriate level of fixed basic
— To provide an appropriate level of fixed income
Operation
— Normally reviewed annually, with any increase
— Executive Directors may receive an employer’s
pension contribution and/or a cash payment in
lieu of pension
income
normally effective on 1 April
— Set initially at a level required to recruit
suitable Executive Directors, reflecting their
experience and expertise
— Any subsequent increase determined by the
Committee may be influenced by (a) the 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) may be taken by the Committee
annual increases will generally be linked to
those 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 or
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 to
assess performance
— The Committee reviews the salaries of
— N/A
Executive Directors each year taking due
account of all the factors described in how the
salary policy operates
— N/A
— Awards are based on performance measures with
stretching targets as set and assessed by the Committee
— Financial measures (e.g. EBITDA, Revenue, Cash flow) will
represent the majority (at least 70%) of the award, with
any other measures representing the balance
— Subject to the above, 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 where
appropriate to ensure it is a true reflection of the overall
performance of the Company during the performance
period. Any use of discretion will be detailed in the
following year’s Annual Report on Remuneration
— The Committee has discretion to adjust the number of
shares if it is not deemed that the value of the award does
not appropriately reflect the underlying performance of the
Company over the vesting period
— No vesting will occur below a threshold level of performance
as set by the Committee on a year-by-year basis
AO World Plc
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OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Directors’ remuneration report
continued
Changes to the proposed Policy
Following a comprehensive review of remuneration over the last
year, supported by independent external advice, the Committee
proposes a new incentive structure which aligns Executive
Directors’ remuneration both with short-term business priorities
while promoting significant and long-term stewardship of the
Company. This change to the incentive structure removes the
operation of separate annual bonus and long-term incentive
plans and instead operates a single incentive plan. Key features
of this new incentive plan are:
— A single, combined incentive plan, the AO Incentive Plan,
which promotes simplicity for both participants and
shareholders alike;
— Subject to the completion of the relevant performance
condition, awards will be paid partially in cash with the
remaining portion delivered in a deferred share award which
vests after three years subject to Committee discretion on the
underlying performance of the business;
— A strengthening of malus/clawback provisions for up to five
years from the date of grant of the award.
Implementation for the plan for the Company’s financial year
ending 31 March 2019 can be found in the Annual Report on
Remuneration.
We have retained key features which were introduced to the
Policy approved at the 2017 AGM. These were made at the time
to incorporate the developments in best practice, including the
following:
— Significant deferral of any incentive award into shares;
— Share ownership guidelines of 200% of salary for all
Executive Directors.
Historic arrangements
The Committee reserves the right to make any remuneration
payments and/or payments for loss of office (including
exercising any discretions available to it in connection with such
payments) notwithstanding that they are not in line with the
Policy where the terms of the payment were agreed (i) before
17 July 2014 (the date the Company’s first shareholder-approved
Directors’ remuneration policy came into effect); (ii) before the
Policy came into effect, provided that the terms of the payment
were consistent with the remuneration policy in force at the time
they were agreed; or (iii) at a time when the relevant individual
was not a Director of the Company and, in the opinion of the
Committee, the payment was not in consideration for the
individual becoming a Director of the Company. For these
purposes “payments” includes the Committee satisfying awards
of variable remuneration and, in relation to an award over
shares, the terms of the payment are “agreed” at the time the
award is granted.
For the purposes of transparency, the terms of the awards
granted prior to 2018 under the PSP are summarised below:
Element
Performance Share Plan (“PSP”)
Purpose and
link to strategy
Operation
Maximum
opportunity
Framework used
to assess
performance
— 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
— Maximum limit contained within the
plan rules is 200% of salary although
up to 300% of salary may be made in
exceptional circumstances
— Normal Policy awards may be made
at lower levels than this
— 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
Clawback and withholding provisions apply in circumstances
where the Committee considers it to be appropriate where there
has been a misstatement of accounts, or an erroneous calculation
used to calculate the grant or vesting of an award for up to three
years after vesting.
Prior to vesting of an award, an award may also be reduced
if the Executive Director engages in conduct justifying
summary dismissal.
AO World Plc
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82
Terms common to the AO Incentive Plan and the PSP
Awards under any of the Company’s incentive plans referred to in
this report, namely the AO Incentive Plan and Performance Share
Plan (“PSP”), may:
a) be granted as conditional share awards or nil-cost options or
in such other form that the Committee determines has the
same economic effect;
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.
b) have any performance condition or underpin applicable to
them amended or substituted by the Committee if an event
occurs which causes the Committee to determine an
amended or substituted performance condition or underpin
would be more appropriate and not materially less difficult
to satisfy;
incorporate the right to receive an amount (in cash or
additional shares) equal to the value of dividends which
would have been paid on the shares under a share-based
award that vest up to the time of vesting. This amount may
be calculated assuming that the dividends have been
reinvested in the Company’s shares on a cumulative basis;
c)
d) be settled in cash at the Committee’s discretion; and
e)
be adjusted in the event of any variation of the Company’s
share capital or any demerger, delisting, special dividend
or other event that may materially affect the Company’s
share price.
The Committee also retains the discretion within the Policy to
adjust performance targets and/or set different performance
measures and alter weightings 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 AO Incentive Plan are carefully
selected to align closely with the Company’s strategic plan.
The AO Incentive Plan 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.
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 performance year and will consult with major
shareholders in the event of any significant proposed change.
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.
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 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.
Overall, the remuneration policy for the Executive Directors is
more heavily weighted towards performance-related pay than for
other employees. In particular, performance-related 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 AO Incentive Plan 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
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 and
maximum and the mid-point, between based on implementation
of the AO Incentive Plan for the year ahead.
The charts are indicative as share price movement
and dividend accrual have been excluded.
CEO total remuneration opportunity at different levels
of performance (£000)
Fixed pay
AO Incentive Plan – Cash
AO Incentive Plan – Deferred Shares
£1,198
38%
19%
44%
£523
100%
£1,873
48%
24%
28%
2,000
1,500
1,000
500
0
Below threshold
Mid-point
Maximum
Founder total remuneration opportunity at different levels
of performance (£000)
2,000
Fixed pay
1,500
1,000
500
0
£454
100%
£454
100%
£454
100%
Below threshold
Mid-point
Maximum
AO World Plc
Annual Report and Accounts 2018
83
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Directors’ remuneration report
continued
CFO total remuneration opportunity at different levels
of performance (£000)
Fixed pay
AO Incentive Plan – Cash
AO Incentive Plan – Deferred Shares
£912
37%
19%
44%
£402
100%
2,000
1,500
1,000
500
0
£1,442
48%
24%
28%
Below threshold
Mid-point
Maximum
Assumptions:
— Below threshold = fixed pay only (i.e. basic salary, benefits
and pension).
— Mid-point = fixed pay plus 50% of maximum Incentive payout.
— Maximum = fixed pay plus 100% of maximum Incentive
payout.
— Fixed pay includes the base salaries for each Executive
Director applying on 1 April 2018 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 2018 financial year.
— Maximum Incentive is equivalent to 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:
Provision
Detailed terms
Notice period
Termination
payment
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
Change of control 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.
Incentives on termination
AO Incentive Plan on termination
Any cash or share entitlements granted under the AO Incentive
Plan will be determined on the basis of the relevant plan rules.
The default position is that where the Executive Director leaves
due to ill health, injury or disability, or the sale of their employing
company or business out of the Group, the “leaving” Executive
Director will be deemed to be a good leaver. In all other
circumstances (unless the Committee has exercised its discretion)
the “leaving Executive Director” will be classed as a bad leaver
and any outstanding awards and unvested share awards will
lapse immediately when the Executive Director ceases to be
employed by or to hold office with the Group.
If deemed by the Committee to be a ‘good’ leaver:
a) during the performance period, awards will ordinarily
continue to be satisfied in accordance with the rules of the
plan; and
b) during the vesting period, deferred share awards will
ordinarily continue to vest on the date when it would have
vested as if he had not ceased to be a Group employee or
Director.
The extent to which awards may be satisfied and deferred share
awards may vest in these circumstances will be determined by
the Committee, taking into account the satisfaction of any relevant
performance or underpin conditions measured over the original
performance period.
Unless the Committee decides otherwise, any outstanding
awards will also be reduced to take into account the proportion
of the performance period which has elapsed on the individual’s
cessation of office or employment.
However, the Committee retains discretion to allow awards to
be satisfied and deferred share awards to vest as soon as
reasonably practicable after the individual’s cessation of office or
employment. If the participant ceases to hold office or employment
prior to the satisfaction of an award, the Committee may also
decide to satisfy awards entirely in cash, rather than delivering
a deferred share award to the Executive Director.
If a participant dies, unless the Board decides otherwise, his
outstanding awards will be satisfied and deferred share awards
will vest as soon as reasonably practicable after the date of his
death on the basis set out for other ‘good leavers’ above.
PSP on termination
Any share-based entitlements previously granted under the
Company’s PSP 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 “leaving” Executive Director will be deemed to be
a good leaver. In all other circumstances (unless the Committee
has exercised its discretion) the “leaving employee” will be
classed as a bad leaver (in which case unvested PSP awards
lapse). In the event that the Committee does class an Executive
Director 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.
If an individual dies holding unvested PSP awards, his awards will
vest at the time of death.
AO World Plc
Annual Report and Accounts 2018
84
Change of control
PSP
In the event of a takeover, PSP awards will vest subject to the
determination of the performance conditions as determined by
the Committee and, unless the Committee determines otherwise,
the proportion of the three-year vesting period that has elapsed.
AO Incentive Plan
Awards will be satisfied and deferred share awards will vest
taking into account the extent to which the performance and/or
underpin conditions have been satisfied. In these circumstances,
the Committee may determine that any outstanding awards are
settled in cash, rather than delivering a deferred share award.
Unless the Committee determines otherwise, outstanding awards
will also be reduced to take into account the proportion of the
performance period that has elapsed. If the Company is wound
up or there is a demerger, delisting, special dividend or other
event, which, in the Committee’s opinion, may materially affect
the Company’s share price, the Committee may allow awards to
be satisfied and deferred share awards to vest on the same basis
as a takeover.
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 but may be renewed on an annual basis where
deemed appropriate. 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.
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
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
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
following few years, subject to satisfactory individual
performance and development in the role.
— An initial award granted to any new Executive Director under
the AO Incentive Plan would operate in accordance with the
terms of the Policy, 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.
— 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 existing PSP to the extent
possible. Awards may also be granted outside of the
Company’s existing incentive arrangements if necessary and
as permitted under the Listing Rules. Shareholders will be
informed of any such payments at the time of appointment.
— 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.
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
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.
AO World Plc
Annual Report and Accounts 2018
85
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Directors’ remuneration report
continued
Annual Report on Remuneration
The Annual Remuneration for the year ended 31 March 2018 was structured within the framework of the remuneration policy
adopted by shareholders in 2017 and has been implemented accordingly. This will be put to an advisory vote at the Company’s AGM
on 19 July 2018.
Single figure of total remuneration for 2017/2018 (Audited)
The audited table below shows the aggregate emoluments earned by the Directors of the Company during the period 1 April 2017 to
31 March 2018 (or relating to that period in the case of Bonus) and, for comparison, the amounts earned during the period 1 April 2016
to 31 March 2017 (or relating to that period in the case of Bonus).
Chairman
Geoff Cooper7
Executive Directors
Steve Caunce
John Roberts
Mark Higgins
Non-Executive Directors
Christopher Hopkinson
Brian McBride
Marisa Cassoni
Jacqueline De Rojas8
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
2017/18
2016/17
Salaries
and fees 1
£
165,000
116,692
450,000
395,000
390,000
445,000
340,000
300,000
50,000
50,000
65,000
65,000
60,000
60,000
17,820
–
Benefits 2
£
Pension3
£
Bonus4
£
Value
of SAYE5
£
Value
of PSP6
£
Total
£
3,347
98
15,452
14,895
13,877
13,253
18,304
17,807
–
–
3,009
1,494
2,008
1,664
459
–
–
–
–
–
57,375
42,559
49,725
47,601
43,350
253,325
58,700
200
67,700
191,450
32,756
45,200
–
–
–
–
–
–
–
–
–
–
–
–
4,504
–
4,504
4,487
4,504
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
168,347
116,790
780,656
511,154
458,306
578,041
597,608
395,763
50,000
50,000
68,009
66,494
62,008
61,664
18,279
–
1
2
3
4
5
6
7
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 for 2016/2017 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 for 2016/2017 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 medical and life assurance, a car allowance of £12,000 paid in cash, and for Steve Caunce, gym
membership, for both years reported. For Mark Higgins, benefits include gym membership, medical and life assurance, car allowance and private
fuel. 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.
Executive Directors are entitled to Company pension contributions of 12.75% of gross 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 13.8%).
Bonuses are paid post year-end but relate to the year under review. For Steve Caunce and Mark Higgins, the maximum bonus opportunity was
equivalent to 150% of salary and due to the meeting of certain performance targets 37.5% of the maximum will be paid. See further details below.
Bonuses for 2016/2017 were calculated on salaries in force prior to the change in CEO (given this was when the bonus objective was achieved).
For both years the Bonus amounts include an attendance bonus of £200 which is paid Group-wide to employees with the relevant attendance.
John Roberts was not entitled to variable remuneration in relation to 2017/2018 (other than the attendance bonus).
All of the Executive Directors participated in full in the 2018 AO Sharesave Scheme (withdrawing from previous schemes) and were granted options
over 20,224 shares. The SAYE value is calculated by multiplying the number of shares under option by the value of discount (in pounds sterling (being
£0.2225)) 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 2015 IPO LTIP (covering a performance period 1 April 2015 to 31 March 2018) were not met and
accordingly no share options vested in year 2017/2018.
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 for 2016/2017 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.
8 Jacqueline De Rojas was appointed as a Non-Executive Director on 23 November 2017.
AO World Plc
Annual Report and Accounts 2018
86
Details of variable pay earned in 2017/18 (Audited)
Annual bonus payments
For both Steve Caunce and Mark Higgins, the maximum bonus
entitlement for the year ended 31 March 2018 was 150% of base
salary. The targets for the annual bonus scheme 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 an
international mobile application and growing unprompted brand
awareness of AO as a retailer of MDA to 35% and 5%, in the UK
and Europe respectively. The strategic targets of growing brand
awareness and launching a mobile app 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). Similarly, 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 growth.
The following table sets out the targets at threshold, “on target”;
stretch and super-stretch for the Group Revenue and Adjusted
EBITDA targets, actual performance against these targets and
accordingly, the applicable payout.
Measure
(weighting) Targets £m
Group
Revenue
(35%)
Group
Adjusted
EBITDA
(35%)
Threshold
763.0
On target
787.1
Stretch
Super-
Stretch
Threshold
On target
Stretch
Super-
Stretch
803.2
819
-2.1
2.9
7.9
10
% payout at
threshold
(for this
element)
Performance
achieved £m Payout
25%
50%
75%
100%
25%
50%
75%
100%
796
50%
-3.4
0%
Under the cash flow performance condition for the relevant part
of the bonus to vest we needed to achieve a threshold cash
outflow of less than £8.6m (before fund raising). Our cash
outflow was £21.4m (before fund-raising) and therefore this
target was not met.
As for the strategic targets; an international app has been
launched on both iOS and Android and both have a five star
rating at the App Store and Google Play respectively (in the UK,
Germany and the Netherlands). We are therefore pleased to
confirm this strategic target has been met. On brand awareness,
as can be seen from Steve’s report, we’ve spent a considerable
amount of time shaping and redefining our purpose. This
purpose will be the platform from which we launch our new
creative campaigns which have been designed and will be rolled
out over the next few weeks. Whilst our latest surveys show
brand awareness slightly below the targets we set, we do not
believe that this is reflective of our current position; we are
pleased with all the work achieved by the team over the year and
expect this to yield significant brand growth over the year ahead.
In total therefore, we have awarded 37.5% of the maximum
bonus to each of CEO and CFO.
Vesting of long-term incentive awards
In July 2015 we granted an LTIP award to Mark Higgins (both
John Roberts and Steve Caunce were entitled to participate
but waived their awards that year). The Award was subject to
performance over the three-year period ended 31 March 2018.
The stretching targets set in 2015 were based one-third on
absolute TSR (requiring the share price to increase by 33%
(from £1.92) for a quarter to vest and by 100% for full vesting);
one-third on EPS growth (requiring Adjusted EPS to increase by
50% for one third to vest and by 120% for full vesting; and the
final third on revenue growth (requiring revenue to increase by
100% for a quarter to vest and by 140% for full vesting). These
targets were not met and therefore no awards have vested.
Details of long-term incentive awards granted during 2017/18
In the year, the Committee made awards to Steve Caunce
and Mark Higgins (but not John Roberts) under the PSP, see
table 1 below.
As we reported last year, we agreed to grant LTIP awards at an
enhanced level (of 300% of salary) to Mark, our CFO, following
his promotion to the Board and for the first two years he was in
the role. This reflected his initial below-median salary positioning
and so ensuring that in achieving a market competitive overall
package, a higher proportion of his overall remuneration was
share-based and subject to long-term performance. Further, the
decision to grant at such level was made in light of the strategic
progress made by the Company and individual performance
(particularly with regard to ensuring that the Company had
adequate funds, with the putting into place of the revolving credit
facility (which has since been increased) and managing the
placing of shares raising c. £50m in share capital). 2017/2018 was
the final year we agreed to make an award at this enhanced level.
The above awards were granted on 21 July 2017 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
2017 and ending on 31 March 2020, and the measures, weightings
and targets are as set out in table 2, below.
Table 1
Executive Director
Steve Caunce
Mark Higgins
Basis of award
granted
Type of award
(% of salary)
Nil-cost option
Nil-cost option
150%
300%
Share price
at date of
grant
(£)
Number of
shares
awarded
Face value of
award
(£)*
% of face value
that vests at
threshold
1.19
1.19
567,227
857,143
675,000
1,020,000
25%
25%
* Based on share price at the date of grant of £1.19.
Table 2
Metric
Weighting
(% of award)
Target
% Vesting
Target
% Vesting
Target
% Vesting
Threshold
Target
Stretch performance
Group Revenue for FY20
One-third
£921.3m
Group Adjusted EBITDA for FY20 One-third
Relative TSR
One-third
£15.3m
Median
25%
25%
25%
£969.8m
£21.9m
62.5%
62.5%
£1,081.3m
£28.5m
Not applicable Upper quartile
100%
100%
100%
AO World Plc
Annual Report and Accounts 2018
87
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Directors’ remuneration report
continued
The Committee believes these metrics provided the appropriate
balance vis-à-vis the long-term growth of the Company and
shareholder return at the time of grant.
Payments to past Directors and loss of office payments
(Audited)
There were no payments to past Directors or loss of office
payments made in the year ended 31 March 2018.
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 2018. 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)
Directors’ shareholdings (Audited)
Directors’ shareholdings as at 31 March 2018 are set out below
in table 3. No PSP options vested over the year as historic
performance conditions were not met.
There have been no changes to Directors’ shareholdings during
the period from 1 April 2018 to the date of this report.
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.
140
120
100
80
60
AO World
FTSE 250
Chief
Executive
Average per
employee
0%
0%
6.1%1
0%
375%
349%
40
26
Feb
2014
31
Mar
2014
31
Mar
2015
31
Mar
2016
31
Mar
2017
31
Mar
2018
Source: Thomson Reuters Datastream
Table 4 below shows the total remuneration figure for the Chief
Executive during the financial years ending 31 March 2010 to
31 March 2018. 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).
Salary
Benefits2
Bonus3
1
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.
2 There are no changes to benefit entitlements.
3
The Chief Executive Officer received a bonus of 10% of maximum
entitlement for the year ended 31 March 2017 as did the other Executive
Directors. 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. For the year ended 31 March 2018,
the CEO received a bonus of 37.5% of maximum entitlement. Members
of the Group Executive Team and other employees eligible to
participate in the Group’s bonus scheme received 37.5%% of their
maximum bonus entitlement.
Table 3
Geoff Cooper
John Roberts
Steve Caunce
Mark Higgins
Christopher Hopkinson
Brian McBride
Marisa Cassoni
Shares held
beneficially1
at 31 March 2018
Target
shareholding
guidelines
(% of salary)2
Target
shareholding
achieved
128,573
109,504,019
51,975,815
27,701
22,956,306
52,628
52,628
N/A
200%
200%
200%
N/A
N/A
N/A
PSP
Options3
N/A
502,232
1,002,495
1,526,786
N/A
N/A
N/A
N/A
SAYE
Options4
N/A
20,224
20,224
20,224
N/A
N/A
N/A
N/A
N/A
Yes
Yes
No
N/A
N/A
N/A
N/A
Includes shares held by connected persons.
Jacqueline De Rojas
1
2 Comprises shares held beneficially only (and excludes options).
3 None of these PSP options (which have performance conditions) have yet vested.
4 None of these SAYE options (which have no performance conditions) have vested.
NIL
N/A
2009/2010 2010/2011
2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018
680
59%
–
292
18%
–
243
0%
–
227
0%
–
537
0%
–
537
0%
–
588
10%
–
575
10%
–
781
37.5%
–
The total remuneration for the financial years ended 31 March 2010 to 31 March 2016 represent amounts earned by John Roberts. The figure stated
for the financial year ended 31 March 2017 (2016/2017) is the total remuneration that 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). The total remuneration for the financial year ended 31 March 2018 (2017/2018)
represents amounts earned by Steve Caunce.
Table 4
Total remuneration (£’000)1
Annual bonus (% of maximum)
PSP vesting (% of maximum)
1
AO World Plc
Annual Report and Accounts 2018
88
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.
Staff costs (£m)1
£75.6
£89.3
18%
2016/2017
2017/2018
% change
Distributions to
shareholders
1
No distributions were made to
shareholders in the year
Includes base salaries, social security and pension, but excludes
share-based payment charges.
External appointments
No fees were received by Executive Directors for external
appointments during the year ended 31 March 2018.
Implementation of remuneration policy for 2017/2018
The Company intends to move a resolution to approve a new
Policy at the AGM on 19 July 2018. If approved, the new Policy
will be effective from 1 April 2018. The new Policy can be found
on pages 79 to 85 of this Annual Report.
Salary
We have not increased the base salaries of our Executive
Directors for the year ahead. They will next be eligible for a
salary review in early 2019, with any changes effective from
1 April 2019. For comparison, the average salary increase
provided to UK employees in the 2018 financial year was 2%.
The current salaries as at 1 April 2018 (and those as at 1 April
2017) are as follows:
Individual
Steve Caunce
Mark Higgins
Role
CEO
CFO
Base salary
at 1 April
2018
Base salary
at 1 April
2017
%
increase
£450,000
£450000
£340,000
£340,000
John Roberts
Founder
£390,000
£390,000
AO Incentive Plan
In respect of FY19, the Executive Directors (excluding John
Roberts) will, subject to the policy and the new incentive plan
receiving support of shareholders at the AGM, have a maximum
award opportunity of 300% of basic salary. Performance will be
measured between 1 April 2018 and 31 March 2019 and against
the measures disclosed below.
Subject to the achievement of the performance measures,
one-third of the award will be paid in cash subject to approval of
the audited accounts for FY19. The remaining two-thirds of the
award will be granted in shares. These shares will vest after three
years subject to the Committees’ satisfaction that their value
reflects the underlying performance of the business.
Performance conditions for the FY19 AO Incentive Plan Award
The performance conditions proposed for this year’s award
comprise revenue and Adjusted EBITDA targets, a cash flow
target and two strategic targets; maintaining customer NPS
scores (across the Group) at high levels and successfully
launching our purpose, each with the weighting as set out below.
The Committee believes these measures provide the appropriate
balance, with revenue reflecting the Group’s high growth
strategy but with an EBITDA target to ensure the team are
driving profitable growth. For the Revenue, Group Adjusted
EBITDA and cash flow metrics, we have set targets having
regard to the Company’s budget for the year ahead. We deem
the budget numbers to be commercially sensitive at this juncture
but will disclose these retrospectively. As can be seen on page 32,
customers, culture and brand underpin our business model and
strategy, and are the drivers for creating long-term sustainable
growth. NPS is a measure of customer satisfaction, therefore
clearly linking to our strategy and launching our purpose
effectively and should allow that culture to flourish and provide
greater unity across the Group.
0%
0%
0%
Metric
Group Revenue for FY19
Group Adjusted EBITDA for FY19
Weighting
(% of award)
40%
30%
10%
10%
10%
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.
Cash Flow
NPS Scores
Successful Launch of Purpose
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.
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.
AO Incentive Plan
Year 1
Year 2
Year 3
Year 4
Performance
year
– assessed
against
stretching
performance
targets.
Shares
Two-thirds
Cash
One-third
Shares deferred for three years
Shares vest subject to the Committee’s
satisfaction that their value reflects the
underlying performance of the business during
the three-year period.
Share ownership requirements
The required share ownership level for the Executive Directors for
2018/19 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 2018/19 are shown
in the table below.
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
£165,000
£50,000
£10,000
£10,000
£5,000
AO World Plc
Annual Report and Accounts 2018
89
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Directors’ remuneration report
continued
Details of Directors’ service contracts and letters
of appointment
Details of the service contracts and letters of appointment in
place as at 31 March 2018 for Directors are shown in table 5.
All Non-Executive Directors agreed to an extension of the term
of their appointments for one further year in February 2018,
following expiry of the initial three-year terms which commenced
around IPO and a one-year extension from such expiry. The
extension of such appointment is subject to the terms of the
letters of appointment in force.
Remuneration Committee membership
The members of the Committee were for the year in question
Brian McBride (Chairman), Marisa Cassoni, Geoff Cooper on an
interim basis (following the retirement of Rudi Lamprecht in
February 2017 until the appointment of Jacqueline de Rojas in
November 2017) and Jacqueline de Rojas since her appointment.
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 2018, there were three 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 77. 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”) provided advice during the year to
31 March 2018 in relation to remuneration and share plans both
for Executive Directors and the wider senior management
population and was appointed by the Committee. Deloitte LLP
(“Deloitte”) has provided advice in relation to incentive
arrangements and the proposed remuneration policy for
Executive Directors and the wider senior management
population and was appointed by the Committee. Both NBS and
Deloitte are signatories to the Remuneration Consultants Group
Code of Conduct and any advice provided by them is governed
by that code. NBS’s and Deloitte’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.
Deloitte also provided certain tax advice during the year to
the Group.
The Committee is committed to regularly reviewing the external
adviser 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 and Deloitte’s were £9,063 plus VAT.
Shareholder feedback (Unaudited)
At the 2017 AGM, the Policy Report was put to shareholders for
a binding vote and the Annual Remuneration Report for the year
ended 31 March 2017 was put to shareholders by way of an
advisory vote, with votes cast as follows:
Annual Report On
Remuneration
Policy Report
Number of
votes
% of
votes
cast
Number of
votes
% of
votes
cast
Votes cast in
favour
Votes cast
against
310,008,134
86.21 359,543,265
99.23
49,582,704
13.79
2,806,634
0.77
Total votes cast
(excluding
withheld votes) 359,590,838
100 362,349,899
Abstentions
2,759,061
–
0
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
4 June 2018
Table 5
Director and date
of service contract or
letter of appointment
Unexpired term
Marisa Cassoni
31/01/2014
Initial term of three years expired – renewed for successive
one-year periods subject to termination by either party
Steve Caunce
14/02/2014
Geoff Cooper
01/07/2016
Mark Higgins
31/05/2014
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
Christopher Hopkinson
14/02/2014
Initial term of three years expired – renewed for successive
one-year periods subject to termination by either party
Brian McBride
17/02/2014
John Roberts
14/02/2014
Jacqueline De Rojas
23/11/2017
Initial term of three years expired – renewed for successive
one-year periods subject to termination by either party
Continuous employment until terminated by either party
Initial term of three years from date of appointment
Notice period by
Company (months)
Notice period
by Director
(months)
Date joined
Group
3
12
3
12
3
3
12
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 19/04/2000
3
23/11/2017
AO World Plc
Annual Report and Accounts 2018
90
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 2018.
Management Report
This Directors’ Report, on pages 91 to 94, together with the
Strategic Report on pages 16 to 57, form the Management
Report for the purposes of DTR 4.1.5R.
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:
Statutory Information
Section
Amendment of the Articles Directors’ Report
Directors’ Report
Appointment and
replacement of Directors
Board of Directors
Change of control
Community
Corporate Governance
Statement
64 and 65
Directors’ Report
Strategic Report;
Corporate Social
Responsibility
Directors’ indemnities
Directors’ Report
Directors’ interests
Remuneration Report
Directors’ responsibility
statement
Disclosure of information
to Auditors
Diversity policy
Employee involvement
Directors’ Report
Directors’ Report
Corporate Governance
Statement; Strategic
Report; Resources and
Relationships
Strategic Report;
Resources and
Relationships
Employees with disabilities Strategic Report;
Future developments of the
business
Resources and
Relationships
Strategic Report
Going concern
Strategic Report
Greenhouse gas emissions Corporate Social
Responsibility
Independent Auditor
Directors’ Report
Results and dividends
Directors’ Report
Political donations
Directors’ Report
Post-balance sheet events Directors’ Report
Powers for the Company to
issue or buy back its shares
Directors’ Report
Powers of the Directors
Directors’ Report
Research and development
activities
Restrictions on transfer of
securities
Directors’ Report
Directors’ Report
Rights attaching to shares Directors’ Report
Page
92
91
93
38
93
93
94
93
36
36 and 37
36
16 to 57
47
39
93
93
93
93
92
92
93
92
92
Risk management
Strategic Report; note
4 to the consolidated
financial statements
40 to 46
and 107
Share capital
Directors’ Report
Significant related party
agreements
Note 35 to the
consolidated financial
statements
Significant shareholders
Directors’ Report
92
125
93
Statement of corporate
governance
Corporate Governance
Statement
58 to 74
Voting rights
Waiver disclosure in
accordance with Rule 9 of
The Takeover Code
Directors’ Report
Directors’ Report
92
92
The Strategic Report
The Strategic Report, which can be found on pages 16 to 57, 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 46.
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 77 to 90. 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, 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;
(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
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.
For further details of our Directors, please refer to pages 64
and 65.
AO World Plc
Annual Report and Accounts 2018
91
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Directors’ report
continued
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 of which are listed on the London Stock
Exchange (LSE: AO.L). The ISIN of the shares is GB00BJTNFH41.
As at 31 March 2018, the issued share capital of the Company
was £1,146,971, comprising 458,788,480 ordinary shares of
0.25p each.
During the year, the Company issued 37,735,849 ordinary shares
of 0.25p each pursuant to a placing of new shares. Further
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 28 to the financial statements on page 118. All the
information detailed in note 28 on page 118 forms part of this
Directors’ Report and is incorporated into it by reference.
Details of employee share schemes are provided in note 31 to the
financial statements on pages 118 to 121.
At the Annual General Meeting of the Company to be held on
19 July 2018 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. Additionally, this authority is subject to the waiver
under Rule 9 of the Takeover Code being approved by
shareholders as set out in the Notice of AGM accompanying
this document.
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”), the Employee Reward Plan (“ERP”) or the proposed
Single Incentive Plan (to be adopted by the Company subject to
obtaining shareholder approval at the forthcoming AGM) 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.
Rule 9 waiver
Disclosure in accordance with Rule 9 of the Takeover Code
Pursuant to Rule 9 of the Takeover Code, when a waiver has
been granted in respect of convertible securities, options or
rights to subscribe for shares, details, including the fact of the
waiver and the maximum number of securities that may be
issued as a result, should be included in the Company’s Annual
Report and accounts until the securities in respect of which the
waiver has been granted have been issued or it is confirmed that
no such issue will be made.
At the AGM of the Company held on 21 July 2017, shareholders
granted approval for the waiver by the Takeover Panel of any
obligation that could arise, pursuant to Rule 9 of the Takeover
Code for John Roberts and Steve Caunce (the “Concert Party
Directors”) and any persons acting in concert with them to make
a general offer for all the issued ordinary share capital of the
Company following any increase in the percentage of shares of
the Company carrying voting rights in which the Concert Party
Directors and any person acting in concert with them are
interested, resulting from the exercise by the Concert Party
Directors of any options over up to 1,612,500 ordinary shares in
the capital of the Company granted (or to be granted) to them
pursuant to the PSP or any of the options over 26,480 ordinary
shares in the capital of the Company granted to them pursuant
to the AO Sharesave Scheme.
A similar waiver is again being sought at the Company’s AGM
scheduled for 19 July 2018, the details of which can be found in
the Notice of AGM accompanying this document.
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).
AO World Plc
Annual Report and Accounts 2018
92
In relation to awards/options under the PSP, ERP and the AO
Sharesave Scheme or the AO Incentive Plan proposed to
be adopted, 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, and extended on
16 November 2017 with the addition of HSBC Bank plc as an
additional lender, there are no significant agreements to which
the Company is a party that take effect, alter or terminate upon
a change of control.
2018 Annual General Meeting
The Annual General Meeting will be held at 8.00 am on 19 July
2018 at Baskerville House, Browncross Street, West Riverside,
Salford M60 9HP. 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 (including Persons
Closely Associated)*
Steve Caunce (including Persons
Closely Associated)*
Odey Asset Management LLP
(including 10,288,000 through
financial instruments)
Ruane, Cunniff & Goldfarb Inc.
Camelot Capital Partners LLC
Chris Hopkinson (including Persons
Closely Associated)
Rovida Holdings
Baillie Gifford & Co Ltd
First Pacific Advisors Inc
Number of
ordinary
shares/voting
rights notified
or aware of
Percentage
of voting
rights over
ordinary
shares of
0.25p each
109,504,019
23.87%
51,975,815
11.33%
41,064,849
8.95%
31,215,124
24,829,276
22,956,306
21,725,702
21,065,087
20,432,016
6.80%
5.41%
5.00%
4.73%
4.59%
4.45%
4.36%
4.11%
3.84%
MassMutual Life Insurance Company
20,000,000
Julie Holroyd
N K Stoller
18,877,335
17,629,098
*
Crystalcraft Limited is a person connected with both John Roberts and
Steve Caunce and holds 6,348 ordinary shares in the issued ordinary
share capital of the Company. These 6,348 ordinary shares are
included in the interests of John Roberts but not in the interests of
Steve Caunce in the table above to avoid double counting.
Results and dividends
The Group’s and Company’s audited financial statements for the
year are set out on pages 95 to 130.
No dividend was paid by the Company during the year to
31 March 2018.
Post-balance sheet events
There have been no 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 39 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 121 to 125 in note 34 to the consolidated
financial statements.
Independent Auditor
The Company’s Auditor, KPMG LLP have indicated their willingness
to continue their role as the Company’s Auditor. A resolution to
reappoint KPMG LLP as Auditor of the Company and to authorise
the Audit Committee to determine their remuneration will be
proposed at the forthcoming AGM.
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.
AO World Plc
Annual Report and Accounts 2018
93
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information 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.
Julie Finnemore
Company Secretary
For and on behalf of the Board of Directors
AO World Plc
4 June 2018
Directors’ report
continued
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.
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 in accordance with UK accounting
standards, including FRS 101 Reduced Disclosure Framework.
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;
— for the Group financial statements, state whether they
have been prepared in accordance with IFRSs as adopted
by the EU;
— for the parent Company financial statements, state whether
applicable UK accounting standards have been followed,
subject to any material departure disclosed and explained
in the parent Company financial statements;
— assess the Group and parent Company’s ability to continue as
a going concern disclosing, as applicable, matters related to
going concern; and
— use the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to
cease operations, or have no realistic alternative but to do so.
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 are responsible for such internal
control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error, and 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 2018
94
Independent Auditors’ Report
to the members of AO World Plc
Opinions and conclusions arising from our audit
1. Our opinion is unmodified
We have audited the financial statements of AO World plc (“the Company”) for the year ended 31 March 2018 which comprise the
Consolidated Income Statement, Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated
Statement of Changes in Equity, Consolidated Statement of Cash Flows, Company Statement of Financial Positions, Company
Statement of Changes in Equity and the related notes, including the accounting policies in note 3.
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
2018 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;
— the parent Company financial statements have been properly prepared in accordance with UK accounting standards, including
FRS 101 Reduced Disclosure Framework; 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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for
our opinion. Our audit opinion is consistent with our report to the audit committee.
We were appointed as auditor by the shareholders on 19 July 2016. The period of total uninterrupted engagement is for the 2 financial
years ended 31 March 2018. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance
with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services
prohibited by that standard were provided.
Overview
Materiality:
group financial statements as a whole
Coverage
Risks of material misstatement
Recurring risks
£2.0m (2017:£2.0m)
0.3% (2017: 0.3%) of group total revenues
99% (2017: 99%) of group total revenues
Product protection plans accrued income
Volume rebates receivable
Recoverability of Parent Company’s investment in
subsidiaries and debt due from group entities
vs 2017
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us,
including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the
efforts of the engagement team. We summarise below the key audit matters (unchanged from 2017), in decreasing order of audit
significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required
for public interest entities, our results from those procedures. These matters were addressed, and our results are based on
procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in
forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on
these matters.
AO World Plc
Annual Report and Accounts 2018
95
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Independent Auditors’ Report
to the members of AO World Plc continued
The risk
Product protection plans accrued income
(£61.6m accrued income; 2017: £50.9m
accrued income)
Refer to page 74 (Audit Committee
Report), page 106 and 110 (accounting
policy) and page 116 (financial disclosures).
Accrued income is recognised based on
the fair value of commissions due over the
expected life of the plans. As this requires
subjective estimates to be made, as well
as the use of a complex model, there is a
risk that the accrued income is materially
misstated.
Data capture
Data used in the model used to calculate
the fair value could be incorrect because
of the complexities and manual nature
involved in the data transfer from the third
party into the database system and
subsequently onwards into the model.
Calculation error
The model used to calculate the fair value
is complex and so open to the possibility
of arithmetical error.
Subjective estimate
Subjective inputs into the product
protection plan accrued income
calculation, such as the life of the plans,
cancellation rates and future contractual
margins based on forecast performance
expected require judgement.
Our response
Our procedures included:
— Data comparisons: With the
assistance of our own data
modelling specialists we performed
reconciliations of the third party
data to the database system which
stores this data and onwards into
the model. From the third party
data, we agreed a sample of
income from new plans,
cancellations and renewals of plans
to both bank statements and the
database system.
— Methodology implementation:
With the assistance of our own data
modelling specialists we assessed the
appropriateness of the methodology
behind the calculation.
— 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 over the average life
of the products against externally
available market data.
— Our sector experience: Challenging
the assumptions made such as
life of the plans, cancellation rates
and expected margins based on
our knowledge of the business and
the group.
— Sensitivity analysis: Performing
sensitivity analysis on judgemental
assumptions as described above.
— Assessing transparency: Assessing
the adequacy of the group’s
disclosures about the subjectivity
of the unobservable measures and
the sensitivity of the outcome of
the calculation to changes in key
assumptions, reflecting the risks
inherent in the valuation of
accrued income.
Our results
— We found product protection plans
accrued income to be acceptable
(2017: acceptable)
AO World Plc
Annual Report and Accounts 2018
96
Volume rebates receivable
(£14.5m 2017: £9.6m)
Refer to page 74 (Audit Committee
Report), page 106 and 110 (accounting
policy) and page 116 (financial disclosures).
The risk
Subjective estimate
Volume rebates as part of commercial
income recognised are significant and the
receivable outstanding at the year end
represents an estimate for amounts based
on forecasts in relation to factors such as
future volumes.
Data capture
The volume rebate calculations include
supplier turnover and agreed contractual
percentages which vary per supplier. Due
to the manual nature of the calculations,
the data used in the rebates calculation
may be inaccurate.
Parent: Recoverability of Parent
Company’s investment in subsidiaries
and debt due from group entities
Investment in subsidiaries (£63.1m; 2017:
£12.2m)
Refer to page 128 (accounting policy)
and page 128 (financial disclosures).
Debt due from group entities (£73.7m;
2017: £55.8m)
Refer to page 107 (accounting policy)
and page 130 (financial disclosures).
Low risk, high value
The carrying amount of the Parent
Company’s investment in subsidiaries and
intra-group debtor balance represents
41% (2017: 16%) and 48% (2017: 75%)
respectively of the Company’s total assets.
The recoverability of these is not at high
risk of significant misstatement or subject
to significant judgement. However, due to
the materiality in the context of the parent
company financial statements, these are
considered to be the areas that had the
greatest effect on our overall parent
company audit.
Our response
Our procedures included:
— Control operation: Testing the
operating effectiveness of controls
over supplier statement
reconciliations including the controls
over the monitoring and timely
reconciliations of the supplier
statements.
— Historical comparisons: Evaluating
the accuracy of the Group’s product
volume forecasting against actual
out-turns.
— Reperformance: Recalculating a
sample of rebates based on agreed
supplier turnover and the contractual
percentages as stated in the
contract.
— Tests of detail: Agreeing a sample of
the year end receivable back to post
year end confirmatory evidence,
including credit notes and supplier
email confirmation.
Our results
— We found the volume rebates
receivable to be acceptable (2017:
acceptable).
Our procedures included:
— Tests of detail: Assessing 100% of
group debtors of the total group
debtors balance to identify, with
reference to the relevant debtors’
draft balance sheet, whether they
have a positive net asset value and
therefore coverage of the debt owed,
as well as assessing whether those
debtor companies have historically
been profit-making.
— Tests of detail: Comparing the
carrying amount of the investment
with the subsidiaries draft balance
sheet to identify whether net assets,
being an approximation of the
minimum recoverable amount, was
in excess of the carrying amount and
assessing whether the subsidiaries
have historically been profit-making.
— Assessing subsidiary audits:
Considering the results of the work
on those subsidiaries’ profits and
net assets.
— Comparing valuations: Comparing
the carrying amount of the investment
to the Group’s market capitalisation
to assess whether there are any
indicators of impairment.
Our results
— We found the Group’s assessment of
the recoverability of the Parent
Company’s investment in subsidiaries
and group debtor balance to be
acceptable (2017: acceptable).
AO World Plc
Annual Report and Accounts 2018
97
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Independent Auditors’ Report
to the members of AO World Plc continued
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 group total revenues of £796.8 million, of which it represents
0.3% (2017: 0.3% of group total revenues).
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.
Materiality for the parent company financial statements as
a whole was set at £0.75 million, determined with reference
to a benchmark of parent company total assets, of which it
represents 0.5% (2017: 1.0% of parent company total assets).
Group total revenues
£796.8m (2017: £701.2m)
Group Materiality
£2.0m (2017: £2.0m)
£2.0m
Whole financial
statements materiality
(2017: £2.0m)
£1.8m
Range of materiality
at 7 components
(£0.1m to £1.8m)
(2017: £0.2m to £1.7m)
£0.1m
Misstatements reported
to the audit committee
(2017: £0.1m)
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.
Group total revenue
Group materiality
Group total revenues
Group total assets
99%
(2017: 99%)
98%
(2017: 99%)
Group total profits and losses
that made up the group loss
before tax
97%
(2017: 97%)
Full scope for group audit
purposes 2018
Specified risk-focused audit
procedures 2018
Full scope for group audit
purposes 2017
Specified risk-focused audit
procedures 2017
Residual components
Of the group’s 10 (2017: 9) reporting components, we subjected 7
(2017: 5) to full scope audits for group reporting purposes, all of
which, including the audit of the parent company, were
performed by the group audit team. We subjected 1 (2017: 0)
reporting component to specific risk-focused audit procedures as
it was not individually significant enough to require a full scope
audit for group purposes, but did present specific individual risks
that needed to be addressed. For the residual 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 99%
of group total revenues (2017: 99%), 98% of group total assets
(2017: 99%) and 97% of group total profits and losses that made
up the group loss before tax (2017: 97%).
4. We have nothing to report on going concern
We are required to report to you if:
— we have anything material to add or draw attention to in
relation to the directors’ statement in note 3 to the financial
statements on the use of the going concern basis of
accounting with no material uncertainties that may cast
significant doubt over the Group and Company’s use of that
basis for a period of at least twelve months from the date of
approval of the financial statements; or
— if the related statement under the Listing Rules set out on
page 47 is materially inconsistent with our audit knowledge.
We have nothing to report in these respects.
5. We have nothing to report on the other information in the
Annual Report
The directors are responsible for the other information presented
in the Annual Report together with the financial statements.
Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion
or, except as explicitly stated below, any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing
so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or
inconsistent with the financial statements or our audit
knowledge. Based solely on that work we have not identified
material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
— we have not identified material misstatements in the strategic
report and the directors’ report;
— in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
— in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
AO World Plc
Annual Report and Accounts 2018
98
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw
attention to in relation to:
— the directors’ confirmation within the statement of viability
assessment on page 47 that they have carried out a robust
assessment of the principal risks facing the Group, including
those that would threaten its business model, future
performance, solvency and liquidity;
— the Principal Risks disclosures describing these risks and
explaining how they are being managed and mitigated; and
— the directors’ explanation in the statement of viability
assessment of how they have assessed the prospects of the
Group, over what period they have done so and why they
considered that period to be appropriate, and their statement
as to whether they have a reasonable expectation that the
Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Under the Listing Rules we are required to review the statement
of viability assessment. We have nothing to report in this respect.
Corporate governance disclosures
We are required to report to you if:
— we have identified material inconsistencies between the
knowledge we acquired during our financial statements 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 section of the annual report describing the work of the
Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the
eleven provisions of the UK Corporate Governance Code
specified by the Listing Rules for our review.
We have nothing to report in these respects.
6. We have nothing to report on the other matters on which we
are required to report by exception
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.
We have nothing to report in these respects.
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 94,
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing
the Group and parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and using the going concern basis of accounting unless
they either intend to liquidate the Group or the parent Company or
to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or other
irregularities (see below), or error, and to issue our opinion in
an auditor’s report. Reasonable assurance is a high level of
assurance, but does not guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud,
other irregularities or error and are considered material if,
individually or in aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis
of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.
Irregularities – ability to detect
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the
financial statements from our sector experience, through
discussion with the directors and other management (as required
by auditing standards), and from inspection of the group’s
regulatory and legal correspondence.
We had regard to laws and regulations in areas that directly
affect the financial statements including financial reporting
(including related company legislation) and taxation legislation.
We considered the extent of compliance with those laws and
regulations as part of our procedures on the related financial
statements items.
In addition we considered the impact of laws and regulations in
the specific areas of product protection plans. With the exception
of any known or possible irregularities, and as required by
auditing standards, our work in respect of these was limited to
enquiry of the directors and other management and inspection
of regulatory and legal correspondence. We considered the
effect of any known or possible irregularities in these areas as
part of our procedures on the related financial statements items.
We communicated identified laws and regulations throughout
our team and remained alert to any indications of non-
compliance throughout the audit.
As with any audit, there remained a higher risk of non-detection
of irregularities, as these may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls.
8. The purpose of our audit work and to whom we owe our
responsibilities
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might
state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and
the Company’s members, as a body, for our audit work, for this
report, or for the opinions we have formed.
Mick Davies (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 St Peters Square
Manchester
M2 3AE
4 June 2018
AO World Plc
Annual Report and Accounts 2018
99
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Consolidated income statement
For the year ended 31 March 2018
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Other operating income
Operating loss
Finance income
Finance costs
Loss before tax
Tax credit/(charge)
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
2018
£m
2017
£m
5,6
6
6,7
8
6,8
11
12
13
29
15
15
796.8
(655.0)
141.8
(159.8)
1.8
(16.2)
4.8
(2.1)
(13.5)
0.2
(13.3)
(13.4)
0.1
(13.3)
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)
(2.93)
(2.92)
(1.56)
(1.55)
AO World Plc
Annual Report and Accounts 2018
100
Consolidated statement of comprehensive income
For the year ended 31 March 2018
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
2018
£m
(13.3)
(1.0)
(14.3)
(14.4)
0.1
(14.3)
2017
£m
(7.4)
(3.5)
(10.9)
(10.1)
(0.8)
(10.9)
AO World Plc
Annual Report and Accounts 2018
101
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Consolidated statement of financial position
As at 31 March 2018
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
Derivative financial asset
Corporation tax receivable
Cash and cash equivalents
Total assets
Current liabilities
Bank overdraft
Trade and other payables
Borrowings
Derivative financial liability
Provisions
Net current assets/(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
17
18
22
34
20
21
22
34
23
23
24
25
34
27
25
34
27
28
28
30
29
2018
£m
13.5
1.2
28.0
47.9
2.2
1.7
94.5
53.2
54.8
0.2
0.2
56.0
164.4
258.9
(3.1)
(156.0)
(4.2)
(0.4)
–
(163.7)
0.7
(10.4)
(3.4)
(1.8)
(179.3)
79.6
1.1
103.7
5.3
(28.9)
81.2
(1.6)
79.6
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
The financial statements of AO World Plc, registered number 05525751, on pages 100 to 130 were approved by the Board of
Directors and authorised for issue on 4 June 2018. They were signed on its behalf by:
Steve Caunce
CEO
AO World Plc
Mark Higgins
CFO
AO World Plc
AO World Plc
Annual Report and Accounts 2018
102
Other reserves
Share-
based
payments
reserve
£m
3.1
Capital
redemption
reserve
£m
0.5
Merger
reserve
£m
4.4
Translation
reserve
£m
(2.1)
Other
reserve
£m
(2.1)
Retained
losses
£m
(12.3)
Non-
controlling
interest
£m
(0.9)
Total
£m
48.3
Total
£m
47.4
Consolidated statement of changes in equity
As at 31 March 2018
Balance at 1 April 2016
Loss for the year
Share-based payments
charge net of tax
Foreign currency gains
arising on consolidation
Movement between
reserves
Share
capital
£m
1.1
Share
premium
account
£m
55.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 March 2017
1.1
55.7
4.4
0.5
(Loss)/profit for the year
Share-based payments
charge net of tax
Foreign currency gains
arising on consolidation
Issue of shares net of
expenses
Movement between
reserves (see note 30)
–
–
–
–
–
–
–
–
48.0
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 March 2018
1.1
103.7
4.4
0.5
–
4.0
–
(3.3)
3.8
–
5.4
–
–
(0.1)
9.1
–
–
(3.5)
–
–
–
–
–
(5.6)
(2.1)
–
–
(1.0)
–
–
–
–
–
–
–
(6.6)
(6.6)
(0.8)
(7.4)
–
–
3.3
(15.6)
(13.4)
–
–
–
4.0
(3.5)
–
42.2
(13.4)
5.4
(1.0)
48.0
0.1
–
–
–
–
(1.7)
0.1
–
–
–
–
4.0
(3.5)
–
40.5
(13.3)
5.4
(1.0)
48.0
–
(6.6)
(2.1)
(28.9)
81.2
(1.6)
79.6
AO World Plc
Annual Report and Accounts 2018
103
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Note
11
12
31
11
12
23
2018
£m
(13.3)
7.6
(4.8)
2.1
(0.1)
(0.2)
5.5
0.3
(2.9)
(8.4)
(21.5)
17.1
(12.8)
0.3
(15.4)
–
0.1
(4.8)
(0.5)
(5.2)
3.1
1.1
(1.0)
(0.9)
(3.2)
50.0
(1.9)
47.2
26.6
29.4
–
56.0
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)
–
2.1
(1.1)
(0.4)
(3.4)
–
–
(2.8)
(4.2)
33.4
0.2
29.4
Consolidated statement of cash flows
For the year ended 31 March 2018
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 (credit)/charge
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
Total movement in working capital
Taxation received/(paid)
Cash (used)/generated 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
Movement in bank overdraft
Proceeds from new borrowings
Interest paid
Repayments of borrowings
Payment of finance lease liabilities
Proceeds from share issue
Costs in relation to share issue
Net cash from/(used in) financing activities
Net increase/(decrease) in cash
Cash & cash equivalents at beginning of year
Exchange gains on cash & cash equivalents
Cash and cash equivalents at end of year
AO World Plc
Annual Report and Accounts 2018
104
Notes to the consolidated financial statements
For the year ended 31 March 2018
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 2018, and
as such comply with Article 4 of the EU IAS regulation.
The address of the registered office is given on page 131. The
nature of the Group’s operations and its principal activities are
set out in note 19 and in the Strategic Report on pages 16 to 55.
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 12
Recognition of deferred tax assets for
unrealised losses
Amendments to IAS 7 Disclosure initiative
Annual
improvements to
IFRSs
2014 to 2016 cycle
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):
IFRS 9
IFRS 15
IFRS 16
Financial Instruments
Revenue From Customers With Contracts
Leases
Amendments to
IFRS 2
Classification and Measurement of Share
Based Payment Transactions
IFRIC Interpretation
22
Foreign currency transactions and
Advanced Consideration
IFRIC 23
Uncertainty over income tax treatments
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. There will be no financial impact from adopting this
standard and any additional disclosures will be included in the
financial statements for the year ended 31 March 2019.
IFRS 15
IFRS 15, ‘Revenue 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. An assessment
of the potential impact of the standard has been undertaken in
the year, and management have concluded that revenue
recognition under IFRS 15 is expected to be broadly consistent
with our current practice and that there would be no material
changes to the reported numbers for the year ended 31 March
2018. This is particularly the case with accounting for commission
receivable on product protection plans where a significant
amount of historical data is being applied to the estimate of
variable consideration. Historically, there have been no
significant reversals of revenue, hence, as at 31 March 2018,
management have concluded that, in relation to variable
consideration, it is not highly probable that there would be a
significant reversal of revenue and hence no restrictions are
required in the amount of revenue recognised nor would there be
any impact on timing of recognition. This has been considered
using the expected value method.
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.
All intercompany balances and transactions have been
eliminated in full.
AO World Plc
Annual Report and Accounts 2018
105
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Notes to the consolidated financial statements
For the year ended 31 March 2018 continued
3. Significant accounting policies (continued)
The present-access method is used to value AO Recycling
non-controlling interest. Under this method the non-controlling
interest continues to be recognised because the non-controlling
shareholders still have present access to the returns associated
with the underlying ownership interests, with the debit entry to
‘other’ equity. 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.
A list of all the subsidiaries of the Group is included in note 19 of
the Group financial statements. All apply accounting policies
which are consistent with those of the rest of the Group.
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 and the availability of a £60m Revolving Credit
Facility. 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 91.
Revenue recognition
Revenue represents the value of goods and ancillary 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.
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) 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 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,
the historical rate of customer attrition and anticipated margin
(including an estimate of future profitability of the scheme) and
is discounted (see note 22).
Commercial income
At the year end the Group is required to estimate supplier income
receivable 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 or cost of sales to offset directly
attributable 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 to which they occur.
Finance costs comprise of:
— 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.
Goodwill is not amortised but is reviewed for impairment
annually, or more frequently where there is an indication that th
oodwill may be impaired. For the purpose of impairment testing,
goodwill is allocated to each of the Group’s CGUs 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.
AO World Plc
Annual Report and Accounts 2018
106
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.
Trade and other receivables
Trade and other receivables are recorded at fair value which
is 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.
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 IAS32 Financial
Instruments Presentation. Any gain or loss on re-measurement 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
equivalent to book value.
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.
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
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.
AO World Plc
Annual Report and Accounts 2018
107
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Notes to the consolidated financial statements
For the year ended 31 March 2018 continued
3. Significant accounting policies (continued)
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 AO Recycling Limited) are based upon an
independent valuation at the year-end using the Monte Carlo
model. These are applied to the Company only accounts and,
for the call option only, in the consolidated accounts.
For consolidation purposes, the Group uses the gross liability
method as per IAS 32 for valuing the put option which equates
to an estimate of the 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.
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.
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 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 its tax base at reporting period. 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.
Share-based payments
The cost of share-based payment transactions with employees is
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.
AO World Plc
Annual Report and Accounts 2018
108
Non statutory measures
One of the Group’s key performance indicators is Adjusted
EBITDA and each segment is measured by the Chief Operating
Decision maker on this basis. 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 certain LTIP awards (along with other
measures including revenue). Whilst we recognise that the
measure is an alternative (non-Generally Accepted Accounting
Principles (“non-GAAP”)) performance measure which is also
not defined within IFRS, this measure is important and should be
considered alongside the IFRS measures.
Adjusted EBITDA is calculated by adding back those material
items of income and expenditure where because of the nature
and expected infrequency of events giving rise them, merit
seperate presentation to allow shareholders a better
understanding of the financial performance in the period.
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. 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 exceptional in nature and so add-back any
charge in arriving at Adjusted EBITDA. AO Sharesave scheme
charges and LTIP charges relating to the LTIP awards which are
not considered to be exceptional in nature are not adjusted for.
— Europe set-up costs are costs incurred in connection with our
European expansion strategy and our continuing research
into other countries along with strategic post “go-live” activity
in AO.de and AO.nl.
— During the year and following the appointment of Steve
Caunce as Group CEO, the Group has undertaken a
restructure of its executive team. The cost of this restructure,
including the impact of the acceleration of certain share
option charges, is considered to be one-off in nature due to
its size and timing, and has therefore been added back in
arriving at Adjusted EBITDA.
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.
No expense is recognised for awards that do not ultimately vest,
except for awards under the AO Sharesave scheme which are
cancelled. These awards are treated as if they had vested on the
date of cancellation, and any cost not yet recognised in the
income statement for the award is expensed immediately. Any
compensation paid up to the fair value of the award at the
cancellation or settlement date is deducted from equity, with any
excess over the fair value of the settled award being treated as
an expense in the income statement.
If a service period is reduced, the modified vesting period is used
when applying the requirements of the modified grant-date
method. In the period of change, the cumulative amount to be
recognised at the reporting date is calculated on the new vesting
conditions.
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 2018
109
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Notes to the consolidated financial statements
For the year ended 31 March 2018 continued
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 ongoing basis. Actual results
could differ from these estimates and any subsequent changes
are accounted for with an effect on income at the time such
updated information becomes available.
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 and estimation.
These relate to the revenue recognition and recoverability of
product protection plan income and commercial income
receivable, both of which contain estimates, as set out below.
Estimates
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 receiveable 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.
For plans sold prior to 1 December 2016, the commission rates
receivable are assumed at pre-determined rates. For plans sold
post that date, base assumed commissions will continue to be
earned on pre-determined rates but overall commissions now
include a variable element based on the future overall
performance of the scheme.
Commission receivable also depends for certain transactions
on customer behaviour after the point of sale. Assumptions are
therefore required, particularly in relation to levels of customer
default within the contract period, expected levels of customer
spend, and customer behaviour beyond the initial contract
period. Such assumptions are based on extensive historical
evidence, and 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 2018 was £61.6m
(2017: £50.9m). The discount rate used to unwind the commission
receivable is 4.6% (2017: 4.6%).
Commercial income receivable
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 rebates
receivable. Volume rebates receivable at 31 March 2018 are
£14.5m (2017: £9.6m). At 31 May 2018, the balance outstanding
was £4.6m.
Strategic marketing investment funding is recognised in revenue,
cost of sales and marketing expenses. 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
2018, £1.1m remains as an outstanding receivable (2017: £1.4m).
At 31 May 2018, 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*
2018
£m
722.3
46.7
27.8
796.8
2017
£m
629.4
46.0
25.8
701.2
* Other sales includes third-party logistics and recycling services.
Revenue split between sale of goods and services:
Year ended (£m)
31 March 2018
31 March 2017
Product sales
Service sales
UK Europe
114.3
1.7
593.9
86.9
Total
708.2
88.6
UK Europe
67.7
3.8
552.5
77.2
Total
620.2
81.0
680.8
116.0 796.8
629.7
71.5
701.2
Product sales relate to the sale of electrical products through our
own website and for third parties. Service sales relate to ancillary
services, including delivery, connection and disconnections,
product protection plan commission, recycling services, strategic
marketing income and third-party logistics.
AO World Plc
Annual Report and Accounts 2018
110
6. Segmental analysis
The Group has two reportable segments, online retailing of domestic appliances and ancillary services to customers in the UK and
online retailing of domestic appliances and ancillary services to customers in Europe (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 arm’s-length basis using appropriate transfer pricing policies.
a. Income statement
The following is an analysis of the Group’s revenue and results by reportable segments.
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 credit/(charge)
Profit/(loss) after tax
31 March 2018
Europe
115.7
0.2
0.1
116.0
(118.8)
(2.8)
(25.5)
0.5
(27.8)
0.8
(0.1)
(27.1)
(0.2)
(27.3)
UK
606.6
46.5
27.7
680.8
(536.2)
144.6
(134.3)
1.3
11.6
4.0
(2.0)
13.6
0.4
14.0
Total
722.3
46.7
27.8
796.8
(655.0)
141.8
(159.8)
1.8
(16.2)
4.8
(2.1)
(13.5)
0.2
(13.3)
31 March 2017
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)
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
The Group uses alternative performance measures which are not defined within IFRS, as well as IFRS measures.
One of these key measures is Adjusted EBITDA which is defined in note 3.
The reconcilliation of statutory operating profit/(loss) to adjusted EBITDA is as follows.
£m
Operating profit/(loss)
Depreciation
Amortisation
Profit on disposal of non-current assets
EBITDA
Share-based payments charge attributable to exceptional
LTIP awards
Europe set-up costs
Executive restructuring costs
31 March 2018
Europe
(27.8)
1.7
0.1
(0.1)
(26.1)
–
–
0.1
UK
11.6
4.9
0.9
–
17.4
3.5
0.3
1.4
Total
(16.2)
6.6
1.0
(0.1)
(8.7)
3.5
0.3
1.5
Adjusted EBITDA
22.6
(26.0)
(3.4)
31 March 2017
Europe
(27.6)
1.0
0.1
–
(26.5)
–
–
–
(26.5)
UK
15.6
4.3
0.6
(0.3)
20.1
3.6
0.7
–
24.4
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)
Total
(12.0)
5.3
0.7
(0.3)
(6.4)
3.6
0.7
–
(2.1)
AO World Plc
Annual Report and Accounts 2018
111
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Notes to the consolidated financial statements
For the year ended 31 March 2018 continued
6. Segmental analysis (continued)
b. Geographical analysis
Revenue by location is the same as that shown in section (a) by
reportable segment. Information on non-current assets by
geographical location is shown in section (c).
c. Other information
Additions
2018 (£m)
UK
Europe
Intangible
assets
0.5
–
PP&E Depreciation Amortisation
0.9
4.9
0.1
1.7
4.2
0.8
Profit on
disposal
–
(0.1)
Additions
2017 (£m)
UK
Europe
Intangible
assets
0.2
–
PP&E Depreciation Amortisation
0.6
4.3
0.1
1.0
14.1
2.6
Profit on
disposal
(0.3)
–
0.2
16.7
5.3
0.7
(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.
9. Auditor’s remuneration
The analysis of the Auditor’s remuneration is as follows:
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
2018
£m
2017
£m
0.1
0.1
0.2
0.3
0.3
0.2
0.3
0.3
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 73. No services were provided on a contingent
fee basis.
Included within the total auditors remuneration of £320,000 are
non-audit fees of £30,000 in relation to the review of the interim
financial statements (2017: £30,000).
10. Staff costs
The average monthly number of employees (including Directors)
was:
0.5
5.0
6.6
1.0
(0.1)
Total audit fees
Total Auditor’s remuneration
7. Administrative expenses
Marketing and advertising expenses
Warehousing expenses
Other administrative expenses
2018
£m
33.2
34.2
92.4
159.8
Sales, marketing and distribution
Directors (Executive and Non-Executive)
2017
£m
31.9
31.3
79.2
142.4
Their aggregate remuneration comprised:
2018
Number
2,764
7
2,771
2017
Number
2,498
8
2,506
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
Executive restructuring costs
2018
£m
3.9
2.7
1.0
6.4
9.3
(0.1)
566.6
97.2
(1.8)
1.5
2017
£m
3.3
2.0
0.7
6.4
6.9
(0.3)
492.8
80.0
(1.2)
–
Wages and salaries
Social security costs
Contributions to defined contribution
plans (see note 33)
Share-based payment charge
(see note 31)
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
2017
£m
79.6
8.1
3.7
5.5
0.4
97.2
2018
£m
–
1.1
1.8
1.9
4.8
2016
£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
AO World Plc
Annual Report and Accounts 2018
112
12. Finance costs
Interest on obligations under finance
leases
Finance cost in relation to debt
Movement in valuation of put and call
option
Other interest
13. Tax
Corporation tax:
Current year
Adjustments in respect of prior years
Deferred tax (see note 20)
Current year
Adjustments in relation to prior years
Total tax (credit)/charge
2018
£m
0.5
0.4
1.1
0.1
2.1
2018
£m
–
(0.2)
(0.2)
(0.3)
0.3
(0.2)
2017
£m
0.5
0.6
0.7
–
1.8
2017
£m
0.6
–
0.6
(0.2)
–
0.4
The expected corporation tax credit for the year is calculated at
the UK corporation tax rate of 19% (2017: 20%) on the loss before
tax for the year. Taxation for other jurisdictions is calculated at
the rates prevailing in the respective jurisdictions in which the
Group operates.
The UK rate of corporation tax, currently 19%, will reduce to 17%
on 1 April 2020 under provisions contained in Finance Act 2016.
The Group has recognised deferred tax in relation to UK
companies at either 19% or 17% depending on the period in which
the deferred tax asset or liability is expected to reverse.
The credit for the year can be reconciled to the loss in the
statement of comprehensive income as follows:
Year ended 31 March
Loss before tax on continuing operations
Tax at the UK corporation tax rate of 19%
(2017: 20%)
Ineligible expenses
Difference in overseas and UK tax rates
Movement in unrecognised tax
Impact of difference in current and
deferred tax rates
Income not taxable
Share-based payments
Prior period adjustments
Tax (credit)/charge for the year
2018
£m
(13.5)
(2.6)
0.3
(0.3)
2.0
–
(0.5)
0.8
0.1
(0.2)
2017
£m
(7.0)
(1.4)
0.3
(0.3)
1.7
0.1
(0.8)
0.8
–
0.4
14. Dividends
The Directors do not propose a dividend for the year ended
31 March 2018 (2017: £nil).
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
2018
£m
2017
£m
(13.4)
(6.6)
458,788,480 421,052,631
1,337,071
1,885,206
460,673,686 422,389,702
(2.93)
(2.92)
(1.56)
(1.55)
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
Number of shares
Basic and adjusted weighted average
number of ordinary shares
Potentially dilutive shares options
Diluted weighted average number
of shares
Loss per share (in pence)
Basic loss per share
Diluted loss per share
Adjusted basic loss per share
2018
£m
(13.4)
(1.1)
(14.5)
2017
£m
(6.6)
(4.4)
(11.0)
458,788,480 421,052,631
1,337,071
1,885,206
460,673,686 422,389,702
(2.93)
(2.92)
(3.16)
(1.56)
(1.55)
(2.62)
AO World Plc
Annual Report and Accounts 2018
113
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Notes to the consolidated financial statements
For the year ended 31 March 2018 continued
16. Goodwill
17. Other intangible assets
Cost
At 1 April 2016
Additions
At 31 March 2017
Additions
At 31 March 2018
Amortisation
At 1 April 2016
Charge for the year
At 31 March 2017
Charge for the year
At 31 March 2018
Carrying amount
At 31 March 2018
At 31 March 2017
At 31 March 2016
Domain names
£m
Software
£m
Total
£m
1.4
–
1.4
–
1.4
0.3
0.2
0.5
0.5
1.0
0.4
0.9
1.1
1.7
0.3
2.0
0.4
2.4
0.7
0.5
1.1
0.5
1.6
0.8
0.9
1.0
3.1
0.3
3.4
0.4
3.8
1.0
0.7
1.6
1.0
2.6
1.2
1.8
2.1
Amortisation is charged to Administrative costs in the
consolidated income statement.
Carrying value at 31 March 2016
Additions
Carrying value at 31 March 2017
Additions
Carrying value at 31 March 2018
£m
13.5
–
13.5
–
13.5
Goodwill relates to purchase of Expert Logistics Limited, the
purchase by DRL Holdings Limited (now AO World Plc) of
DRL Limited (now AO Retail Limited) and the acquisition of
AO Recycling Limited (formerly The Recycling Group Limited).
Impairment of goodwill
At 31 March 2018, 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
2018. 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%
(2017: 10.8%).
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.
AO World Plc
Annual Report and Accounts 2018
114
18. Property, plant and equipment
Cost
At 1 April 2016
Additions
Disposals
Exchange differences
At 31 March 2017
Additions
Disposals
Exchange differences
At 31 March 2018
Accumulated depreciation
At 1 April 2016
Charge for the year
Disposals
At 31 March 2017
Charge for the year
Disposals
Exchange differences
At 31 March 2018
Carrying amount
At 31 March 2018
At 31 March 2017
At 31 March 2016
Land and
buildings
£m
Property
alterations
£m
Fixtures,
fittings,
plant and
machinery
£m
Motor
vehicles
£m
Computer
and office
equipment
£m
2.4
0.3
–
0.4
3.1
0.1
–
0.1
3.3
–
0.2
–
0.2
0.2
–
–
0.4
2.9
2.9
2.4
9.1
1.0
–
0.1
10.2
2.4
–
–
12.6
1.9
0.9
–
2.8
1.0
–
–
3.8
8.8
7.4
7.2
3.0
7.9
–
0.1
11.0
0.9
–
–
11.9
1.8
0.8
–
2.6
1.3
–
–
3.9
8.0
8.4
1.2
7.5
6.4
(3.8)
0.1
10.2
1.1
(0.3)
–
11.0
3.4
1.8
(3.2)
2.0
2.7
(0.3)
(0.1)
4.3
6.7
8.2
4.1
6.9
1.0
(1.0)
–
6.9
0.6
(0.1)
–
7.4
3.8
1.5
(0.9)
4.4
1.4
–
–
5.8
1.6
2.4
3.1
Total
£m
28.9
16.6
(4.8)
0.7
41.4
5.1
(0.4)
0.1
46.2
10.9
5.2
(4.1)
12.0
6.6
(0.3)
(0.1)
18.2
28.0
29.3
18.0
At 31 March 2018, the net carrying amount of finance leased plant and machinery was £10.9m (2017: £13.3m). The leased equipment
secures lease obligations (see note 26).
19. Subsidiaries
The Group consists of the parent Company, AO World Plc, incorporated in the UK and a number of subsidiaries held directly/
indirectly by AO World Plc.
The table below shows details of all subsidiaries of AO World Plc as at 31 March 2018.
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
Principal place of
business
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Germany
United Kingdom
Belgium
Netherlands
Netherlands
Class of shares held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
United Kingdom
AO Recycling Limited
United Kingdom
WEEE Collect It Limited
WEEE Re-use It Limited
United Kingdom
Electrical Appliance Outlet Limited United Kingdom
BERE Limited
Jersey
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary and redeemable
preference
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%
100%
Principal activity
Retail
Logistics and
transport
Dormant
Retail
Dormant
Retail
Holding company
Dormant
Retail
Logistics and
transport
WEEE recycling
Dormant
Dormant
Retail
Investment company
All companies within the Group are registered at the same address disclosed on page 131 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
0.01% of the investment in AO.BE SA is owned by AO Deutschland Limited.
*
** Indirectly owned through AO Limited.
BERE Limited was incorporated to facilitate the placing of shares of AO World Plc. At 31 March 2017, AO World Plc held 89% of the
total issued share capital. Following the 31 March 2017 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.
AO World Plc
Annual Report and Accounts 2018
115
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Notes to the consolidated financial statements
For the year ended 31 March 2018 continued
20. Deferred tax
The following is the asset recognised by the Group and
movements thereon during the current and prior reporting year.
Accrued income
The reconciliation of opening and closing balances for accrued
income is shown below:
Share
options
£m
Accelerated
depreciation
£m
Short-term
timing
difference
£m
0.5
0.2
0.1
0.8
0.2
(0.1)
0.9
0.8
(0.1)
–
0.7
(0.1)
–
0.6
0.2
0.1
–
0.3
(0.1)
–
0.2
Total
£m
1.5
0.2
0.1
1.8
–
(0.1)
1.7
At 1 April 2016
Credit to income
statement
Credit to
reserves
At 31 March 2017
Credit/(debit) to
income
statement
Debit to reserves
At 31 March 2018
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 £5.1m
(2017: £3.1m) in respect of unused losses carried forward.
21. Inventories
Finished goods
2018
£m
53.2
2017
£m
44.8
Included within inventories are stock provisions of £0.8m
(2017: £0.4m).
22. Trade and other receivables
Trade receivables
Other receivables:
– Accrued income
– Prepayments and other
2018
£m
8.7
61.9
32.2
102.8
The trade and other receivables are classified as:
Non-current assets – Accrued income
Current assets
2018
£m
47.9
54.8
102.7
2017
£m
6.3
51.4
23.2
80.9
2017
£m
39.8
41.1
80.9
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
2018
£m
51.4
8.8
1.9
(0.2)
61.9
2017
£m
39.4
10.2
1.7
0.1
51.4
Accrued income principally represents the expected future
commission receivable 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 third party). Revenue in any one year therefore represents
the fair value of the commission due on the plans sold. To
calculate the fair value of the revenue and hence the accrued
income the Group uses historical empirical data accumulated
over 11 years based on under 1.5m plans sold to date of which
0.7m plans are active.
The fair value calculation takes into consideration the following
level three 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 and an estimate of the future profitability of
the scheme.
Given the wide range of attrition rates and margins applicable to
the plans, the data relating to these areas has not been
quantified above.
Expected future commission payments in respect of product
protection plans are discounted at 4.6% (2017: 4.6%).
There has been no change to the fair valuation methodology
adopted in the year ended 31 March 2018.
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
(3.0)
3.0
A sensitivity on plan life has not been included as it is considered
to be covered by the changes in cancellation rates above.
Other accrued income relates to Expert Logistics revenue from
third parties not invoiced at 31 March 2018 of £0.3m (2017: £0.5m).
Prepayments and other
At 31 March 2018, there is £15.6m (2017: £11.0m) included in
prepayments and other in relation to commercial income.
At 31 May 2018, the balance outstanding was £4.6m (2017: £1.1m).
AO World Plc
Annual Report and Accounts 2018
116
23. Net funds
25. Borrowings
Cash and cash equivalents
Bank overdraft
Borrowings – Repayable within one year
Borrowings – Repayable after one year
Net funds
2018
£m
56.0
(3.1)
(4.2)
(10.4)
38.3
2017
£m
29.4
–
(3.7)
(13.7)
12.0
Movement in financial liabilities in the year was as follows:
Balance at 1 April 2017
Changes from financing cash flows
Proceeds from loans
Repayment of borrowings
Repayment of finance lease liabilities
Total changes from financing cash flows
Other changes
New finance leases
Exchange difference
Total other changes
Balance at 31 March 2018
Bank loans
£m
4.3
Finance
lease
liabilities
£m
13.1
1.1
(0.9)
–
0.2
–
0.1
0.1
4.6
–
–
(3.2)
(3.2)
0.1
–
0.1
10.0
At 31 March 2018, AO Limited, a direct subsidiary of AO World
Plc, had undrawn amounts on its Revolving Credit Facility of
£58.6m. The total facility is £60m (increase of £30m on the prior
year following the addition of HSBC Bank plc to, and increases
in Barclays Bank plc and Lloyds Bank plc holdings in, the facility
in November 2017). The amount drawn at the year end was in
relation to letters of credit. The Revolving Credit Facility expires
in June 2021.
24. Trade and other payables
Trade payables
Other payables:
– Accruals
– Deferred income
– Other
2018
£m
118.4
20.7
6.9
10.0
156.0
2017
£m
105.9
17.8
7.8
8.7
140.2
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. The
average credit period taken for trade purchases is 56 days
(2017: 63 days).
All values are payable within 12 months.
Secured borrowing at amortised cost
Bank loans
Finance lease liabilities (see note 26)
Total borrowings
Amount due for settlement within
12 months
Amount due for settlement after
12 months
Total borrowings
2018
£m
4.6
10.0
14.6
4.2
10.4
14.6
2017
£m
4.3
13.1
17.4
3.7
13.7
17.4
Finance leases relate primarily to certain fixtures and fittings,
plant and machinery and motor vehicles.
The Group’s bank loans mature between November 2019 and
March 2021 and have interest rates ranging from 1.75% to 4.6%.
26. 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
27. Provisions
Provisions
Provisions are classified as:
Non-current liabilities
Current liabilities
At 1 April 2017
Utilised
Unwind of interest
Provisions created in the year
At 31 March 2018
Minimum lease payments
2017
£m
2018
£m
3.4
7.3
10.7
3.7
10.5
14.2
Present value of minimum
lease payments
2018
£m
3.0
7.0
10.0
2018
£m
1.8
2018
£m
1.8
–
1.8
Dilapidations
provision
£m
1.5
(0.1)
0.1
0.3
1.8
2017
£m
3.3
9.8
13.1
2017
£m
1.5
2017
£m
1.4
0.1
1.5
Total
£m
1.5
(0.1)
0.1
0.3
1.8
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.
AO World Plc
Annual Report and Accounts 2018
117
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Notes to the consolidated financial statements
For the year ended 31 March 2018 continued
28. Share capital and share premium
At 1 April 2017
Share Issue
At 31 March 2018
Number of
shares
m
421.1
37.7
458.8
Share
capital
£m
1.1
–
Share
premium
£m
55.7
48.0
1.1
103.7
On 3 April 2017, the Company completed a placing of new shares
(37,735,849 ordinary shares) in the Company to raise £50.0m to
suitably capitalise the business to support the Group’s continued
growth and increased scale.
Costs of £1.9m in relation to share placing have been netted off
the share premium account.
29. Non-controlling interest
Balance at 31 March 2017
Share of (profit)/loss for the year
Balance at 31 March 2018
2018
£m
1.7
(0.1)
1.6
2017
£m
0.9
0.8
1.7
The non-controlling interest relates to 40% of the share capital of
AO Recycling Limited (formerly known as The Recycling Group
Limited) not currently owned by the AO Group.
At 31 March 2018, AO Recycling Limited had non-current assets
of £6.8m (2017: £7.0m), net current liabilities of £7.7m (2017:
£7.3m) and non-current liabilities of £3.3m (2017: £4.2m). During
the year, AO Recycling Limited contributed £10.8m (2017: £4.0m)
and £1.5m (2017: £0.7m loss) to the Group’s revenue and
Adjusted EBITDA respectively. Net cash inflow was £0.4m
(2017: £0.1m outflow).
31. Share-based payments
Performance Share Plan
The table below summarises the amounts recognised in the
income statement during the year.
IPO LTIP
2015 LTIP
2016 LTIP
ERP
2017 LTIP
Sharesave scheme
Total share scheme charge
Employers NI on scheme charges
2018
£m
–
–
0.4
4.1
0.4
0.6
5.5
0.5
6.0
2017
£m
0.9
(0.1)
0.4
2.4
–
0.4
4.0
0.3
4.3
The table below shows the share-based payment charge in
relation to exceptional LTIP charges (included in charge above).
IPO LTIP
ERP
Employers NI on exceptional ERP
Exceptional LTIP awards
2018
£m
–
4.1
0.4
4.5
2017
£m
0.9
2.4
0.3
3.6
The details regarding each of the schemes is detailed below.
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.
30. 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.
Threshold (25% vesting)
Threshold (50% vesting)
Maximum (100% vesting)
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 year ended
31 March 2012 and 2014 respectively.
The other reserve arose on the acquisition of AO Recycling
Limited and relates to the difference between the gross and fair
valuation of the put option.
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 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%
AO World Plc
Annual Report and Accounts 2018
118
The awards vest on a straight-line basis between each threshold
in all cases.
One-third of the awards are subject to a Group Adjusted EBITDA
performance condition over the performance period.
The following table illustrates the number and weighted average
exercise price (WAEP) of, and movements in, share options
granted under the 2015 LTIP Awards.
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
Lapsed during
the year
Outstanding at
the end of the
year
1,166,543
–
(225,413)
(941,130)
–
* Weighted average exercise price.
–
–
–
–
–
1,224,239
–
(57,696)
–
1,166,543
–
–
–
–
–
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 year ended 31 March 2016,
31 March 2017 and 31 March 2018.
Risk-free rate
Expected volatility
Expected dividend yield
Option life
0.80%
50.00%
N/A
3 years
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 year ended
31 March 2016, 31 March 2017 and 31 March 2018.
Risk-free rate
Expected volatility
Expected dividend yield
Option life
0.00%
N/A
0.00%
3 years
At 31 March 2018, the vesting period ended. As no performance
criteria were met no options were exercised and the awards in
relation to TSR (£0.1m) were transferred from the share option
reserve to the profit and loss reserve.
2016 LTIP Awards
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
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%+
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.
2018
No. of
options
2018
WAEP(£)*
2017
No. of
options
2017
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
–
(394,241)
–
–
–
–
3,047,820
(37,932)
2,615,647
– 3,009,888
–
–
–
–
* Weighted average exercise price.
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
and 31 March 2018.
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 was £1.04.
For the shares outstanding at 31 March 2018, the remaining
average contractual life is 1.3 years.
There were no awards exercisable as at 31 March 2018.
AO World Plc
Annual Report and Accounts 2018
119
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Notes to the consolidated financial statements
For the year ended 31 March 2018 continued
31. Share-based payments (continued)
2017 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 2017 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 General Retailers
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
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 2020
<£15.3m
£15.3m
£21.9m
£28.5m+
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
<£921.3m
£921.3
969.8m
£1081.3m+
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 2017 LTIP Awards.
The fair value of the share options granted under the 2017 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 2018.
Risk-free rate
Expected volatility
Expected dividend yield
Option life
0.30%
47.9%
N/A
3 years
The share options granted under the 2017 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 £1.03.
The weighted average fair value of options granted was £0.96.
For the shares outstanding at 31 March 2018, the remaining
average contractual life is 2.3 years.
There were no awards exercisable as at 31 March 2018.
Employee Reward Plan (ERP)
In 2016 the Group made conditional awards of nil-cost options to
certain 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 is greater than 10% per annum compound.
The fair value was determined to be the share price at grant date
of £1.48.
The following table illustrates the number and weighted average
exercise price (WAEP) of, and movements in, share options
granted under the ERP.
2018
No. of
options
2018
WAEP(£)*
2017
No. of
options
2017
WAEP(£)*
6,344,445
Outstanding at
the beginning of
the year
Granted during
the year
Forfeited during
the year
Outstanding at
the end of the year 5,984,445
(450,000)
–
–
–
– 6,466,667
–
(122,222)
– 6,344,445
–
–
–
–
2018
No. of
options
2018
WAEP(£)*
2017
No. of
options
2017
WAEP(£)*
The weighted average fair value of options granted during the
year was £1.48. For the shares outstanding at 31 March 2018, the
remaining average contractual life is 1.3 years.
Outstanding at
the beginning of
the year
Granted during
the year
Forfeited during
the year
Outstanding at
the end of the
year
–
3,699,450
(579,458)
3,119,992
* Weighted average exercise price.
–
–
–
–
–
–
–
–
There were no awards exercisable as at 31 March 2018.
–
–
–
–
As part of the executive restructure in the year set out in note 3,
a number of executives left the business. These employees had
their service conditions waived in relation to the ERP scheme.
The acceleration of the vesting period represents a modification
that is beneficial to an employee and therefore the modified
grant date method is applied. The fair value of the replacement
award is equal to that of the original award due to the share
price on cessation being used for both and therefore no
incremental cost is required to be reported under IFRS 2. The
acceleration of the service period however results in an additional
charge of £1.4m in the year.
AO World Plc
Annual Report and Accounts 2018
120
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
(2015) and a Black-Scholes (2016, 2017 and 2018) model. The
difference in valuations for the 2015 scheme between the
binomial and Black-Scholes model is not significant.
32. Operating lease arrangements
Non-cancellable operating lease rentals are payable as follows:
Within one year
In the second to fifth years inclusive
After five years
2018
£m
16.1
48.8
31.2
96.1
2017
£m
15.0
46.0
34.5
95.5
During the year to 31 March 2018, £15.7m (2017: £13.3m) was
recognised as an expense in the income statement in respect of
operating leases.
The following table illustrates the number and weighted average
exercise price (WAEP) of, and movements in, share options
granted under the Sharesave scheme:
Operating leases principally represent rentals in respect of motor
vehicles, office buildings and warehouse properties.
2018
No. of
options
2018
WAEP(£)*
2017
No. of
options
2017
WAEP(£)*
33. Retirement benefit schemes
Defined contribution schemes
The pension cost charge for the year represents contributions
payable by the Group and amounted to £3.7m (2017: £2.8m).
Outstanding at
the beginning of
the year
Granted during
the year
Forfeited during
the year
Lapsed during
the year
Outstanding at
the end of the
year
1,479,535
1.54
1,388,617
1,946,887
0.89
506,252
1.56
1.49
(935,453)
1.32
(415,334)
(1.57)
(202,551)
0.26
–
–
2,288,418
1.01
1,479,535
1.54
* Weighted average exercise price.
During the year ended 31 March 2018, options were granted on
1 February 2018. For the shares outstanding at 31 March 2018, the
remaining weighted average contractual life is 2.49 years (2017:
1.95 years). The weighted average fair value of options granted
during the year was £0.89 per share (2017: £1.49).
The following table gives the assumptions made during the year
ended 31 March 2018:
For options granted on
Risk-free rate
Expected volatility
Expected dividend
yield
Option life
30 January
2015
0.64%
24.74%
29 January
2016
0.54%
43.53%
1 March
2017
0.41%
49.9%
1 February
2018
0.79%
46.5%
0.00%
3 years
0.00%
3 years
0.00%
3 years
0.00%
3 years
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 three years.
Contributions totalling £0.3m (2017: £0.3m) were payable at the
end of the year and are included in accruals.
34. 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 22 and
24, 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 AO Recycling Limited 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.
AO World Plc
Annual Report and Accounts 2018
121
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Notes to the consolidated financial statements
For the year ended 31 March 2018 continued
34. 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:
2018
Carrying
amount
£m
2018
Fair value
£m
2017
Carrying
amount
£m
2017
Fair value
£m
Financial assets designated as fair value through profit or loss
Accrued income (see note 22)
Call option
Loans and receivables
Cash and cash equivalents
Trade receivables (see note 22)
Prepayments and other receivables (see note 22)
Total financial assets
Financial liabilities measured at amortised cost
Bank overdraft
Trade payables (see note 24)
Other payables (see note 24)
Borrowings (see note 25)
Financial liabilities at fair value through profit and loss
Put option to acquire non-controlling interest
Total financial liabilities
Total financial instruments
61.9
2.4
56.0
8.7
32.2
161.2
(3.1)
(118.4)
(37.6)
(14.6)
(3.8)
(177.5)
(16.3)
61.9
2.4
56.0
8.7
32.2
161.2
(3.1)
(118.4)
(37.6)
(14.6)
–
(173.7)
(12.5)
51.4
1.3
29.4
6.3
23.2
111.6
–
(105.9)
(34.3)
(17.4)
(3.4)
(161.0)
(49.4)
The table below shows the movement in valuation for both the call and put option during the year.
Call option
At 1 April 2016
Change in valuation
At 31 March 2017
Change in valuation
At 31 March 2018
Put option
At 1 April 2016
Change in valuation
At 31 March 2017
Unwind of discount
Change in valuation
At 31 March 2018
51.4
1.3
29.4
6.3
23.2
111.6
–
(105.9)
(34.3)
(17.4)
(0.5)
(158.1)
(46.5)
£m
0.8
0.5
1.3
1.1
2.4
£m
2.7
0.7
3.4
0.3
0.1
3.8
AO World Plc subscribed for 300 shares (60%) of AO Recycling Limited in November 2015 for £3 with the remaining 200 shares
(40%) being retained by the founders of AO Recycling Limited. 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 seperate tranches
under five put and call options to be exercised following the approval of the AO Recycling Limited accounts for the financial years
ending 31 March 2018 to 31 March 2022 inclusive. This is subject to certain performance conditions, mainly EBITDA performance.
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).
AO World Plc
Annual Report and Accounts 2018
122
Financial assets
At 31 March 2018
Accrued income (see note 22)
Call option
At 31 March 2018
At 31 March 2017
Accrued income (see note 22)
Call option
At 31 March 2017
Financial liabilities
At 31 March 2018
Put option to acquire non-controlling interest
At 31 March 2018
At 31 March 2017
Put option to acquire non-controlling interest
At 31 March 2017
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
–
–
–
–
–
–
61.9
2.4
64.3
51.4
1.3
52.7
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
–
–
3.8
3.8
3.4
3.4
Total
£m
61.9
2.4
64.3
51.4
1.3
52.7
Total
£m
3.8
3.8
3.4
3.4
The fair value hierarchy for the call and put options is consistent for both the Group and parent Company.
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 significant. 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 2018
Not past due
Past due 0–30 days
Past due 31–120 days
More than 120 days
At 31 March 2017
There has been no impairment charged to trade receivables in the current year.
2018
£m
61.9
8.7
70.6
Gross
£m
8.5
0.2
–
–
8.7
6.0
0.2
0.1
–
6.3
2017
£m
51.4
6.3
57.7
Net
£m
8.5
0.2
–
–
8.7
6.0
0.2
0.1
–
6.3
AO World Plc
Annual Report and Accounts 2018
123
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Notes to the consolidated financial statements
For the year ended 31 March 2018 continued
34. 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 2018
Non-derivative financial liabilities
Finance lease liabilities
Trade and other payables
Bank loans
At 31 March 2017
Carrying
amount
£m
Contractual
cash flows
£m
Within
1 year
£m
Between
1 and 5 years
£m
In more than
5 years
£m
10.0
149.1
4.6
163.7
10.7
149.1
1.6
161.4
3.4
149.1
1.0
153.5
7.3
–
0.6
7.9
–
–
–
–
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
–
–
–
–
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 34f.
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
Fixed rate
Variable rate
2018
£m
13.8
0.8
14.6
2017
£m
13.1
4.3
17.4
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 net cash, borrowings (disclosed in note 23) and equity of the Group. The Group is not
subject to any externally imposed capital requirements. In addition, as set out in note 23, AO Limited a direct subsidiary of AO World
Plc and the holding company of AO Retail Limited and Expert logistics Limited, has access to a £60m Revolving Credit Facility which
expires in June 2021.
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 2018
124
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
2018
£m
103.5
2017
£m
68.6
Assets
2018
£m
11.6
2017
£m
11.5
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.
Sterling strengthens by 10%
Sterling weakens by 10%
Euro currency impact
2018
£m
(8.4)
10.2
2017
£m
(5.2)
6.3
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.
35. 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
2018
£m
–
2017
£m
–
Purchase of goods
and services
2018
£m
–
2017
£m
0.1
Booker Limited
There were no outstanding amounts at the statement of financial
position date (2017: £nil).
Booker Limited is a Company which R Rose (a Director, resigned
on 21 July 2016) has an interest in.
Transactions with Directors and key management personnel
The compensation of key management personnel (including the
Directors) is as follows:
Key management emoluments including
social security costs
Awards granted under a long-term
incentive plan
Company contributions to money
purchase plans
2018
£m
4.1
2.6
0.3
7.0
2017
£m
4.2
3.1
0.1
7.4
Further information about the remuneration of individual
Directors is provided in the audited part of the Directors’
Remuneration Report on pages 77 to 90.
On 3 April 2017, the Company completed a placing of new shares
(37,735,849) to raise £50.0m to suitably capitalise the business
to support continued growth. The table below shows the shares
subscribed for by directors of the Company.
In management 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.
Steve Caunce
John Roberts
Mark Higgins
Chris Hopkinson
Number
Value
£
1,509,433 2,000,000
1,509,433 2,000,000
5,000
754,716 1,000,000
3,773
All are related as they are Directors of AO World plc.
AO World Plc
Annual Report and Accounts 2018
125
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Company statement of financial position
As at 31 March 2018
Non-current assets
Intangible assets
Property, plant and equipment
Investment in subsidiaries
Deferred tax asset
Derivative financial asset
Current assets
Corporation tax receivable
Derivative financial asset
Trade and other receivables
Cash at bank and in hand
Total assets
Current liabilities
Bank overdraft
Trade and other payables
Borrowings
Net current assets
Non-current liabilities
Borrowings
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
4
5
3
7
11
11
8
9
10
10
11
12
12
2018
£m
0.7
2.6
63.1
0.8
2.2
69.4
0.2
0.2
74.7
8.6
83.7
153.1
–
(60.8)
(0.3)
(61.1)
22.6
(0.6)
–
(61.7)
91.4
1.1
103.7
4.4
0.5
9.1
(27.4)
91.4
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
The financial statements of AO World Plc, registered number 05525751, were approved by the Board of Directors and authorised for
issue on 4 June 2018. They were signed on its behalf by:
Steve Caunce
CEO
AO World Plc
Mark Higgins
CFO
AO World Plc
AO World Plc
Annual Report and Accounts 2018
126
Company statement of changes in equity
As at 31 March 2018
At 1 April 2016
Profit for the year
Share-based payments charge net of tax
Transfer between reserves
Balance at 31 March 2017
Loss for the year
Issue of shares (net of expenses)
Share-based payments charge net of tax
(see note 31 of consolidated accounts)
Transfer between reserves (see note 31
of consolidated accounts)
Balance at 31 March 2018
Share
capital
£m
1.1
Share
premium
account
£m
55.7
Merger
reserve
£m
4.4
Capital
redemption
reserve
£m
0.5
–
–
–
1.1
–
–
–
–
1.1
–
–
–
55.7
–
48.0
–
–
–
–
–
4.4
–
–
–
–
–
–
–
0.5
–
–
–
–
103.7
4.4
0.5
Share-
based
payments
reserve
£m
3.1
–
4.0
(3.3)
3.8
–
–
5.4
(0.1)
9.1
Retained
losses
£m
(20.6)
14.7
–
3.3
(2.6)
(24.9)
–
–
0.1
(27.4)
Total
£m
44.2
14.7
4.0
–
62.9
(24.9)
48.0
5.4
–
91.4
AO World Plc
Annual Report and Accounts 2018
127
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Notes to the Company financial statements
For the year ended 31 March 2018
1. Basis of preparation and accounting policies
Basis of preparation
These financial statements were prepared in accordance with
Financial Reporting Standard 101 Reduced Disclosure Framework
(“FRS 101”).
In preparing these financial statements, the Company applies
the recognition, measurement and disclosure requirements of
International Financial Reporting Standards as adopted by the
EU (“Adopted IFRSs”), but makes amendments where necessary
in order to comply with the Companies Act 2006 and has set out
below where advantage of the FRS 101 disclosure exemptions
has been taken.
In the transition to FRS 101 from Adopted IFRS, the Company has
made no measurement and recognition adjustments.
Under section s408 of the Companies Act 2006, the Company
is exempt from the requirement to present its own profit and
loss account.
In these financial statements, the Company has applied the
exemptions available under FRS 101 in respect of the following
disclosures:
— a Cash Flow Statement and related notes;
— comparative period reconciliations for share capital, tangible
fixed assets, intangible assets;
— disclosures in respect of transactions with wholly owned
subsidiaries;
— disclosures in respect of capital management;
— the effects of new but not yet effective IFRSs;
— disclosures in respect of the compensation of key
management personnel; and
— disclosures of transactions with a management entity that
provides key management personnel services to the
Company.
As the consolidated financial statements include the equivalent
disclosures, the Company has also taken the exemptions under
FRS 101 available in respect of the following disclosures:
— IFRS 2 Share Based Payments in respect of Group-settled
share-based payments
— certain disclosures required by IAS 36 Impairment of assets in
respect of the impairment of goodwill and indefinite life
intangible assets; and
— certain disclosures required by IFRS 13 Fair Value
Measurement and the disclosures required by IFRS 7 Financial
Instrument Disclosures.
Investments
Investments in subsidiaries are stated at cost less, where
appropriate, provisions for impairment.
Other accounting policies
For other accounting policies, please refer to the Group
accounting policies on page 105.
2. Operating profit/(loss)
The Auditor’s remuneration for audit and other services is
disclosed in note 9 to the consolidated financial statements.
3. Investment in subsidiaries
Cost at 31 March 2017
Additions
Group share-based payments
Cost at 31 March 2018
2018
£m
12.2
50.0
0.9
63.1
2017
£m
11.5
–
0.7
12.2
The addition in the year relates to BERE Limited which was
incorporated to facilitate the placing of shares. At 31 March 2017,
AO World Plc held 89% of the total issued share capital. Post
31 March 2017 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.
In addition, the Company has made capital contributions to its
subsidiaries of £0.9m (2017: £0.7m) in relation to the allocation of
share-based payment charges.
4. Intangible assets
Cost
At 31 March 2017
Additions
At 31 March 2018
Amortisation
At 31 March 2017
Charge for the year
At 31 March 2018
Carrying amount
At 31 March 2018
At 31 March 2017
Domain
names
£m
Software
£m
Total
£m
1.1
0.1
1.2
0.3
0.5
0.8
0.4
0.8
0.7
0.1
0.8
0.3
0.2
0.5
0.3
0.4
1.8
0.2
2.0
0.6
0.7
1.3
0.7
1.2
Amortisation is charged to administrative costs in the income
statement.
5. Property, plant and equipment
Cost
At 31 March 2017
Additions
At 31 March 2018
Accumulated depreciation
At 31 March 2017
Charge for the year
At 31 March 2018
Carrying amount
At 31 March 2018
At 31 March 2017
Computer
and office
equipment
£m
Leasehold
improvements
£m
0.9
0.1
1.0
0.4
0.2
0.6
0.4
0.5
–
2.3
2.3
–
0.1
0.1
2.2
–
Total
£m
0.9
2.4
3.3
0.4
0.3
0.7
2.6
0.5
AO World Plc
Annual Report and Accounts 2018
128
6. Subsidiaries
Details of the Company’s subsidiaries at 31 March 2018 are as follows:
Principal place of
business
Name of subsidiary
United Kingdom
AO Retail Limited
United Kingdom
Expert Logistics Limited
United Kingdom
Worry Free Limited
United Kingdom
Elekdirect Limited
United Kingdom
Appliances Online Limited
Germany
AO Deutschland Limited
United Kingdom
AO Limited
Belgium
AO.BE SA
Netherlands
AO.NL BV
Netherlands
AO Logistics (Netherlands) BV
United Kingdom
AO Recycling Limited
United Kingdom
WEEE Collect It Limited
WEEE Re-use It Limited
United Kingdom
Electrical Appliance Outlet Limited United Kingdom
BERE Limited
Jersey
Class of Shares Held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary and redeemable
preference share
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%
100%
Principal activity
Retail
Logistics and transport
Dormant
Retail
Dormant
Retail
Holding company
Dormant
Retail
Logistics and transport
WEEE recycling
Dormant
Dormant
Retail
Investment company
* 0.01% of the investment in AO.BE SA was held in AO Deutschland.
** Indirectly owned by AO Limited.
All companies within the Group are registered at the same address disclosed on page 131 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
7. 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 2016
Credit to income statement
Deferred tax asset at 31 March 2017
(Debit)/credit to income statement
Deferred tax asset at 31 March 2018
Other timing
difference
£m
Share
options
£m
–
0.1
0.1
(0.1)
–
0.7
–
0.7
0.1
0.8
Total
£m
0.7
0.1
0.8
–
0.8
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 (2017: £0.1m) in respect of share options.
AO World Plc
Annual Report and Accounts 2018
129
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Notes to the Company financial statements
For the year ended 31 March 2018 continued
8. Trade and other receivables
Prepayments
Other receivables
Amounts owed by Group undertakings
2018
£m
0.5
0.5
73.7
74.7
2017
£m
2.2
0.2
55.8
58.2
Amounts owed by Group undertakings are repayable on demand
and carry no interest.
9. Trade and other payables
Trade payables
Accruals
Other payables
Amounts owed to Group undertakings
2018
£m
0.9
4.9
0.5
54.5
60.8
2017
£m
0.3
3.8
0.4
6.5
11.0
11. Derivative financial assets and liabilities
The movement in the valuation of the call and put options issued
on the acquisition of AO Recycling Limited is as follows.
Call option
At 1 April 2016
Change in valuation
At 31 March 2017
Change in valuation
At 31 March 2018
Put option
At 1 April 2016
Change in valuation
At 31 March 2017
Change in valuation
At 31 March 2018
£m
0.8
0.5
1.3
1.1
2.4
£m
0.7
(0.2)
0.5
(0.5)
–
The carrying amount of trade payables approximates to their
fair value.
Amounts owed to Group undertakings are payable on demand
and carry no interest
10. Borrowings
At 1 April 2017
Share Issue
At 31 March 2018
Number of
shares
m
421.1
37.7
458.8
Share
capital
£m
1.1
–
Share
premium
£m
55.7
48.0
1.1
103.7
12. Share capital and share premium
Secured borrowing at amortised cost
Bank loans
Total borrowings
Amount due for settlement within
12 months
Amount due for settlement after
12 months
Total borrowings
2018
£m
0.9
0.9
0.3
0.6
0.9
2017
£m
–
–
–
–
–
On 3 April 2017 the Company completed a placing of new shares
(37,735,849 ordinary shares) in the Company to raise £50.0m to
suitably capitalise the business to support the Group’s continued
growth and increased scale.
Costs of £1.9m in relation to share placing have been netted off
the share premium account.
13. Operating lease arrangements
Non-cancellable operating lease rentals are payable as follows:
Bank loans interest rates range from 4.3%–4.6% with all loans
maturing in the financial period ending 31 March 2021.
Movements in the year were as follows:
Within one year
In the second to fifth years inclusive
After five years
2018
£m
0.8
3.2
4.6
8.6
2017
£m
–
–
–
–
Bank loans
£m
–
During the year, £0.4m was recognised as an expense in the
income statement in respect of operating leases. The operating
lease relates to land and buildings.
1.0
(0.1)
0.9
–
0.9
14. Share-based payments
The Company recognised total expenses of £4.6m (2017: £3.3m)
in the year in relation to both the Performance Share Plan
(referred to as LTIP) and the AO Sharesave scheme (referred to
as SAYE). Details of both schemes are described in note 31 to the
consolidated financial statements.
15. Related parties
During the year the Company entered into transactions with non
wholly owned Group entities as follows:
Administration cost recharged to AO
Recycling Limited
Balance outstanding is £3.7m (2017: £5.9m).
2018
£m
0.1
2017
£m
0.4
Balance at 1 April 2017
Changes from financing cash flows
Proceeds from loans and borrowings
Repayment of borrowings
Total changes from financing cash flows
Total other changes
Balance at 31 March 2018
AO World Plc
Annual Report and Accounts 2018
130
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-world.com,
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 Link share dealing service either online
(www.linksharedeal.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 8 am and 4.30 pm,
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 adviser 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.
Important information
Registered office and headquarters
AO Park
5A The Parklands
Lostock
Bolton BL6 4SD
Registered number: 5525751
Tel: 01204 672400
Web: ao-world.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
HSBC Bank Plc
4 Hardman Square
Spinningfields
Manchester M3 3EB
Registrar
Link 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 9.00 am to 5.30 pm Monday to Friday excluding
public holidays in England and Wales.
Web: www.linkassetservices.com
Email: shareholder.services@link.co.uk
AO World Plc
Annual Report and Accounts 2018
131
OverviewStrategic ReportOur GovernanceOur ResultsShareholders’ Information Glossary
4Cs strategy means how we will achieve our mission to become
the best electrical retailer in Europe, through focusing on culture
and brand, customers, competencies 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,
share-based payment charges/(credits) attributable to
exceptional LTIP awards and exceptional restructuring costs
which the Board considers one-off in nature.
AGM means the Group’s Annual General Meeting
An AOer 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 2016
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
EPS means earnings per share
ERP means Employee Reward Plan
Europe means the Group’s entities operating within the European
Union, but outside the UK
GAAP means Generally Accepted Accounting Practice
GHG means greenhouse gas
IAS means International Accounting Standards
IFRS means International Financial Reporting Standards
IPO means the Group’s Initial Public Offering in March 2014
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
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
CRM means customer relationship management
SKUs means stock keeping units
CRR mean Corporate Risk Register
D&G means Domestic and General
DofE means Duke of Edinburgh scheme
UK means the Group’s entities operating within the
United Kingdom
WEEE means Waste Electrical and Electronic Equipment
AO World Plc
Annual Report and Accounts 2018
132
There’s lots more online:
UK sites:
Customer
www.ao.com
Corporate
www.ao-world.com
German site:
Customer
www.ao.de
The Netherlands site:
Customer
www.ao.nl
This Report is printed on materials which
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These materials contain ECF (Elemental
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AO World Plc
AO Park
5A The Parklands
Lostock
Bolton BL6 4SD