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AO World Plc
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27474 15 July 2020 1:38 pm Proof 13How we performed in FY20*£1,046.2mGroup revenue up 15.9%£(3.8)mOperating loss reduced by 70.8%£40.8mUK Adjusted EBITDA up 7.0%£19.6mGroup Adjusted EBITDA increased by 53.6%Overview4 Our eco-system of expertise and services6 Our resources and relationships that allow us to deliver our eco-systemStrategic Report12 Chairman’s Statement15 Chief Executive Officer’s strategic review18 Q&A24 Marketplace25 Our markets: UK28 Our markets: Germany30 Our business model32 Our strategy36 Our risks50 Corporate social responsibility63 Chief Financial Officer’s reviewGovernance76 Chairman’s letter and introduction78 Board of Directors80 Corporate governance report88 Nomination Committee report92 Audit Committee report98 Directors’ remuneration report124 Directors’ reportOur Results132 Independent Auditor's report144 Consolidated income statement145 Consolidated statement of comprehensive income146 Consolidated statement of financial position147 Consolidated statement of changes in equity148 Consolidated statement of cash flows149 Notes to the consolidated financial statements187 Company statement of financial position188 Company statement of changes in equity189 Notes to the Company financial statementsShareholder Information196 Important information197 GlossaryContents* FY20 is defined as the 12 months ended 31 March 2020.AO-World-AR2020.indd 315/07/2020 14:19:09 27474 15 July 2020 1:38 pm Proof 13Our investment caseThe key ingredients and what makes us stand out from the rest1.Our compelling customer proposition• Our eco-system of expertise and services• Our customer relationships See pages 4 and 82.Our scalable business model and growth opportunities• One AO approach and our business model• Our strategy See pages 22-23 and 30-353.Our amazing culture• The AO Way See pages 6–74.Our resources and relationships• Our key inputs and partnerships with our suppliers See page 95.Our leading position in the online electrical market• Market share• Future outlook See pages 24-29How we performed in FY20*£(3.8)mOperating loss reduced by 70.8%£19.6mGroup Adjusted EBITDA increased by 53.6%FY20 Operational highlights• Commenced roll-out of One AO model across the Group to scale the businesses in our eco-system • Achieved UK MDA growth of 9.1% year-on-year • Renewed focus on evolving the customer proposition• Maintained exceptional Net Promoter Score results across all territories• Operational changes made in German business provide confidence in journey to profitability• Closure of operations in the Netherlands• New plastics plant built, and operational in its final phase of testing and commissioning OverviewStrategic ReportOur GovernanceOur ResultsShareholder InformationAO World PlcAnnual Report and Accounts 202001AO-World-AR2020.indd 115/07/2020 14:19:10 AO
Let’s go!
We are a leading online retailer,
selling electricals in the UK and Germany,
and delivering them with amazing service
via our in-house logistics network.
In 2000 we started by selling white goods, big items like fridge freezers, cookers and
washing machines. We now sell all kinds of electronics across the following categories:
major domestic appliances, small domestic appliances, audio visual equipment, computing,
mobile, gaming and smart home technology; we now sell over 8,500 different products on
ao.com to millions of happy customers. We also install and offer financial services on
these products, insure them and even recycle old ones.
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Our
mission
To be the global destination for electricals
Our
strategy
Our strategy is to focus on being brilliant for our customers
to make us the destination for everything they need, in the simplest
and easiest way, when buying electricals.
Read more about our strategy on pages 32 - 35
Our
values
We are bold, smart, driven, fun and caring
Read more about our values on page 7
Our
culture
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We keep it simple, we treat every customer like they’re our gran and make decisions
our mum would be proud of. Our team care passionately about
doing the right thing and so we empower them to make great decisions.
Read more about the AO Way on page 6
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AO World Plc
Annual Report and Accounts 2020
03
Our eco-system of expertise and services
Our eco-system is a range of our expertise and services – from across retail,
recycling and logistics through to financial services, trade and new business
streams. Our customers are at the heart of everything we do and that’s why we
are constantly evolving our eco-system to meet market demand and ensure
we achieve our mission. It’s not about what we do though, it’s how we do it.
See pages 30–31 to see how we do it
Retail
Our main capability: selling
electricals, and selling them well.
From fridges and freezers, laundry products and dishwashers, to
smart tech, computing and TV and entertainment. We sell over
8,500 products on our multiple e-commence platforms, all at a
competitive price. Following the acquisition of mobilephonesdirect.
co.uk in December 2018 and the launch of AO Mobile during FY20,
our mobile offering now includes network contracts and SIMs.
Financial services
Product protection plans and
customer credit products.
We work with Domestic & General (the UK’s leading specialist
warranty provider) to offer our customers a product protection
plan to provide them with the peace of mind that their new
product could be repaired or replaced if required. 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 ensure
adherence to responsible lending practices and provide simple
and clear finance options for our customers.
Rental
A rental proposition where customers
can rent products for just £2 a week.
We believe that everybody should have access to reliable, quality
electricals and we are on a mission to make it affordable. As part
of our rental trial, a monthly payment of £8.67 includes delivery,
installation and the recycling of an old appliance and on top of
this, we’ll always repair or replace the product if something goes
wrong. It’s also free and easy to cancel a contract at any given
time.
Recycling
Our purpose-built, state-of-the-art WEEE (Waste
Electrical and Electronic Equipment) and plastics
recycling facilities in Telford.
Bertha (our WEEE recycling facility) is capable of processing
fridges and other large domestic appliances responsibly and
correctly. As the biggest WEEE recycling facility in the UK, we can
recycle around 700,000 appliances every year; almost a quarter
of the UK’s total. Our new plastics facility will allow us to sort the
output from Bertha for reuse or resale.
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Financial
services
Rental
Retail
Recycling
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Multimedia
Our in-house multimedia team produce
our diverse website content and other
Company communications.
Our team are able to add value for both our customers and
manufacturers by telling product stories brilliantly. An example
of some of this content would be our fantastic how-to videos:
a step-by-step guide on how to install and correctly and
effectively use one of our products.
International
Our ability to scale our eco-system
and operations.
We can do this because, for example, our products, the methods
of online shopping, digital marketing and delivery processes and
systems are fundamentally the same in all territories. Further, all
customers desire a great digital journey and proposition. When
the time is right, we will leverage our UK resource and expertise
to grow into other European territories at a relatively low cost.
Logistics
Our in-house logistics network.
Comprising three distribution centres, with a total of over
800,000 square feet, 17 delivery depots and around 500 trucks
and 200 trailers, we are able to offer nationwide delivery seven
days a week with dynamic timeslots and next day options. Our
delivery service doesn’t stop there: from the basics of unpacking
and inspecting customers’ products, to complex gas cooking
and integrated installations – we go the extra mile.
B2B
Our business-to-business offering.
We support large companies, schools, large landlords,
housebuilders and charities. We have formalised our B2B offer
with a dedicated website and specialist teams, built up of
agents and account managers with a deep understanding of
the markets they serve to support complex orders and offline
queries.
Retail
Multimedia
International
Logistics
B2B
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AO World Plc
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05
27474 15 July 2020 1:38 pm Proof 13Our AO “Let’s go” culture is how we deliver for customers. Our excellent 4.7 star Trustpilot rating and NPS results don’t just happen by accident, nor do our expanding eco-system and competencies. Behind every happy customer is around 3,000 AOers, across two countries. Together, we relentlessly strive for a better way.Our ambition is to be a business that:• inspires its people through great leadership, creating trust and accountability to deliver exceptional results as One AO;• enables our people to collaborate and innovate, supported by the right information and tools to do their job; and• empowers people to thrive by creating an inclusive environment where people feel they belong and can be their true selves.We share clear line of sight on our ambitions and priorities. We empower people to make the right decisions that would make their mums proud.Culture and talentThe AO WayWe inspire our people to be bold and give things a go without being frightened of making a mistake. We believe we learn best through the experiences we have – if we don’t try something different, we will never move forward. We believe in coming to work with an open mind, to create new opportunities. We provide the right environment for smart ideas, thinking in unconstrained ways. We motivate our people to be driven and to never give up. We see every obstacle as a chance to pursue a better way. We act with pace; we do today what can be done tomorrow. Winning as a team is what makes our business fun. We treat every customer like they’re our gran, to ensure our customers are the happiest, and we take pride in our work to deliver it.It is the combination of all these factors and the alignment of our people to our purpose, values, business strategy and priorities that creates our AO “Let’s go” culture. This makes us stronger and more resilient as a business, supporting our continued growth and making us an unstoppable force.Our resources and relationships that allow us to deliver our eco-systemAO World PlcAnnual Report and Accounts 202006AO-World-AR2020.indd 615/07/2020 14:19:13 27474 15 July 2020 1:38 pm Proof 13Just like our purpose, our values are what makes us such a special business. They shape how we live by our purpose, and guide us to achieving our goals the right way. Our values don’t exist in isolation: they are a collective. They form a very compelling story. 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. We admit our mistakes and learn.Driven:To turn impossible-sounding ideas into reality you have to be Driven. Things may get tough be 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 is a trustworthy smile in a world of uncertainty. Striking a perfect balance between certainty and creativity, we don’t just nail the basics (great products, prices and service, all reliably delivered), we also challenge stuffy old convention. We’re taking on the bland, the boring and the faceless, to offer a better, braver kind of customer service. We’re relentless. Spirited. Full of beans. We’re always seeking out new ways to fix broken things and make them brilliant.But we’re also here to make a difference. Helping customers by transforming our world into something better, one brave new idea at a time.“Our values are the foundation of our Let’s go culture”ValuesOverviewStrategic ReportOur GovernanceOur ResultsShareholder InformationAO World PlcAnnual Report and Accounts 202007AO-World-AR2020.indd 715/07/2020 14:19:14 Our resources and relationships
that allow us to deliver our eco-system continued
Customer
relationships
AO.COM ON SOCIAL MEDIA
TRUSTPILOT
+150k
reviews
4.7/5
av. rating
For 20 years we’ve been there when customers
have needed us. Once they’ve shopped with AO,
they come back again and again.
HAPPINESS SCORE†
94
92
90
88
86
84
82
80
Sep 17
Dec 17
Apr 18
Jul 18
Oct 18
Feb 19
May 19
Aug 19
Dec 19
Mar 20
† Our quality team ask our customers to describe in one word how they rate their experience on the
phone with our people. These responses are then categorised into “Exceptional, Happy, Indifferent,
Unhappy” and turned into a score so that we know where we’re getting it right for customers and where
we need to improve.
FACEBOOK
+1.8m
followers
TWITTER
+66k
followers
INSTAGRAM
+4.0m
impressions*
NET PROMOTER SCORE^
FY20
+27k
impressions*
83
UK average including MPD
(FY19: 85, UK average
(excluding MPD))
+31k
followers
+34k
impressions*
* Data during w/c 23 March 2020. Impressions are
defined as the number of times a social media
post is viewed in users’ social media feeds.
UK CUSTOMER‡ BASE
89
Germany average
(FY19: 89)
^ NPS is a industry measure of customer loyalty and satisfaction.
“ I think our NPS scores and customer
feedback speak for themselves. While
retail stores have had to close, we
have been able to continue providing
vital products and services to all our
customers. I’m sure we will emerge
from this crisis as a stronger business
with a powerful customer-focused
and trusted brand.”
AO employee, Covid-19 survey
UK CUSTOMERS: (000s)
UK NEW CUSTOMERS VS REPEAT CUSTOMERS: (%)
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
New customers
Repeat customers
– Repeat %
60%
50%
40%
30%
20%
10%
0%
FY15
FY16 FY17
FY18 FY19 FY20
2015
2016
2017
2018
2019
2020
Q1 Q2
Q3 Q4 Q1
Q2
Q3 Q4
Q1
Q2
Q3 Q4
Q1
Q2
Q3 Q4
Q1
Q2
Q3 Q4
Q1
Q2
Q3 Q4
‡ A customer is defined as an individual customer who has purchased through us via ao.com
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Infrastructure
and IT
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In the UK, our market leading
logistics-as-a-service solution
delivers millions of products a year,
nationwide, seven days a week, to
customers on behalf of AO’s retail
business and a growing number of
third-party retail clients.
Our scalable delivery network operates from our “hub” in
Crewe, comprising three distribution centres with a total of over
800,000 square feet of space, and via our network of 17 delivery
depots across the UK.
The services we offer to the end customer are broad; from the
basics of unpacking and inspecting customers’ products, to
complex gas cookers, American side-by-side fridges, integrated
appliance installations, hanging TV's on walls and the removal
and recycling of old appliances.
A number of third-party retail clients are now choosing to use
our market-leading two-man delivery service to offer a speedy
and reliable service to their customers. We are able to provide
them with control over when, how and where their products
are delivered via our fully integrated end-to-end platform. Our
modular service offering allows third-party clients to choose
from a range of other services we provide, such as returns
processing, storage and back haul services, to suit their needs.
We operate a similar model in Germany: we currently have a
distribution centre in Bergheim and a number of outbases and
customer service centres across Germany.
Our core technology systems are a mixture of best-of-
breed commercial off-the-shelf and modern custom-built
components. This affords us a loosely coupled, highly
configurable enterprise technology estate that is resilient
to changes in demand and easily adapted as business
requirements change.
Systems are well integrated with our key suppliers, with a
shared ownership model for integrations. We regularly work with
suppliers to improve integrations at both sides, offering advice
and support on best practice.
We utilise Cloud services in various forms, for speed of delivery,
lean cost profile, enhanced security and outsourcing of
specialist infrastructure maintenance and support.
Through our product team model we can quickly and safely
evolve our front end platforms to be best in class.
Supplier
relationships
As we continue to diversify and leverage our expertise in the
UK, our supplier relationships have broadened and we have key
relationships with:
• the manufacturers and distributors that supply products
to us;
• our delivery providers ranging from national organisations,
(e.g. DPD and Collect+) to whom we 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);
• third-party providers of significant plant and infrastructure
(particularly in our recycling business and IT systems);
• Mobile Network Operators; and
• Domestic & General, for whom we provide product
protection plans as agent, and our credit provider finance
partner, NewDay, for whom we also act 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. We 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 and plastics plants. Our relationships with them are
extremely important as we seek to develop new opportunities,
driving value as part of a two-way relationship.
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Customer testimonial
“ The best ever!!
I had my brand new
washing machine
perfectly delivered
and installed only
18 hours after
ordering it – I can’t
fault a thing!”
Barry
An AO customer
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Strategic Report
12
Chairman’s statement
15
Chief Executive Officer’s strategic review
18
Q&A
24
Marketplace
25
Our markets: UK
28
Our markets: Germany
30
Our business model
32
Our strategy
36
Our risks
50
Corporate social responsibility
63
Chief Financial Officer’s review
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Chairman’s statement
FY20 has been a year of change and transition
for AO. A fundamental review of the business,
its objectives, business model and culture was
conducted at the start of the year following John
Roberts’ reappointment as CEO. Although this
confirmed no material change in AO’s overall
strategy, its execution has been pursued with
greater clarity and renewed vigour. As a result, AO
has had a successful year and has made strong
progress against its four immediate strategic
priorities as John sets out in his letter.
Group revenue increased by 15.9% to £1.05bn with
UK revenue up 20.3% to £901.6m. UK performance
was driven by a return to growth in the engine of
our business, MDA, where we achieved our target of
double-digit growth in the final quarter of reporting
period at 19.9% year-on-year. We made significant
progress in improving the breadth and usability
of our retail experience, attracting and retaining
more and more customers as they experience a
better experience of shopping through the AO
Way. Our performance is particularly pleasing as,
prior to the impact of coronavirus towards the
end of the reporting period, the MDA market was
broadly flat year-on-year.
Following the appraisal of our European operation
at the beginning of the reporting period, we began
to reposition our German business and have made
significant progress in our journey to profitability.
However, to allow management to prioritise
and focus on improvements to performance in
Germany we took the tough decision in November
2019 to close our operations in the Netherlands.
This was no reflection on our team in the
Netherlands who remain a credit to AO and there
is nothing to preclude us from returning to this
territory if appropriate.
From this repositioning, Europe revenue reduced
slightly by 4.6% year-on-year to €165.4m. However,
we made substantial improvements in our gross
margin in Germany which, in the second half of the
reporting period, was 4.0% compared to a gross
loss in the first half of 0.7%.
Cost ratios in Germany also improved following
implementation of our One AO model which is
focused on ensuring that all employees, across all
parts of AO, behave as one and operate efficiently.
This centralised approach only devolves functions
to local operations where necessary, ensuring
no duplication of costs. It also creates a scalable
model for growth, providing consistency in
operations and standards. Its benefits are already
being exploited throughout the Group.
Group Adjusted EBITDA for the period improved by
53.6% to £19.6m (2019: £12.8m). In the UK, Adjusted
EBITDA increased 7.0% to £40.8m, and our Europe
business reduced losses by 13.2% to €24.2m.
The final few weeks of this financial year were
extraordinary. The impact of the coronavirus
pandemic posed significant operational
challenges to the business. We experienced
12
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Annual Report and Accounts 2020
high levels of demand, akin to Black Friday, as
the market for electrical items migrated almost
completely online overnight. Our UK and German
teams navigated these challenges well, ensuring
at all times that the safety of our people and
our customers remained our top priority. We
adapted our services and invested to ensure social
distancing, and enhanced safety measures to
protect our people in front line operational roles,
while prioritising services to the most vulnerable
members of society. Despite the challenges we
faced, we take confidence from our consistently
high Net Promoter Scores, which illustrate the
attractiveness of AO’s proposition to customers,
and will continue to drive our growth.
As covered in John’s report on page 15, cash
conservation was a key focus for us in the year
under review and I’m pleased that we have
reduced cash outflow and by year end were
cash generative.1 Shortly after the year end we
refinanced our £60m Revolving Credit Facility and
£20m Term Loan, which were due to run until June
2021, into a new £80m Revolving Credit Facility.
With our current headroom on this new facility and
Group cash resources, we are well-funded.
In this year of transition, the Board focused its
attention on immediate business priorities. With
the retirements from the Board of Brian McBride (in
July 2020) and Jacqueline de Rojas (in September
2020), we expect in time to make further Non-
Executive Director appointments.
We closed the year in a good position, as actions
taken to strengthen the business flowed into our
financial results. We thank our teams across the
business for the culture they live and breathe every
day; its value has shone through, particularly over
the last few months as our people have shown their
dedication to AO and worked tirelessly to overcome
the challenges presented by coronavirus and to
continue to deliver for all our customers. Although
we now face uncertain macroeconomic conditions,
AO’s business model means that we are prepared
and well placed to continue to serve our customers
as the trend to digital accelerates.
You will see in our Directors’ remuneration report
that, subject to shareholder approval, we are
seeking to implement a Value Creation Plan
in which all employees of the Company will be
rewarded for creating exceptional value. As
Luisa D. Delgado (Chair of the Remuneration
Committee) states, we believe that such an
innovative all-employee model reflects the unique
and collaborative culture at AO, and its core role at
the heart of our business; it will help galvanise the
team and drive the business further forward.
I look forward to the Group’s progress over the
coming year and believe we have some very
exciting times ahead.
Geoff Cooper
Chairman
13 July 2020
15.9%
increase in
Group
Revenue
UK revenue up
20.3%
European
Adjusted
EBITDA losses (€)
reduced by
13.2%
1 Cash generative on a Group
Adjusted EBITDA less debt
repayment, interest, taxes
and monthly share of
annualised capex on a run
rate basis by the end of the
March 2020 financial year
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“ A year of
change and
transition.”
Geoff Cooper
Chairman
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“ The One AO model and
eco-system is a structural
advantage when we
leverage it effectively.
I’m delighted that the
whole business is now
more focused than ever
on customers, innovation
and growth.”
John Roberts
Founder and Chief Executive Officer
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Chief Executive Officer’s strategic review
The AO of today is very different from the AO of my last report.
FY20 was about getting fit for purpose and focused. I’m
pleased to say that we have made substantial progress during
the year against our four key objectives and continue to do so
into FY21. In the last few weeks of FY20 the world changed.
When the Covid-19 pandemic hit, our mission was
to protect our people, continue to deliver safely
to customers and, in turn, protect the business.
I’m grateful to everyone at AO for the incredible
efforts they made to do that.
We played an active part in keeping families
plugged in and powering on through lockdown.
Online retail became a lifeline to get essential
products to customers during a national crisis,
which I believe has accelerated customer
adoption of online over this relatively short period
of time. It’s a road we’ve been building for two
decades as a business, and circumstances mean
more customers have experienced our AO service.
We closed the financial year in good shape.
On many levels, we went back to basics,
bringing clarity and leadership to our business
fundamentals across the Group. The One AO
model (explained in more detail on pages 22 and
23) and eco-system is a structural advantage
when we leverage it effectively. I’m delighted that
the whole business is now more focused than ever
on customers, innovation and growth.
We reorganised all of our core competencies, with
the first principle being to build expertise at the
centre and only devolve locally where necessary.
We had to say goodbye to some AOers in the
process including our team in the Netherlands.
This was not easy and I thank them for their
contribution.
The One AO approach will, at the right time, mean
that we can enter new markets quickly and with
a much lower barrier to profitability and success
rather than rebuilding in each new market.
We have increased our tech investment by £2.4m
during the year, restructuring it around product
teams to create deep expertise on key elements of
the customer journey. This reorganisation required
leaps of faith and trust from our teams. I want to
thank them for the way that they have responded.
There have also been leaps of faith required
from our brand partners to fix some of the
fundamentals as we centralised, particularly in
our German operations. I would like to thank them
all for their faith in us, which I’m confident will be
repaid in spades.
The past few months have deepened these
relationships and the trust that our brand
partners, our customers – existing and new, and
our people have in our business. They all know the
AO smile is so much more than a logo. It’s in the
tough times, not the good, that trust is tested and
strengthened.
While Covid-19 has undoubtedly accelerated sales
through a forced migration to online, we came into
March having already made significant progress
on the four immediate strategic objectives for the
year: double-digit UK MDA growth, accelerating
the journey to profitability in Germany, being cash
generative,1 and leveraging our eco-system further
through our One AO approach.
I am pleased to report that our goal of double-
digit MDA growth was achieved during the final
quarter of our financial year, a momentum
which continues. Profitability in Germany is now
a question of when not if, and by the year end we
were a cash generative business1 on a run rate
basis. We delivered a strong peak trading period
in Q3 in both the UK and Germany with that sales
momentum continuing into Q4.
This was against a backdrop of the issue of Brexit,
which up until the outbreak of Covid-19 had been
the major source of uncertainty for business and
the economy more widely.
AO Finance launched in August offering a market-
leading rolling credit facility giving more customers
access to essential products through affordable
finance. Meanwhile, AO Business has been building
and developing its pipeline and I am particularly
pleased with its progress. AO Business is now
a supplier to 19 Housing Associations, roughly
10% of the UK’s social housing stock, and we
are making significant inroads to the student
accommodation and hospitality sector where we
have been successful in winning a number of new
tenders. Similarly, we have made real progress in
the housebuilders sector, which despite Covid-
related shutdowns, remains a key growth area
over the medium to long term where there is
pent up demand from time-pressed developers
for a 21st century proposition. Strong deals in
MobilePhonesDirect mean we’re delivering on the
promise of better value, choice and service to
customers in the UK market.
As an industry, retail has had a significant impact
on people’s lives. When we’re ambitious for our
customers, we also make a positive contribution
to our communities. We have to show initiative and
do the right thing, and never more so than when it
comes to the environment.
1 .Cash generative defined
as on a Group Adjusted
EBITDA less debt
repayment, interest, taxes
and monthly share of
annualised capex on a run
rate basis.
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Chief Executive Officer’s strategic review continued
AO’s new plastics recycling plant is operational,
albeit in its final commissioning phase, while our
existing facility processed its millionth fridge
during the year. An independent report by
Anthesis showed that our fridge recycling plant
was the only one meeting UK standards for
collecting harmful gases. We’ll continue to invest
in what’s common sense as well as business
sense. And we’re looking forward to the day that
we’re selling a new appliance made from the
raw material of old ones we've collected from
AO customers.
The results of the rental trial have been promising.
We started from the premise that if we make it
fair and affordable then people would support
our offering. That has broadly proven to be true.
Over half of households who have joined the trial
reduced their arrears to the housing association –
and over half had happier households.
We remain ambitious about the rental opportunity
albeit its current scale is small while we learn. We
are working to expand our arrangements with
housing associations to be able to deliver this at
scale. It is frustratingly slow in truth but I’m hugely
proud of the progress we have made when most
would have given up. Another example of the AO
Way in action.
Looking forward to the next financial year,
predictions are dangerous but I believe the values
and principles that guide our thinking will position
us well for the opportunities and challenges that
arise. It will be a year of uncertainty with seismic
changes in customer behaviour, a record fall
expected in GDP and a potential hard Brexit
in December.
We have faced significant costs to reorganise
our operations to make sure our people and
customers remain safe. That said, constraints
also drive creativity and innovation; we have
been quick to adapt and reinvent to enable us to
simultaneously incorporate less efficient methods
and scale to meet increased customer demand.
I’m so proud of the teams’ ability to do this
without missing a single day of deliveries. They are
certainly people that live the AO Way and make
things happen. The business has a winning mindset
focused on growth, and not standing still. We’ll
carry the momentum through too: treating every
customer like our gran and, in turn, making our
mums proud.
AO is a business built to deliver change and a
better shopping experience. We’ve spent the
past 20 years disrupting the retail sector in
the passionate belief that what we do makes
a difference to people’s lives. More and more
customers are putting their faith in us. And it
has never been more important that we deliver,
brilliantly, for them.
John Roberts
Founder and Chief Executive Officer
13 July 2020
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Customer testimonial
“ Just wanted to reach out and
compliment a member of your
team. Had occasion this morning
to speak with Youseff a member
of the Customer Service Team in
connection with an issue relating to
an appliance recently delivered (the
details are irrelevant and it’s being
dealt with). Youseff was empathetic
to my problem, gave advice and was
a credit to the AO business.
Today people seem keen to criticise
and more than a little reluctant to
give credit when that is due. Often
when things aren’t quite what we
expect the reaction is more important
than ever and given my recent
experience I wouldn’t hesitate to
recommend AO to others and will
certainly be a returning customer.
Thanks to Youseff and the team as
this would appear to have a very
positive culture that is a credit to AO.”
Alex
An AO customer
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QA&
with John Roberts, Founder and Chief Executive Officer
Q. How has the return to double-digit
A. Essentially, it’s due to our refound growth
sales growth in MDA, the engine of
your business, been achieved?
mindset and a reignited obsession on
our customers. Throughout AO’s history we have
focused on doing the right thing for our customers:
to make their journey brilliant and to be relentless
in our obsession to constantly improve our services
by driving innovation, change and disruption. We
believe we can always be better.
It is this mindset that will attract the best talent
and ensure our brand partners continue to
support us. The output of it should encourage
more customers to trust AO with their hard-earned
cash. There’s no single project or one silver bullet,
rather a constant way of thinking and ideas that
are “customers first” and a culmination of effort
across the business.
We are starting to get real traction on the
initiatives that we launched during the reporting
period. We invested to remove friction in the
customer journey and have driven the levels of
repeat and recommendation sales using, for
example, social media and allowing influencers to
tell our story for us in an authentic manner. There
will be more to come in FY21 as we continue to
invest in our proposition.
Q. What actions have been taken to
address the issues in your German
operations and how much more is
to come?
A . During the year we completed most of
the heavy lifting needed to resolve the
key issues in our German operations. During the
first part of the year we amended our pricing
policy so that we were no longer driving sales at
the expense of margin. Critical to this was ensuring
that we had the long-term support of our product
manufacturers in the territory. We needed to inspire
them to believe in our ability to replicate what we
have achieved in the UK for our customers and to
continue to support us. I’m pleased to say that our
meetings with them were extremely positive and
that we were able to restructure our buying terms
with the majority of our manufacturer partners.
Clearly this will be an iterative process, but the
benefits started to impact in January this year and
represent a step change in the contribution to our
overheads in Germany.
We also centralised reporting lines and
responsibilities as we rolled out our One AO
approach, leveraging the skills, knowledge
and expertise of our UK teams into Germany,
particularly in our e-commerce, marketing and
logistics disciplines. Under this approach we
can mirror and build our business using our UK
platform creating a scalable model for growth.
The impact of these actions means that we are
confident that it is now a case of when Germany
will be profitable, not if. As we continue our road
to profitability, we are working to ensure that our
German customers receive the same excellent
proposition and journey as in the UK. This doesn’t
need to be reinvented, it can be repeated easily
through leveraging the knowledge and system
capabilities we have built in the UK over 20 years
through our One AO approach.
Similarly, we do not need to rebuild the intelligence
of our logistics infrastructure and disciplines. We
need to ensure that we have the correct level of
overhead in place to execute our strategy. We’ve
made great progress already and as sales volumes
increase and we hone our delivery proposition we
will improve efficiencies in our German logistics
network.
With these constituent parts in place we will
then leverage our core e-commerce and digital
marketing expertise to drive the right volume of
customers to experience the AO Way in Germany.
These customers will then repeat purchase and
recommend our service just as they continue to do
in the UK.
underlying cash generation?
Q. What have you done to achieve
A . We have improved the growth of the UK
business allowing us to leverage our cost
base and so increase profits. In Germany we have
reduced our run rate of losses through the actions
described above and we would expect these to
help stabilise working capital outflow as our trade
creditors move towards industry norms.
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Q. Following the decision to close the
Netherlands operation, how can
you be confident that AO will be
able to scale internationally?
A . Our decision to close the Netherlands
operation was taken not because we didn’t
think the proposition could work, but because we
simply did not have the management bandwidth
to fix the issues at the same time as focusing our
efforts in our German operations. So, we took the
decision not to continue to incur additional losses
in this territory at the price of fixing our German
operations and embedding our One AO approach.
During the closure of our Netherlands operations
our team continued to live our values and represent
the AO Way; there is nothing which precludes us
from returning to this territory when the time is right.
One of AO’s key advantages is its ability
to scale because the products we sell are
fundamentally the same in all territories, the global
manufacturers are the same in all territories and
the methods of shopping online are the same as
are the digital marketing methods for reaching
customers. Equally, warehousing and delivery
processes and systems are the same. I have yet
to meet a customer who doesn’t love a brilliant
friction free customer journey, who wants to pay
more than they have to or wait longer than they
need to for a brilliant delivery experience.
Q. Are you pleased with the
integration of MobilePhonesDirect
and how large is the Mobile
opportunity for AO?
A . We remain hugely excited by the
opportunity that Mobile presents,
especially given the recent and significant
changes in the market. We believe that the closure
of a large bricks and mortar retailer illustrates
that customers need less and less support as
they become more and more tech savvy and this,
coupled with the increasingly homogenised nature
of the product, means that the value that a store
could add to some customers should, we believe,
continue to diminish. Indeed, during Covid-19,
we have seen rapid adoption of online mobile
purchases in older demographics which have
previously been fulfilled via store-based retailers.
Culturally, we are very pleased with the integration
of MobilePhonesDirect into the AO business.
However, other aspects have been frustratingly
slow. Although mobilephonesdirect.co.uk will
remain as a price-fighting brand with the Group, we
plan to interlink/interconnect it with ao.com and
leverage AO’s online finance package across the
brands. However, this has been a bigger task than
envisaged and so we anticipate that the benefits
of this will only begin to materialise during the 2021
calendar year.
We chose Germany as our first step into Europe
because its location is a springboard into future
territories, and we are now starting to model what
this may look like. For example, we won’t need to
create vast additional marketing, e-commerce or
IT teams locally; we will use our central UK resource
and a large part of our logistics operations can
leverage UK capabilities and systems with only
physical infrastructure and a limited number of
people required locally.
It’s still relatively early days for the
mobilephonesdirect.co.uk business within the AO
family but we are very pleased with its performance
and the opportunity it presents. During the year
we have cemented strategic partnerships with the
networks, choosing to work with fewer so that we
can offer our customers the right proposition in a
sustainable way. Going forward we will look to drive
value for our customers through speed of delivery
and handset affordability.
Q. What is One AO and how does this
A . A vertically integrated business is only
of any value if all its parts are stitched
impact your operations?
together beautifully with a culture of working
together. This means that it is able to adapt and
scale at pace very efficiently.
This is One AO. It is about all employees, across all
parts of AO behaving as one business. It’s about
all AOers making decisions which will serve our
customers brilliantly and benefit the whole Group
while at the same time thinking about the long
term and finding the most efficient way.
One AO provides a centralised model that only
devolves locally where necessary, therefore
ensuring that we do not duplicate costs
unnecessarily. We invest centrally in technology
to create platforms that local markets and
categories can leverage at very low incremental
cost and the customer journey should be broadly
consistent in all markets as are the products.
Q. Following the measures
introduced to contain the
Covid-19 pandemic, the market
for electrical products migrated
to online almost overnight. How
much of this migration do you
think is a permanent shift?
A . When bricks and mortar retailers were
forced to close their doors, the only
option for customers to buy electrical products
was online. We experienced a material increase
in demand across our major MDA, SDA, AV,
Computing and Mobile categories, attracting
new customer demographics who experienced
AO’s service for the first time – for example, new
customers over the age of 65 have increased by
over 100%.
As lockdown measures start to ease, the
permanency of the shift to online is uncertain. Our
view is that customers will be wary about visiting
stores where a better solution is available online.
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continued
Instead they will take a risk-based approach, only
visiting stores where necessary. We have had a
fantastic opportunity over the last three months
to impress new customers with AO’s proposition
and build lifetime value.
Q. Have you experienced any
operational issues in your logistics
business as a result of the increase
in demand and implementation
of lockdown and social distancing
measures?
A . We have continued to build and deepen
our relationships with our manufacturer
suppliers during the pandemic, with both parties
maintaining a flexible approach to ensure a good
supply of products for our customers.
The safety of our people and our customers
continues to be our top priority. We have invested
to ensure that enhanced safety measures
protect our people in front line operational roles,
whether in our warehouse or making deliveries.
Social distancing measures brought necessary
inefficiency for our logistics operations which
our teams navigated quickly. Now more than
ever, we are experiencing the benefits of our
well-invested culture. We are hugely proud of
our front line employees and the drivers for their
continuing efforts. Our distribution network has
remained open throughout the crisis allowing
us to continue to deliver essential products to
our customers. We paused some of our services,
for example installation of certain products to
minimise the amount of time drivers spent in
customers’ homes, moving to door-step delivery
of products, but we empowered our people and
drivers to safely help the vulnerable or those for
whom door-step delivery isn’t an option. The new,
necessary measures are being implemented into
“business as usual” for AO as we start to offer
services again and we will continue to adapt to the
changing situation and follow Government advice
for the safety of our employees, drivers and our
customers.
Q. Does the business have the
capacity to deal with any longer-
term increases in demand as a
result of the migration to online?
A . We don’t foresee any future capacity
issues in either our UK or European
business. Prior to the outbreak of Covid-19 we had
recently agreed the terms of a lease for a third
warehouse in the UK giving us additional capacity
in our logistics infrastructure. Equally, in Germany,
we are not constrained; we estimate that our
existing distribution centre in Bergheim would allow
us to deliver up to €750m of revenue. The flexibility
of our Group logistics model means that we are
able to add additional infrastructure simply and
at a relatively low cost, so that we are able to grow
easily in the territories in which we operate.
affected by the outbreak
of Covid-19?
Q. How has the AO eco-system been
A . We have seen some impact to the
businesses in our eco-system. For
example, prior to Covid-19 our B2B business had
been successful in winning several new contracts
with housebuilders. Following the outbreak, most
clients including housebuilders were forced to
close but as they begin to think about reopening, a
large challenge for them will be their supply chains.
Our B2B team is now experiencing a substantial
increase in the level of enquires from housebuilders
as they prepare to reopen sites and are realising
the benefits of working with AO: a large, integrated
business with scale to provide next day delivery.
This has created a substantial opportunity
for this part of our business, albeit due to the
housebuilding business model, this will take time to
flow through into our financial results.
Similarly, over the last few years, our logistics
business has been successful in winning a number
of contracts with new third-party clients such as
Aldi, Simba and Cotswold Furniture, delivering
a range of big and bulky items to customers
on their behalf which are unable to go through
a parcel carrier network. This has provided
us with a fantastic opportunity to provide a
transformational service to customers of these
businesses and we have made good progress.
Following the outbreak of Covid-19, we agreed to
temporarily reduce our services to some products
from our third-party clients.
At the start of the outbreak, we significantly
reduced our recycling business because fewer
products for recycling were received into the plant,
due to local authority sites closing and a reduction
in our own collections with limited in-home services
being performed. We have also experienced a
challenging market for the prices of recyclate
outputs. However, as I write I am pleased to report
that this market is showing early signs of recovery
and both of our facilities are building towards
operating at full capacity within the boundaries of
social distancing guidelines.
I am pleased with how the remainder of our eco-
system is operating: our financial services and
insurance products business has performed well
during the Covid-19 pandemic so far, and we have
been particularly impressed with how this division
has adapted in moving from a sales environment
to home working with no noticeable impact on
performance.
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Employee testimonial
“ The speed with which we were
able to mobilise the effort to
get as many AOers as possible
up and running from home
was truly remarkable. It
clearly took a lot of effort on
the parts of many colleagues
and for that they should
be applauded. Even where
we have had to maintain a
workplace presence, such
as in Logistics, AO has been
sensitive and pragmatic to
enable colleagues to work
effectively but, and perhaps
most importantly, in as safe
an environment as possible.”
Comment from Covid-19
People Survey
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One AO
scaling the business
from centres of expertise.
What is One AO?
Today, AO is made up of a diverse range of disciplines, skills and experiences
across multiple locations. We are a business that’s motoring again.
We’ve returned to a growth mindset. We can only realise our full potential by
working, behaving and thinking as One AO team.
One AO is a journey, organising ourselves under three distinct pillars with a
structure of defined Centres of Expertise, Operations and Enabling Functions.
In FY20, we changed the way we operate our German business
and have integrated Mobile into the Group.
This is designed to prepare for scalable and successful growth.
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1.
2.
3.
Culture
We are one united team, working
together towards shared goals
with shared values. This means
we are more than the sum of
our parts, able to achieve the
impossible with pace and focus.
Customers
We are organised as One AO
team with all the different
parts of our business stitched
together so that our decisions
mean we serve our customers
brilliantly and benefit the Group
as a whole.
Scaleability
We operate a centralised
model where global experts
in our disciplines create best
practice and drive innovation
only deploying what’s necessary
locally. We create platforms and
playbooks to give consistency in
our operations and standards.
This low cost operating model
enables cost efficient scale to
be built at pace as we grow.
Our
locations
We are an online retailer but
we have people, operations
and a logistics infrastructure
across the UK and Germany.
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Our offices
Delivery network:
Distribution centres
Outbases
Recycling operations
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Marketplace
Our operations are about
scalability, and disrupting
markets. Through agility
and closely listening to our
customers and market
trends, we are constantly
expanding into new markets,
leveraging expertise and
creating new verticals.
This ability helps us build our eco-system
of interconnected services and ensures we
continue to grow and address opportunities.
It’s not when or why we grow though: it’s
how. We have centres of expertise and a
fantastic team of AOers who are able to
drive operations across multiple countries.
We call this One AO.
Read more about
our eco-system on page 4
AO’s eco-system of complementary products and
services has strengthened throughout the year
demonstrating that we can successfully leverage
our assets and capabilities to underpin future
growth and profitability. In terms of our categories,
our single largest category continues to be the
retail of Major Domestic Appliances (“MDA”). The
combined population across our current territories
(UK and Germany) is over 155 million1 living in over
41 million households.2 The total population in the
UK is forecast to grow 2% by 20233 and grow 1%
in Germany by 20224 which provides a large and
relatively stable future market volume.
Demographic trends – References:
1 Population and growth rates taken from World Population
Review 2020 (https://worldpopulationreview.com/)
2 Euromonitor 2019 (https://www.euromonitor.com/germany/
country-factfile)
3 Population projections, UK (https://stats.oecd.org/Index.
aspx?DataSetCode=POPPROJ)
4 German population growth rates (https://tradingeconomics.
com/germany/population
5 GfK to 31 March 2020
Read more about
One AO on page 22
£47.7bn
Current addressable
markets in UK
and Germany
34.8%
UK MDA online
market share
9.8%
German MDA
online
market share
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Our markets: UK
The outlook and our response
Housing market in the UK
MDA purchases are correlated with housing
transactions1,2 mortgage3 (and re-mortgage)4
approvals and planning permissions. A total of
789,778 mortgages were approved during 2019,
a 1% increase YoY5 and for the year to 28 March
2020, MDA volumes in the overall UK market
increased by 4%6 YoY.
MDA are significant household purchases and
during the year to 28 March 2020 total market
sales of major appliances have seen a marginal
decline of -0.1% YoY.6 Consumers’ appetite to
spend on big ticket items dropped during most of
2019 (when compared to 2018) as consumers held
off making purchases on big ticket items.7 This
is thought to be due to Brexit uncertainty, fears
of a possible recession and consumers having
an increasingly pessimistic view on job security.8
Through the period we have supported customers
through price-match commitments and trade up
options to support transaction volumes and we
also introduced AO Finance.
For 2020, the UK housing market faces high levels
of uncertainty due to the Covid-19 pandemic,
at least in the short term.9 Research suggests
housing transactions will decrease during the first
half of 202010 but the low interest rate of 0.1% is
an incentive for potential buyers going forward
meaning that once the period of lockdown and
self-isolation ends the housing market should
rebound relatively quickly. MDA sales will likely be
negatively impacted by this short-term stagnation
of the housing market, although from our own
internal research we know that in a normal market
around 65% of our customers’ MDA purchases are
distressed and this is expected to increase further
during Covid-19 lockdown as consumers are using
their appliances more than ever.
Housing market in the UK – References:
1 Bank of England
2 HM Revenue & Customs
3 Ministry of Housing, Communities & Local Government
4 The Building Societies Association (BSA)
5 Bank Of England
6 GfK
7 https://www.theguardian.com/business/2019/aug/19/uk-
households-cut-big-ticket-spending-on-recession-brexit-
fears
8 https://www.home.barclaycard/media-centre/press-
releases/Consumer-spending-sees-muted-growth-of-1-
point-7-per-cent-in-July.html
9 Savills (https://www.savills.co.uk/blog/article/297216/
residential-property/what-might-covid-19-mean-for-the-
housing-market.aspx)
10 Knightfrank (https://www.landlordtoday.co.uk/breaking-
news/2020/4/knight-frank-predicts-38-drop-in-residential-
property-sales-this-year?source=related_articles)
Risk, economic and political
environment
As previously mentioned, the freeze in the property
market due to lockdown negatively impacted
MDA sales in the short term but the reopening of
the housing market in May saw an unprecedented
surge in property sales as the English market
reopened and housing sales reached pre-
lockdown levels.1 Redundancies and employees
on reduced wages will reduce disposable incomes
and appetite to spend and increasing levels
of consumer debt may see many consumers
(throughout both the lower and middle classes)
being stretched in their finances. During April 2020
there has been a record numbers of applications
for universal credit suggesting that disposable
incomes in the short term will have been squeezed.
Although the above risks could reduce future
MDA sales, the fact that consumers are spending
more time at home during lockdown means
appliances are being used and stressed more than
ever before.2 The increase in remote and home
working is expected to lead to higher failure rates
and therefore an increase in future distressed
electrical purchases.
UK GDP grew by 1.4% in 2019, marginally higher
than the 1.3% rate in 2018.3 The slow GDP growth
was due to weaker global growth and Brexit-
related uncertainties weighed on consumer
spending.4 UK GDP is forecast to go backwards
during 2020 (-7.2%) due to lingering Brexit
uncertainty and Covid-19, followed by growth of
2.8% in 2021.5
Risk, economic and political environment UK – References:
1 https://uk.finance.yahoo.com/news/coronavirus-uk-
property-market-house-prices-lockdown-rules-moves-good-
bad-time-sell-buy-093014501.html
2 https://www.thisismoney.co.uk/money/bills/article-8284439/
Household-energy-usage-surges-37-lockdown.html
3 ONS (https://www.bbc.co.uk/news/business-51459257)
4 Bank of England (https://www.bankofengland.co.uk/
monetary-policy-report/2019/november-2019/the-
economic-outlook)
5 https://home.kpmg/uk/en/home/insights/2018/09/uk-
economic-outlook.html
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Our markets: UK continued
The outlook and our response
£32.1bn
UK current
addressable
markets
15.2%
Total UK MDA
market share
34.8%
Online UK MDA
market share
Consumer behaviour
Uncertainty created by Brexit and the general
election significantly impacted consumer
confidence in the UK and for the 12 months to
31 March 2020 the consumer confidence indicator
averaged around -11.4. 2020 started with a healthy
uptick in consumer confidence with January
recording -9 (from -14 in December), followed by
-7 in February.1 Despite the uncertainty in 2019,
consumer spending remained strong helped
by high levels of employment and real growth in
wages. Real regular weekly pay, excluding bonuses
and adjusted for inflation, increased by 1.8%2 and
real household disposable income increased by
1.3% YoY.3 The household saving ratio stood at 5.7%
in 2019 (declined by 0.1% YoY). 4
The impact of Covid-19 started to unsettle UK
consumer confidence in March as seen by the
consumer confidence indicator dropping two
points to -9.1 Covid-19 is having major worldwide
economic consequences with unemployment
rates rapidly rising with many businesses issuing
profit warnings. This is expected to adversely
impact consumer income and disposable
incomes throughout 2020. According to a survey
conducted by Kantar, 70% of people in the UK
stated that Covid-19 has or will negatively impact
their household income.5
Consumer behaviour UK – References:
1 GfK https://www.gfk.com/en-gb/insights/press-release/uk-
consumer-confidence-decreases-by-two-points-to-9-for-
march-2020/
2 ONS (https://employeebenefits.co.uk/weekly-pay-1-8-2019/)
3 ONS
4 ONS (https://www.ons.gov.uk/economy/
grossdomesticproductgdp/timeseries/dgd8/ukea)
5 Kantar (https://www.kantar.com/Inspiration/Coronavirus/
Seven-in-ten-in-G7-say-personal-income-has-or-will-be-
affected-by-coronavirus)
UK addressable markets
AO addressable markets - UK1
32.7 32.1
15.5
12.6
9.2
9.4
MDA
SDA
AV
Computing
Gaming
Mobile
Smart home
Garden & DIY
FY15 FY16 FY17 FY18 FY19 FY20
During the year we have continued to expand
our offering (in particular through our B2B
and mobile businesses) and our addressable
market for retail products across all categories
in which we now operate stood at £32.1bn,1 up
from £5.3bn at IPO.
Online penetration UK1
60%
50%
40%
30%
20%
10%
0%
M D A
S D A
A V
Co m puting
M obile
G a ming
G arden & DIY
S m art ho m e
2019
2020
Online shopping continues to be a main
channel for consumers, especially in
AO’s main markets, and 87% of British
consumers shop online vs 79% in Germany.2
We expect online penetration to continue
to grow in our territories and Covid-19
trends suggest that this shift to online has
accelerated..
Market overview – References:
1 GfK
2 Eurostat E-commerce statistics for individuals report
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Total market share
AO market share - Total UK market1
%
2
5
1
.
%
9
3
1
.
%
3
2
.
%
3
2
.
%
0
2
.
%
1
.
2
%
9
0
.
%
1
.
1
%
9
0
.
%
0
.
1
%
9
0
.
%
2
.
1
%
0
0
0
.
%
2
0
0
.
%
8
0
.
%
1
.
2
M D A
S D A
2019
2020
A V
Co m puting
M obile
G a ming
G arden & DIY
S m art ho m e
In the UK, AO’s share in the total MDA market
increased significantly by 1.3% from FY19
to FY20.1 As can be seen from the charts,
total share in our other categories has
mainly grown during the reporting period,
especially in the Smart home category, but
maintaining our online market share has
been challenging. Total share in Gaming
decreased 0.3% year-on-year due to a lack
of newness in the category and consumers
reducing their spending during FY20 in
anticipation of the next generation of
consoles which are expected late 2020.
Online market share
AO market share - Online UK market1
%
0
5
3
.
%
8
4
3
.
%
7
% 7
1
.
5
.
%
7
6
.
%
1
.
5
%
3
3
.
%
1
.
3
%
0
2
.
%
8
.
1
%
6
2
.
%
8
.
1
%
0
0
.
%
1
.
0
%
0
% 4
9
.
1
.
M D A
S D A
2019
2020
A V
Co m puting
M obile
G a ming
G arden & DIY
S m art ho m e
Competition in the online electrical market
remains fierce and scale and expertise are
becoming ever more important for retailers.
During the year we have maintained or grown
our total market share on a product value
basis across the majority of our categories.
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27
Our markets: Germany
The outlook and our response
£15.3bn
German current
addressable
markets
1.9%
Total German
MDA market
share
9.8%
Online German
MDA market
share
Read more about our
risks on page 36
Risk, economic and political
environment
The Germany market is experiencing many of
the same risks as the UK, in particular around the
slowdown in the property market expecting to
negatively impact MDA sales in the short term and
an expected economic slowdown as a result of
Covid-19. It is expected that the pandemic will have
a big impact on Germany GDP growth, shrinking
-2.8% in 2020, followed by a growth of 4.5% in 2021.1
Germany’s GDP grew 0.6% in 2019, down from
the 1.5% growth rate seen during 2018 and
significantly lower than the 2.5% rate in 2017.1
The slowdown in growth was due to the trade war
between the United States and China, which has
hit Germany’s export-oriented economy hard.
Political uncertainty with Brexit as well as the
German car industry’s transition to electric power
have also taken their toll.2
Economic and political environment DE – References:
1 https://www.dw.com/en/german-gdp-to-drop-by-65-in-
2020/a-53910951
2 https://www.dw.com/en/german-economic-growth-saw-
major-drop-in-2019/a-52008522
Consumer behaviour
German consumers were relatively positive during
2019 with only a one point drop to 9.7 in consumer
confidence during 2019.1 Unemployment rates
declined marginally (0.2%) to 5% by the end of
the year.2 The household saving rate increased
marginally by 0.01% YoY to 10.96%.3
Consumer confidence in January and February
2020 stood at 9.7 and 9.9 respectively.1 However,
Covid-19 is having a big impact on consumer
sentiment in Germany with March consumer
confidence dropping to 8.3.1
Covid-19 is expected to have a negative impact
on the German economy and GDP is predicted
to shrink by over 3%5 this year alongside rising
unemployment.6 A Kantar survey suggests that
58% of people in Germany believe that the
coronavirus has or will negatively impact their
household income.7
Consumer confidence and spending DE – References:
1 GfK
2 Statista (https://www.statista.com/statistics/227005/
unemployment-rate-in-germany/)
3 2-OECD (https://data.oecd.org/hha/household-savings-
forecast.htm#indicator-chart)
4 Destatis(https://www.destatis.de/EN/Themes/Labour/
Labour-Market/Unemployment/_node.html)
5 The German Council of Economic Experts (GCEE) http://www.
xinhuanet.com/english/2020-03/30/c_138931970.htm
6 DW (https://www.dw.com/en/economic-researchers-see-
germany-head-toward-deep-recession/a-53057069)
7 Kantar (https://www.kantar.com/Inspiration/Coronavirus/
Seven-in-ten-in-G7-say-personal-income-has-or-will-be-
affected-by-coronavirus)
German addressable markets
AO addressable markets - Germany1
14.9
15.2
15.1
15.3
MDA
SDA
AV
FY17
FY18
FY19
FY20
In Germany our total addressable market
across the categories in which we operate is
£15.3bn, an increase of 1% from FY19.1 Online
penetration in Germany is still significantly
behind the UK and this provides significant
opportunity for us to grow, particularly in
MDA which currently only has a penetration
of 20% (vs the UK’s 43%).1 Online penetration
continues to grow in all our categories and
as with the UK, we expect online penetration
in Germany to be accelerated by Covid-19
dynamics which has encouraged consumers
to buy online rather than from in store.1 The
compounding factors of an overall growing
market and an increased online penetration
mean we as a business are well positioned to
service this shift to online.
Online penetration Germany1
60%
50%
40%
30%
20%
10%
0%
MDA
SDA
AV
Germany Market Overview – References:
1 GfK
2019
2020
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Total market share
AO market share - Total Germany market1
%
1
.
2
%
9
.
1
2019
2020
%
2
0
.
%
2
0
.
%
2
0
.
%
1
.
0
MDA
SDA
AV
Our market shares across our categories
have decreased from FY19 to FY20 as
a direct result of changing the revenue
strategy of our German business as we
stopped undercutting the price of our
competitors and instead focused on
differentiating with an improved range and
product content to drive higher conversion
rates in line with our UK approach.
Online market share
AO market share - Online Germany market1
%
1
.
1
1
%
8
9
.
2019
2020
%
5
0
.
%
5
0
.
%
7
0
.
%
4
0
.
MDA
SDA
AV
In Germany our online MDA market share
stood at 9.8% for FY20 and online market
shares in SDA and AV were at 0.5% and
0.4% respectively.1 As with the total market,
the decrease in our online market share is
a direct result of us changing our revenue
strategy in our German business.
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29
Our business model
Our business model
What AO does, how we
do it and how we create
value is best illustrated
through the AO Way Fly
Wheel. This is how we will
achieve our mission to
be the global destination
for electricals.
6.
Leverage new
opportunities
I nvest bravely
7.
4.
Invest and innovate
our expertise
5.
Reduce
costs
3.
Increase
profitability
Key resources
Our competitive advantage
2.
Grow sales
What we do is not our competitive advantage. How we do it is what differentiates us. There is
no silver bullet or single project. It’s the aggregation of 20 years of learning “what” to do and
then living the “how” we do it.
• Our amazing culture: Our Trustpilot
ratings (4.7 out of 5 on nearly 200,000
ratings) don’t just happen by accident.
We live the service pledge every day and
truly care about being better.
• Our One AO approach: We are a
vertically integrated business that is
united behind one mission. This enables
us to invest directly with a holistic group
view of what is right for customers. We are
also then able with a centralised model
to invest for all areas of the Group and
internationally for maximum operational
gearing with the best technology and
proposition at the lowest cost per sale.
• Our compelling customer proposition:
We just keep investing in better, faster
and more convenient. That is the same
attitude for findability of products as it
is for things like rolling out our premium
installation services.
• Our scalable business model,
infrastructure and technology:
We invest in platforms that are scalable
across categories and territories. In
absolute terms we invest significantly
and through growth we become a lowest
cost operator to create structural
advantage to bring customers the best
for the least.
Culture
We succeed when operating as One
AO, united behind our mission to be the
global destination for electricals. We treat
customers as if they were our own grans
and we make decisions to try and make
our mums proud.
Talent
Our people create the magic of the AO
Way whether that is in the technology they
develop or the very human way we interact
with our customers, suppliers and each
other. We care deeply about what we do.
Supplier partnerships
Our mission is to be the global destination
for all our trading partners. We want to tell
their product stories brilliantly to help our
customers get the best product for their
needs. We always think long term and are
passionate about building partnerships,
not just buying products.
Customer relationships
We obsess about customers and want
them to be fans of the AO Way.
Technology and infrastructure
We build platforms that are scalable and
repeatable. We are innovative and willing
to disrupt ourselves as well as the market.
We embrace new technology and love
learning.
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27474 15 July 2020 1:38 pm Proof 131. We obsess about customers. How we make every element better for them centres on the simplicity of making it super easy to find the right product for them, then making sure it’s the best price they can find and then get it delivered to them in the quickest, most convenient way delivered with an AO smile and all the services they might need. 2. When we truly obsess about customers our sales grow. Because the journey is so good our customers make us their destination for electricals and our share of their wallet grows. They are also proud to tell their friends and so recommendation business grows. Our expanding category authority and specialism also increases the number of touchpoints, reasons to shop and lifetime value of customers.3. We have significant operational gearing with sales growth and so each sale becomes more profitable. Our influence on customer choice grows and so margin and supplier influence grows with it as our recommendations are more trusted.4. We reinvest profit to fuel more growth through investments in technology, expertise and capabilities. We believe in using our scale to build an ever bigger proposition and barriers to entry for our competition to further fuel our ability to drive our obsession for customers.5. Investing in technology and platforms in smart and scalable ways allows us to drive more automation and intelligence into our proposition which further drives scalability and profitability to enable us to invest further.6. We may choose to make that investment into new opportunities to take advantage of our scale and capability in adjacent areas such as recycling or in rolling our model further internationally, or potentially both. We have also proven the capability to unlock our platform where sensible to others, for example in third-party logistics and in newer segments like housebuilders. This creates further profitability that give us more capability to invest and increases the barriers to entry for our competition.7. We may also choose to bravely invest some of our profit straight into our proposition for customers through lower prices for the overall service and product proposition that they love.Our customers The products we sell are essential in their lives and are major purchases. Getting the perfect product in a friction free way with a little bit of fun is the best way to serve.Our employees Winning is fun. We spend the majority of our lives when we are awake at work and so it should be enjoyable. Our people are able to be the best versions of themselves at AO. We create the environment for them to grow and flourish. We win as a team together, and relish the sense of achievement that comes with success. Our suppliers We want to leverage the capability we have created for our suppliers to tell their own product stories brilliantly to our customers. We care about creating value from their products and long-term brand relationships for our mutual customers. We are also proud to disrupt thinking and help our trading partners be ever better for customers. Our communities We care about the communities in which we operate and the world more widely. We take our responsibilities seriously and make decisions that make our mums proud. Whether though the work of the AO Smile Foundation or simply paying fair taxes, we know it’s often the spirit that matters.Our shareholders By building a brilliant business loved by customers that has care and excellence at its core with its people creating and driving technology platforms that are scalable, repeatable and friction free for customers while driving operational gearing we will create significant long-term shareholder value. Who the AO Way benefitsOur flywheel creates a virtuous model that serves all our key stakeholders. Our obsession that only customers pay the bills means we treasure them, always. It is easy to get distracted from the fly wheel and this is a big lesson we have learned. It is one of the most valuable lessons we have learned. Obsessing about customers, behaving as one AO united behind the same mission are the foundations of value creation.That creates the magic of the AO Way. How we create valueCustomers1.Invest bravelyAO World PlcAnnual Report and Accounts 202031Our GovernanceOur ResultsShareholder InformationOverviewStrategic ReportAO-World-AR2020.indd 3115/07/2020 14:19:42 Our strategy
From betting a single pound in the pub that our Founder
and CEO, John Roberts, could change the way white goods
are purchased via the Internet to a European electrical
retailer with millions of happy customers: we have come a long
way, and we are not stopping yet. We are focused on being
brilliant for our customers to make us the destination for
everything they need, in the simplest and easiest way, when
buying electricals.
Our strategy is to leverage and support the scalability of our business model and customer proposition,
helping to provide us with the ability to continue our progression and develop our core competencies.
We do this by implementing three strategic pillars, which focus on three key areas of the business: our
customers, expertise and culture. Together, these pillars present us with a clear direction across our
business to guide us in achieving our purpose. During the year, we addressed four immediate strategic
priorities that stem from our strategic pillars, and which are discussed in the CEO review on page 15.
Our mission
To be the global destination for electricals.
Strategic priorities
Sustain
and
enhance
Three key focuses
Build
and
leverage
Inspire
and
develop
Customer
proposition
Expertise
Culture
Discover the
relationship with our
customers on page 8
Discover our expertise
on pages 4 and 5
Discover our culture
on page 6
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1
Sustain and enhance what we do best
making our customers happy through a customer-first proposition
focused on excellence
The foundation of our business is providing
a combination of leading customer service,
with best-in-class propositional execution.
Our customer base not only includes our
core retail customers who shop via ao.com,
ao.de, mobilephonesdirect.co.uk and our
marketplaces, but customers from our white
label sites, our B2B customers, other retailers
(for our logistics services) and clients of our
recycling business. Our customers are at the
core of what we do and drive our thinking
and innovation. During the period, we have
continued to develop our proposition, launching
a number of new initiatives.
Progress over the year
• Launched AO Finance, a market-leading
rolling credit facility operated in partnership
with NewDay, offering our customers
additional purchasing flexibility, providing
them with access to essential products
and us a large share of their wallet, though
affordable finance.
• Expanded our accepted payment methods,
making checkout easier.
• Invested further in our customer proposition
including the development of personalisation
functionality and a chatbot sales assistant,
to improve customer service and efficiencies.
• Jointly invested with our brand partners
in more initiatives to improve the online
journey increasingly with our content as the
destination of choice for the best product
information.
• Improved the ao.de customer proposition as
we build towards an offer comparable to the
UK, for example, through the introduction of
dynamic timeslots and installation services.
• Made significant improvements in our
German e-commerce abilities and execution
through the One AO approach, allowing us to
better engage with our customers.
• Built on the foundations of our
MobilePhonesDirect business by launching
ao-mobile.com in August 2019, our
AO-branded mobile online retail platform.
• Improved our customer proposition by
directly integrating with some of our key
network partners.
• Continued to grow our B2B division making
deliveries to tenants and beneficiaries, on
behalf of our larger business clients, who
are supported by a dedicated account
management team, providing specialist
support and advice.
• Leveraged our logistics and recycling
infrastructure into B2B to improve customer
proposition, for example, launch of next
day and nationwide seven-day delivery for
housebuilders.
• As part of our AO Innovation Labs initiative
we trialled two new innovative solutions as
we look to further advance our proposition
for customers.
Future plans
• Continue to focus on our brand and
proposition enhancements for both our
retail and B2B customers to drive conversion
and efficiencies.
• Review our third-party logistics offering to
ensure it is aligned with not only the needs
of our retail customers but those of our
third-party logistics clients to attract
additional volumes.
• Expand our recycling services through our
new plastics recycling facility, allowing us to
process the plastics from around 2.5million
fridges per annum.
• Explore the possibility of refining the
processed material from our new plastics
recycling facilities for use directly in the
production of new appliances.
Link to risks
The risks affecting the priorities in our Customers
pillar are set out on pages 43 to 47 of our risk review.
Remuneration
One of the performance conditions for our
AOIP incentive awards is the customer Net
Promoter Score, to which 10% of the maximum
award is attributed. For the year under review,
we maintained outstanding scores in all of our
territories (see page 100) and therefore this
element vested in full.
Both these metrics will apply to our AOIP
FY21 award.
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33
Our strategy continued
2 Build and leverage our expertise
enabling us to further cement our brand and explore new markets
• Continued to grow our third-party client
base in our Logistics business, as we leverage
our market-leading two-man delivery
proposition and excellent customer service
into new areas.
• Completed the build of our new plastics
recycling and refining facility, providing us
with the capability to sort the waste plastic
output from our WEEE recycling plant,
for reuse or resale to create an additional
sustainable revenue stream.
Future plans
• Capitalise on the integration of AO Mobile
and AO.de into the wider Retail business
unit through a broadening of services and
channel offerings and building stronger
relationships with suppliers.
• Continue to collaborate with third parties and
invest in new vehicles with increased payloads
to reduce our environmental impact while
driving efficiencies.
• Leverage our Group capabilities into
Germany in line with our One AO approach.
• Continue to build our UK third-party client
base as we leverage our logistics capabilities
into new markets and expand our service
offering.
• Extend our service-oriented delivery
approach in Germany through offering
delivery services to third parties, as in the UK.
• Grow our “AO Collects” and “Collect and
Recycling” propositions to increase
processing at our WEEE and Plastics facilities.
Link to risks
The risks affecting the priorities in our Expertise
pillar are set out on pages 43 to 47 of our risk review.
Remuneration
For FY20, one of the performance conditions was
to successfully leverage our skills in one area of the
business across our eco-system, ultimately to drive
the most value through the profit and loss account.
Given progress in this area, particularly around One
AO, the eco-system performance metric of the
AOIP FY20 award has vested in full.
Further, all financial performance conditions align to
this strategy generally.
In the UK we have built assets, systems and
processes that we can leverage with third
parties to address additional revenue and profit
opportunities outside of our core retail business.
We are also able to link up these capabilities
within the Group, for example, using our logistics
operations to collect old appliances for our
recycling business. Over the period, we have
continued to develop these competencies and
leverage our assets to drive opportunities.
Progress over the year
• As part of our One AO approach we have
integrated AO Mobile and AO.de into the wider
Retail business unit driving performance and
operational synergies across the Group.
• Continued transformation of German
business, through more efficient customer
traffic acquisition and centralisation
into the UK of core disciplines through One
AO approach.
• Deepened relationships with suppliers gaining
renewed commitment to AO as a leading
pureplay retailer.
• Commitment to focus resources and energy
on German business results in closure of
operations in the Netherlands.
• Continued to expand our B2B client base,
partnering with a number of charities,
not for profit organisations and housing
associations.
• Our B2B team has developed strong
partnerships with 19 housing associations
providing them with both replacement
products and new build projects.
• Added a new Distribution Centre to our
Logistics infrastructure hub in Crewe, taking
the total to three with over 800,000 square
foot of capacity.
• Developed and implemented a new voice
picking solution to increase our efficiency in
our logistics business unit.
• Collaborated with innovative third parties
to develop carbon fibre parts for our vans
to significantly increase payloads and the
efficiency of our deliveries.
• Utilised our web design knowledge, UK-wide
logistics network and routing capabilities to
develop and launch “AO Collects” and “Collect
& Recycle” propositions allowing businesses
and retail customers to arrange collection
and recycling of old products.
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3 Inspire and develop our people
to be the best versions of themselves to maximise their performance
potential and enable our success though a “can-do” attitude
AO employs around 3,000 people across two
countries. We believe that happy people care
more and do the right thing. 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 care not only about our customers but
other AOers too, our suppliers and, of course, do
it all with a sense of fun.
Progress over the year
• Commenced the roll out of our One AO
approach across the Group as we look to
scale the businesses in our eco-system
through creating centres of expertise within
each of our business units, supported by
enabling functions (see our case study on
page 22-23).
• To nurture our culture, we have continued to
raise the bar on talent by recruiting amazing
people aligned to our values who extend our
capability and ability to deliver.
• Looked more flexibly at how and where we
seek out talent allowing us to be agile and
adaptive to meet the needs of individuals and
the business.
• As part of One AO, our IT and development
teams have moved from a project to product
team approach to allow our people to evolve,
develop and innovate key parts of our
e-commerce platform at pace.
• Recruited a dedicated Diversity and Inclusion
manager as part of our continued focus in this
area. We aim to be a welcoming place where
everyone can be their true self, feel they are
included, celebrated and that they belong.
• To support our drive to create a more
inclusive workplace we have continued to
run “AO Inspire” talks, learning events and
awareness days. We have also introduced
new policies and made changes to processes,
technology and physical environments.
• Evolved our overall people listening strategy,
creating a smarter way to capture what AOers
want, think and have to say. Employee forums
combined with the right survey tool allow us
to measure our engagement, perform culture
health checks and be proactive in developing
future people initiatives.
• Appointed a designated Non-Executive
Director as a mechanism for workforce
engagement that will strengthen the link
between employees and our Board and will
help to build an open and transparent culture,
helping to ensure that all employees have a
voice in the Company’s future success.
• To deliver on our business priorities, we have
refreshed our Learning and Development
strategy.
• Designed a new Leadership Development
Programme to focus on self-leadership,
innovation, high performance teams and
empowerment. We have also introduced
several in-house designed management
development modules to create confidence
in leading.
Future plans
• Introduce an agile and adaptive
Performance Management framework to give
AOers clear goals and priorities, and to help
develop a high-performance mindset across
all parts of the Group.
• Implement a new, modern and sustainable
reward strategy designed to recognise high
performance to enable sustainable growth.
• Continue the One AO journey to realise our
full potential by thinking and behaving as one
AO team to simultaneously drive growth and
efficiency at AO pace.
• Develop a clear strategy to improve the overall
well-being of AOers by focusing on four key
aspects: mind, body, financial and social, and
seek to normalise the conversation on mental
health and break down the stigma. This will
be underpinned by face-to-face well-being
activities and digital learning materials.
• Leverage technology to enable better
collaboration, building both face-to-face
and digital learning content to continue to
support more agile and remote working.
Link to risks
The risks affecting the priorities in our Culture pillar
are set out on pages 43 to 47 of our risk review.
Remuneration
Happy and inspired AOers drive customer
satisfaction and also good financial performance.
We have therefore indirectly linked this strategic
objective to the remuneration of our senior team.
For the forthcoming FY21 award, however, the
Remuneration Committee has agreed a specific
performance condition related to employee
satisfaction, Employee Net Promoter Score – ENPS,
for further details see page 119.
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35
Our risks
In common with many businesses, AO faces a broad range of risks due
to the scale and nature of operations. In order to manage our 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. 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.
For the Audit
Committee’s statement
on their review of
the effectiveness
of the Company’s
risk management
and internal control
systems, please see
page 94.
Plc
Board
Principal
risk
Audit
Committee
Internal
Audit Plan
Corporate
risk register
Risk
Management
Committee
Internal Audit and Business Unit Risk Management Committees
UK Retail
Europe
UK Logistics
AO Recycling
AO Business
Financial Services
IT and Projects
Financial and Legal
People
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Internal Audit
Business Unit Risk Management
• Shares risk management information and best
practice across the AO Group.
• Provides independent assurance on key projects and
controls.
• Monitors compliance; identifies gaps and
improvements; recommends corrective action.
Our Head of Internal Audit and Risk meets with the senior
team of each of our business units on a quarterly basis to
assess emerging and existing risks, how these are being
mitigated and how changes from within that business
unit, or the wider Group, or even at a macro level, may
impact them. Each business unit has its own risk register,
assessing the likelihood and impact of the relevant risks,
which together combine to form our Corporate Risk
Register.
Risk Management Committee (“RMC”)
Audit Committee
Our RMC, in which our Executives participate, meets
regularly to review the Business Unit Risks, the status of
the existing Corporate Risk Register (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 that ranges from minimal to aggressive. This is
then balanced with an “intuitive” assessment: Do these
scores look right both from an individual perspective and
comparatively? Are we missing anything? 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 Corporate Risk Register is reviewed by the Audit
Committee at least annually and it is notified of any
significant changes in perceived risk as appropriate.
Individual risks that 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.
Plc Board
Principal risks
• 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.
These are the most significant risks faced by the
business, based on a likelihood and impact assessment.
These can be categorised as follows: Culture and People;
Brand Recognition and Damage; Future of Germany
Operations; IT Systems Resilience and Agility; Business
Interruption; Compliance with Laws and Regulation; the
UK Electricals Market; Key Commercial Relationships;
and Funding and Liquidity.
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In addition to the above, we have:
• A Personal Data Steering Committee and Data Protection
team that supports privacy and data protection
governance;
• SM&CR steering and oversight committee – introduced
this year – to ensure we are treating customers fairly and
supporting financial services governance;
• A senior Health and Safety Committee that brings together
the various health and safety teams within the business to
share knowledge and ensure the right culture is promoted
right across the Group; and
• Other control measures outlined elsewhere in this Annual
Report, including legal and regulatory compliance and
environmental compliance.
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Our risks continued
Our 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.
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 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 Company’s Risk Appetite Statement is
reviewed annually, in line with the strategic
direction of the Group, recent experience and the
regulatory environment.
Listed in the tables on the following pages are the
most significant risks that may affect our future.
This year’s achievement and
future actions
The risk maturity of the Group has increased
following the creation of business unit risk
registers, replicating the Board’s risk management
processes. This approach combines the benefits
of top down and bottom up risk identification and
ensures consistent methodology in assessing
gross and residual risk. While the business unit risk
registers were introduced in the previous year,
they have been fully embedded in FY20, and have
helped to ensure that the content of the corporate
risk register remains up to date and the scope of
the Internal Audit plan is risk focused. The frequent
review of risk with the business units has enhanced
the scope and relevancy of the content of Internal
Audit engagements with the introduction of new
test areas.
Replicating risk management processes in the
business units has also increased the risk maturity
of the management teams responsible for day-to-
day ownership of risk. They have gained more of
an oversight and a deeper understanding of the
recognised risk processes, and the expectations
of risk management from a Board and wider
stakeholder perspective, to assist compliance
with corporate governance and provide better
visibility of the key risks in each area. Ownership of
the business unit risk registers has been aligned
with the updated organisational structure,
standardisation of processes and One AO
approach. Increased centralisation is expected to
further enhance the risk and control framework by
standardising key controls across the Group.
The RMC, attended by the Executive Directors
and the Head of Internal Audit and Risk and Legal
Director, has continued to meet on a quarterly
basis to discuss current and emerging risk.
These sessions have been enhanced through the
attendance, on a rotational basis, of the business
unit managing directors, who present a summary
of their risk register and mitigation strategies to
the RMC, which enables two-way risk discussion
and strengthening of the consistency of risk
management processes. Additionally, the RMC
has been a forum for Internal Audit to present high
level findings and themes from audit engagements
to support regular reporting to the Board and
Audit Committee. During the year we have also
considered how to increase risk consideration
and mitigation into strategic decision making and
ensure that this is ingrained in our culture.
The risk register framework, which facilitates
risk identification and assessment, has been
further developed to include the lines of defence
in place to mitigate risk with increased detail,
understanding and scrutiny around the first
and second-line controls. The first line has been
subdivided into control categories to identify
any obvious gaps in control or inefficiency
through duplication. This is in the process of
being developed further in order to increase the
accuracy of the residual risk rating on the risk
registers and will be used to further enhance
mitigation. It is also planned for FY21 that the risk
of brand or reputational damage forms part of the
impact factor or a weighting of all recorded risks,
rather than remaining as standalone on the risk
register, as there is a likelihood that crystallisation
of any significant risk would result in reputational
damage to some degree.
Following the closure of our Dutch operations we
have revisited our “Europe Expansion” principal risk
and renamed it “Failure of Germany Operations”,
recalibrating the risks relating to it accordingly.
We have continued operating our Brexit
Committee and are planning, wherever possible, to
mitigate the impact of foreseeable risks (see Brexit
focus below).
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Additional risk registers to identify and aid
mitigation against the Covid-19 pandemic have
been implemented. The registers focus on the
short, medium and longer-term impacts of the
crisis, and have been used as an additional tool
to ensure that the Group and individual business
units are aware of the challenges faced in order
to apply appropriate mitigation and improve
decision making (see Covid-19 focus on page 41).
These risks are under constant review as are the
actions we are able to undertake to mitigate them,
given the ever-changing nature of the situation.
Emerging risks
As part of the RMC work, we have also been
contemplating some emerging risks:
• We have discussed the Government’s Resources
and Waste Strategy, which includes the
design and development of more sustainable
products in its desire to move to a more circular
economy. Should the average life of products
be increased, this could affect the market
dynamics of sales of electricals.
• Linked to this is the risk of climate change,
and as we seek to move towards reducing
our carbon footprint and operating in a more
environmentally friendly way, we could face
increased operating costs and inefficiencies.
• Our online model has enabled us to continue
trading during the Covid-19 outbreak. Indeed, it
is possible that the pandemic has accelerated
the migration of shoppers online. In the short
term, we have benefited but longer-term existing
competitors (or new market entrants) are likely
to invest sooner and deeper into their online
propositions, and competition could intensify.
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AO World Plc
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39
Our risks continued
Brexit focus
In 2018, we created a specific Brexit Risk Committee (“BRC”), focusing on the risks and challenges
AO may face following a disorderly exit from membership of the European Union. This is still in place
monitoring and planning mitigation for risks that may arise at the end of the transition period
scheduled for 31 December 2020.
Area of risk
Mitigants
Supply chain friction
The absence of an agreed and binding post-
Brexit trade arrangement poses significant risk
to our UK businesses in terms of supply chain
friction and costs.
People
The proposed immigration policy/points system
could affect labour availability particularly within
our logistics and recycling businesses.
Currency exposure
Should Brexit further weaken the pound against
the euro, investment in growing our Germany
Operations would become more expensive
to fund.
UK electrical market/consumer demand
Continued uncertainty around Brexit could
have a further impact on consumer confidence
and affect demand, particularly for the more
“considered” (as opposed to “distressed”)
purchase, and may also have an effect on the
housing market, to which our MDA sales bear
some correlation.
Uncertainty could also lead to an increase in the
rates of cancellation of product protection plans,
or the initial sale of product protection plans as
consumers look to preserve disposable income.
A decrease in consumer confidence could also
lead to an increased rate of cancellations of
mobile phone contracts (impacting the Group’s
commissions received from those) and/or reduce
the propensity for customers to upgrade at the
end of their contract, instead preferring to enter
into a rolling period rather than being tied in
long term.
Consideration to stock levels leading up to the
end of the transition period and to whether
stock procurement could be brought forward
to alleviate short-term supply issues in the
event of goods delayed at the border. While
manufacturing goods is completed outside of
the UK, trading relationships are conducted
with manufacturer’s UK subsidiaries, therefore
mitigating the direct impact of direct supply
chain friction.
Initiatives to attract additional labour into
areas including logistics and recycling have
been developed. Additionally, because of the
economic impact of Covid-19 on the labour
market, it is expected that there will be additional
existing UK-based labour availability.
The journey to profitability and overall increased
“self-sufficiency” of the German operation are
expected to mitigate the effect of unfavourable
foreign exchange rates in funding requirements
from the UK.
It is expected that with AO’s resilience as shown
during the Covid-19 pandemic, brand growth and
with increased online penetration, even with a
potential shrinking of the UK electricals market,
there is confidence regarding AO’s positioning
within the market to be somewhat insulated
against wider market trends.
Our customer insight suggests that being in a
position of unemployment makes consumers
risk averse and they may not be able to afford to
replace essential high value electrical products
if these break and therefore we believe that this
mitigates the risk of cancellations increasing.
In reference to contract mobiles, we see that
people view mobile phones as an essential. In
the present circumstances, we believe being
“connected” is more essential than ever and
customers will shop around to ensure they are
on competitive tariffs.
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Covid-19 focus
The global pandemic of Covid-19 is presenting us, as with many businesses, with operational
challenges and significant market uncertainties. Sales have performed well since March, as we saw
nearly 100% of the purchases for electricals migrate online with the implementation of the lockdown
measures. We continue to see a large percentage of sales of electricals being made online even now
that bricks and mortar stores have reopened.
We have also been well placed to move a large part of our workforce to work from home. However,
we have seen inefficiencies increase in our logistics business as we have ensured social distancing
measures can apply wherever possible and protected the health and safety of operatives in our
warehouses and other physical locations. We have also experienced challenges with supply of WEEE to
our recycling business, which materially reduced operations during a six week period of lockdown while
local recycling centres were closed and we reduced the collections from consumer houses.
We see that our key risks fall into two categories: General Disruption to Operations and Macroeconomic risk:
Area of risk
Mitigants
General Disruption to Operations including Government restrictions
Government restrictions:
• Should the Government require
more stringent social distancing
in all circumstances we would be
required to cease or amend our two-
man deliveries which could impact
MDA sales. Differences of approach
to easing lockdown measures or
the implementation of further or
different lockdown measures in the
UK’s devolved powers or specific
regions may present additional
operational difficulties.
• Supply chain: The impact of recent
temporary supplier factory closures
could be felt in the coming months
and reduced availability of goods
could also see prices of product
increase. Supply of MDA products
and parts from Italy and China are
currently likely to be most affected.
• People availability: Either through
illness, vulnerability or childcare
issues or union pressure, we could
see large parts of our workforce
unable or unwilling to work.
We have investigated how MDA could be delivered utilising
a single operative but this could lead to significant
inefficiencies and would add other health and safety
concerns.
Partitioning of the cab within the delivery vehicle using
screening could enhance segregation in the two-man fleet.
There has been additional and ongoing monitoring of
stock levels from the first wave of the pandemic to ensure
that AO are well placed to react swiftly in the event
of potential supplier disruption in future. Contingent
purchase orders have been raised with suppliers for key
stock lines to mitigate the likelihood of manufacturer
disruption increases. Warehouse capacity has also been
increased to enable storage of additional stock to enable
AO to maintain a reasonable level of availability during any
temporary manufacturer factory shutdown.
• We have robust business continuity plans in place.
• We have actively engaged with our people and trade
unions in our physical operational environments. This has
meant we have been able to successfully work though
any challenges, where necessary amending working
practices, and so far availability of labour continues to be
good. We are working to create talent pools we can tap
into should we need it.
• As many employees continue to work from home we have
continued to gather information regarding the suitability
and sustainability of home working environments
including physical conditions and general employee
well-being. Mitigation at a general and individual level in
this area is ongoing and business focus is expected to
remain in place until the working environment settles into
a longer-term pattern post Covid-19.
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AO World Plc
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41
Our risks continued
Area of risk
Macroeconomic risks
Mitigants
Consumer confidence/demand:
Consumers could defer discretionary
big-ticket purchases until there is more
certainty that the economy is back
on track.
Consumers will begin to feel the impact
of reduced wages (80% furlough
capped at £2,500 per month). With
the furlough scheme expected to
end in October 2020 there are risks
of redundancies and increased
unemployment. which will impact
disposable incomes.
There is expected to be a significant
fall in GDP with the Bank of England
predicting a severe recession.
In the medium term, trading could be
affected by a fall in the housing market
and a drop in mortgage approvals with
banks have significantly reduced the
number of mortgages in the market
and banks are demanding lower loan to
value ratios.
There is a risk that less customers take
out product protection plans on their
electricals or that the rate of plan
cancellations increases.
There is also a risk customers cancel
mobile phone contracts, or more likely,
defer upgrades and enter into a rolling
period on their contracts as they look
to preserve disposable income and
wait for more economic certainty.
The future economic effect of Covid-19 remains highly
uncertain; however, with ongoing restrictions, social
distancing measures and general consumer safety
concerns, while the virus remains active, it is unlikely that
consumer shopping trends, in regards to store-based retail,
will return to pre Covid-19 patterns.
The likelihood is that the pace of change towards online
retail will increase; therefore, AO's market share would be
expected to also increase albeit in a potentially decreasing
overall market. Scenario planning has been conducted
based on reasonable worst cases regarding a reduction in
sales growth, a reduced margin from suppliers, a tightening
of credit terms with suppliers due to a decrease in risk
appetite of credit insurers, and further general Covid-19
operational restrictions. Potential actions to mitigate
against these risks have been determined and AO are
satisfied that we will have sufficient liquidity to meet
liabilities if these risks crystallise.
Our customer insight suggests that being in a position of
unemployment makes consumers risk averse and they
may not be able to afford to replace essential high value
electrical products if these break. The rate of cancellation
of product protection plans is not expected to increase
significantly if a consumer becomes unemployed as the
potential high cost of replacing broken products further
enhances the reassurance provided by the monthly plan
that consumers will be keen to maintain.
A recent study shows that in lockdown consumers were
using appliances more than ever. Such additional usage
could reduce the useful economic life of such products
– causing more replacement products to be purchased.
During the year we improved our pay by finance facility
giving customers an easier way to spread the cost of
their purchases.
The increased possibility of product breakdown by
additional usage could increase the sale of product
protection plans.
In reference to contract mobiles, we see that people
view mobile phones as an essential. In the present
circumstances, we believe being “connected” is more
essential than ever and customers will shop around to
ensure they are on competitive tariffs.
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Principal risks
Our principal risks are set out in the tables below. In the short to medium term we also see Brexit and Covid-19 having a potential
impact on our business as has been covered in the preceding pages.
Details on our significant accounting risks, namely the accounting in relation to product protection plans, Network Commission
receivables and AO Mobile carrying value of goodwill and intangible assets are set out on page 96.
A Culture and people Culture is the bedrock of our business and central to our success 1 2 3
Nature of 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 including 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.
We fail to keep or attract exceptional
people – particularly developers in the
tech sector, given the demand for such
expertise, particularly in the North West.
Embedding “One AO” across the Group
has further cemented our culture and
ensured that all the business units are
fully aligned.
The people team has been largely
centralised and additional talent and
experience has been brought in to
help us look after our people better,
including enhancing the learning and
development team and adding a
diversity and inclusion manager.
The proposed immigration policy/points
system could affect labour availability
particularly within our logistics and
recycling businesses, respectively.
However, with Covid-19 having an impact
on the labour market, there could be an
opportunity to attract new workers.
AO culture is supported by a wide range
of tools, workshops and events with a
dedicated employee events team.
The Group management 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,
while global ownership and engagement
helps instil the culture and reduces
reliance on individuals. Some succession
planning is in place.
We benchmark our packages against
the market to ensure they remain
competitive, and attend recruitment
fairs and advertise the benefits of being
an AOer through a variety of recruitment
channels with a particular focus of
women in tech.
B Failure of Germany operations 2
Nature of risk
Mitigating activities
Overall change during the year
Expanding into new territories is a key
part of our strategy. Failure in Germany
would limit our long-term growth
prospects.
Investment requirements are managed
in stages.
Specific targets and a clear road
map are in place to enable focus
on objectives and measurement of
performance.
Germany operation leverages AO’s
existing online retailing expertise and
experience that has been built up over
many years.
The One AO approach is ensuring
that we are using the best talent and
experience in all areas of the Group.
For example, the highly experienced
UK e-commerce team now oversees
e-commerce for the German business.
We have increased confidence in
our journey to Germany profitability
following progress made on margin and
support with manufacturers and a road
map to drive cost efficiencies.
With the Covid-19 lockdown measures,
the level of online penetration has
increased and we expect that level
to remain higher than it was prior to
Covid-19.
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Risk trend
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our people
Increase Decrease No change
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Our risks continued
C Brand recognition and damage 1 2 3
Nature of risk
Mitigating activities
Overall change during the year
Damage to our brand or failing to
achieve growing recognition would
lead to a reduction in customer loyalty,
a failure to attract new customers,
suppliers or employees or affect existing
relationships.
Ongoing marketing campaigns to raise
brand awareness through different
media.
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.
Continued high NPS and Trustpilot/
trusted-shop scores in the UK and in
Germany show that our proposition
resonates and customers continue
to love our brand and we continue
to enjoy strong repeat business in
all our territories. This is especially
so in the recent weeks following the
implementation of lockdown measures.
D IT systems resilience and agility 1 2
Nature of risk
Mitigating activities
Overall change during the year
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.
Failure to develop our technological
systems and stay abreast with a rapidly
changing digital world could affect our
ability to attract customers and cause
us to rely on costly back-end processes.
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 a 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.
Product teams have been initiated
to ensure we keep up with front-end
development.
Programme of initiatives to improve
back-end systems and leverage the ERP
and other key systems rather than keep
adding to the estate.
The cyber threat landscape continues
to become more complex (and there
has been an increase in cybercrime
during the Covid-19 pandemic). Against
this there has a been a programme
of security improvements and
developments over the year.
As we grow as a Group and become
more complex, our back-end systems
need to improve and there are lots of
initiatives planned for the year ahead.
We have initiated a product team model
to assist with development agility. We
have also established an innovation lab,
inviting external companies to pitch
innovative technological solutions to
improve our e-commerce offering.
Link to strategy
Risk trend
1 Sustain and enhance
customer proposition
2 Build and leverage
our expertise
3 Inspire and develop
our people
Increase Decrease No change
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E Compliance with laws and regulation 1 2 3
Nature of risk
Mitigating activities
Overall change during the year
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
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.
Following embedding of the One AO
approach there are Group-wide
co-ordinated teams advising on and
monitoring compliance with laws
and regulation.
AO is supported by a legal team who
promote awareness and best practice
and an internal audit team who provide
assurance on compliance. These teams
have been enhanced over the year
to help assist the drive for fast-paced
growth.
Third-party legal advice is sought where
necessary and any recommendations
are implemented and subject to ongoing
monitoring.
AO’s business is supported by a qualified
health and safety team.
Changes to the macro environment
and legislation are monitored and
implemented promptly.
The health and safety control framework
has been improved across the Group.
However, with Covid-19, working practices
have needed to be adapted to ensure
we keep our people as safe as possible.
While we have put in place appropriate
measures the gross risk of health and
safety claims has increased.
SMCR compliance extends the
regulatory risks we face.
F Business interruption 1 2 3
Nature of risk
Mitigating activities
Overall change during the year
A disastrous event occurring at or
around one or more of the Group’s sites,
including our main distribution centre
in each of the UK and Germany, may
affect the ongoing performance of our
operations and negatively impact the
Group’s finances and our customers.
Two NDCs (and the recent additional
storage facility acquired in Crewe) in
the UK reduce reliance on any one
distribution centre, and in Germany the
distribution centre is separated into
chambers to reduce the impact of fire or
damage.
Government restrictions impact the
ability for people to travel or operate
safely at work.
Dedicated engineering teams on-site
with daily maintenance programmes to
support the continued operation of the
NDCs and Head Office.
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.
On a gross level the risk of business
interruption has increased with the
impact of the Covid-19 pandemic and
potential for a second peak or multiple
peaks. However, in recent weeks we have
gone through the biggest business
interruption exercise we have ever had
to face.
The plans and infrastructure we had
in place to mitigate the impacts have
been tested and we have continued
to operate safely without affecting
customers.
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AO World Plc
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45
Our risks continued
G UK electricals market 1 2
Nature of risk
Mitigating activities
Overall change during the year
Uncertainty in the UK economy following
the Covid-19 pandemic and also following
the end of the transition period resulting
from Brexit, the risk of inflation and the
dampening of consumer confidence,
a drop in housing transactions, a fall in
GDP or an increase in unemployment
may affect the ability of the Group to
maintain growth of sales of products
may increase cancellations of product,
protection plans (or initial sales of them)
and may impact the upgrade sales we
make on mobile phone contracts.
Controls on the freedom of movement
of people could add friction in to 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.
Currency risk from profit and loss
translation from Europe to the UK adds
uncertainty.
Reduced consumer demand drives
increased competitor promotional
activity.
Customer proposition remains strong
and continued migration to online
shopping should soften macroeconomic
impacts. Improved finance proposition
enables more customers to easily
spread the cost of their purchase.
Robust relationships with suppliers and
improved stock holding could mitigate
impacts on lead times affected either by
Covid-19 or Brexit.
Long-term recruitment planning
underway to reduce potential for gaps in
worker availability.
Continued uncertainty in the economy
surrounding Brexit and more recently
Covid-19 has affected and is likely to
continue to affect consumer confidence
and therefore consumer demand for
electricals, mobile phones and product
protection plans. Demand, in turn,
continues to drive competitive activity.
Against this we have seen an increase
in online penetration in the electricals
market in recent weeks and our sales
continue to be strong but there is no
guarantee this will be maintained for the
long term.
We closely monitor competitor activity
and have the ability to react quickly
to ensure our proposition remains
competitive.
Brexit Risk Committee (“BRC”) created to
understand the risks we may face and to
plan mitigation strategy.
Covid-19 BCP team established in light of
pandemic and UK lockdown restrictions
and social distancing requirements.
Link to strategy
Risk trend
1 Sustain and enhance
customer proposition
2 Build and leverage
our expertise
3 Inspire and develop
our people
Increase Decrease No change
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H Key commercial relationships 1 2
Nature of risk
Mitigating activities
Overall change during the year
We have strengthened our relationships
over the period particularly with German
manufacturers and certain of the mobile
network operators.
With the impact of Covid-19, our
manufacturer relationships have been
further strengthened as we have worked
together to ensure essential products
can be delivered to customers.
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 partners 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
• Network operators
It also includes our relationship with
D&G, whom we act for as agent in selling
product protection plans.
The risk includes the ability to achieve
favourable terms, competitive rebates
being agreed and the ability to attract
premium brand suppliers to work
with AO.
There is ongoing management 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.
In terms of rebates, these are formally
agreed with suppliers via annual trading
terms. Rebates for stretch targets are
not included in financial reporting until
the targets are achieved.
I
Funding and liquidity 1 2 3
Nature of risk
Mitigating activities
Overall change during the year
We have replaced our RCF facility which
matures in April 2023 and have moved
to being cash generative (on a Group
Adjusted EBITDA less debt repayment,
interest, taxes and monthly share of
annualised capex basis). However, we
recognise that we are still heavily reliant
on suppliers extending credit.
Our ambition is to have market leading
and profitable businesses across our
UK eco-system and roll out our UK
model overseas. This requires continual
substantial investment both in the UK
and overseas.
Given the financial resources available
to the Group and the Revolving Credit
Facility that we have just renewed, we
currently have sufficient funding and
cash resources to continue to support
UK growth and European expansion.
Our three-year plan models the impact
of continued losses and cash outflow for
the Europe businesses and in a number
of different scenarios modelled we
continue to be viable – please refer to
page 48.
Excess profits and cash generated in the
UK fund such European expansion. If the
losses/cash outflow in Europe exceed
the profits/cash generated in the UK we
will continue to make an overall loss and
continue to consume cash. This then
affects our ability to fund European
expansion and drive innovation and
improvements in the UK.
Further, we are reliant on suppliers, both
in the UK and overseas, selling goods
to us on credit and they often obtain
credit insurance in respects of our debts.
If such credit insurance is withdrawn
this could cause liquidity problems for
the Group.
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AO World Plc
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47
Our risks continued
Viability assessment
In accordance with Provision 31 of the UK
Corporate Governance Code 2018 (“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 2023. 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 has 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 43 to 47 and in the
Corporate Governance Statement on page 96.
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 working capital, debt funding availability,
the implications of Covid-19 and the full or partial
removal of suppliers’ credit insurance), 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 risk
management processes (see pages 36 to 47), and
internal controls (see page 94), 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 pages15 to 73. The financial
position of the Company and its cash flows are
described in the Chief Financial Officer’s review
on pages 63 to 73. 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. Further
information on our risks is on pages 38 to 47.
Notwithstanding net current liabilities of £53.8m
as at 31 March 2020, and a cash outflow for the
year of £22.1m, the financial statements have
been prepared on a going concern basis which
the Directors consider to be appropriate for the
following reasons.
The Group meets its day to day working capital
requirements from its cash balances and the
availability of its revolving credit facility.
The Directors have prepared base and sensitised
cash flow forecasts for a period of at least 12
months from the date of approval of these
financial statements which indicate that the
Group and Company will remain compliant with its
covenants and will have sufficient funds through
its existing cash balances and availability of
funds from the new £80m Revolving Credit Facility
(of which £56.7m is currently undrawn) to meet
its liabilities as they fall due for that period. In
assessing the going concern basis, the Directors
have taken into account reasonably possible
downsides including e.g., a reduction in sales
growth, a reduction in margin, tightening of credit
terms from suppliers due to pressure from credit
insurers and the potential impact arising as a
result of Covid-19, as well as considering potential
controllable mitigating factors.
In relation to Covid-19, management have
considered the impact of a short-term closure
of part of its warehousing capacity in addition to
the potential impact on customer behaviour in
respect of product protection plans and mobile
phone disconnections due to a decline in the
macro-economic environment post lockdown.
Consequently, the Directors are confident that
the Group and Company will have sufficient funds
to continue to meet its liabilities as they fall due for
at least 12 months from the date of approval of the
financial statements and therefore have prepared
the financial statements on a going concern basis.
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AO World Plc
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49
Corporate social responsibility
How we relentlessly strive
for a better way with our
stakeholders
Why we engage with our stakeholders
We depend on a range of different resources
and relationships, and recognise that effective
engagement with our key stakeholders is
critical to achieving our purpose and strategic
objectives in a sustainable way. Understanding the
perspectives of our stakeholders, and building and
maintaining good relationships enables their views
to be taken into account in management, Board
and Committee discussions and decision making.
s.172 statement
The Board, in using its good faith and judgement,
acts in a way that would be most likely to promote
the success of the Group for the benefit of
its shareholders. When making decisions, the
Board recognises the importance of our wider
stakeholders to the sustainability of our business
and has regard to a number of factors, including
the impacts of its activities on its employees, the
environment and society.
The Corporate Governance section (pages 84
and 85) sets out in more detail how the Board
has approached its duty under section 172.
Further information on how we engage with our
stakeholders is set out in the diagram across.
Customers
People
Understanding our
customers is critical
to the success of our
Group. This allows us to
continually improve our
customer proposition,
thereby driving sales,
increasing profitability
and allowing us to
invest and innovate
our capabilities,
and leverage new
opportunities.
The ways we engage
• Dedicated, highly
responsive customer service
centre and variety of digital
communication channels
including social media
platforms
• Dedicated account
management for B2B clients
• Collection of customer
satisfaction metrics and
use of feedback and review
platforms
• Extensive customer
research including surveys,
customer focus groups and
forums to gather insight
• Customer lab sessions
– we invite customers to
feed back their thoughts
on existing or proposed
customer journey aspects
Stakeholders’ key
interests
• Proposition: customer
service, product range,
value, ease of journey and
convenience
• Reputation
• Data protection and
compliance
• Environmental impacts
Our AO Let’s Go culture
is the most important
element in binding
the competencies in
our business model
together.
The ways we engage
• Regular business updates,
such as our “State of
the Nation”, monthly
management meetings and
dedicated intranet
• Use of Yammer, an internal
social network, to enable a
continued conversation with
and between our people
• Feedback mechanisms
including employee survey,
engagement forums,
suggestion boxes and
confidential whistleblowing
hotline
• Formal partnership with
Unite (in Logistics business)
• Recruitment, retention and
annual development plans
• Dedicated diversity,
inclusion and well-being lead
• Designated Non-Executive
Director as employee voice
representative
• Policies, procedures,
employee handbook and
Code of Conduct
Stakeholders’ key
interests
• Culture
• Reputation
• Reward and benefits
• Career and development
opportunities
• Well-being/health and
safety
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Suppliers and partners
Community
Shareholders
Our relationships
with suppliers and
partners is critical to
our performance. We
believe that we and
our suppliers benefit
the most where
we have long-term
mutually supportive
relationships, and
work with them
to ensure that our
respective standards
and expectations of
business conduct are
adhered too.
The ways we engage
• Annual supplier conference
for product manufacturers
• “Top to top” (CEO) meetings
• Buying trips
• Steering and governance
meetings with finance
partners
• Client meetings for B2B,
Logistics and Recycling
Stakeholders’ key
interests
• Long-term mutually
supportive and
collaborative relationships
• Customer proposition
enhancements
• Growth opportunities
• Responsible retailing, trust
and ethics
As a Group, we aim
to build relationships
and support the
communities where
we operate. We
consider the social and
environmental impacts
of our operations and
are fully committed to
responsible retailing.
The ways we engage
• Liaison with charity
partners
• Support to charities and
fundraising initiatives
• Promotion of career
opportunities with
Universities
• Links with schools
• Employability forums
• Participation in recycling
forums and events
• Good relations with the
Environment Agency and
bodies such as WEEELABEX
Stakeholders’ key
interests
• Environmental performance
• Health and safety record
• Procurement decisions
• Investment and community
support
• Sustainability initiatives
Access to capital is
vital to the long-term
performance of our
business. We aim to
provide fair, balanced
and understandable
information to
shareholders and
analysts including our
strategy, business
model, culture,
performance,
governance.
The ways we engage
• Financial results
presentations
• Institutional investor
roadshow and investor
conferences
• Engagement with Board
committee chairs and SID
• Capital Markets Days
• View of investors a regular
Board agenda item
Stakeholders’ key
interests
• Financial performance
• Opportunities and strategic
ambition
• Operating and financial
information
• Governance
• Confidence in Directors and
management
• Returns
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51
Corporate social responsibility continued
How we implement our culture and some of our values, like care,
to be an ever improving responsible and sustainable business.
Employees
Engagement
The Group places considerable value on the
involvement of its employees and uses a number of
ways to engage with them on matters that impact
them and the performance of the Group. As set
out on page 50, this includes regular business
updates to all employees, monthly meetings with
senior management and more recently the use
of corporate social media tools such as Yammer
and YouTube. This allows all employees to be kept
up to date with the latest news and developments
across the Group, together with increasing the
awareness of the financial and operational
performance of AO. The Group’s intranet also
allows employees easy access to Group policies
and procedures.
This year we have looked to enhance the ways in
which we engage with employees and, in line with
the 2018 Code, we appointed Chris Hopkinson, a
Non-Executive Director as our People Champion.
Chris will spend time carrying out a series of
familiarisation visits across sites and business
areas hearing first hand from our people. Our
“Employee Voice group” will comprise the People
Champion and employees from across the
Group (Employee Voice Representatives) to allow
a diverse and wide viewpoint from across AO to
be represented. The Employee Voice group will
meet frequently so that a regular dialogue can
be established between AOers and the Board.
Going forward, the Board may enlist the views of
employees on a particular subject or they may
also discuss themes that have been highlighted
from recent employee surveys. Meetings will be
held at different sites across the business and,
if possible, face-to-face so the Employee Voice
Representatives can engage with different
business areas and in line with our One AO
approach.
During the year, we also relaunched our employee
engagement survey. We recognise that it is
important that we do not rely on surveys as a
single method of gathering feedback. However,
when targeted, they are an important way of
gathering views and provide a credible voice
from employees that allows us to focus and
make improvements across the Group, as well as
signposting key themes or hotspots of potential
concern that need to be addressed. Our questions
will be aligned to current ambitions and our
engagement groups will allow us to focus on the
lowest trending areas. This information will then
be shared with the Board to provide insight on key
categories of performance and identify trends at
team, business and organisational level. Our aim is
to get real-time feedback in a focused approach
that will enable our leaders to react to the results in
a meaningful and responsive manner.
All employees are able to participate in the
Company’s annual Save As You Earn Scheme,
which gives employees the opportunity to
purchase ordinary shares in the Company. This
helps to encourage employee interest in the
performance of the Group.
We will continue to regularly review our methods of
employee engagement and interaction with the
Board and tailor our approach as required.
Inclusion and diversity
We are committed to creating an inclusive
environment and attracting a more diverse
team of AOers. We aim to be a welcoming place
where everyone can be their true self, feel they
are included, celebrated and that they belong.
During the year we recruited a dedicated diversity
and inclusion manager as part of our continued
focus in this area. Over the coming year we will
increase the integration of inclusion and diversity
into our ways of working to ensure we remove
barriers to inclusion and reflect this in the relevant
policies and procedures across the business.
Our approach focuses on all parts of someone’s
identity, including their physical ability, sexual
orientation, ethnicity and much more.
We know that a key area of focus for us is to
bring more diversity, in particular gender and
ethnicity, into our leadership team. At the end of
our reporting period our Executive management
team was 20% female, our Group Management
team (excluding Executive Directors, and which
reports directly into our Executive management
team) was 36% female, and the number of female
employees across the whole business was 31%.
We are collecting ethnicity diversity data this year
along with a full range of diversity data within our
people survey.
As well as striving for better representation, we
are working relentlessly to make our culture even
more inclusive. Raising awareness on inclusion
through workshops and learning across the Group,
on topics such as unconscious bias, stereotypes
and microaggressions. We are engaging with our
AOers through affinity groups, listening sessions
and regular feedback loops – using their lived
experience to help us build our inclusive culture.
This has helped us support our AOers who have
been affected recently by the Black Lives Matter
movement. We are truly working with them to build
a place where they can belong, feel safe
and included.
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31%
female
employees
across the
business
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AO World Plc
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53
Corporate social responsibility continued
Equal opportunities
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. This policy underpins our talent
attraction and recruitment process.
Once people join AO, we aim to ensure that:
• 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.
In the opinion of the Directors, our equal
opportunities policies are effective and adhered to.
Our latest Gender Pay Gap report can be found at
ao-world.com.
Disabled people
Disabled people 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.
Responsible retailing
The Board considers that the development,
well-being 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.
We are fully committed to responsible retailing,
which means meeting our environmental
responsibilities and limiting the impact of our
operations in a way that is both practical and
economically feasible.
Putting customers at the centre of our business
decision making means that our social value
can be far greater than the sum of our parts. For
example, leveraging our model to launch a market-
leading rental proposition could mean that millions
of families one day have access to affordable,
essential appliances via AO. Equally, the standards
AO
supporting
communities
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we have applied to our recycling business to
create one of Europe’s leading MDA recycling
plants, means the quality of raw materials that
are produced from waste MDA can be used to
make new products and AO is able to extract
value from this and contributes to the circular
economy. We are pleased to have recycled our one
millionth appliance this year, derived from AO and
third-party customers. By leveraging our logistics
infrastructure, we can bring goods to the recycling
plant with a low carbon footprint, and this year
we launched a standalone MDA recycle pick-up
service, illustrating how we can leverage
the eco-system to deliver social value. The
sustainability trend is only just beginning, but
the innovation and integration in our value
chain will enable us to fulfil the demands from
environmentally conscious consumers.
We are putting sustainable values at the centre
of decision-making processes, including making
sustainable procurement decisions such as:
• Aiming to source 100% renewable energy at
AO properties; and
• We are committed to removing all single-use
plastics from our facilities and plastic bottles,
saving over 500,000 plastic bottles per annum.
Keeping people safe
At AO, we are committed to providing a safe and
healthy work environment for our employees and
our customers. As a business, we ensure that our
operations are legally compliant with all existing
and any new health and safety legislation. Our
health and safety culture is very strong but we aim
to continually improve and meet best practices
across the whole Group.
To keep health and safety at the top our agenda
we have recently created a new Senior Health and
Safety Committee. The purpose of the Committee
is to drive continual improvement throughout each
area, focus on managing risk and use the working
group to share knowledge across each sector.
As a business we aim to test our health and safety
systems to ensure they are robust and meeting
the highest standards. In order to achieve this,
we are audited and reviewed by multiple industry
recognised accredited bodies.
The knowledge and competency of our people is
an area that is key to us maintaining our health
and safety culture. As a Group we have invested in
multiple internal and external training programmes
to ensure our people can proactively manage
health and safety in their areas of the business.
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AO World Plc
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55
Corporate social responsibility continued
We are concentrating on the overall well-being of
our employees by focusing on four key aspects:
mind, body, financial and social. We have recently
developed a mental health action plan by working
with Time to Change, a programme led by Mind
and funded by the Department of Health. We have
already trained some mental health first aiders
across the business but have now also committed
to training managers on mental health issues,
hosting some events and awareness days and
undertaking several other actions to break down
the stigma that surrounds mental health.
As key principles of our Group health and safety
policy we continue to:
• Regularly update the Board of Directors on our
performance;
• Provide all stakeholders with advice on the
management of health and safety;
• Inspect each operational area of the business;
• Assess risks to the business and our people,
providing measures to control these risks;
• Provide instruction, information and training on
how to work safely and remain healthy;
• Investigate all workplace incidents with the aim
of preventing a reoccurrence.
The safety of our people and our customers
continued to be our top priority during the
Covid-19 pandemic. As such, we adapted the
services we offer, invested to ensure social
distancing and enhanced safety measures to
protect our people in front line operational roles,
whether in our warehouses or making deliveries.
We also equipped everyone who can work from
home with what they need to do so and supported
our people in front line operational roles.
Supporting 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
nearly £50,000 was raised through payroll giving,
which makes the process of giving as easy, flexible
and tax efficient as possible.
Delivering a better tomorrow is a huge part of our
culture. With AO Smile, we’re striving to provide
practical and emotional support for those who are
most vulnerable. To do this, we’ve identified local
charities that reflect this mission and hundreds of
our AOers kindly donate a portion of their salary
to these incredible causes. 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 Diamond Payroll
Giving Award from HM Government and Institute
of Fundraising.
Over the year we have continued to encourage
AOers to have a positive impact within their local
communities, including the following.
The continuing support of four local charities
through initiatives including:
• Funding the redevelopment of the Play Zone at
Derian House in Chorley, which provides respite
and end-of-life care to more than 400 children
and young people across the North West.
• Yorkshire Three Peaks Challenge.
• Great Manchester Run.
• Manchester Sleep Out in aid of The Booth
Centre, a homeless prevention and support
charity based in Manchester.
• School Uniform Donation Campaign helping
500 low income families across Manchester.
• Funding two activity clubs in Crewe, giving
disabled children and their carers amazing
experiences along with donating laptops and
social media support.
• Funding 267 calls to Childline over the 2019
Christmas period – Childline’s busiest period.
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Largest
WEEE recycling
facility
in the UK
Gold ROSPA
for Health
and Safety
1 millionth
appliance
recycled
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• Raised over £20,000 for a new local community
and homeless hub called the “Flag Lane Baths
Project” in Crewe.
• Offer two volunteering (MAD) days a year to
every AOer to make a difference to a charity of
their choice, either as individuals or a team. We
also offer fundraising boosts to AOers who are
raising money for causes that are close to their
heart. From shaving heads and selling cakes to
running marathons and climbing mountains,
we’re always looking to support our incredible
people to create better tomorrows.
• Outreach and employability training in local
schools in Cheshire, including four special
education needs settings. We are offering
skills sharing and project-based workshops in
everything from enterprise skills to resilience
in order to equip them with the skills needed
to gain successful employment when leaving
education.
• We are an official employer partner of Crewe
Engineering and Design UTC. We have branded
and opened an AO Project room, supported
their students to win first place at The Big Bang
@ IMHX, offered work experience and one-to-
one mentoring, as well as business projects to
enable them to experience the world of work
several times a year.
• We provided fridges and freezers for a local
community supermarket set up specifically
for the most vulnerable families in Crewe and
Nantwich to access food for a nominal cost.
We also provided small kitchen appliances to
a local school so they could run a breakfast
study club for their vulnerable students.
We also actively promote the graduate career
opportunities available at AO to our local
communities. For example, our logistics team is
a supporter of the Career Ready programme
in North Staffordshire, where six AOers have
mentored 15 students who are at risk of leaving the
education system prematurely, and partnered with
Safe Opportunities and Cheshire East employment
services to offer work experience for young
people with additional needs, which has led to the
appointment of a permanent staff member in the
first six months of the trial. In our Financial Services
operations based in Manchester, we engage with
local universities, supporting and sponsoring
awards designed to recognise high achievers, and
contributing at panel events to inspire graduates
to consider a career outside their degree subject.
We also run a programme of employability
initiatives designed to equip graduates with the
skills needed to be successful in the workplace. We
deliver resilience and goal setting workshops on
campus, together with CV writing, interview tips and
mock assessments on campus. Our work has been
well received and some universities have adopted
this into their professional development modules. In
Germany, we engage with the European University
of Applied Sciences (EU|FH) and we formed a
partnership with a local comprehensive school to
offer opportunities for sixth-formers and below to
complete internships of two to three weeks in order
to get a better understanding of the various roles
and apprenticeships we offer.
We have also supported young leaders to attend
the One Young World Summit and invested in
young people to become OnSide Ambassadors
for the new East Manchester Youth Zone.
Business ethics
Our Modern Slavery statement for the year ended
31 March 2019 was published during the year, and
we have recently published our statement for the
year ended 31 March 2020. 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
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. It consistently meets
the highest European standards and retains the
WEEELABEX accreditation. We have the only
Dometic patented and European WEEELABEX
awarded ammonia fridge processing solution in
the UK and the site was awarded a Gold ROSPA for
Health and Safety for the second year running.
This year we recycled the one millionth
appliance through our facility, derived both
from AO customers and third-party customers.
Where possible we also refurbish and resell old
appliances, therefore providing our customers
with the confidence we dispose of their end-of-life
electrical products in the most environmentally
responsible way possible.
At a time when consumers have never been more
environmentally aware, AO Recycling is proud to
be the UK leader in blowing agent capture rates
(from launch of the WEEE recycling facility in
Telford in 2017 to latest figures available from the
Environment Agency). These dangerous gases are
collected and disposed of in an environmentally
friendly way rather than being released into the
atmosphere and damaging the ozone layer. We
believe sustainability to be a critical part of our
strategy going forward and that therefore needs
to be a critical part of our overall proposition.
With our main recycling plant capable of
processing up to 700,000 fridges per year, the
natural next step was finding a way to get the
most out of these old appliances and so we have
built a plastics recycling and refining facility. The
new plant is now operational in its final phase of
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AO World Plc
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57
Corporate social responsibility continued
testing and commissioning, providing us with the
capability to clean and refine the plastic from
discarded fridges, transforming it into high-quality
reusable materials. As a retailer, we’re taking
responsibility for the entire process, and the new
plant will hopefully mean we can create a closed
loop recycling process in Telford.
As well as being environmentally compliant and
doing what is right for the planet, AO Recycling also
provides us with a number of potential business
opportunities and is a great example of how we can
vertically integrate our supply chain.
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 light and
have a greater space and weight capacity;
• we also try to maximise our fuel efficiencies
using vehicle telematics, and by employing
double-decker trunking we can deliver more
products per journey to our outbases;
• we are implementing technologies to reduce
returns, such as voice picking in our warehouse
and chatbots to help customers purchase the
right goods for them by instantaneously giving
them the information they need;
• we are collaborating with innovative third
parties to develop carbon fibre parts for our
vans to significantly increase payloads and the
efficiency of our deliveries;
• our reverse supply chain facility allows us to
repair and refurbish customers’ old products for
onward resale, maximising the life of products
and linking in with our recycling division who
have been working closely with Producer
Compliance Scheme partners to create an AO
van and backhaul model to collect a significant
volume of fridges from local amenity sites
across the UK; and
• we are working with the National Grid around
smart electrification to explore building our own
electric vehicle infrastructure for the future.
Greenhouse gas emissions
This section has been prepared in accordance
with our regulatory obligation to report
greenhouse gas (“GHG”) emissions pursuant to
The Companies (Directors’ Report) and Limited
Liability Partnerships (Energy and Carbon
Report) Regulations 2018 which implement the
Government’s policy on Streamlined Energy and
Carbon Reporting.
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 have
operational control across the UK and Europe.
We have applied the UK Government 2019 GHG
Conversion Factors for Company Reporting
(and have also applied these to our European
operations) and the Streamlined Energy and
Carbon Reporting guidance to quantify and report
our greenhouse gas emissions. Any changes
in factors between the current and prior year
reporting periods are considered minimal.
Our emissions predominantly 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.
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ENERGY USE TABLE
Energy use kWh (Scope 1 and 2)
UK
Global (excluding UK)
CARBON EMISSIONS TABLE
Carbon emissions (tonnes of CO2e)1
Emissions from operations and combustion of fuel (Scope 1)
Emissions from energy usage (Scope 2)
Total
Intensity ratio:
tonnes of CO2e per £m of revenue
Emissions from energy usage (Scope 2 market-based)
FY20
14,573,240
3,047,216
FY19
25,836
3,887
29,723
32.93
–
FY20
26,587
3,679
30,266
28.55
1,697
1 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.
2 Comprises electricity purchased from renewable sources.
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).
Non-financial information statement
The table below constitutes AO’s non-financial information statement, produced to comply with Sections
414CA and 414BA of the Companies Act 2006, and also with the requirements of the Non-Financial
Reporting Directive. The information set out below is incorporated by reference.
Policies and standards which
govern our approach
• Environmental Policy
• Whistleblowing policy
• Conflicts of interest
• Group employee handbook
• Health and safety policy
• Code of conduct
• Equal opportunities policy
• Flexible working policy
• Modern Slavery policy
• Code of Conduct
• Anti-bribery policy
• Conflicts of interest policy
• Hospitality and gifts policy
Information necessary to understand
our business and its impact, policy due
diligence and outcomes
• CSR, pages 57 - 58
• SECR/GHG emissions, page
• Our culture, pages 6 - 7
• CSR pages 50 - 59
• CSR, supporting communities,
pages 56 - 57
• CSR page 57
See page 57
See pages 36 - 47
See pages 30 - 31
Reporting
requirement
Environmental
Employees
Social
Human rights
Anti-bribery and anti-
corruption
Principal risks and impact on
the business
Description of business model
John Roberts
Chief Executive Officer
13 July 2020
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59
Corporate social responsibility continued
Case study
“ With our main recycling plant able
to process up to 700,000 fridges per
year, the natural next step was finding
a way to get the most out of these
old appliances. And that’s where our
new WEEE plastics plant comes in.
The four-acre site will clean and refine
the plastic from discarded fridges,
transforming it into high-quality
reusable materials.
The plastic can now be reused in other products such as cars
and electronics, and potentially even in future fridges! As a
retailer, we’re taking responsibility for the entire process, and
the new plant will hopefully mean we can create a closed-
loop recycling process in Telford.”
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Able to recycle
700,000
fridges a year
100%
of harmful gases
from fridges are
captured; we’re the
only plant in the UK
to do this
c.100
jobs created at the
new facility
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“ The strength of AO’s
customer proposition,
infrastructure and
ecosystem, underpinned
by our culture and
strong balance sheet
puts us in a good
position to ensure we
are prepared for the
times ahead.”
Mark Higgins
Chief Financial Officer
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Chief Financial Officer’s review
During the year we adopted IFRS 16, the new
financial reporting standard on accounting
for leases. All comparative figures within
this report have therefore been restated for
IFRS16 and we have adopted the standard
fully retrospectively. The main effect on the
Group is that IFRS16 introduces a single lessee
accounting model and requires a lessee to
recognise assets and liabilities for almost
all leases. The adoption of IFRS 16 has no
impact on the operational performance of the
business and has no impact on our cash and
banking facilities. Further details can be found
in Note 2 to the accounts on page 150.
Unless otherwise disclosed all figures stated
throughout the strategic review (including
the CFO Review) are on a post-IFRS 16 and
pre-adjusting items basis and include the
performance of our Netherlands operations. A
full reconciliation between pre and post-IFRS16
and exceptional operating profit is shown on
pages 158 to 159 and the associated Notes.
Certain financial data in this document 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.
References to FY20 and FY21 are defined as
the twelve months to 31 March 2020 and the
twelve months to 31 March 2021 respectively.
I am pleased to report a strong financial
performance over the reporting period as we
experienced growth in Group revenue of 15.9%
to £1,046.2m (2019: £902.5m) and an increase in
Group Adjusted EBITDA of 53.6% to £19.6m (2019:
£12.8m). Profit before tax increased to £1.5m (2019:
£20.2m loss).
Excluding the impact of our Netherlands
operations, which were closed during the year,
Group revenue increased by 16.6% to £1.03bn and
Group Adjusted EBITDA increased to £22.6m
(2019: £17.4m).
UK
In the UK turnover increased by 20.3% to £901.6m
(2019: £749.3m), up 8.2% on a like-for-like basis
when excluding revenues from our mobile phones
business (“MPD”) which was acquired during
the previous reporting period (Group revenue
generated by MPD in FY20 was £123.5m versus
£30.1m in the prior year).
UK product revenue increased by 10.3% over
the period, largely driven by a return to growth
in our core MDA product category in line with our
strategic priority to return to double-digit growth
rates. We achieved MDA sales growth of 9.1%
during the twelve months to 31 March 2020 versus
a market that remained broadly flat over the
year; increasing to growth of 19.9% during the final
quarter of the reporting period against a market
that experienced an increase of 3.2%.1
Growth has been driven by improvements in
the breadth and usability of our overall retail
experience. For example during the period we:
• reviewed our customer acquisition techniques,
investing in this area;
• launched "AO Finance", a market leading
rolling credit facility operated in partnership
with NewDay giving more customers access
to essential products and us a larger share of
wallet through appropriate and affordable
finance;
• implemented a new CRM platform to more
effectively engage with our customers;
• made improvements to remove friction in the
customer journey;
• expanded our accepted payment methods
making the checkout process even easier;
• invested jointly with our brand partners in
more initiatives to improve the online journey
increasingly with our content as the destination
of choice for the best product information; and
• we moved to more tactical marketing with
an emphasis towards social media, in-house
content creation and the use of influencers
instead of investing in traditional above-the-line
marketing such as TV advertising.
In addition, we continue to focus on our AO
Business offering and this has been a key driver of
our growth in the MDA category.
The foundation of our UK business is providing a
combination of world leading customer service
with best-in-class execution. The AO cultural DNA
of treating customers like our grans and making
mums proud is deeply ingrained throughout the
business and is demonstrated by our 4.7 Star
Trustpilot rating and consistently high NPS scores
during the period.
Although MDA growth is key to short term
increases in UK profitability, the market
opportunity in our newer categories remains
huge and these performed well during the period,
contributing to overall growth. These categories
provide us with more brand touch points with our
customers reinforcing the service and proposition
that we have to offer.
1 Source: GfK 12 months to 28 March 2020
£1.05bn
Group revenue
£19.6m
Group Adjusted
EBITDA
£1.5m
Profit before
tax
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AO World Plc
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63
Chief Financial Officer’s review continued
We are satisfied with the performance of our
mobile business over the period. During the
year whilst we developed an AO branded mobile
proposition, our focus continued to be on
maintaining the mobilephonesdirect brand. Over
the next twelve months we will integrate this brand
further with ao.com enabling us to utilise AO’s
market leading logistics, finance and recycling
proposition and leverage our e-commerce
competencies to grow the business further. During
FY20 we commenced building the foundations
for the next stage of our growth. Part of this was
choosing to work strategically with fewer networks
so that we can offer our customers the right
proposition in a sustainable way. In discussing
our longer-term relationships with our network
partners, we entered into a new contract with
Vodafone agreeing a new three-year partnership
however we currently do not offer the EE network
to our customers.
During the year we continued to grow our third-
party client base in our Logistics business as we
leverage our market leading delivery proposition
into new categories. To support growth in our
Logistics business from both AO’s retail operations
and third-party customers, towards the end of
the reporting period we added a new Distribution
Centre to our Logistics infrastructure hub in Crewe
taking the total to three with over 800,000 sq ft
of capacity.
We experienced some challenges in our recycling
business during the reporting period as we began
to feel the impacts of downward pressure on metal
prices and as the processing of stock built up in
the prior year was offset by a reduction in volumes
from third-parties during the period.
Our new plastics plant is now operational in its final
phase of testing and commissioning providing us
with the capability to clean and refine the plastic
from discarded fridges, transforming it into high-
quality reusable materials.
Europe
During the year we undertook a full appraisal
of our German and Netherlands operations
concluding that we did not have the bandwidth
to make the necessary profit improvements in
both these territories at the same time. As the
infrastructure of our European operation is built
from Germany, we took the decision to close our
operations in the Netherlands. In line with our
expectations this business was fully closed by
31 March 2020 at a cost of £2.5m and has been
excluded from underlying trading numbers to
identify performance of the continuing business.
During the reporting period revenue from our
Netherlands operations was £19.3m and Adjusted
EBITDA losses were £3.0m.
As outlined at the time of our half year statement
our plan for the German business involved a
number of actions. The effect of our actions were
as planned with the changes in pricing delivering
an immediate reduction in revenue and the
results from other actions taken to improve gross
margin beginning to materialise in the latter part
of the reporting period. As a result, sales in our
German business reduced by 3.4% year-on-year
to €143.5m but we increased our gross margin by
€3.6m representing an improvement 2.3ppts. In
the second half of FY20, gross margin was 4.0%
compared to a gross loss in the first half of 0.7%.
We significantly changed our pricing policy in
Germany to align it with our UK model. Where we
had previously deployed a strategy to drive sales
by undercutting the prices of competitors, we
focused on differentiating with an improved range
and product content to drive higher conversion
rates. In applying this strategy it was critical
that we rebuilt the support of our suppliers and
during the year we successfully restructured
and improved our buying terms with the majority
of them, the benefits of which, as anticipated,
began to take effect during the final quarter of
our reporting period where we saw significant
improvements in our gross margins. Going
forward we will continue to deepen our supplier
relationships as we expand into new product
ranges and categories.
We replicated our UK traffic conversion principles
and algorithms in our German operations to drive
customer traffic and ultimately revenue. Although
there have been some short-term increases in
acquisition costs as we pay for a larger volume
of traffic, we anticipate that costs will reduce
and revenue will increase as we build scale, brand
awareness and leverage our UK expertise and
systems further to improve conversion. We are
now approaching a customer base of 0.9 million
in Germany providing us with a fantastic asset to
leverage for future growth. Our repeat business
remains strong, we continue to attract new
customers and our NPS score is exceptionally
high in this territory averaging close to 90 over the
reporting period.
Increased scale provides the key to drive down our
unit cost to deliver in our German operation. We
made solid preparations in this area particularly
in the final months of our reporting period as the
application of our lessons learned in the UK and
improvements to systems and infrastructure
began to gain traction. We anticipate we will
make further progress as sale volumes continue
to increased, we refine our delivery proposition
and as we benefit from increase van fill rates and
reduced mileage between deliveries.
The most significant restructuring required
to move towards the One AO model was in our
German overhead, also reflecting the closure
of the Netherlands operation. This allows us to
leverage our UK skills and expertise, particularly
in eCommerce, marketing and logistics disciplines
into our German operations. The cost of the
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restructure in Germany was £0.9m, which principally
relates to a reduction in headcount, and the cost
of the closure of the Netherlands operations was
£2.5m which includes the write-off of unsold stock,
redundancy payments for all staff and legal costs.
Excluding these costs, other adjusting items and
losses from our Netherlands operations, as a result
of the actions undertaken outlined above, our
Europe business reduced Adjusted EBITDA losses
to a £18.2m loss (2019: £20.7m loss). We now have
an increased level of confidence in our journey to
profitability in Germany and expect to achieve
positive EBITDA at a level of c.€250m sales, which
equates to only a 4% share of MDA in this territory,
compared to our 18% MDA share in the UK over the
reporting period.
Cashflow and Revolving Credit Facility
Shortly following the year end we re-financed
our £60m Revolving Credit Facility and £20m Term
Loan which were due to run until June 2021.
These facilities have been consolidated into a
replacement £80m RCF which matures in April
2023 and we were delighted to add NatWest to our
club of lenders.
Working capital has been carefully managed
throughout the year with a focus on maximising
availability, whilst improving the overall efficiency
of our stockholding. We have also worked with our
supplier base to maintain credit terms despite any
issues they may face with credit insurers. Contract
assets have continued to increase during the
period relating to both warranties and network
commissions. Both the creditor and inventory
balances were flattered at year end by the sudden
increase in demand caused by Covid-19.
The structural improvement in profit performance
in Germany seen towards the end of the reporting
period meant that on a monthly basis we became
cash generative (on an Adjusted EBITDA less debt
repayment, interest, taxes and monthly share of
annualised capex on a run rate basis) , and expect
to maintain that position on an ongoing basis.
Covid-19 and post-period end
During the final weeks of our reporting period the
implications of Covid-19 became apparent and
began to impact the business. The measures
introduced by the Governments in both the UK
and Germany to deal with the outbreak of Covid-19
led to an immediate change in shopping practices
and habits. This significantly increased demand
in our core retail business at the same time as
presenting us with some challenges and increased
costs particularly in recycling and our logistics
operations. We also experienced some challenges
in our supply chain which we worked through with
our manufacturer partners. Our actions were
taken swiftly and in line with Government guidance,
which we continue to follow.
Safety of our people and our customers:
This remains our top priority. We are continually
adapting the services we offer to comply with
current guidance on social distancing and
ensuring safety measures to protect our people
in front line operational roles. At the start of lock
down we prioritised services to the most vulnerable
members of society and donated essential
products to those in need. As a technology-
led business we were able to quickly mobilise
approximately 1,500 of our people to work from
home with minimal impact on the operation of
our business.
Impact on trading:
The measures implemented by Governments
created a unique set of circumstances from the
end of March through to the beginning of June. The
products we sell are an essential part of people’s
lives and the electricals market migrated to nearly
100% online overnight.
We therefore experienced strong demand and
made significant market share gains across many
of our key categories from the start of lockdown
on 23 March 2020, the impact of which saw sales
above our expectations and an improvement to
our working capital. We worked hard with our supply
partners to maintain the availability of our products
for our customers and we will continue to look for
win-win collaborative solutions to meet demand.
While demand remains strong, the recent
reopening of the high street means that
customers now have more options to purchase
their appliances offline from stores. Although
customers are able to return to bricks and mortar
stores, initial data shows that since stores have
reopened the online market has in fact continued
to grow year on year.1
Operational impact and
business resilience:
Increased consumer demand and new
Government guidelines have presented us with
additional operational and ongoing challenges.
The changes made in our logistics operations to
accommodate new ways of working has led to
some continued inefficiencies and cost increases,
largely in increased staff costs. Our distribution
network remained open during the full lockdown
period. However, as we concentrated on the
delivery of essential electrical products, we paused
the majority of our installation services and the
logistics services we provide to our third-party
clients. The easing of social distancing measures
in recent weeks means we are now offering most of
these services again in line with guidelines.
We are pleased that despite these challenges
we continued to maintain our high standards of
customer service, achieving a record NPS high in the
UK during the first quarter of our new financial year.
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AO World Plc
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65
Chief Financial Officer’s review continued
The decision by councils to close household waste
and recycling centres together with a reduced
collection from AO’s customers, presented supply
challenges in our recycling plants, materially
reducing operations for a six week period.
Our WEEE recycling facility is now open with
increased costs from social distancing measures
and resultant capacity constraints, whilst also
suffering from a depressed market for output
materials. Although we expect there to be some
limited recovery, we expect to see volatility in the
short term.
During FY20 our B2B business was successful
in winning a number of commitments with
housebuilders. The conversion of this pipeline has
now been delayed as a result of sites closing during
lockdown. We remain excited by the opportunity
for this business unit to support this industry as it
reopens and assesses its supply chain.
We are particularly pleased with how the financial
services and insurance products business has
operated during Covid-19, adapting from working
in a sales environment to home working with no
noticeable impact in performance.
During the first few weeks of lockdown measures
we experienced a small spike in the cancellation
rate of the AO Care product. However, we have
since seen a lower level of cancellations as we
believe our improved product offered through
a structured regulated sales process provides
customers with additional security in times of
uncertainty. We are mindful of the potential
increased risk in the rate of cancellations against
a challenging economic backdrop.
YEAR ENDED 31 MARCH
Financial stability:
As reported above, we now have a new £80m RCF
in place which matures in April 2023 and which
replaces our previous £60m RCF and £20m term
loan. As anticipated net debt (excluding right
of use lease liabilities under IFRS 16) increased
by £14.3m in the period to £23.4m as a result
of investment in the Group’s infrastructure and
a relatively modest outflow of working capital.
Including lease liabilities arising from the adoption
of IFRS 16, new debt was £99.1m (2019: £83.5m).
Our strategy is to be cash generative (on a
Group Adjusted EBITDA less debt repayment,
interest, taxes and monthly share of annualised
capex) on a run rate basis going forward. With our
liquidity headroom of £63.6m as at 31 March 2020
including Revolving Credit Facility and Group cash
resources, we are able to continue to grow but
remain vigilant given economic uncertainty.
Outlook for 2020/21
With the closing of physical retail outlets as a
result of the implementation of the Government’s
lockdown measures, the market for electrical
products moved to nearly 100% online for
that period. This resulted in an increase in our
revenue above our expectations and has led to
improvements in working capital. We continue to
expect to achieve positive EBITDA in Germany
on revenues of c.€250m; we are very encouraged
by our current trajectory of revenue growth and
profitability improvements and will update further
at our half year results in November.
Although around 70% of electrical purchases
are replacement in nature, a fall in consumer
confidence may lead to a delay in the purchase of
big-ticket items. There may also be a significant
fall in GDP in both the UK and Germany and the
level of UK housing transactions, to which our
performance is in part linked, may also decline as
a result of restrictions in the mortgage market.
There is also an additional level of uncertainty over
a hard Brexit in December.
2020
2019
Better/(worse)
Financial KPIs
Group revenue (£m)
UK revenue (£m)
Europe revenue (£m)
UK Adjusted EBITDA (£m)
Europe Adjusted EBITDA losses (£m)
Group Adjusted EBITDA
Group Adjusted EBITDA excluding Netherlands (£m)
Group operating loss (£m)
Group retained profit / (loss) for the year
On a constant currency basis:
Europe revenue (€m)
Europe Adjusted EBITDA losses (€m)
Non-financial KPIs, such as customer numbers and NPS scores, are highlighted on page 8
1,046.2
901.6
144.5
40.8
(21.1)
19.6
22.6
(3.8)
1.4
902.5
749.3
153.2
38.1
(25.3)
12.8
17.4
(13.0)
(18.1)
165.4
(24.2)
173.3
(27.9)
15.9%
20.3%
(5.6%)
7.0%
16.4%
53.6%
30.2%
70.8%
107.8%
(4.6%)
13.2%
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Although it is difficult to predict with certainty,
we believe this crisis has had a seismic impact
on retail and that many shoppers will have been
permanently converted to online shopping. The
forced migration to online has presented AO
with an opportunity to impress a new customer
demographic and convert them to the AO Way
as they experience a better way of shopping for
electrical products which should continue to drive
sales growth through repeat and recommendation
purchases.
The strength of AO’s customer proposition,
infrastructure and ecosystem, underpinned by our
culture and strong balance sheet puts us in a
good position to ensure we are prepared for the
times ahead.
Financial Review
Revenue (see Table 1)
For the year ended 31 March 2020, total Group
revenue increased by 15.9%% to £1,046.2m
(2019: £902.5m).
Overall revenue in the UK increased by 20.3% to
£901.6m (2019: £749.3m), up 8.2%% on a like-for-
like basis i.e. excluding the impact of the acquired
MobilePhonesDirect Limited business which was
acquired in December 2018 (since renamed “AO
Mobile Limited”). As MPD generates the majority
of its income from commission revenues, this
has reduced the share of UK sales attributed to
product revenue which now accounts for 76.8%
of UK sales (2019: 83.9%). Product revenue growth
from our retail website comprising ao.com,
marketplaces and third-party websites, increased
by 10.3% to £692.8m largely driven by a good
performance in MDA product sales as a result
of a number of initiatives launched during the
period including: AO Finance; expanding the
payment methods available; removing friction
in parts of the customer journey; investment in
customer acquisition and leveraging more tactical
marketing channels such as social media. We have
been successful in continuing to drive revenue
from our marketplace channels including Amazon
and eBay and we believe the significant majority
of these customers are new to the Group and do
not cannibalise traffic that would otherwise shop
with ao.com. In addition, we continue to focus on
our Business to Business (B2B) offering and this
has been a key driver of our growth in the MDA
category. Black Friday continues to be a major
sales event in our retail calendar. This year our
promotional period extended over three weeks,
meaning our great deals were able to reach even
more customers than ever before.
UK Service revenue increased by 16.0% compared
to the previous year, slightly ahead of product
revenue growth, reflecting improvements to the
customer propositions which have resonated well
for example service bundles, installing tv’s on walls
and delivery time slots.
Growth in UK Commission revenue is largely
attributable to the acquisition of MPD in December
2018 which generates the majority of its revenue
as commission from the Mobile Network Operators
(MNOs) for the procurement of connections to the
MNO's network and the delivery of the handset
to the end customer. We continue to integrate
this business into the wider AO Group and we see
a number of opportunities for growth following
the development of the ao-mobile.com platform
in August and the signing of a new commercial
agreement with Vodafone in October.
As previously reported, in the second half of the
year to March 2019, service plan customers of
ao.com migrated from a service-backed warranty
product to AO Care insurance and hybrid
insurance products offering greater regulatory
protection. This migration and base contact
exercise caused a small spike in plan cancellations
during this time at a level we had anticipated.
However, during the reporting period we have seen
a lower level of cancellations on a monthly basis as
we offer an improved regulated product through a
structured regulated sales process.
The amended product form to insurance, together
with introducing a regulated sales process, has
run in parallel with the ongoing digitisation and
development of the product itself. AO Care is now
an in-life service product truly representing our
values. Whilst there has been a small drop in the
sales conversion through this transition, this has
been offset by increased lifetime value.
We experienced growth of 8.6% to £16.6m in our
third-party logistics revenue reflecting effect of
new contracts won during the year including Aldi
and Simba. We continue to target new growth in
the current financial year.
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Better/(worse)
1 REVENUE
Year ended 31 March (£m)
Product revenue
Service revenue
Commission revenue
Third-party logistics
Recycling
Total revenue
2020
Europe
140.7
3.4
0.2
0.1
0.2
144.5
Total
833.5
38.4
144.0
16.7
13.6
1,046.2
UK
692.8
35.0
143.8
16.6
13.5
901.6
2019
Europe
151.1
1.6
0.3
–
0.1
153.2
UK
628.4
30.1
61.2
15.3
14.3
749.3
Total
779.5
31.8
61.5
15.3
14.5
902.5
UK
Total
Europe
10.3% (6.9)%
6.9%
16.0% 106.6% 20.7%
135.0% (31.6)% 134.2%
8.9%
(5.9)%
15.9%
–
8.6%
(6.2)%
31.4
20.3% (5.6)%
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Chief Financial Officer’s review continued
Revenues in our UK Recycling business decreased
slightly during the reporting period at £13.5m
(2019: £14.3m) as we began to feel the impacts of
downward pressure on metal prices and as the
processing of stock built up in the prior year was
offset by a short-term reduction in volumes from
third-parties during the period. During the year
we continued to invest in our new plastics plant.
We expect the plant to be fully operational during
the second quarter of the current financial year
following completion of the final phase of testing
and commissioning. The new plastics plant
will provide us with the capability to sort waste
plastics from our fridge plants allowing us to
resell this plastic and to create an additional
sustainable revenue stream on our journey for a
circular economy.
In Europe sales generated from our German
website AO.de (and our Netherlands website AO.nl
until its closure in December 2019) generated
revenues of €165.4m (2019: €173.3m) (which
equates to £144.5m (2019: £153.2m) on a reported
currency basis), a decrease of 4.6%. As previously
reported, we did not see the improving trend of
losses in the second half of FY19 that had been
expected. We commenced an appraisal of our
European business and business model to ensure
that we are able to generate long-term sustainable
and profitable growth (and minimise cash outflow
in the process). This entailed a review of our pricing
policy (where, instead of undercutting the prices
of competitors, we focused on differentiating
with an improved range and product content to
drive higher conversion rates) and an evaluation
of traffic channels (particularly marketplaces)
where cost to acquire traffic is more expensive
than our traditional website acquisition costs. The
outcome of this appraisal resulted in a significant
change to our European pricing policy which has
now been brought in line with our UK model. As a
consequence, although revenues have reduced
year on year, these have been delivered at an
improved margin compared to the prior year.
Revenue growth in this segment is a fundamental
component of the journey to profitability and we
are now replicating the initiatives which have been
successful in the UK to drive customer traffic and
conversion rates, and to improve the customer
experience for example expanding our payment
options, increasing the number of customer
reviews and making improvements to the overall
journey and our content.
In line with the requirements of IFRS 15, the Group
has disaggregated its revenue into the main
business lines and these are shown in Table 1.
See previous page.
Gross margin (see Table 2)
Gross margin for the Group, which includes
product margin, delivery costs, commissions from
selling insurance plans and network connections
and other ancillaries (which generally attract
a higher margin as a percentage of revenue
than product sales), increased slightly to 17.0%
(2019: 16.9%) for the reporting period with total
gross profit increasing by 16.9% to £178.3m
(2019: £152.5m).
Gross Margin in the UK business reduced to 19.7%
(2019: 20.7%) which, as expected, was impacted
by the full years’ impact of MPD which has a lower
gross margin but a corresponding lower cost
to serve. Excluding the impact of MPD, UK gross
margin was 21.2% (2019: 21.0%). As in previous
periods, the increasing share of total revenue
attributable to newer categories, as well as that
of business to business sales, also had a dilutive
effect on Gross Margin. However, individual product
margins in our retail business have increased in
all categories.
In Europe, including the Netherlands operations,
gross margin improved during the reporting period
increasing to 0.6% versus a 1.7% loss in the prior
year period with gross profit improving to £0.9m
2 GROSS MARGIN
Year ended 31 March (£m)
Gross profit/(loss)
Gross margin %
2020
Europe
0.9
UK
177.4
Total
178.3
UK
155.1
2019
Europe
(2.6)
% change
Total
152.5
UK
Europe
14.3% 136.1%
Total
16.9%
19.7%
0.6%
17.0%
20.7%
-1.7% 16.9% (1.0)ppts
2.3ppts
0.1ppts
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(2019: £2.6m gross loss). This improvement is partly
attributable to the change in our pricing strategy
to bring it in line with the UK; reducing the level of
price discounting, and improvements in supplier
terms which began to impact towards the end of
the reporting period and efficiencies made in the
logistics operations.
Selling, General & Administrative
Expenses (“SG&A”) (see Table 3)
Total SG&A costs across the Group as a
percentage of revenue decreased during the
period from 18.7% to 17.5%.
UK SG&A expenses for the year to 31 March 2020
increased by 10.2% to £153.2m (2019: £139.0m),
representing 17.0% of sales (2019: 18.8%).
Advertising and marketing costs as a percentage
of revenue reduced by 0.6ppts as the comparable
prior year period included the costs to the launch
the "Delivering Tomorrow" creative. During the year,
TV advertising costs were minimal as we focused
on other advertising channels such as social
media to promote the AO brand.
Warehousing costs have increased with continued
investment in our outbase network driving overall
efficiencies, benefiting gross margin and the
leverage effect of increased sales resulted in
a decreasing percentage of revenue of 4.2%
compared to 4.3% in the prior year.
Research and development costs increased by
£2.4m to £9.3m compared to the prior period,
representing 1.0% of revenue, reflecting the
investment in our technology teams as we develop
initiatives to support future customer proposition
and drive revenue.
UK other administration expenses increased
by £12.5m to £84.1m (2019: £71.6m) and as a
percentage of revenue decreased by 0.3ppts to
9.3%. Of the increase, £4.6m was attributable to a
full year of costs in relation to MPD (2019: £2.0m).
Excluding the impact of MPD, UK other admin
expenses increased by 0.3ppts to 10.0% reflecting
the investment made in our UK Retail expertise
to support the One AO approach, inflationary
costs, investment in people infrastructure and the
annualisation of certain costs incurred in the prior
year principally in relation to premises.
In Europe, including the impact of our Netherlands
operations, our SG&A costs as a percentage
of revenue increased by 2.5ppts to 20.8% and
totalled £30.1m (2019: £27.6m). We would expect
these costs to reduce in absolute terms as the full
impact of our One AO approach is realised and
as a percentage of sales as we drive revenue and
leverage our scale and logistics infrastructure.
Advertising and marketing costs in Europe
increased by 1.5ppts as a percentage of revenue
with higher investment in acquisition costs to drive
revenue following the change in pricing strategy
in the period. Due to the predominantly fixed
nature of the costs in warehousing, the reduction
in revenue experienced during reporting period,
together with additional outbase costs, led to a
slight increase in costs as a percentage of revenue
however the output of our actions to drive growth
gained traction towards the end of the reporting
period and costs were leveraged leading to
only a marginal increase in warehousing costs a
percentage of sales to 3.4% (2019: 3.1%). Other
admin costs reduced to 10.5% as a percentage of
revenue (2019: 11.0%) following the impact of the
restructuring on headcount and as we leverage
the skills and knowledge of our people from the UK
as part of the One AO approach.
Alternative Performance Measures
The Group tracks a number of alternative
performance measures in managing its business.
These are not defined or specified under the
requirements of IFRS because they exclude
amounts that are included in, or include amounts
that are excluded from, the most directly
comparable measure calculated and presented
in accordance with IFRS, or are calculated using
financial measures that are not calculated in
3 SELLING, GENERAL & ADMINISTRATIVE EXPENSES (“SG&A”)
O
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f
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% change
Year ended 31 March (£m)
Advertising and marketing
% of revenue
Warehousing
% of revenue
Research development
% of revenue
Other administration
% of revenue
Adjusting items*
% of revenue
Administrative expenses
% of revenue
2020
Europe
7.8
5.4%
4.9
3.4%
–
–
15.2
10.5%
2.3
1.6%
30.1
UK
21.9
2.4%
37.6
4.2%
9.3
1.0%
84.1
9.3%
0.3
0.0%
153.2
Total
29.7
2.8%
42.5
4.1%
9.3
0.9%
99.2
9.5%
2.5
0.2%
183.3
2019
Europe
5.9
3.9%
4.8
3.1%
–
–
16.8
11.0%
0.1
0.1%
27.6
UK
22.3
3.0%
32.2
4.3%
6.9
0.9%
71.6
9.6%
5.9
0.8%
139.0
Total
28.2
3.1%
37.0
4.1%
6.9
0.8%
88.4
9.8%
6.0
0.7%
166.6
17.0% 20.8%
17.5%
18.8%
18.3%
18.7%
UK
Europe
Total
1.8% (32.2)% (5.3)%
(16.7)%
(1.2)% (14.7)%
(34.8%)
–
(34.8%)
(17.4)%
9.9% (12.2)%
–
–
–
(10.2)% (8.9)% (10.0)%
* Adjusting items in the year to 31 March 2020 are detailed in the paragraph below entitled “Alternative Performance Measures – Operating loss and Adjusted EBITDA.
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Chief Financial Officer’s review continued
accordance with IFRS. The Group believes that
these alternative performance measures, which
are not considered to be a substitute for or
superior to IFRS measures, provide stakeholders
with additional helpful information on the
performance of the business. These alternative
performance measures are consistent with
how the business performance is planned and
reported within the internal management
reporting to the Board. Some of these alternative
performance measures are also used for the
purpose of setting remuneration targets. These
alternative performance measures should be
viewed as supplemental to, but not as a substitute
for, measures presented in the consolidated
financial statements relating to the Group, which
are prepared in accordance with IFRS. The Group
believes that these alternative performance
measures are useful indicators of its performance.
EBITDA
EBITDA is defined by the Group as earnings before
interest, tax, depreciation, amortisation and profit/
loss on the disposal of fixed assets.
Adjusted EBITDA
Adjusted EBITDA is calculated by adding back or
deducting Adjusting Items to EBITDA. Adjusting
Items are those items which the Group excludes
in order to present a further measure of the
Group’s performance. Each of these items, costs
or incomes, is considered to be significant in
nature and/or quantum or are consistent with
items treated as adjusting in prior periods.
Excluding these items from profit metrics provides
readers with helpful additional information on
the performance of the business across periods
because it is consistent with how the business
performance is planned by, and reported to, the
Board and the Chief Operating Decision Maker.
The Adjusting Items for the current year are
as follows:
• Closure costs of the Dutch operations: At the
time of the publication of our interim results
in November 2019, the Group announced
the intention to close its operations in the
Netherlands. On 9 December 2019, the website
was closed and subsequent to that date
management have worked with suppliers, staff
and the authorities to ensure an orderly closure
of the companies and this has been completed
at 31 March 2020. Costs incurred between 9
December 2019 and the 31 March 2020 of £2.5m
have been treated as the cost of closure of
these operations and include the write off of
unsold stock, redundancy payments for all staff
and legal costs.
• In December 2017, the Group entered into a
marketing contract in Germany which was
anticipated to generate significant additional
revenue. In the prior and current financial
years, the performance of this contract has
been re-assessed due to significant losses
being incurred and the benefits expected from
the contract not materialising. The Group
4 OPERATING LOSS AND ADJUSTED EBITDA
Year ended 31 March (£m)
Operating profit excluding Netherlands
Netherlands Operating loss
Operating profit/(loss)
Depreciation
Amortisation
(Loss)/ profit on disposal
of non-current assets
EBITDA Excluding Netherlands
Netherlands EBITDA
EBITDA
Adjusting items
Adjusting items excluding Netherlands
Netherlands Adjusting Items
Total Adjusting Items
Adjusted EBITDA excluding
Netherlands
Netherlands Adjusted EBITDA
Adjusted EBITDA
2020
Europe
(23.5)
(5.2)
(28.8)
3.1
–
0.1
(20.4)
(5.1)
(25.5)
2.2
2.2
4.4
(18.2)
(3.0)
(21.1)
UK
25.0
–
25.0
15.8
2.2
(0.1)
42.8
–
42.8
(2.0)
-
(2.0)
40.8
–
40.8
Total
1.4
(5.2)
(3.8)
18.9
2.2
–
22.4
(5.1)
17.3
0.2
2.2
2.4
22.6
(3.0)
19.6
2019
Europe
(25.0)
(4.7)
(29.7)
3.2
–
Better/(worse)
Total
(8.3)
(4.7)
(13.0)
17.4
1.1
UK
49.5%
–
49.5%
(10.7)%
(107.5)%
Europe
Total
6.0% 117.2%
(11.7)% (11.7)%
3.2% 70.8%
(8.3)%
(2.3%)
(107.5)%
–
–
(21.9)
(4.6)
(26.5)
1.2
–
1.2
(20.7)
(4.6)
(25.3)
–
10.1
(4.6)
5.5
100.0% (100.0)%
33.8%
–
33.8%
–
7.0% 122.4%
(11.8)% (11.8)%
3.6% 214.7%
7.3
–
7.3
133.0% (87.8)%
–
133.0% (269.9%)
–
97.1%
–
67.5%
17.4
(4.6)
12.8
7.0% 12.4% 30.2%
35.2% 35.2%
7.0% 16.4% 53.6%
–
UK
16.7
–
16.7
14.2
1.1
–
32.0
–
32.0
6.1
–
6.1
38.1
–
38.1
To assist users of these financial statements in reconciling the above numbers to those reported in the 2019 Annual Report, the table
5 opposite removes the impact of IFRS 16 on Adjusted EBITDA to enable a like for like comparison. The result for the Netherlands
excludes amounts of £0.7m (2019: £0.6m) which relate to ongoing costs of the Group. These costs are therefore adjusted in arriving at
the Excluding Netherlands Adjusted EBITDA.
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O
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is however committed to the contract until
December 2020 and whilst management are
continuing to explore routes to re-negotiate the
contract, it is clear that the cost of fulfilling the
contract over its life will significantly exceed any
benefit gained from it. In line with the treatment
in FY19, management have added back the full
cost in the current period of £1.3m (2019: £1.3m).
• Further to the actions disclosed in the
2019 financial statements regarding a full
review of the European business following its
unsatisfactory performance in the second half
of FY19, the Group has undertaken a restructure
of its European business. In addition to the
closure of the Netherlands costs of £0.9m were
incurred, which principally relates to a reduction
in headcount in Germany.
• Following the signing of a new longer term
contract with Vodafone in October 2019, certain
historic claims against AO Mobile Limited
(previously MobilePhonesDirect Limited) were
discharged and as a consequence provisions of
£2.3m were released into the income statement.
As the provisions had been created as part of
the purchase price allocation exercise on the
acquisition of AO Mobile Limited, the charge for
these claims has never been recognised in the
Group income statement.
In the previous year, the Adjusting Items were:
• 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. These were outside of the normal share
schemes operated by the Group and due to their
magnitude and nature have been treated as an
adjusting item. The options vested in June 2019.
• Following the changes in Chief Executive Officer,
the Group undertook a restructure of its senior
leadership team. The cost of this restructure
was £1.2m.
• The Company acquired AO Mobile Limited
(previously MobilePhonesDirect Limited) on
17 December 2018. Fees in relation to the
transaction were £1.6m.
5 REMOVAL OF THE IMPACT OF IFRS 16 ON ADJUSTED EBITDA
Year ended 31 March (£m)
On Pre-IFRS 16 Basis
Adjusted EBITDA as above
Less impact of IFRS 16
Adjusted EBITDA Pre-IFRS 16
Excluding Netherlands
Allocation of costs
Excluding Netherlands adjusted
Netherlands
Allocation of costs
Netherlands adjusted
Adjusted EBITDA Pre-IFRS 16
2020
2019
Better/(worse)
UK
Europe
Total
UK
Europe
Total
UK
Europe
Total
40.8
(11.9)
28.9
28.9
-
28.9
–
–
28.9
(21.1)
(2.6)
(23.8)
(20.1)
(0.7)
(20.8)
(3.7)
0.7
(3.0)
(23.8)
19.6
(14.5)
5.2
8.8
(0.7)
8.1
(3.7)
0.7
(3.0)
5.2
38.1
(10.7)
27.4
27.4
–
27.4
–
–
–
27.4
(25.3)
(2.5)
(27.8)
(22.6)
(0.6)
(23.2)
(5.2)
0.6
(4.6)
(27.8)
12.8
(13.2)
(0.4)
4.8
(0.6)
4.2
(5.2)
0.6
(4.6)
(0.4)
(10.7%)
7.0% 16.4% 53.6%
(6.2)% (9.9)%
5.6% 14.4% 1422.8%
11.0% 83.8%
5.6%
(16.7)% (16.7)%
–
–
–
–
29.2% 29.2%
(16.7)% (16.7)%
35.2% 35.2%
5.6% 14.4% 1422.8%
6 BASIC LOSS PER SHARE
Year ended 31 March (£m)
Earnings/(loss)
Profit/(Loss) attributable to owners of the parent company
Foreign exchange (gains)/losses 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 share options
Diluted weighted average number of shares
Earnings/Loss per share (in pence)
Basic profit/(loss) per share
Diluted profit/(loss) per share
Adjusted basic loss per share
2020
2019
1.7
(6.0)
(4.3)
(18.6)
3.0
(15.5)
472,462,309
4,857,812
477,320,121
463,153,515
6,447,240
469,600,755
0.38
0.37
(0.91)
(4.00)
(4.00)
(3.36)
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Chief Financial Officer’s review continued
Adjusted EBITDA (excluding
Netherlands)
Pre IFRS-16 EBITDA
As a consequence of the closure of the Group's
Dutch business during the period management
have also disclosed the Group's Adjusted EBITDA,
as defined above, excluding the financial results
of the Dutch business prior to its closure as it
is considered an appropriate measure of the
continuing Group.
As a consequence of the adoption of IFRS16
during the year, the Group has shown an
alternative measure of Adjusted EBITDA (including
and excluding the Netherlands) which removes the
impact of IFRS 16 to allow the reader to compare
against the prior year.
Operating loss and Adjusted EBITDA
The operating loss for the year was £3.8m (2019:
£13.0m). As highlighted on page 70 the Group
tracks a number of alternative performance
measures including Adjusted EBITDA. The
reconciliation of statutory operating profit/(loss) to
Adjusted EBITDA is as in Table 4 on page 70.
Taxation
The tax charge for the year was £0.1m (2019: £2.1m
credit). The effective rate of tax for the year was
5.8% (2019: 10.4%) which is lower than the UK
corporation tax rate for the period of 19%.
The Group is subject to taxes in the UK, Germany,
Belgium and, for the year under review, in 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. No overseas tax is attributable to
Germany due to its current trading results. In
addition, no overseas tax is attributable in the
Netherlands as operations ceased in the period.
Tax losses arising in the period in the Netherlands
and Belgium have been carried forward but no
deferred tax asset has been recognised.
7 WORKING CAPITAL
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
72
AO World Plc
Annual Report and Accounts 2020
UK
61.7
8.5%
216.3
24.0%
(246.7)
34.0%
31.2
10.3
In addition to the movement in the unrecognised
deferred tax on losses the lower effective tax
rate is also due to the Group having permanent
adjustments when calculating taxable profits in
the UK, including non-taxable foreign exchange
gains arising on intercompany balances, the
share-based payment charges and associated
tax relief.
A prior period adjustment to deferred tax of £1.0m
credit has also been recognised in the period due
to an increase in the deferred tax asset arising on
share-based payments and the preservation of
capital allowances and carried forward losses for
future periods.
Tax losses from prior years in Germany remain as
carried forward losses and continue to be as not
recognised for the purposes of deferred tax on
the basis that they arose before April 2017, when
the change in the loss relief rules occurred. In AO
Recycling tax losses continue to be carried forward
and the Group expects to use these losses in the
future. On this basis tax losses carried forward
at the end of the year have been treated as a
recognised deferred tax asset.
Our tax strategy can be found at
www.ao.com/corporate.
Retained loss for the year
and loss per share (see Table 6)
Retained profit for the year was £1.4m (2019: £18.1m
loss). In addition to the improvement in operating
profit noted above, the retained profit for the year
has also benefitted from movements in non-cash
financing items with the exchange movement
on intra-group loans moving from a £3.0m loss
in the prior year to a £6.0m gain in the current
year (driven by the movement in the GBP/EUR
exchange rate) and the movement in the fair value
of the put and call options which the Company
holds in relation to the non-controlling stake in AO
Recycling Limited.
Basic loss per share was 0.38p (2019: 4.00p loss)
and diluted earnings/(loss) per share was 0.37p
(2019: 4.00p loss). Basic earnings per share is
2020
2019
UK
60.7
Europe
15.6
10.2% 10.0%
9.5
184.4
Europe
10.9
7.6%
9.1
Total
72.7
8.4%
225.3
21.5% 24.6%
6.3%
(224.2)
(10.3)
(257.1)
37.7%
7.2% 29.6%
20.9
41.0
25.4
8.0
9.7
(2.3)
6.2%
(13.0)
8.3%
12.1
3.9
Total
76.3
10.2%
193.9
21.5%
(237.2)
31.6%
33.0
29.3
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reconciled to adjusted basic loss per share
(after excluding the impact of foreign exchange
differences – see above) of (0.91)p (2019: (3.36)p) as
set out in Table 6 on page 71.
The foreign exchange gain has arisen as a result
of the significant movement in the exchange rate
between Sterling and the Euro in the period and
prior period. This has impacted the value of intra-
group loans held in GBP in the European entities
giving rise to the £6.0m gain (2019: £3.0m loss).
referenced in Table 6.
Cash resources and cash flow
Cash balances at 31 March 2020 were £6.9m (2019:
£28.9m). The reduction in cash is largely driven by
the repayment of borrowings and lease liabilities
of £22.6m and capital expenditure of £6.9m offset
by the cash generated from operating activities
of £14.1m.
Borrowings, which comprises bank borrowings,
reduced to £21.9m (2019: £30.4m) and lease
liabilities increased to £84.1m (2019: £82.0m)
resulting in net debt at 31 March 2020 of £99.1m
(2019: net debt £83.5m). Net debt, when excluding
lease liabilities recognised on the adoption of
IFRS 16 was £23.4m (2019: £9.0m). The decrease
in borrowings in the year was mainly due to the
repayment of quarterly instalments on the term
loan of £24m used to partly fund the acquisition of
MobilePhonesDirect Limited and the maturity of a
5 year term loan originally used to help finance the
start-up of the German business in October 2014.
During the year, the Group continued to benefit
from the availability of its £60m revolving credit
facility with HSBC Bank plc, Lloyds Bank Plc and
Barclays Bank Plc in the banking syndicate. On 6
April 2020 the Group refinanced its debt facilities
by consolidating the existing £60m Revolving
Credit Facility and the £20m outstanding on the
Term Loan into a new £80m RCF which matures
in April 2023. The new facility resulted in Natwest
Bank plc joining the existing banking syndicate
as an additional lender. The facility is available for
general corporate purposes, including UK working
capital movements. The undrawn amount at
31 March 2020 under the previous facility was
£56.7m. The amount utilised relates to letters of
credit and payment guarantees.
Working capital (see Table 7)
At 31 March 2020, the Group had net current
liabilities of £53.8m (31 March 2019: net current
liabilities of £33.9m) principally as a result of the
reduction in cash noted above.
Movements in working capital are set out in Table 7.
As at 31 March 2020 UK inventories were £61.7m
and therefore at a similar level to the prior year
(2019: £60.7m). Ordinarily we would expect to see
levels of inventories adjust in line with our sales
growth. However, during the last week of March
the business experienced a particular increase in
demand for products following the introduction
of lockdown measures in response to Covid-19
without an immediate corresponding increase in
inventories received from product manufacturers.
UK average stock days remained broadly
consistent against the prior year at 27 days
(2019: 29 days).
UK trade and other receivables (both non-current
and current) were £216.3m as at 31 March 2020
(2019: £184.4m) principally reflecting an increase in
contract assets in respect of commissions due on
product protection plans sold in the year and the
contract asset relating to the commissions from
the Mobile Network Operators.
UK trade and other payables increased to
£246.7m (2019: £224.2m) primarily reflecting
an increase in deferred income as result of the
high sales volumes between the introduction of
lockdown measures on 23 March 2020 and the
financial year end and an increase in contract
liabilities in relation to the Mobile business.
At 31 March 2020, European inventories were
£10.9m (2019: £15.6m) with the reduction
against the prior year a result of the closure
of the Netherlands business, improved stock
management and increased sales as result of the
migration to online due to measures introduced in
relation to Covid-19. Trade and other receivables
decreased to £9.1m (2019: £9.5m) mainly reflecting
the closure of our Dutch operations.
Trade and other payables decreased to
£10.3m (2019: £13.0m), impacted by the closure
of the Netherlands operations, timing of supplier
payments around year end and the lower
stock levels.
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.
Capital expenditure
Total cash capital expenditure in the year was
£6.9m (2019: £4.2m). The expenditure in 2020
principally comprised costs in relation to the
construction of the new plastics plant in our
Recycling business, continued investment in
our existing WEEE recycling plant, investment in
restructuring our outbase network and investment
in technology and software particularly in our
logistics operations but also across the Group.
Capital expenditure in the prior year included
costs in relation to the commencement of the
construction of the new plastics plant, investment
in recycling and fit-out costs in relation to
additional corporate office space.
Mark Higgins
Group Chief Financial Officer
13 July 2020
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AO World Plc
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73
Customer testimonial
“ Very efficient service, from
ordering with a friendly
and helpful voice on the
other end of the phone,
to the delivery men who
rang me when they were
round the corner and were
very friendly and cheerful.
Just what you want under
normal circumstances -
let alone in the situation we
now have with Covid-19.
I was recommended by a
friend to use ao.com and I
will definitely use you again.”
Nadia
An AO customer
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Governance
76
Chairman’s letter and introduction
78
Board of Directors
80
Corporate governance report
88
Nomination Committee report
92
Audit Committee report
98
Directors’ remuneration report
124
Directors’ report
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Chairman’s letter and introduction
“ We recognise the
importance of, and are
committed to, high
standards of Corporate
Governance, aligned with
the needs of the Company
and the interests of all our
stakeholders.”
Geoff Cooper
Chairman
Dear shareholder
I am pleased to present our
Corporate Governance report for
the year ended 31 March 2020. This year’s
report describes our approach to governance
and sets out how the principles of the 2018 UK
Corporate Governance Code have been applied
during the year. Information about the operation
of the Board and its Committees, and an overview
of the Company’s system of internal controls are
also included.
During the year Jaqueline de Rojas, Non-Executive
Director, resigned from the Board with effect from
24 September 2019 as she refocused her portfolio.
After six years on the Board, Brian McBride also
stepped down as a Non-Executive Director with
effect from the AGM held in July 2019, and Marisa
Cassoni succeeded him as Senior Independent
Non-Executive Director. No new appointments
were made to the Board during the year and there
were no other changes to its composition. The
composition of the Board and its Committees is
discussed more fully in the Nomination Committee
report on pages 88. All Directors in office will seek
re-election at the AGM.
Subject to shareholder approval, we are seeking
to implement a Value Creation Plan in which all
employees of the Company will be rewarded for
creating exceptional value. We believe that such an
innovative all employee model reflects the unique
and collaborative culture at AO.
In accordance with section 172 of the Companies
Act 2006, the Board recognises the importance
of our wider stakeholders to the sustainability of
our business. The CSR report (pages 50 to 51) and
the Governance section (pages 84 to 85) set out in
more detail how the Board has approached
this duty.
Our AGM will be held on 20 August 2020, but due
to the unprecedented situation bestowed on us
by Covid-19, we have taken the decision to hold a
closed meeting. If any shareholders wish to discuss
any governance matters I am more than happy
to do so and would ask that contact is made
initially through the Company Secretarial team at
cosec@ao.com.
Geoff Cooper
Chair
13 July 2020
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The 2018 UK Corporate Governance Code (the
“Code”) sets out a new approach to governance.
The table below summarises how the Directors
have applied the key principles of the Code during
the Period. More detailed information on our
approach to governance and how the provisions
of the Code have been applied is disclosed further
in the Governance report and the reports of
the Committees set out on pages 78 to 123. This
information is also set out in detail on our website
at ao-world.com. The Directors consider that the
Company has, throughout the Period, complied
with the provisions of the Code. The Directors
further confirm that through the activities of the
Audit Committee described on page 93, it has
reviewed the effectiveness of the Company’s
system of risk management and internal controls.
AO’s Compliance with the Code
This Corporate Governance Statement
(“Statement”), together with the rest of the
Corporate Governance report, explains key
features of the Company’s governance structure
and how it has applied the provisions set out in the
2018 UK Corporate Governance Code, which is the
version that applies to its 2019/20 financial year
(the “Period”). The Code and associated guidance
are available on the Financial Reporting Council
website at frc.org.uk.
This Statement also includes items required by
the Listing Rules and the Disclosure Guidance
and Transparency Rules save that the disclosures
required by the Disclosure Guidance and
Transparency Rules DTR 7.2.6, with regard to share
capital, are set out in the Directors’ report on
page. Disclosures required by DTR 7.2.8 relating to
the Group’s diversity policy are detailed in the CSR
report on page 52 and the Corporate Governance
report on pages 79 and 89. Directors’ biographies
and membership of Board Committees are set out
on pages 78 and 79.
Section of the Code
How AO have applied the Code
Further information
Board leadership and
company purpose
Division of responsibilities
The Board’s role is to provide leadership to the Company to
promote the long-term sustainable success of the Company,
generating value for shareholders and contributing to wider
society. The Board sets the Company’s values and standards,
making sure that they align with its strategic aims and purpose.
There exists a clear division of responsibilities between the
Chair and the Chief Executive Officer. The Chair’s primary role
includes ensuring the Board functions properly, that it meets its
obligations and responsibilities, and that its organisation and
mechanisms are in place and are working effectively.
See page 82
See page 80
Composition, succession and
evaluation
The Nomination Committee is responsible for regularly reviewing
the composition of the Board. It appraises the Directors and
evaluates the skills and characteristics required on the Board.
See pages 88 to 90
Audit, risk and internal
control
Remuneration
The Audit Committee plays a key role in monitoring and
evaluating our compliance and risk management processes,
providing independent oversight of our external audit and
internal control programmes, accounting policies and ensures
the Board reports are fair, balanced and understandable.
See pages 92 to 97
The Remuneration Committee sets levels of remuneration which
are designed to promote the long-term success of the Group
and structures remuneration so as to link it to both corporate
and individual performance, thereby aligning management’s
interests with those of shareholders.
See pages 98 to 123
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AO World Plc
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77
Board of Directors
Geoff Cooper
Non-Executive
Chairman
John Roberts
Founder and Chief
Executive Officer
Mark Higgins
Chief Financial Officer
Marisa Cassoni
Non-Executive Director
Committee membership
N
Committee membership
–
Committee membership
–
Committee membership
A
R
Appointment to the Board
2 August 2005 (AO Retail
Limited 19 April 2000)
Relevant skills and
experience
• Co-founded the business
over 20 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
Appointment to the Board
1 July 2016
Relevant skills and
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 Bourne
Leisure Holdings, former
Non-Executive Chairman of
Dunelm Group plc and Card
Factory 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
at Bourne Leisure Holdings
Limited
Independent
Yes
Appointment to the Board
1 August 2015
Appointment to the Board
5 February 2014
Relevant skills and
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
Relevant skills and
experience
• Wealth of Board experience
as an executive and non-
executive director
• Previously finance director
of John Lewis Partnership
Ltd, Royal Mail Group
and the UK division of
Prudential Group
• Recent former Non-
Executive Director at Ei
Group Plc and Skipton
Group Holdings Limited
• Panel member of the
Competition and Markets
Authority
• Trustee and member of
FRC
• ICAEW chartered
accountant with extensive
financial and governance
experience in both private
and public companies with
strong technology and
multi-channel customer
offerings, particularly in the
financial services, logistics
and retail sectors
Significant current external
appointments
Non-Executive Director at
Galliford Try plc
Independent
Yes
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Chris Hopkinson
Non-Executive Director
Shaun McCabe
Non-Executive Director
Luisa D. Delgado
Non-Executive Director
Committee membership
Committee membership
Committee membership
Key
A
N
Audit
Committee
Nomination
Committee
R
Remuneration
Committee
P People Champion
Chair of
Committee
N
P
A
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A
N
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Appointment to the Board
12 December 2005
Appointment to the Board
24 July 2018
Appointment to the Board
1 January 2019
Relevant skills and
experience
• Former City Financial
Analyst
• Significant industry
experience
• Holds a Masters degree in
Logistics
Significant current external
appointments
Executive Director of Clifton
Trade Bathrooms Ltd
Independent
No, due to length of tenure
only
Relevant skills and
experience
• ICAEW chartered
accountant with a
strong mix of knowledge
of consumer-focused
businesses and digital
expertise
• Significant international,
finance and general
management experience
• Previous senior positions
held at a number of online
market leaders including
International Director
at ASOS plc and Vice
President, Chief Financial
Officer for Amazon Europe
Significant current external
appointments
Chief Financial Officer for
Trainline
Independent
Yes
Relevant skills and
experience
• Extensive experience in
consumer goods, retail,
international markets, and
Public Company governance.
Functional expertise in
general management and
operations, human resources,
branding and selling
• Previously held roles include:
− Chief Executive Officer
of Safilo Group, Milan,
listed worldwide eyewear
company and member of
its Board of Directors;
− Vice President at Procter &
Gamble as local CEO Nordic,
WE Human Resources VP,
with roles in UK, Portugal
and Belgium; and
− Executive Board member
and CHRO at SAP SE.
• Holds a LLM of King’s College,
University of London, and the
FT Non-Exec Director Diploma
• An investor and entrepreneur
and Lead Operating Director
for a portfolio company of
Partners Group
Significant current external
appointments
Non-Executive Director at INGKA
Holding B.V. (IKEA), Aryzta AG and
Barclays Bank (Suisse) SA
Independent
Yes
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AO World Plc
Annual Report and Accounts 2020
79
Corporate governance report
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 roles and
responsibilities of our Board members are clearly defined
and are summarised below. For a more detailed description
of the roles of the Chair, Chief Executive Officer and Senior
Independent Director, please review the Terms of Reference
on our website ao-world.com.
Role
Chairman
Geoff Cooper
Key responsibilities
• Provide leadership of the Board
• Setting the Board’s agenda to emphasise strategy, performance and value creation
• Monitoring the effectiveness of the Board
• Ensuring good governance
• Facilitating both the contribution of the Non-Executive Directors and constructive
relations between the Executive and Non-Executive Directors
Founder and
Chief Executive Officer
John Roberts
• Day-to-day running of the Group and effectively implementing the Board’s decisions
• Leading the performance and management of the Group
• Proposing strategies and business plans to the Board
• Provide entrepreneurial leadership of the Company to ensure the delivery of the strategy
agreed by the Board
Chief Financial Officer
Mark Higgins
• Provide strategic financial leadership of the Company and day-to-day management of
the finance function
• Day-to-day running of the Group and implementing the Board’s decisions
Senior Independent
Director
Marisa Cassoni
• Act as an internal sounding board for the Chairman and serve as an intermediary for the
other Directors, with the Chairman, when necessary
• Be available to shareholders if they require contact both generally and when the normal
channels of Chair, CEO or CFO are inappropriate
Non-Executive Directors
Chris Hopkinson
Shaun McCabe
Luisa D. Delgado
• Bring independence, impartiality, experience, special expertise to the Board
• Constructively challenge the Executive Directors and Group management team, and help
to develop proposals on strategy and ensure good governance, to scrutinise and hold to
account the performance of management and Executive Directors against performance
objectives
Designated Non-Executive
Director – People
Champion
Chris Hopkinson
• Provide an appropriate avenue for AOers to raise any areas of concern
• Ensure a regular dialogue between employees and the Board to aid information flow and
to communicate the views and concerns of the workforce
• Work with the Board to take appropriate steps to evaluate the impact of Board proposals
on the workforce
• To assess and monitor the Group’s culture
• To ensure workforce policies and practices are consistent with the Company’s values
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The Board believes that building a diverse and
inclusive culture is integral to the success of the
Company and that diversity in Board composition
is an important part of overall Board effectiveness.
Diversity includes aspects such as diversity of skills,
perspectives, industry experience, educational
and professional background, gender, ethnicity
and age. All of these aspects are to be considered
in determining the optimum composition of the
Board and the Executive Committee to ensure
an appropriate balance. We will continue to make
appointments based on merit, against objective
criteria with due regard for the benefits of diversity
and delivery of our strategy. Therefore, while the
Board supports the principles of gender diversity,
no formal prescriptive or quantitative targets
have been set. The Nomination Committee is
responsible for overseeing the implementation of
the diversity policy.
Our Board currently includes two women,
representing 29% of its membership (2019: 33%).
The disclosure relating to gender diversity within
the Company and further information on the work
being undertaken across the Group to further
diversify our workforce is included in the CSR
report on page 52.
BOARD GENDER
BOARD TENURE AT 31 MARCH 2020
29%
Female
71%
Male
Shaun McCabe
Luisa Delgado
Geoff Cooper
Mark Higgins
Marisa Cassoni
Chris Hopkinson
John Roberts
1–2 years
1–2 years
3–4 years
4–5 years
6–7 years
10+ years
10+ years
BOARD ROLE AND INDEPENDENCE
BOARD SKILLS
57%
Retail/customer-focused business experience
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Independent
(excluding the Chair)
Independent including the Chair*
Non-Independent NED
Executive Director
* Chris Hopkinson in respect of his Board tenure only
Digital experience
Finance and accounting
International experience
Functional experience in management
and operations
Marketing
Strategy
Public Company governance
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AO World Plc
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81
Corporate governance report continued
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.
Executive
Committee
Group
management
team
Audit
See page 92
Risk
See page 36
Board
Committee
Remuneration
See page 98
Nomination
See page 88
Role of the Board
Our Board is collectively responsible for the
Group’s performance and to shareholders for the
long-term success of the Company, 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. 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
amongst the Executive Committee and through to
the Group management team. The reports of the
Committees can be found on pages 88 to 123.
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 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. While not a formal member
of the Board, the Group’s COO attends Board
meetings to update on operational performance.
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 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; and
• Major capital projects and transactions.
In setting and monitoring strategy, the Board is
mindful of the impact that its decisions will have
on the Group’s stakeholders. Examples of how the
Board has considered stakeholders in its decision-
making process is set out on page 85. Further
information on how the Group engages with its
stakeholders can be found in the CSR report on
pages 50 to 51.
A full list of those matters reserved for the Board
is available on the Company’s website at
ao-world.com, and from the Company Secretary
upon request.
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Further details about the changes to the
composition of the Board and its Committees
during the Period and the work of the Nomination
Committee are disclosed on pages 88 to 90.
For information on our procedures concerning the
appointment and replacement of Directors, please
see the Directors’ report on page 124.
Board meetings and attendance
Nine statutory Board meetings (eight scheduled in
the ordinary course of business, with one called at
short notice to formally approve the Company’s
renewed Revolving Credit Facility) were held during
the year ended 31 March 2020, and there are
currently eight meetings scheduled for the year
ending 31 March 2021. The table below summarises
the attendance of the Directors during the
reporting period.
Director
Geoff Cooper
John Roberts
Mark Higgins
Chris Hopkinson
Marisa Cassoni
Shaun McCabe
Luisa D. Delgado
Brian McBride1
Jacqueline de Rojas2
Meetings
eligible to
attend
9
9
9
9
9
9
9
2
Meetings
attended
9
9
9
9
9
8
9
2
3
3
1 Brian McBride resigned from the Board on 17 July 2019
2 Jacqueline de Rojas resigned from the Board on
24 September 2019
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.
Composition of the Board
As at the date of this Annual Report, the Board
comprises seven members: the Chairman, two
Executive Directors and four Non-Executive
Directors, which includes the Senior Independent
Director. Excluding the Chairman, three Board
members are considered independent, in line
with the 2018 Code. All current Directors served
throughout the year.
At our AGM held on 17 July 2019, Brian McBride
stepped down from the Board as a Non-Executive
Director, and Marisa Cassoni replaced him
as Senior Independent Director. Jacqueline
de Rojas resigned from the Board as a Non-
Executive Director on 24 September 2019, and
Luisa D. Delgado was subsequently appointed
as a member of the Nomination Committee
in her place. Jacqueline was also a member of
the Remuneration Committee. No additional
appointment was made to the Remuneration
Committee at that time and so the Remuneration
Committee, for the remainder of the Period,
comprised of Luisa D. Delgado as Chair and
Marisa Cassoni, both of whom are Independent
Non-Executive Directors; such composition being
in accordance with the Code requirements for
smaller companies. However, with the Company
re-entering the FTSE 250 on 19 June 2020, Shaun
McCabe was appointed to the Remuneration
Committee (on an interim basis until a new
Non-Executive is appointed). Accordingly, the
Board considers that the composition of the
Remuneration Committee complies with Code
requirements.
No new appointments were made to the Board
during the Period.
As part of the Board’s work to prepare and apply
the new provisions set out in the 2018 Code to
assess and monitor culture and to ensure that
workforce policies and practices are consistent
with the Company’s values and support its
long-term sustainable success, in the prior year
Jacqueline de Rojas was appointed as AO’s
“People Champion”. Following the resignation of
Jacqueline de Rojas part way through the year,
Chris Hopkinson was subsequently appointed to
this role. The key responsibilities of this role are
described in the table on page 80.
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. Further details of the
relevant skills and experience of the Board are set
out in their biographical details set out on
pages 78 and 79.
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Corporate governance report 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
Audit
Remuneration
Nomination
Role and Terms
of Reference
Membership required under
Terms of Reference
Minimum number
of meetings per year
Committee
report on pages
Reviews and reports to the
Board on the Group’s financial
reporting, internal control and
risk management systems,
whistleblowing, internal audit
and the independence and
effectiveness of the external
auditors
Responsible for all elements
of the remuneration of the
Executive Directors and the
Chairman, the Company
Secretary and the Executive
Committee
Reviews the structure, size and
composition of the Board and
its Committees and makes
appropriate recommendations
to the Board
At least three Independent
Non-Executive Directors
members
Three
92 to 97
Three
98 to 123
Two
88 to 90
At least two Independent Non-
Executive Directors members
(or such number as is required
from time to time by the UK
Corporate Governance Code)
At least two members (or such
number as is required from time
to time by the UK Corporate
Governance Code) and a
majority shall be independent
Non-Executive Directors
The full Terms of Reference for each Committee are available on the Company’s website at
ao-world.com, and from the Company Secretary upon request.
• The Board received refresher training on its
section 172 obligation and the new reporting
requirements
• The list of key stakeholders is reviewed on a
regular basis
• Board papers include consideration of section
172 factors to ensure that decision making is
fully informed and to enable discussion
• Regular updates are received from the Chief
People Officer on people, culture, diversity,
talent and engagement
• Going forward the Non-Executive Director
People Champion, Chris Hopkinson, will provide
regular feedback and updates from the
Employee Voice Group
• The Board’s strategy sessions will include the
potential impact to stakeholders when deciding
and agreeing on strategic priorities
• The CEO and CFO meet with major shareholders
and feedback is provided to the Board
• The Board receives regular presentations from
the Group management team, Legal Director
and external advisers
Stakeholder voice into the Boardroom
Section 172 of the Companies Act 2006 (Section
172) requires a Director of a Company to act in the
way they consider, in good faith, would be most
likely to promote the success of the Company for
the benefit of its members as a whole. A statement
on how the Company has engaged with key
stakeholders, including suppliers, employees and
the community is set out in the CSR report on
pages 50 and 51.
The Board’s aim is to make sure that its decision-
making follows a consistent process, by
considering the Company’ s strategic priorities
while working within a governance framework for
key decision making that takes into account all
relevant stakeholders and balances their various
interests. The Board considers the need to act
fairly between stakeholders and continues to
maintain high standards of business conduct.
Nevertheless, the Board acknowledges that
stakeholder interest may conflict with each other
and that not every decision can result in a positive
outcome for all stakeholders.
During the Period the Board has sought to
strengthen its practices to consider the voice of
stakeholders in its decision-making process:
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Evaluation and effectiveness
An external evaluation of the Board is carried out
every three years. The last external evaluation was
carried out in the year ending 31 March 2018; the
next external evaluation will be conducted during
the year ending 31 March 2021.
An internal evaluation led by the Chair was
conducted during the period. Further details are
set out in the Nomination Committee report on
page 90. 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, Shaun McCabe and Luisa D. Delgado 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. Chris
Hopkinson is not considered to be independent
for the purposes of the Code given his long-term
involvement with the business, but otherwise
exercises independent judgement.
Having regard to the character, judgement,
commitment and performance of the Board and
Committees to date, and following the internal
Board evaluation conducted during the year,
the Board is satisfied that no one individual
will dominate the Board’s decision making 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
78 and 79, and the skills matrix on page 81, 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
re-election at the Company’s AGM.
Examples of how the Board considered the interests of its
key stakeholders when making decisions:
Closure of the Group’s operations in the Netherlands:
During the year the Board approved the closure of the Group’s
operations in the Netherlands. In reaching its decision, the Board
balanced the risks of continuing with the operations against the benefits
of focusing management energy on achieving success in its German
operations. It considered the impact on a number of its stakeholders
including its suppliers, employees, shareholders also having regard
to the Company’s overall reputation. The Board reached the decision
that it was in the Company’s best interests to close the operations and
in doing so ensured that in particular, employees and suppliers were
treated fairly and that customers could have recourse to the German
business for a period following the Dutch business closure.
Entry into a new lease:
During the year the Board approved the entry into a new lease to
provide extra warehousing capacity for its UK logistics operations.
The Board took account of a number of stakeholder factors in
reaching this decision including that the increased demand for labour
and the payment of local taxes and rates would provide a positive
impact to the community. Given the proximity of the new site to the
existing warehouse space, environmental impacts were considered
minimal with trunking and personnel movements being of short
distance. The additional space would also provide positive benefits to
suppliers and customers.
Annual General Meeting – Covid-19
implications
The Board is cognisant of the public health risk
associated with the Covid-19 outbreak arising
from public gatherings, and at the time of writing
notes the Government’s measures restricting such
gatherings, travel and attendance at workplaces.
At the same time, the Board is conscious of the
legal requirement for the Company to hold its
AGM before the end of October. Given the current
uncertainty around when public health concerns
will have abated, the Board has, for the time being,
decided to aim to follow the Company’s customary
corporate timetable of scheduling its AGM within
two months of the release of the Company’s final
results and accordingly, the Company’s AGM
is being convened to take place at 8.00 am on
Thursday 20 August 2020 at the Company’s head
office at 5A The Parklands, Lostock, Bolton
BL6 4SD, but without access for shareholders.
The Board will, however, continue to monitor
developments and any changes will be advised
to shareholders by through though Company’s
website and, where appropriate, by RNS
announcement. In the meantime, the Board
encourages all shareholders to take advantage of
our registrar’s secure online voting service, which
is available at aoshareportal.com or submit proxy
voting forms as soon as possible and, in any event,
by no later than 8.00 am on 18 August 2020.
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AO World Plc
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85
Corporate governance report continued
Shareholders have the opportunity to submit
questions on the AGM resolutions electronically
before the meeting and such questions, limited to
matters relating to the business of the AGM itself,
should be sent to 2020AGM@ao.com and these will
be responded to on an individual basis.
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 78 and 79.
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.
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.
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
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.
Information, support and
development opportunities available
to Directors
All Board Directors have access to the Company
Secretary, who advises them on governance
matters. The Chairman and the Company
Secretary work together to ensure that Board
papers are clear, accurate, delivered in a timely
manner to Directors and of sufficient quality to
enable the Board to discharge its duties. Specific
business-related presentations are given by
members of the Group management 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 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 their own requirements. Any new
Director will also be expected to meet with major
shareholders if required.
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AO World Plc
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87
Nomination Committee report
“ Delivering a
balanced Board
with the right
skills mix.”
Geoff Cooper
Chair
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 2020 and their
attendance at Committee meetings is as follows:
1 NOMINATION COMMITTEE ATTENDANCE
Geoff Cooper
Chris Hopkinson
Luisa D. Delgado
Jacqueline de Rojas
Chair and Chair of the Board
Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Meetings eligible
to attend
3
3
2
–
Meetings
attended
3
3
2
–
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Following the resignation of Jacqueline de Rojas
from the Board and the Nomination Committee in
September 2019, Luisa D. Delgado, Independent
Non-Executive Director, was subsequently
appointed as a member of the Nomination
Committee part way through the year. Luisa’s
significant experience in human resources and
public company governance will allow her to
make a significant contribution to the work of
the Committee. Although Chris Hopkinson is not
deemed an Independent Non-Executive Director
due to his historic involvement with the Company,
the Committee complies with the provisions of the
Code as including myself as Chair, the Committee
will comprise a majority of Independent Non-
Executive Directors.
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 and
the other Non-Executive Directors.
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.
It also ensures that plans are in place for orderly
succession for appointments to the Board. The
Nomination Committee makes recommendations
to the Board on its membership and the
membership of its principle committees.
The Nomination Committee also makes
recommendations to the Board concerning the
reappointment of any Non-Executive Director
as they reach 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 against the Company’s strategy. 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.
Main activities of the Committee
during the year
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.
Following the changes in the composition of our
Board during the year, although the it remained
technically compliant with the provisions of the
Code as at least half the Board, excluding the
Chair, are Independent Non-Executive Directors
having reviewed its composition the Committee
determined that an additional Independent
Non-Executive Director should be appointed to
further strengthen and diversify its work. However,
having regard to the four strategic priorities
being undertaken during the Period, including
the work to improve the performance of the
European operations and the adoption of the
One AO approach, it was considered prudent to
wait until the next financial year before formally
conducting a search for appropriate candidates.
This will ensure that the candidates with the most
appropriate skill set based on the current position
of the business are sought.
Following the resignation of Jacqueline de Rojas
as a Non-Executive Director and a member of
the Remuneration and Nomination Committee,
Luisa D. Delgado was subsequently appointed
as a member of the Nomination Committee.
No additional appointment was made to the
Remuneration Committee at that time and so
the Remuneration Committee for the remainder
of the Period comprised of Luisa D. Delgado as
Chair and Marisa Cassoni, both of whom are
Independent Non-Executive Directors, such
composition being in accordance with the Code
requirements for smaller companies. However,
with the Company re-entering the FTSE 250 on
19 June 2020, Shaun McCabe was appointed to the
Remuneration Committee (on an interim basis until
a new Non-Executive is appointed). Accordingly,
the Board considers that the composition of
the Remuneration Committee complies with
Code requirements and that all members have
appropriate experience and skills required for the
work of this Committee.
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AO World Plc
Annual Report and Accounts 2020
89
Nomination Committee report continued
No new appointments were made to the Board
during the Period. Following the retirement of
Brian McBride at the Company’s AGM in July
2019, Marisa Cassoni replaced him as Senior
Independent Director.
The effectiveness and performance of the Board
is vital to our success. An internal evaluation of the
performance of the Board, its Committees and the
Chairman was carried out towards the end of the
Period. The process of evaluating the performance
was undertaken by myself as Chairman. Having
regard to the relatively small number of Board
members and Board priorities for the Period, the
Board’s usual full internal evaluation questionnaire
process was not considered appropriate and
instead the evaluation process was adapted to
comprise individual meetings between the Chair
and Board members. Actions were reviewed from
the previous Board review and specific areas of
focus included:
• being more open to developments outside
of the Company, facilitated through holding
regular open sessions at Board meetings for
Directors to bring matters to the Board;
• encouraging our Non-Executive Directors to
spend more time in the business with our people
outside of scheduled Board meetings;
• Executive Directors bringing an increased
number of options on the key decisions
required from the Board; and
• an enhanced and more regular discussion on
the Group’s risks (specifically emerging risks).
A number of highly productive and effective
strategy days were held during the Period, which
have also helped to foster relationships and
encourage a more open culture of debate and
challenge between Board members. Overall, the
evaluation indicated that the Board is working well
and that there are no significant concerns about
its effectiveness.
During the year the Committee reviewed 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.
The Nomination Committee also approved the
Board’s mechanism for workforce engagement
during the year.
Diversity
The Board believes that building a diverse
and inclusive culture is integral to the success
of the Company and that diversity in Board
composition is an important part over overall
Board effectiveness. Diversity includes aspects
such as diversity of skills, perspectives, industry
experience, educational and professional
background, gender, ethnicity and age. All
these aspects are considered in determining
the optimum composition of the Board and the
Executive Committee to ensure an appropriate
balance. We will continue to make appointments
based on merit, against objective criteria with
due regard for the benefits of diversity and
delivery of our strategy. Therefore, while the
Board supports the principles of gender diversity
no formal prescriptive or quantitative targets
have been set. The Nomination Committee is
responsible for overseeing the implementation of
the diversity policy.
Our Board currently includes two women,
representing 29% of its membership (2019: 33%).
The disclosure relating to gender diversity within
the Company is included in the CSR report on
page 52 .
Reappointment of Directors
On the recommendation of the Nomination
Committee and in line with the Code, all currently
appointed Directors will retire at the 2020 AGM
and offer themselves for reappointment. The
biographical details of the current Directors can
be found on pages 78 and 79. 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.
Geoff Cooper
Chair, Nomination Committee
AO World Plc
13 July 2020
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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 communication 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 that 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 is available to
shareholders if they have concerns that cannot
be raised through the normal channels or if such
concerns have not been resolved. Arrangements
can be made to meet with her 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
(ao-world.com).
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AO World Plc
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91
Audit Committee report
“ Ensuring effective
internal control and risk
management together
with fair, balanced and
understandable reporting.”
Marisa Cassoni
Chair, Audit Committee
On behalf of the Committee, I
am pleased to present this year’s
Audit Committee report, which provides
an overview of how we, as a Committee, have
discharged our responsibilities, setting out the
significant issues we have reviewed and concluded
on during the year.
The report focuses mainly on the following areas:
• the role and responsibilities of the Committee;
• the main activities of the Committee during the
year; and
• a review of the effectiveness of the Committee.
Composition and attendance of the
Committee
Details of the members who served during the
year ended 31 March 2020, together with their
attendance at Committee meetings, is set out in
the table opposite.
In addition to its members, the Chief Executive
Officer, the Chief Financial Officer, the UK Finance
Director, the Director of Financial Control and the
Head of Group Audit and Risk attend meetings,
by invitation. The Chairman of the Board and the
other Non-Executive Directors also regularly attend.
The external audit engagement partner and team
are also invited to attend Committee meetings to
ensure full communication of matters relating to
the audit. The Group Legal Director and Company
Secretary serves as Secretary to the Committee.
Private meetings, without Executive management
being present, were also held during the year
with the Head of Group Audit and Risk, the Chief
Financial Officer and the external auditors
KPMG LLP (KPMG) to provide an opportunity
for any relevant issues to be raised directly with
Committee members.
The Committee currently comprises three
members, all of whom are Independent Non-
Executive Directors. Both Shaun McCabe and I
have a financial background and are Members of
the Institute of Chartered Accounts in England
and Wales, and so are able to provide appropriate
challenge to management. The Board considers
that this satisfies the 2018 Code requirement that
the Committee’s membership must have recent
and relevant financial experience.
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• review the adequacy and effectiveness of the
internal financial controls and the Company’s
other internal control and risk management
systems;
• monitor and review the effectiveness and
independence of the Company’s internal
audit functions, to review and assess its annual
internal audit plan, quarterly audit reports and
management’s responsiveness to the findings
and recommendations of the internal auditor;
• advise the Board whether 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, performance,
business model and strategy;
• conduct the tender process and make
recommendations to the Board on the
appointment, reappointment and removal
of the external auditor and agreeing their
remuneration and terms of engagement;
• oversee the Company’s relations with the
external auditor, monitoring their performance,
independence and objectivity and ensuring
that the policy to provide non-audit services is
appropriately applied;
• review and monitor the effectiveness of the
external audit process;
• review the Company’s risk management and
viability disclosure for recommendation to the
Board for approval;
• review instances of whistleblowing and the
Group’s procedures for detecting fraud; and
• to report to the Board on how we have
discharged our responsibilities.
Consideration is also given towards ensuring that
the Audit Committee as a whole has competence
relevant to the sector in which it operates in line
with the 2018 Code requirements. As Committee
Chair, I have held senior finance appointments with
a number of large organisations and in the retail
sector, most recently as Group Finance Director
at the John Lewis Group prior to retirement in 2012
and have chaired a number of audit committees in
the quoted sector. Shaun McCabe is currently Chief
Financial Officer of Trainline plc and has a strong
mix of knowledge of consumer-focused businesses,
as well as digital expertise gained from his time in
senior positions including as International Director
at ASOS plc and Vice President, Chief Financial
Officer for Amazon Europe. Luisa D. Delgado has
a wealth of international experience in consumer
goods and IT, having previously been CEO at Safilo
Group and Proctor & Gamble (Nordic Region) and
an Executive Board member at SAP SE. The Board is
therefore satisfied that, as a whole, the Committee
has competence relevant to the online retail sector.
Role and responsibilities of the
Committee
The Committee met six times during the year;
this number being deemed appropriate to
the Committee’s role and responsibilities. The
responsibilities of the Committee are delegated
by the Board and are set out in its written Terms of
Reference, which are available on our corporate
website at ao-world.com/investor-centre/
governance-and-leadership/board-committees/.
The key delegated responsibilities are to:
• monitor the integrity of the Group’s financial
statements and reporting process (including
for its annual and half-yearly reports and
any informal reports such as preliminary
statements and analyst presentations) by
reviewing and challenging in particular the
significant accounting policies and practices
and any changes to them and any significant
estimates and judgments and reporting to the
Board on how these were addressed;
1 AUDIT COMMITTEE ATTENDANCE
Marisa Cassoni
Shaun McCabe
Luisa D. Delgado
Senior Independent Non-Executive Director
(Committee Chair)
Independent Non-Executive Director
Independent Non-Executive Director
Meetings eligible
to attend
6
Meetings
attended
6
6
6
6
6
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93
Audit Committee report continued
Committee meetings are generally scheduled
to take place in advance of a Company Board
meeting with minutes distributed to the Board
following each meeting. As Chair of the Committee,
I provide an oral report to the next Board meeting
after each meeting of the Committee to report
on its activity and matters of particular relevance
to the Board in the conduct of their work. 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 and the external
audit plan, review of risk management reports,
review of internal audit plans and findings and
recommendations.
Activities of the Committee
during the year
During the year to 31 March 2020, our work
fell under three main areas, in line with our
responsibilities, as follows:
a) Internal control and risk
The Board acknowledges its responsibility for
establishing and maintaining the Group’s system
of internal controls in the achievement of its
objectives. Good internal controls also facilitate
the effectiveness and efficiency of operations, help
to ensure the reliability of internal and external
reporting and assist in compliance with applicable
laws and regulations. However, 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. During the year, the Committee continued to
oversee and review AO’s internal financial controls
and risk management processes.
Through the Committee, the Group’s Internal Audit
function provides independent assurance to the
Board on the effectiveness of the internal control
framework through an agreed calendar of reviews
under its annual audit plan. This information,
along with risk management updates, was
received and considered by the Committee during
the year along with management’s actions to
findings and recommendations. The information
received provided assurance that there were
no material breaches of control and that the
Group maintained an adequate internal control
framework that met the principles of the UK
Corporate Governance Code.
The Head of Group Audit and Risk reports to
me and, as a Committee, we are responsible
for ensuring that the Internal Audit team has
adequate skills and resource levels that are
sufficient to provide the level of assurance
required. The Committee is satisfied that,
throughout the reporting period, this function
had an appropriate level of resources in order to
carry out its responsibilities effectively and that it
continues to do so.
The Committee is also responsible for agreeing the
annual budget of Internal Audit and for approving
its annual plan of work. This is prepared on a risk
base approach by Internal Audit, reflecting input
from management and the Committee.
We monitor and assess the role and effectiveness
of the Internal Audit function in the overall context
of the Group’s risk management systems. The
Committee assesses the effectiveness and
independence of the Internal Audit function
annually.
Other key elements of the Group’s risk
management and internal controls systems, which
have been reviewed by the Committee during the
year 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 (including
emerging 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 Business
Unit Risk Registers and the most significant ones
(after assessing likelihood and impact) are then
included in the Group’s Corporate Risk Register.
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. In line with the 2018 Code, this year
the Risk Management Committee has reviewed
procedures in place to identify emerging
risks. Further details about the Group’s risk
management practices, its principal risks and
its long-term viability can be found in the our risk
section on pages 36 to 48.
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Management structure: There is a clearly defined
organisational structure throughout the Group
with established lines of reporting and delegation
of authority based on job responsibilities
and experience. Within the businesses, Group
management team meetings occur regularly to
allow prompt discussion of relevant business issues
and to ensure alignment on strategy. Please see
page 82 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. Our financial reporting system,
Microsoft Dynamics, is continually adapted to
ensure that the requirements of the business are
met. 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: In addition to the work
of the Internal Audit function, 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 finance and other
matters. Additionally, as part of the external
audit process, KPMG also provides us with internal
controls reports. During the year, they did not
highlight any material control weaknesses.
We have carried out a review of these internal
control systems and risk management procedures
and processes during the year and are satisfied
that these are working effectively.
b) Review of the 2020 Financial
Statements
During the year to 31 March 2020, the Audit
Committee reviewed and endorsed, prior to
submission to the Board, the full-year and interim
financial statements and has considered the
accounting policies adopted by the Group,
the presentation and disclosure of financial
information, and in particular, the key estimates
and judgements made by management in
preparing the financial accounts.
The Directors are responsible for preparing the
Annual Report and Accounts, and at the request of
the Board, we have considered whether the Annual
Report and Accounts for the year ending 31 March
2020 when taken as a whole, is fair, balanced and
understandable and whether they provided the
information necessary for members to assess the
Group’s position, performance, business model
and strategy. The Committee assessed this in the
following ways:
• reviewed early drafts of the Annual Report and
Accounts, providing relevant feedback to help
ensure that the final draft is fair, balance and
understandable;
• had regard to best practice guidance and
recommendations, including those published
by the Financial Reporting Council;
• reviewed the alternative performance
measures of operating loss (as defined on page
69 of the Strategic report), which are reported
alongside the IFRS numbers and was satisfied
that it provides a clearer view of the underlying
performance and provides a meaningful year-
on-year comparison;
• regularly reviewed and discussed financial
results during the year; and
• reviewed reports from the external and internal
Auditors.
The Committee is satisfied that taken as a whole,
the Annual Report and Accounts for the year
ending 31 March 2020 are fair, balanced and
understandable and provides the necessary
information set out above. This was confirmed to
the Board, whose statement in this regard is set
out on page 129 of the Directors’ report.
In reviewing the financial statements with
management and the Auditors, the Committee
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, we identified
the following issues that require a high level
of judgement or have significant impact on
interpretation of this Annual Report.
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AO World Plc
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95
Audit Committee report continued
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 & General, who administer the plans, collect money from the customers and pay
a commission to the Company for each plan sold. Commission for sales of product protection plans
for which the Group acts as an agent are included within revenue and as a contract asset based
on the estimated 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 calculation takes
into consideration the anticipated length of the plan and the historical rate of customer attrition
and is discounted to reflect the time value of money but also risks around the recoverability of the
receivable balance attributable to the product protection plans.
The Company accounts for this income on the basis that it is agent. The basis upon which the
Company offers and sells product protection plans could change due to (i) a change in law or
regulation or the interpretation of existing law or regulation, or (ii) a change in how the plans are
managed or controlled or the level of risk that the Company assumes in relation thereto. Any such
change could affect the Company’s accounting of such income and/or could subject the Company
to claims or proceedings in relation to such product protection plans.
While 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.
Network
commission
receivable
The Group’s subsidiary AO Mobile Ltd receives commission from the Mobile Network Operators. The
network commissions revenue are based on the value of commissions due over the expected life of
the network contract. As this requires subjective estimates the future outcomes of these estimates
could be different which would affect the amount of revenue recognised.
AO Mobile – carrying
value of goodwill and
intangible assets
While 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.
On the acquisition of MobilePhonesDirect Limited (since renamed AO Mobile Limited) in December
2018 the Group recognised goodwill and intangible assets which at 31 March 2020 had a carrying
value of £28.4m. The carrying value is assessed by performing a value in use calculation based
on a discounted cashflow using the Company’s three year plan as a base. Sensitivity analysis
is performed against the base case predominantly in relation to forecast EBITDA. Should
performance and the assumptions made by management not be in line with expectations, there is a
risk that the carrying value could be impaired.
The management team has prepared detailed policies setting out the key assumptions, estimates
and judgements in this area. The Committee has reviewed the estimates and judgements made in
this area by management and, after due challenge and debate, was content with the assumptions
made, the judgements applied and the sensitivity analysis undertaken.
The Group has adopted a new accounting
standard, IFRS 16 “Leases”, which was effective as
of 1 January 2019 and therefore first applicable
during the year to 31 March 2020. The Committee
maintained oversight of the Group’s preparation
for this new standard and has considered the
appropriateness of disclosures made in these
Annual Accounts.
The Committee reviewed the going concern
assumption and viability statement reported
by the Group, as required by the UK Corporate
Governance Code 2018 including the risks that
could arise from a partial or full withdrawal of
suppliers’ credit insurance, Brexit and Covid-19
implications. Further information on risks relating
to Brexit and Covid-19 can be found on pages
40 and 41 and further information on the going
concern assumption can be found on page 48.
The Committee was satisfied that the viability
statement, noted on page 48 of the strategic
report, presented a reasonable outlook for the
Group to March 2023.
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c) External Auditor
The Audit Committee has primary responsibility
for leading the process for selecting the external
Auditor. It is required to make appropriate
recommendations on the external Auditor
through the Board to the shareholders to consider
at the Company’s AGM. Following approval by
shareholders at the AGM held on 17 July 2019, KPMG
LLP was reappointed as AO’s external Auditor for
the financial year ending 31 March 2020.
A key responsibility of the Committee is to review
and monitor the effectiveness of external audit
process and independence of the external Auditor.
This includes consideration of such matters as:
• openness of communication between the
external Auditor and senior management;
• any risks to audit quality that the external
Auditor identifies;
• the key controls that the external Auditor relied
on to address any identified risk to audit quality
such as appropriate audit methodologies;
• the findings from internal and external
inspections of the external audit and audit firm;
• whether the original audit plan was met;
• the reports that are brought to the Committee
by the lead audit engagement partner and
other senior members of the audit team;
• the quality of the management responses to
audit queries;
• the skills and experience of the audit team
including whether, in the opinion of the
Committee, the external Auditor demonstrated
sound understanding of the business;
• whether an appropriate degree of challenge
and professional scepticism was applied by the
external Auditor; and
• 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
Head of Group Audit and Risk.
Based on the above, the Committee concluded
that the relationship with the external Auditor
continued to work well and we are satisfied with
their effectiveness and independence.
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 of not more than 70% of total
Group audit fees, and various services are wholly
prohibited; including tax, legal, valuation and
payroll services.
KPMG undertook non-audit related assignments
for the Group during the year. These were
conducted in accordance with the policy and
are consistent with the professional and ethical
standards expect of the external Auditor. Details
of the fees paid to the external Auditor for audit
and non-audit are set out in Note 10 to the
consolidated financial statements and during
the year non-audit fees represented 7.5% of
the total Group audit fee (2019: 15%). Non-audit
assignments undertaken during the year related
to the half year review. The Audit Committee
considered the level of these fees against the
fees paid to KPMG for audit services. The Audit
Committee were satisfied that the work performed
and fees received did not conflict with KPMG’s
independence.
Regulatory oversight
During the year, the Company received an
enquiry letter from the Conduct Committee of the
Financial Reporting Council (“FRC”) as part of its
ongoing monitoring of UK corporate reporting.
The letter requested certain information in respect
of the Group’s FY19 Annual Report, principally
regarding acquisition accounting and revenue
presentation. The Group responded in detail
to these enquiries and incorporated a number
of enhancements to its FY20 Annual Report.
The review carried out by the FRC provides no
assurance that the Annual Report was correct in
all material respects. The FRC’s role is not to verify
information provided but to consider compliance
with reporting requirements.
Effectiveness of the Audit Committee
The effectiveness of the Committee is assessed
annually and as part of the annual Board and
Committee effectiveness review, further details
of which are set out in the report on Corporate
Governance on page 85. The review for the year
to 31 March 2020 concluded that we continued to
operate effectively during the year.
During the year Committee members have
undertaken relevant training as part of their
ongoing development.
Marisa Cassoni
Chair, Audit Committee
AO World Plc
13 July 2020
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97
Directors’ remuneration report
“ Ensuring
a reward
strategy that
supports short
and long term
sustainable
performance.”
Luisa D. Delgado
Chair, Remuneration
Committee
This report sets out the remuneration
policy for the Directors of AO World Plc,
what we paid our Directors in FY20 and
how we propose to pay them in FY21.
The report is structured as follows:
• The annual statement from the Chair of the
Remuneration Committee
• The Directors’ remuneration policy
(which received shareholder approval at the 2018 AGM)
• The Annual Report on Remuneration (which will be subject
to an advisory vote at the 2020 AGM)
FY20 highlights:
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Highlights of the work of the Remuneration Committee in FY20 and to the date of this report:
• Considered requirements of the new UK Corporate Governance Code, the revised Investment
Association Principles of Remuneration and various investor guidance on remuneration
and resolved to introduce a holding period to the AOIP and post-employment shareholding
requirements.
• Determined the levels of vesting for the AO Incentive Plan FY20 Award and PSP 2017 Award,
which are due to vest this summer, including how the closure of the Dutch business should be
reflected.
• Determined the remuneration for FY21 for our Executive Directors, the Executive Committee
and certain senior management.
• Assisted in the design of and approved settlement packages for various senior leaders.
• Held early discussions on a new policy for FY22.
• Considered VCP proposal including detailed design work, extensive shareholder consultation
and impact of this incentive structure on broader remuneration arrangements.
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 2020.
Pay for sustainable performance;
our remuneration policy
Our current policy received broad support
from shareholders at the Company’s AGM in
2018. No new changes were proposed last year
but we agreed to keep it under review, mindful
of the requirements of the new UK Corporate
Governance Code (“the Code”), which applied to us
for FY20 and the evolving investor and stakeholder
remuneration principles.
Overall, the Policy remains aligned to our reward
philosophy; 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 is an effective tool with which we
can motivate and retain our Executives and senior
management and provide long-term stewardship.
Accordingly, we are not proposing any material
changes to the policy this year but we are making
some changes within the scope of the existing
policy to reflect Code requirements and best
practice, including expanding malus and clawback
provisions and introducing post-employment
shareholding guidelines.
The existing policy will therefore remain in place
until next year when it is due for renewal having
been in force for three years. Over the year ahead
we are committed to a further full review of all
remuneration arrangements and operations of
incentives and will engage with management,
employees and shareholders as we look to refresh
and evolve the policy.
Performance and reward for FY20
The Annual Report on Remuneration (set out
on pages 105 to 107) describes how the policy
approved at the 2018 AGM has been implemented
in the year under review. It will be the subject of an
advisory vote at the forthcoming AGM.
Full year performance for FY20 fell within the range
of expectations with Group revenue increasing
by 15.9% year-on-year to £1,046.2m and Group
Adjusted EBITDA improved to £19.6m* against
£12.8m the prior year.
The results were achieved in a challenging UK
market against the backdrop of Brexit and we
have made significant improvements in our
German business. In November we made the
decision to close down the Dutch business to
enable us to focus more deeply on the German
business – see page 19 for further detail. The results
above include £19m revenue from that business
and £3.0m of Adjusted EBITDA losses generated
in the year, prior to its closure. Assisted by some
increased demand for refrigeration and electricals
from online retailers due to Covid-19 in the last
few weeks of March, we exited the year with good
momentum.
For the purposes of vesting of incentives targets
were set on a pre-IFRS 16 basis and accordingly
we have tested performance on that basis.
The reconciliation of the amounts above to the
statutory numbers is included in note 6 to the
financial statements on pages 158 to 159. Further
for the purposes of calculating scheme vesting, we
are excluding £0.3m of revenue that was earned by
the Dutch business after closure.
* The EBITDA noted here is on a post IFRS 16 basis.
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AO World Plc
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99
Directors’ remuneration report continued
AO Incentive Plan
The current variable remuneration for our
Executives and senior management is structured
around our AO Incentive Plan. It combines a cash
bonus with a conditional deferred share award,
with one set of targets which are measured over a
one-year performance period.
The targets for the FY20 Award consisted mainly of
financial targets, addressing both top-line growth
and profit, but also cash flow and two strategic
metrics centred on customer satisfaction
(measured by NPS scores) and further leverage of
our eco-system.
The chart below shows the threshold, target
and stretch levels for the financial performance
conditions and the results against these, with the
vesting levels set out respectively.
We were pleased to see market-leading customer
NPS scores across all our territories, showing that
AO continues to delight our customers. With an
NPS weighted average* of 83.4 across the three
territories, the threshold, "on-target" and stretch
targets for this performance condition (at NPS
scores of 70, 75 and 80 respectively) were met.
* weighted by revenue
The final strategic target was centred around
the leverage of our eco-system, in particular how
AO leverages its skills in one area of the business
ultimately to drive the most value through the
profit and loss account. Some measurable aspects
of this included growing the third party client
base in logistics and B2B and building our plastics
recycling plant – both things that were achieved
in the year. However, the biggest example of this
philosophy in action has been the adoption of
“One AO”, which is covered in John’s strategic report
in more detail on page 19. We are now starting to
use the best resources, know-how, skills and talent
right across the Group; we have established Group
centres of excellence and enabling functions to
support international operations teams to ensure
we are best placed to pursue opportunities, serve
the customer better and innovate in a way that is
sustainable, agile and scalable. Accordingly, the
Remuneration Committee has decided that this
performance condition has been met.
In total we have in principle, as a consequence,
awarded 47.8% of the maximum AO Incentive Plan
Award, which will be settled in cash (one-third) and
deferred shares (two-thirds).
Full details of the cash amount to be paid and
share awards to be issued to our Executive
Directors under the AO Incentive FY20 Award are
disclosed on page 113.
Performance Share Plan – 2017 Award
This is the final year in which we will complete a PSP
award cycle, with the performance period of our
2017 PSP Award spanning the three financial years
ended 31 March 2020. Of our Executive Directors in
office during the year, only Mark Higgins, our CFO,
received an award in this cycle.
The stretching targets set in 2017 were based one-
third on relative TSR (measured against FTSE-listed
retailers); one-third on Group Adjusted EBITDA
and the final third on revenue growth (requiring
revenue to increase from £701.2m in FY17 to £921m
for a third to vest and to £1081m for full vesting).
The threshold and target levels for the revenue
performance condition have been met meaning
that for the CFO 29.4% of the maximum award will
vest.
Full details of the shares to be awarded under the
2017 Performance Share Plan Award are disclosed
on page 114.
AO INCENTIVE PLAN FY20 AWARD – FINANCIAL PERFORMANCE CONDITIONS
Revenue
0%
£1,045.9m
EBITDA
17.8%
£5.2m
Cash Out-Flow
10%
£22.0m
£1,102m
Threshold
£1,102m
Target
£1,102m
Stretch
£0.44m
Threshold
£5.62m
Target
£10.8m
Stretch
£40.4m
Threshold
£35.3m
Target
£30.1m
Stretch
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Approach to Remuneration for FY21
Executives
For the year ahead base salaries for the Executive
Directors were reviewed in March. Based on the
strong performance of the Company over FY20
and following a benchmarking exercise, increases
were awarded, in line with the average change in
total workforce salary. Accordingly, the CEO salary
was approved to be increased from £450,000
to £464,000, and the CFO from £340,000 to
£350,000. Implementation of the increases was
initially deferred to ensure we preserved cash in
view of the Covid-19 uncertainty. However, given the
trading performance of the business over the last
three months, the increases have now been made,
effective 1 April 2020.
On pension levels, we recognise that the Code calls
for parity between the Executives and the wider
workforce. Last year, the Committee agreed that
any newly appointed Executives would receive the
same level of pension contribution as the wider
management level (i.e. 9% of salary). We have this
year agreed with our Executive Directors that their
pension contributions will be immediately reduced
to the level of 9% upon adoption of the VCP, if
approved.
In terms of variable pay, the Executives will be
entitled to participate in the AO Incentive Plan
(“the AOIP”), where performance conditions have
been set in line with the Company’s strategic
and financial goals. Financial metrics – including
Group revenue, Group Adjusted EBITDA and cash
flow – represent the majority of targets, with the
remainder based on achievement of key strategic
objectives (see page 119 for further details). The
maximum opportunity will be 300% of salary
(unchanged from the prior year), with no more than
one-third paying out in cash and the remaining
portion being deferred into shares vesting subject
to business performance after a further three-year
period. We recognise that the Code calls for a total
vesting and holding period of five years or more and
therefore this year we are introducing a one-year
holding period following the vesting of shares.
During the year we further considered the Code
provisions relating to post-cessation of office
shareholding requirements for Executive Directors
and are pleased to confirm that, for the year
ahead, we are introducing this. During office, the
shareholding requirement for our Executives is
200% of salary. Post-termination we will adopt a
tapering approach over two years, where up to
12 months post-termination, the requirement is
maintained at 200% of salary and from 12 months
up to 24 months, 100% is required.
Whilst the one-year holding period under the
AOIP following vesting of shares and the post-
termination shareholding requirements are yet
to be formally incorporated into the Company’s
remuneration policy (which we will do next year
when the full policy is reviewed), the Committee is
keen to align with best practice now.
Value Creation Plan (“VCP”)
Over recent months the Committee has spent
substantial time in reviewing the remuneration
structures in place at AO. The outcome of this
review and following detailed consultation with
our largest shareholders is that the Committee is
proposing to introduce a new one-off all-employee
incentive plan – the AO Value Creation Plan. This
will run alongside our existing incentives for FY21.
Any revisions to these existing arrangements will
be incorporated into the renewal of our Directors’
Remuneration Policy at the 2021 AGM.
The proposed VCP has been designed and
developed to support AO’s special business model.
This relies on an unwavering focus on customer
proposition and excellent execution. Both of
these are underpinned by a unique culture of
inclusion, individual accountability and a one
team entrepreneurial spirit. On that basis, the VCP
extends to all our current employees and subject
to future performance, has the ability to deliver,
what we believe to be, substantial rewards for
those individuals. All employee participation is a
key feature of this incentive plan.
Our proposal is aimed not only at incentivising
exceptional performance but also to assist
with the retention of our talented team. For
our Executives, awards are phased over five,
six and seven-year periods, with the maximum
opportunity only achievable if our ambitious
growth plans are sustained in the long term. This,
therefore, represents exceptional value creation
for our shareholders and long term investors
and provides financial motivation for our entire
workforce to accelerate profitable growth.
Over the last few years the foundations have been
put in place, both in the UK and now Germany,
to accelerate high growth and create significant
shareholder returns. For any payments to be
made under the plan, our share price will need to
grow over three times (threshold is set at £5.23
– equivalent to market cap of £2.5bn with our
current share capital), which equates to a c.30%
compound annual growth rate.
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101
Directors’ remuneration report continued
Reward levels are set to attract, retain and
engage high-calibre talent to support the
business strategy, taking into account the talent
market in which we operate. The remuneration
arrangements are intended to be simple and
transparent, as demonstrated by the design of
the AOIP and the VCP. Pay for senior executives
includes elements of variable pay, partly delivered
in shares, to ensure outcomes are reflective of
performance, delivery of the strategy and the
shareholder experience. Customer satisfaction
is a key pillar of our strategy and culture and is
measured using the NPS metric in the AOIP. All
variable remuneration is subject to appropriately
stretching performance targets, which are set
to reflect the risk-appetite of the business, with
a focus on delivery of long-term sustainable
performance. Variable pay elements are also
subject to: (i) recovery provisions to safeguard
against payments for failure; (ii) performance
underpins; and (iii) scope for the Remuneration
Committee to exercise discretion where outcomes
are deemed inappropriate in the context of
wider business performance. As detailed in
this report, the Remuneration Committee also
spends considerable time understanding the pay
trends throughout the Company as this provides
important context when determining pay for our
Executives. Our Remuneration Policy contains
details of maximum opportunity levels for each
component of pay, with actual incentive outcomes
varying depending on performance against
specific measures.
I hope this sets out clearly how the Committee has
implemented the existing policy during FY20, and
how we propose to move forward and implement
the policy in FY21.
I look forward to engaging with shareholders in
the year ahead on Executive remuneration. If
shareholders wish to discuss any aspects of this
report or, in particular, the VCP proposal, please
contact me through the Company secretarial
team at cosec@ao.com.
Luisa D. Delgado
Chair, Remuneration Committee
AO World Plc
13 July 2020
In considering the design of a plan that is
fairly unique in the market, the Remuneration
Committee has been conscious of balancing
the needs of all our stakeholders. It is designed
to provide an effective motivational incentive
plan to support extraordinary performance, with
sufficient safeguards to underpin sustainable
value creation. It is reflective of our unique culture
and values that are at the heart of our competitive
edge and believe that it will help galvanise the
team and drive the business further forward.
On a personal note, I would like to once again
thank all our shareholders and investors who
have taken the time to provide their input
into the development of this ambitious and
transformational scheme. The vast majority of
shareholders consulted indicated they would
support the proposal at the forthcoming AGM. In
forming the VCP proposal we have also engaged
with some of our employee champions to ensure
that it will be truly motivational.
Details of the proposed Value Creation Plan are set
out on pages 120 to 121 .
Non-Executives
Fees for the Non-Executive Directors (including the
Chairman) were reviewed during the year. Given
the increases awarded last year (and fees being
broadly in line with the market), no changes to Non-
Executive Director fees are proposed.
Further details regarding the implementation of
our policy in the year ahead are provided on pages
117 to 122.
Employees
As set out in the Corporate Governance report
on page 60 we have appointed Chris Hopkinson,
as designated NED, to drive engagement with
the workforce generally and I expect to work with
Chris – alongside our new Chief People Officer – in
drawing up a programme of activities to ensure
both transparency of remuneration and that
employee views are taken into account when
setting and determining Executive remuneration in
the year ahead.
UK Corporate Governance Code
When making decisions relating to remuneration
the Committee is mindful of the guidance in the
UK Corporate Governance Code around clarity,
simplicity, risk, predictability, proportionality, and
alignment to culture. As detailed in this report,
various steps have been taken to ensure that
the approach to remuneration is consistent with
these principles – indeed these have been key
considerations when designing the Value Creation
Plan. The Remuneration Committee will continue to
take these factors into account when reviewing the
Remuneration Policy ahead of the Annual General
Meeting in 2021.
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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 was put to a binding shareholder vote at
the 2018 AGM and received support from in excess
of 87% of the votes cast and has been reviewed
annually since then.
FY21 will be the final year of application for the
current policy and in the year ahead we will review
the components against the Code and best
practice and look to develop for future years
taking into account the views of our shareholders
and also our employees.
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 ao-world.com.
These were recently updated to reflect the
principles set out in the new UK Corporate
Governance Code.
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 put forward at the 2018 AGM, we 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 has not historically consulted
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. As part of our VCP proposal
development we sought feedback from certain
of our Employee Champions and going forward
and, as we look to introduce a new policy for FY22,
we recognise that consultation with employees
is desired across the investor community. Chris
Hopkinson has been appointed as our NED
Engagement Champion and we are exploring ways
to ensure there is an employee voice on the Board,
particularly with regard to Executive remuneration.
The Remuneration Committee is also mindful of
the Code requirements to align Executive pension
contributions with the wider workforce. We have
worked with Executives this year to agree a
reduction in their pension contributions to ensure
these are aligned to the wider workforce rates
subject to the VCP being adopted.
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.
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103
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 income
Operation
• Normally reviewed annually, with any increase 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
• 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
• Executive Directors may receive an
employer’s pension contribution and/or
a cash payment in lieu of pension
• To provide a competitive benefits package
• To reward the delivery of annual objectives relating to the business strategy
• Through significant deferral into the Company’s shares to align the long-term interests
of Executive Directors with those of shareholders
to aid recruitment and retention of
Executive Directors with the expertise
and experience to deliver the Company’s
strategy
• Directors are entitled to benefits, including
a car allowance or company car, private
• 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
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 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
• No more than one-third of the total award will be delivered 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
• 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
• Employer’s defined contribution and/or
cash supplement of up to 12.75%
of salary
• Up to 300% of salary for each Executive Director in respect of any financial year
Framework
used to assess
performance
• The Committee reviews the salaries of Executive Directors each
year taking due account of all the factors described in how the
salary policy operates
N/A
• In certain circumstances the Committee
may also approve additional allowances
relating to relocation of an Executive
Director or other expatriate benefits
required to perform the role
• The Committee may provide other
employee benefits to Executive Directors on
broadly similar terms to the wider workforce
• The Committee has the ability to reimburse
reasonable business-related expenses and
any tax thereon
• As the value of benefits may vary from
year to year 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)
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
Implementation of the policy for the FY20 can be found in the Annual Report on Remuneration.
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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 provide an appropriate level of fixed basic income
Operation
• Normally reviewed annually, with any increase normally
effective on 1 April
• 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
• Executive Directors may receive an
employer’s pension contribution and/or
a cash payment in lieu of pension
• 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
Maximum
opportunity
• Whilst no monetary maximum has been set, annual increases will
generally be linked to those of the average of the wider workforce
• Employer’s defined contribution and/or
cash supplement of up to 12.75%
of salary
• 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 Executive Directors each
year taking due account of all the factors described in how the
N/A
salary policy operates
Implementation of the policy for the FY20 can be found in the Annual Report on Remuneration.
ELEMENT
BASE SALARY
PENSION
OTHER BENEFITS
“AO INCENTIVE PLAN”
• To provide a competitive benefits package
to aid recruitment and retention of
Executive Directors with the expertise
and experience to deliver the Company’s
strategy
• Directors are entitled to benefits, including
a car allowance or company car, private
family medical cover, death in service, life
assurance and other Group-wide benefits
offered by the Company. Executive
Directors are also eligible to participate in
any all-employee share plans operated by
the Company, in line with HMRC guidelines
currently prevailing (where relevant), on the
same basis as for other eligible employees
• In certain circumstances the Committee
may also approve additional allowances
relating to relocation of an Executive
Director or other expatriate benefits
required to perform the role
• The Committee may provide other
employee benefits to Executive Directors on
broadly similar terms to the wider workforce
• The Committee has the ability to reimburse
reasonable business-related expenses and
any tax thereon
• As the value of benefits may vary from
year to year 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)
N/A
• To reward the delivery of annual objectives relating to the business strategy
• Through significant deferral into the Company’s shares to align the long-term interests
of Executive Directors with those of shareholders
• 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
• No more than one-third of the total award will be delivered 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
• Up to 300% of salary for each Executive Director in respect of any financial year
• 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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Directors’ remuneration report continued
Historic arrangements
The Committee reserves the right to make any
remuneration payments and/or payments for
loss of office (including exercising any discretion
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 the current policy being in
force under the PSP are summarised below:
ELEMENT
PERFORMANCE SHARE PLAN (“PSP”)
Purpose and
link to strategy
• Intended to align the long-term interests of Executives with those of
shareholders
• To incentivise the delivery of key strategic objectives over the longer term
Operation
• 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
opportunity
• 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
Framework
used to assess
performance
• 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.
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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.
Differences in remuneration policy
for Executive Directors compared
to other employees
The Committee has regard to pay structures
across the wider Group when setting the
remuneration policy for Executive Directors.
The Committee considers the general basic
salary increase for the broader workforce when
determining the annual salary review for the
Executive Directors.
Overall, the remuneration policy for the Executive
Directors is more heavily weighted towards
performance-related pay than for other
employees. In particular, performance-related
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. As noted above, should the VCP
be approved by shareholders, awards will be made
to all employees at such time.
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.
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;
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;
c. 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;
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
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AO World Plc
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107
Directors’ remuneration report continued
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. Going forward the
Remuneration Committee would expect to place
newly appointed Executives on no more than six
months’ notice.
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
12 months from both the Company and the Executive Directors
Termination
payment
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.
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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.
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.
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AO World Plc
Annual Report and Accounts 2020
109
Directors’ remuneration report continued
Change of control
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.
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.
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 are entitled
to any compensation if their appointment is
terminated. Appointments will be subject to
re-election at the AGM.
Non-Executive Directors’ fees
The Non-Executive Directors’ fees policy is described below:
ELEMENT
PURPOSE AND LINK TO STRATEGY
FEES
To recruit and
retain high calibre
non-executives
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.
• 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
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Annual Report on Remuneration
The Annual Remuneration for FY20 was structured within the framework of the remuneration policy adopted by shareholders in
2018 and has been implemented accordingly. This will be put to an advisory vote at the Company’s AGM on 20 August 2020.
Single figure of total remuneration for FY20 (Audited)
The audited table below shows the aggregate emoluments earned by the Directors of the Company during the period 1 April 2019
to 31 March 2020 (or relating to that period in the case of Bonus, PSP and the AO Incentive Plan) and, for comparison, the amounts
earned during the period 1 April 2018 to 31 March 2019 (or relating to that period in the case of variable remuneration).
Executive Directors
John Roberts1
Mark Higgins2
Steve Caunce3
Chairman
Geoff Cooper
Non-Executive Directors8
Christopher
Hopkinson
Marisa Cassoni9
Shaun McCabe10
Luisa D. Delgado11
Jacqueline de
Rojas12
Brian McBride13
Total
Total
2019/20
2018/19
2019/20
2018/19
2019/20
2018/19
2019/20
2018/19
2019/20
2018/19
2019/20
2018/19
2019/20
2018/19
2019/20
2018/19
2019/20
2018/19
2019/20
2018/19
2019/20
2018/19
Salaries
and fees
£
450,000
400,000
340,000
340,000
–
401,000
200,000
165,000
55,000
50,000
72,051
60,000
55,000
34,295
65,000
14,167
27,500
50,000
19,220
63,333
1,291,634
1,577,795
Benefits/
taxable
expenses
£
Pension4
£
Bonus5
£
Value of
PSP6
£
AO Incentive
Plan Award
cash7
£
16,727
15,560
16,516
17,812
–
15,485
–
1,244
–
–
761
267
–
–
1,373
–
–
697
889
1,581
42,523
52,647
44,640
51,000
39,081
43,350
–
51,128
–
–
–
–
–
–
–
–
–
–
–
–
–
–
83,721
145,478
200
200
200
200
–
200
–
–
–
–
–
–
–
–
–
–
–
–
–
–
400
600
–
42,463
170,100
56,671
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
170,100
56,671
215,100
–
162,520
171,700
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
377,620
171,7000
Total
£
732,924
509,223
728,417
629,733
467,813
200,000
166,244
55,000
50,000
72,812
60,267
55,000
34,295
66,373
14,167
27,500
50,697
20,109
64,914
1,965,998
2,047,353
John Roberts reassumed the role of CEO in February 2019. Accordingly, the basic salary
reported for John Roberts for FY19 is calculated at ten months’ pay at the £390,000 Found
rate of pay and two months’ pay at the CEO/£450,000 rate of pay. For FY20, John earned
a full year’s salary at the £450,000 rate. Benefits include medical and life assurance and a
car allowance of £12,000 paid in cash.
share award. The deferred share award will be released in July 2023 subject to continued
employment and attainment of the performance underpin, following which Executives will
be required to hold awarded shares for a further year. It is not ascertainable to disclose an
estimate of the amount of the award, that is attributable to share price appreciation. No
discretion where any discretion has been exercised in respect of the award.
1.
2.
3.
4.
For Mark Higgins, benefits include gym membership, medical and life assurance, car
allowance and private fuel.
The basic salary reported for Steve Caunce for FY19 is calculated at ten months’ pay at
the CEO/£450,000 rate and two months’ pay at his revised salary of £156,000 per annum,
which he earned as employee of the Company but not an Executive Director. Benefits for
FY19 include medical and life assurance and a cash car allowance at a rate of £12,000
per annum for the period 1 March 2018 to 31 January 2019, and at a rate of £4,800 for the
period 1 February 2019 to 31 March 2019.
Executive Directors are entitled to Company pension contributions of 12.75% of gross
basic salary. £10,000 is paid into a pension and the balance is paid in cash (after
deducting employer National Insurance contributions at 13.8%).
5. All Executive Directors received an attendance bonus of £200, which is paid Group-wide
to employees with the relevant attendance. There was no other bonus scheme in place
for FY20, rather the AO Incentive Scheme, which combines a cash award and share award
and is reported on separately – see Note 7.
6.
7.
The threshold target for the revenue performance condition of 2017 PSP Award (covering
a performance period 1 April 2017 to 31 March 2020) was met and accordingly 29.4% of
the maximum award will vest in July. Mark Higgins is due to receive 252,000 shares (before
tax). The value set out in the above table assumes a share price of 67.5p, the share price at
31 March 2020, but actual value will depend on the share price at the point of vesting. It is
not ascertainable to disclose an estimate of the amount of the award, that is attributable
to share price appreciation. No discretion where any discretion has been exercised in
respect of the award.
Each of John Roberts and Mark Higgins were granted an award under the AO Incentive
Plan of 300% of salary for the performance period of FY20. Following partial attainment
of the performance conditions 47.8% of the award is due to vest in July, of which one-third
will be paid in cash with the remaining two-thirds of value payable in the form of a deferred
8. Reasonable expenses incurred by any Non-Executive Director will be reimbursed by the
Company but they have no other contractual entitlement to benefits. For Non-Executive
Directors, certain expenses relating to the performance of a Non-Executive Director’s
duties in carrying out activities, such as accommodation, travel and subsistence relation
to Company meetings, are classified as taxable benefits by HMRC and as such are
reported here.
9. Marisa Cassoni was appointed Senior Independent Director on 17 July 2019, following
the retirement of Brian McBride and the figure for FY20 includes the pro-rated SID fee (in
addition to the basic fee and Audit Chair fee for the full year). Please refer to note 8 above
for information regarding taxable expenses.
10. Shaun McCabe was appointed as a Non-Executive Director on 25 July 2018. The figure for
FY19 reflects pro-rated basic salary for Non-Executive Directors of £50,000 from the date
of appointment. For FY20, he received the full basic Non-Executive Director fee of £55,000.
11.
Luisa D. Delgado was appointed as a Non-Executive Director on 1 January 2019. The figure
for FY19 reflects pro-rated basic salary for Non-Executive Directors of £50,000 from the
date of appointment, and two months’ Remuneration Committee Chair fee at £10,000
per annum. For FY20 she received the full basic Non-Executive Director fee of £55,000
plus £10,000 as chair of the Remuneration Committee. Please refer to note 8 above for
information regarding taxable expenses.
12.
Jacqueline de Rojas resigned as a Non-Executive Director on 25 September 2019. The FY20
figure reflects pro-rated basic salary for Non-Executive Directors of £55,000 up the date of
resignation. Please refer to note 8 above for information regarding taxable expenses.
13. Brian McBride resigned as a Non-Executive Director on 17 July 2019. Until that point he
received a basic Non-Executive Director pay of £50,000 per annum plus £10,000 per
annum as his Senior Independent Director fee. For part of FY19 (until February 2019) he
also received an additional £10,000 fee for chairing the Remuneration Committee. Please
refer to note 8 above for information regarding taxable expenses.
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Directors’ remuneration report continued
Details of variable pay earned in
FY20 (Audited)
AO Incentive Plan Award
John Roberts and Mark Higgins were both granted
awards under the AO Incentive Plan (which
combines a cash award and conditional deferred
share award) of up to 300% of salary, for the year
ended 31 March 2020.
The targets for the AO Incentive Plan Award were
weighted towards financial metrics, with 40%
of maximum award subject to Group Revenue
performance conditions, 30% of maximum award
subject to Group Adjusted EBITDA performance
conditions, 10% of maximum award subject to a
cash flow target, with the remaining 20% subject
to the achievement of strategic objectives, split
equally against a customer service/satisfaction
metric (NPS scores) and the successful leverage of
our eco-system.
The strategic target of maintaining outstanding
customer satisfaction, as the business grows
is critical to our future success; indeed making
our customers happy through a customer-first
proposition, focused on excellence, is central to our
sustain and enhance strategy as can be seen on
pages 32 and 35. AO is renowned for good service
and it is the way we execute our performance that
stands us apart from our competitors. As volume
grows and we make more deliveries (either through
our own infrastructure or utilising third party
logistics providers), or we acquire new businesses,
it is vital that the customer satisfaction remains
strong, to drive repeat business and as we heavily
rely on customer recommendations to attract
new customers.
The following table sets out the targets, actual
performance against these targets and
accordingly, the applicable payout for the FY20
AO Incentive Plan Award.
Measure (weighting)
Group Revenue (40%)
Targets
Threshold
On target
Stretch
Cash Outflow (10%)
Group Adjusted EBITDA (30%) Threshold
On target
Stretch
Threshold
On target
Stretch
Threshold
On target
Stretch
Remuneration
Committee evaluation
of performance
during the year
Successful leverage of
eco-system (10%)
NPS (10%)
% payout at
threshold
(for this
element)
25%
62.5%
100%
25%
62.5%
100%
25%
62.5%
100%
25%
62.5%
100%
0–100%
£1102.2m
£1160.2m
£1218.2m
£0.44m
£5.62m
£10.8m
£40.4m
£35.3m
£30.1m
70
75
80
Performance
achieved
Bonus5
£1,045.9m*
0%
£5.2m
17.8%
£22m
10%
83.4**
10%
Achieved
10%
Total
47.8%
* The revenue for the purposes of ascertaining scheme vesting excludes revenue and trading losses (on an Adjusted EBITDA
basis) generated/incurred from the Dutch business after its closure.
** This is the average NPS figure across territories weighted by revenue.
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Performance against
financial targets
The performance achieved, as set out in the table
opposite, includes revenue and Adjusted EBITDA
losses of our Netherlands operations, which
ceased in December 2019. Figures do not include
the costs incurred to close the Dutch business (i.e.
those incurred after 9 December 2019) – they are
excluded from EBITDA as adjusted items, nor do
they include £0.3m of revenue that was earned in
the last three months of the year (after closure) to
keep the treatment across the two performance
conditions consistent. Targets were not adjusted.
Having regard to the impact of the different
treatments and the feedback from shareholders
on the treatment of the acquisition of
MobilePhonesDirect on the performance conditions
in the previous financial year, the Committee
determined that including the impact of the
business with the actual results and maintaining the
target for the period was the most appropriate.
Our cash outflow for the year was £22.0m, below
the stretch target of £30.1m and therefore the
maximum attributable to this performance
condition has been awarded.
When considering the targets for FY20, we
considered the investment required in continued
growth of our European business, capital
expenditure, and investment in working capital
for inventory, the impact of credit insurer action
and the expected growth of mobile and warranty
sales that drive accrued income. For those
reasons cash out flow targets for FY20 when
compared year-on-year were weaker than the
prior year, however, set with an equivalent level of
stretch relative to the expectation for the year.
During the year management heavily focused on
working with suppliers to mitigate any action from
credit insurers and on the efficiency of capital
expenditure to minimise outflow.
Performance against
strategic targets
The Committee is delighted that customer
satisfaction, measured via NPS, has remained
strong over the year. For the UK, Germany
and the Netherlands (during its operation)
respectively we have achieved average NPS
scores of 83, 89 and 74, which corresponds to a
Group weighted average of 83.4, weighted by
revenue. We believe this is market leading and
an excellent achievement by the team as the
business continues to grow, as we introduce more
categories and as customer numbers increase
and accordingly have determined that this
performance condition has been met in full.
The Committee has also analysed whether the
eco-system has been successfully leveraged
during the year under review. As can be seen from
pages 32 and 35, a further part of our strategy is
to build and leverage our core expertise enabling
us to further cement our brand and explore new
markets driving the most value through the profit
and loss account.
Some more tangible examples of this are the
growth in our third party logistics operations and
building our plastics recycling plant – both were
achieved in the year. However, as the financial
year has progressed, the biggest example of this
philosophy in action has been the adoption of
“One AO”. The Group is now better applying its
resources, know-how, skills and talent across the
Group. For example integrating our mobile business
capability to best utilise the e-commerce function
within the retail business, or more significantly
the evolutionary restructure of how we operate
internationally in purchasing, e- commerce, logistics
and HR, establishing Group centres of excellence
and enabling functions to support international
operations teams. This should ensure we are best
placed to pursue our opportunities, serve the
customer better and innovate in a way which is
sustainable, agile and scalable.
Overall, the Committee is satisfied that the
eco-system is being leveraged successfully and
therefore has determined that this performance
condition has been met. It also felt it was fair
and proportionate when reflecting on the overall
outcome of the particular incentive award.
In total, therefore, we have awarded 47.8% of the
maximum award to our Executive Directors.
CEO
CFO
Max opportunity
(% salary) Outcome % max
47.8%
47.8%
300%
300%
Cash award
(1/3rd)1
£215,100
£162,520
Share award
(2/3rd)2
£430,200
£325,040
1.
The cash element will vest and will be paid in July following approval of the accounts by the Board.
2. The share award is deferred for a period of three years, and the vesting of these shares is subject to the performance of the
business until the completion of our financial year ending 31 March 2023 as well as the Executive’s continued employment.
Following release of the award, Executives will be required to hold such shares for a further one-year period.
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113
Directors’ remuneration report continued
Vesting of long-term incentive awards
In July 2017 we granted a long-term incentive
award under the AO Performance Share Plan to
Mark Higgins, the CFO. (John Roberts, who at the
time of grant did not occupy the CEO role, waived
his entitlement to participate in that scheme).
The Award was subject to performance over
the three-year period ended 31 March 2020.
The stretching targets – set in 2017 – were based
one-third on relative TSR (to a comparator group
of listed retail businesses); one-third on Group
Adjusted EBITDA growth and one-third on Group
Revenue growth.
The following table sets out the targets at
threshold, on-target and stretch for the Group
Revenue and Adjusted EBITDA targets, actual
performance against these targets and
accordingly, the applicable payout:
Measure (weighting)
Group Revenue for final
year of the performance
period (33.3%)
Group Adjusted EBITDA
for final year of the
performance period (33.3%)
Relative TSR (33.3%)
Targets
Threshold
On target
Stretch
Threshold
Threshold
Stretch
As per the treatment of the closure of the Dutch
business in assessing vesting of the FY20 AO
Incentive Plan Award, the Committee included
revenue and Adjusted EBTIDA losses up to the
point of closure, for the reasons noted above.
The Committee recognises the Company’s share
price has performed below median relative to
the comparator group and in absolute terms
has dropped by over 50% over the three-year
performance period. (The one month average
share price at the start of the performance period
was £1.44. At the end of the period it was 62 pence).
However, the Committee has reflected on the
overall performance of the Group and is satisfied
that significant strides have been made; in
particular over the last year with the turn-around
of the German business, significant growth in the
UK business and bringing the Group to profit (on an
Adjusted EBITDA basis). In total therefore, 29.4%
of the maximum award will be awarded to the CFO,
which will result in him being able to exercise his nil
cost option over 252,000 shares.
% payout at
threshold
(for this
element)
25%
62.5%
100%
25%
Performance
achieved* Payout
£1,045.9m 29.4%
£5.2m
0%
25%
100% Below median
0%
£921.3
£969.8m
£1081.3
£15.1m
Median
Upper
quartile
Percentage change in remuneration
levels (Unaudited)
The table below shows the movement in the salary,
benefits and bonus against the cash element of
the AO Incentive Plan Award for the Chief Executive
between the current and previous financial year
compared to that for the average employee. For
the benefits and bonus/Incentive Award (cash
element) per employee, this is based on those
employees eligible to participate in such schemes.
Salary
Benefits2
AO Incentive Plan
Award –
cash element3
Chief
Executive
3.1%
0%
Average per
employee
3.0%1
0%
N/A
12.4%3
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 for
employees. However, for Executives we have agreed to
bring their pension contributions in line with the wider
management workforce rates – subject to the VCP being
approved.
3. The percentage change in remuneration AO Incentive
Plan Award cash element “average per employee” is
calculated by looking at the average amount participants
in the scheme for FY19 received in cash, compared to
the cash element participants in the AO Incentive Plan
are expected to receive relating to FY20, in each case
excluding Executive Directors. The Chief Executive did not
receive an AO Incentive Plan Award for FY19 and therefore
there is no direct comparison. For the FY20 AO Incentive
Plan, the Chief Executive is expected to receive £215,100.
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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 2020. 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)
TSR REBASED AO WORLD PLC VS. FTSE 250. Source: Thomson Reuters Datastream
140
120
100
80
60
40
20
0
01/03/2014
01/03/2015
01/03/2016
01/03/2017
01/03/2018
01/03/2019
01/03/2020
AO World Plc
FTSE 250
Table 2, below, shows the total remuneration figure for the Chief Executive during the financial years
ending 31 March 2011 to 31 March 2020. 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 save for FY19. The annual bonus percentage shows the payout
for each year as a percentage of the maximum (i.e. 150% of salary).
2 TOTAL REMUNERATION OF CEO
Total remuneration (£’000)1
Annual bonus (% of maximum)
AO Incentive Plan Award
(% of maximum)
PSP vesting (% of maximum)
2011/
2012
243†
2017/
2010/
2018
2011
292†
781*
18% 0% 0% 0% 0% 10% 10% 37.5%
2015/
2016/
2016
2017
588† 575*‡
2014/
2015
537†
2013/
2014
537†
2012/
2013
227†
2019/
2018/
2020
2019
733†
551†‡
–
–
– 50.5% 47.8%
–
–
–
–
–
–
–
–
–
–
–
–
–
0% 0% 8.59%
–
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‡ Figures calculated for full year pro-rata
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Directors’ remuneration report continued
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 costs1
Distributions to shareholders
2018/2019
£103.3m
2019/2020
£112.3m
% change
8.7%
No distributions were made to shareholders in the year
1.
Includes base salaries, social security and pension, but excludes share-based payment charges.
CEO pay ratio
The table below shows the ratio of the single
total figure of remuneration of the CEO to the
equivalent pay for the 25th, 50th and 75th
percentile employees (on a full time equivalent
basis) in FY20. The ratios have been calculated in
accordance with The Companies (Miscellaneous
Reporting) Regulations 2018 and therefore apply
to AO’s financial year ending 31 March 2020. These
ratios form part of the information provided to the
Committee on broader employee pay practices
to inform remuneration decisions for Executive
Directors and senior management.
Of the three calculation approaches available
in the regulations, we have chosen Option A as
we believe it to be the most appropriate and
statistically accurate method for the Company to
calculate the ratio.
Year
FY20
Method
Option A
25th percentile pay
ratio
50th percentile pay
ratio
75th percentile pay
ratio
35:1
28:1
20:1
CEO SFTR
£732,924
25th percentile pay
£20,861
50th percentile pay
£25,755
75th percentile pay
£36,836
25th percentile salary
£19,271
50th percentile salary
£25,012
75th percentile salary
£33,600
1.
The single total figure of remuneration of all AOers employed by the Group as of March 31 2020 was calculated and ranked
using 2019/20 P60 and P11D data, employer pension contributions and payments under the Company share schemes, in line
with the reporting regulations.
2. 2019/2020 payments to the wide employee base referred to in note 1 include the FY19 cash element of the FY19 AOIP
payment which was paid in 2019/2020.
3. Part-time colleagues’ earnings have been annualised on a full-time equivalent basis. In-year joiners’ earnings were also
annualised on the same full-time equivalent basis.
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 2020.
External appointments
No fees were received by Executive Directors for
external appointments during the year ended
31 March 2020.
The Company’s principles for making pay
decisions and progression within our wider
workforce are the same as for our executives.
Base salaries are set, reflecting experience and
expertise informed by the external market. Equally
as important, salaries are reviewed annually on
the same basis, the scope of the role, experience,
personal and Company performance. Executive
increases are then generally aligned to the
average for the wider workforce.
The ratios reflect the different remuneration
arrangements between our warehouse and call
centre employees, and our senior executives
whose roles require them to focus on long-term
value and alignment with shareholder interest.
Therefore, the Committee believes that the ratio
is consistent with the Company’s wider pay and
reward strategy. All UK employees are eligible for
pay increases, recognition awards, participation in
SAYE as well as development opportunities.
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Directors’ shareholdings and
share interests (Audited)
Directors’ shareholdings as at 31 March 2020 are
set out below in Table 1.
The following PSP options vested during the year
(following partial vesting of the 2016 PSP Award):
John Roberts: 43,153
Mark Higgins: 57,537
1 DIRECTORS’ SHAREHOLDINGS
As noted above, following vesting of the 2017 PSP
in July, Mark Higgins will have additional vested
share options.
There have been no changes to Directors’
shareholdings during the period from 1 April 2020
to date.
Shares held
beneficially1
at 31 March
2020
128,573
107,906,960
3,773
22,956,306
52,628
52,628
NIL
NIL
NIL
Target
shareholding
guidelines
(% of salary)2
N/A
200%
200%
N/A
N/A
N/A
N/A
N/A
N/A
PSP
options3
N/A
43,093
Target
AOIP
shareholding
options4
achieved
N/A
N/A
Yes
N/A
No 309,440 371,484
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
SAYE
Options5
N/A
20,224
20,224
N/A
N/A
N/A
N/A
N/A
N/A
Geoff Cooper
John Roberts
Mark Higgins
Christopher Hopkinson
Brian McBride
Marisa Cassoni
Jacqueline de Rojas
Shaun McCabe
Luisa D. Delgado
1.
Includes shares held by connected persons.
2. Comprises shares held beneficially only (and excludes options).
3. For John Roberts, these PSP options relate to the 2016 PSP award that has vested, but which options have yet to be exercised
by Mr Roberts. The PSP Options of Mr Higgins include an option over 57,440 shares that relate to the 2016 PSP, which have
vested but are yet to be exercised, and an option over 252,000 shares that relate to the 2017 PSP, which is due to vest in July
(with the balance of 605,143 conditionally granted lapsing due to partial vesting of the 2017 PSP).
4. For Mark Higgins, the AO Incentive Plan options were awarded in July 2019 as part of the FY19 AO Incentive Plan Award, which
will be released in July 2022 subject to the attainment of the performance underpin and continued employment. Further
share awards are expected to be granted to John Roberts and Mark Higgins in July 2020 as part of the AO Incentive Plan
Award FY20 grant – with a value of £430,200 and £325,040 at grant respectively, which will be released in July 2023 subject to
the attainment of the performance underpin and continued employment.
5. None of these SAYE options (which have no performance conditions) have vested.
Implementation of remuneration policy for 2020/2021
The Policy can be found on pages 104 to 110 of this Annual Report.
Salary
The Committee reviewed the salaries of the Executive Directors in mid March. Based on externally
sourced market comparisons and significant progress (both financial and operational) in FY20 the
Committee agreed to award some modest increases.
Implementation of the increases was initially deferred to ensure we preserved cash in view of Covid-19
uncertainty. However, given the trading performance of the business over the last three months the
increases have now been made, effective 1 April 2020.
For comparison, the average salary increase provided to UK employees in April 2020 was 3%.
The current salaries as at 1 April 2020 (on the basis that the increases had been effected) (and those as at
1 April 2018) are as follows:
Individual
John Roberts
Mark Higgins
Base salary
at 1 April
2020
£464,000
Base salary
at 1 April
2019
£450,000
£350,000
£340,000
Role
CEO
CFO
%
increase
3.1%
2.9%
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117
Directors’ remuneration report continued
Pension and other benefits
Executive Directors currently receive an employer’s
pension contribution (or a cash allowance in lieu of
pension) at the rate of 12.75% of base salary. The
pension entitlement for wider management within
the business is 9%. The Committee recognises
that the Code calls for parity on pension levels,
and has agreed with Executives that their pension
contributions will be reduced to the 9% level if and
upon the VCP being adopted. The Committee will
ensure that any new Executives are on a rate in line
with the wider workforce.
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.
AO Incentive Plan
In respect of FY21, the Executive Directors will have
a maximum award opportunity of 300% of basic
salary. Performance will be measured between
1 April 2020 and 31 March 2021 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 FY20. 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. For this year’s grant
the Committee have decided to include a one year
post vesting holding period for any shares. This
therefore means the total period is five years, in
line with the revised requirements in the Code.
AO INCENTIVE PLAN
Year 1
Performance assessed
Year 2
Year 3
Year 4
Year 5
Two thirds deferred
into shares subject to an
underpin, as determined
by the Committee
Holding period
One third
paid in cash
Shares
vest
Shares
released
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Performance conditions for the FY21
AO Incentive Plan Award
The performance conditions proposed for this
year’s award comprise Group Revenue and Group
Adjusted EBITDA targets, a cash flow target and
two strategic targets; customer NPS scores at high
levels and employee NPS scores (both across the
Group), 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 EBITDA
and cash targets to ensure the team are driving
profitable growth, whilst ensuring that the Group
has sufficient cash resources and liquidity to fund
its working capital requirements. The Committee
agreed to adjust the Revenue weighting down from
the 40% weighting given in prior years to 30% and
increase the cash flow weighting from 10% to 20%
to reflect the increased focus on cash flow over the
medium term and its importance to credit insurers,
the refinance process and as a measure of current
performance.
For the Group 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 in next years’ Annual
Report on Remuneration.
As can be seen on pages 32 to 35, customer and
employee satisfaction are central to our “sustain
and enhance” and “inspire and develop our people”
strategic pillars, respectively. Both are key drivers
for creating long-term sustainable growth.
Our customer NPS results are already best-in-
class and therefore the targets have been set with
regard to the already strong performance in this
area and the need to maintain great customer
service as we continue to grow and expand. As
with the prior year the customer NPS score will
be calculated by taking a weighted average
of customer NPS scores across our territories,
weighted by revenue.
There is empirical evidence of high employee
engagement with increased levels of customer
satisfaction, whether expressed through NPS
or other measures, and this in turn has positive
impacts on financial performance.
Employee NPS (ENPS) will be derived from
responses to a specific engagement survey
question “How likely are you to recommend AO as
a place to work?”. This question can, via proven
methodologies, be empirically translated into an
externally benchmarked engagement score. AO’s
ENPS score will be calculated by taking a mean
average from regular employee surveys across
UK and Germany throughout the performance
period. This approach supports the One AO
mindset and culture we look to nurture rather than
a weighted differential between countries.
Clearly Covid-19 will have an impact on the
performance of the business over the current
year. The magnitude of that impact is unknown,
although sales at the present time are still
performing strongly. We have therefore adopted
these performance conditions and targets in
principle, but will consider exercising our discretion
to adjust the targets should this be appropriate
due to macro-economic factors.
Metric
Group Revenue for FY21
Group Adjusted EBITDA for FY21
Cash flow
Customer NPS Scores
Employee NPS Scores
Weighting
(% of award)
30%
30%
20%
10%
10%
Mindful of the Code requirements that
remuneration schemes and policies should
enable the use of discretion to override formulaic
outcomes, we have formalised the additional
discretion awarded to the Committee under last
year’s grant documentation and included this in
revised AO Incentive Plan rules.
VCP
As noted in the annual statement from the Chair
of the Remuneration Committee, we are seeking
to introduce a value creation plan, subject to
shareholder approval. The Executive Directors,
along with all employees, will be eligible to
participate in the plan. For Executives, there is a
maximum award opportunity of £20m, vesting in
three tranches in respect of the financial years
ending 31 March 2025, 2026 and 2027, subject to
the share price of the Company measured over
the last three months of each financial year.
Further details of the proposed plan are set out in
on pages 120 and 121 .
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Directors’ remuneration report continued
AO All Employee Value Creation Plan
Subject to shareholder approval at the 2020 AGM
and independent of the Directors’ Remuneration
Policy a new incentive plan for all AOers – the AO
Value Creation Plan (VCP) – will be implemented
during the 2020/21 financial year.
This plan directly aligns to the long-term vision
and strategy of the Company, building on
foundations laid in recent years. The VCP is
aimed at incentivising and rewarding exceptional
performance and retaining the talented team
whilst driving exceptional value creation for
shareholders and long-term investors.
A key feature of the proposed plan is that it
includes the whole AOer population, each of whom
will be able to share in any value created above a
set share price hurdle of £5.23. This all employee
participation reflects the unique, entrepreneurial
culture that exists at AO.
In considering the design of such a new plan, the
Remuneration Committee has been conscious to
design an effective motivational incentive plan
to support extraordinary performance, while
ensuring that the plan includes safeguards that
are aligned to sustainable value creation, and are
reflective of our unique culture and values that
are at the heart of our competitive edge. These
features are set out below:
• Eligibility – all employees, including Executive
Directors.
• Form of Award – a conditional share award over
ordinary shares in the Company with a value
equal to the units in the award. The value of
the units will depend on the plan value on the
relevant measurement dates.
• Mechanics – the plan will begin funding at a
share price of £5.23 (equivalent to market cap
of £2.5bn) with our current share capital. The
plan will then fund at 10% of the value created
above this threshold. 3% of this will be allocated
to the two current Executive Directors and COO
(1% each), with the remaining 7% allocated to
current and future employees. The plan would
cease funding on achievement of a £12.55 share
price (equivalent to market cap of £6.0bn with
our current share capital).
• Dilution – the level of funding is subject to a
maximum dilution of 5% of the Company’s
issued share capital.
• Individual cap – there is a cap on the aggregate
payments to any individual of £20m. This
maximum payment is only achievable if the
Company’s share price reaches £9.41 by March
2025 and is at or above that same level in
March 2026 and 2027. The maximum individual
payment in any given year under the VCP
is £6.67m.
• Performance and vesting
− Executive Directors and COO – three-month
average share price measured at:
° 31 March 2025 (5 year performance
period) – maximum 1/3rd vests
° 31 March 2026 (6 year performance
period) – maximum 1/3rd vests
° 31 March 2027 (7 year performance
period) – maximum 1/3rd vests
− All other employees – three-month average
market cap measured at:
° 31 March 2025 (5 year performance
period) – maximum 100% vests.
Remuneration Committee retains
discretion to the treatment of awards
after year 5 including ability measures
performance at a later date
• Share-based payment – awards will normally be
a conditional share award over ordinary shares
in the Company settled in AO shares therefore
providing for all employee share ownership. The
Company retains flexibility to settle in cash if
required.
• Leavers and joiners – awards normally lapse
on cessation of employment. The Committee
will have discretion to allow awards to vest in
exceptional circumstances. Awards may be pro-
rated for the proportion of the performance
period completed. Plan is funded to ensure
sufficient headroom to fulfil hiring plan without
diluting current employee population.
• Recovery provisions – awards for Executive
Directors and certain other key employees are
subject to extended malus and clawback terms.
Clawback will apply for up to 3-years post
vesting (i.e. up to 10 years in total).
• Discretion – the Committee will have absolute
discretion on the vesting of the awards to
override the formulaic outcomes. Framework
of performance measures (revenue growth
profitability, cash, customer satisfaction and
employee engagement) for assessing holistic
Company performance against macro-
economic factors.
Illustrative pay-outs for the Executive Directors
and plan funding under different share price
scenarios are set out below:
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AO All Employee Value Creation Plan
Share price
£5.231
£9.41
£12.55
Annualised growth from
1 June 2020 (£1.41)
Annualised growth
from IPO (£2.85)
31.8% p.a.
49.1% p.a.
58.5% p.a.
5.7% p.a.
11.5% p.a.
14.4% p.a.
Additional value created for
shareholders from 1 June
+£1.83bn
+£3.83bn
+£5.33bn
Executive Directors (each)
NIL
£20m
£20m
Total employee pool to be
distributed among eligible
employees
NIL
£140m
£240m
1. No vesting below this level. Straight-line vesting between points
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AO World Plc
Annual Report and Accounts 2020
121
Directors’ remuneration report continued
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. As noted previously, all current
employees will be eligible to participate in the VCP.
Share ownership requirements
As with prior years, the required share ownership
level for the Executive Directors for FY21 will be
200% of salary.
Mindful of the Code requirements regarding
post-termination shareholding requirements,
the Committee has decided to adopt a tapering
approach over two years, where up to 12 months
post termination, the requirement is maintained at
200% and from 12 months up to 24 months, 100%
is required.
Additionally, for good leavers, AO Incentive Plan
awards deferred into shares will typically only be
released at the end of the normal vesting period
and subject to the attainment of performance
underpin.
There are no share ownership requirements for the
Non-Executive Directors.
Non-Executive Director fees
There are no changes to Non-Executive Director
fees for FY21 against the prior year. Fees payable
per annum are shown in the table below.
2020/
2021
2019/
2020
£200,000 £200,000
£55,000
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
£10,000
£10,000
£10,000
£10,000
£10,000
£55,000
£10,000
Details of Directors’ service contracts
and letters of appointment
Details of the service contracts and letters of
appointment in place as at 31 March 2020 for
Directors are shown in Table 3, below.
Marisa Cassoni and Chris Hopkinson agreed to an
extension of the term of their appointments for
one further year in February 2020, following expiry
of the initial three-year terms that commenced
around IPO and consecutive one-year extensions
from such expiry. The extension of such
appointment is subject to the terms of the letters
of appointment in force.
3 DIRECTORS’ SERVICE CONTRACTS AND LETTERS OF APPOINTMENT
Director and date of
service contract or
letter of appointment
Marisa Cassoni
31/01/2014
Geoff Cooper
01/07/2016
Unexpired term
Initial term of three years expired – renewed
for successive one-year periods subject to
termination by either party
Initial term of three years from date of
letter subject to notice - renewed for
successive one-year periods subject to
termination by either party
Luisa D. Delgado
01/01/2019
Initial term of three years from date of
appointment
Mark Higgins
31/05/2014
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
Shaun McCabe
25/07/2018
Initial term of three years from date of
appointment
John Roberts
14/02/2014
Continuous employment until terminated
by either party
Notice
period by
Company
(months)
Notice
period by
Director
(months)
Date
joined
Group
3
3
3
12
3
3
12
3 05/02/2014
3 01/07/2016
3
01/01/2019
12
10/07/2011
3
12/12/2005
3 25/07/2018
12 19/04/2000
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Remuneration Committee
membership
The members of the Committee were for the
year in question Luisa D. Delgado (Chairperson),
Marisa Cassoni, Brian McBride until his retirement
in July 2019, and Jacqueline de Rojas until her
resignation in September 2019. Until 19 June 2020
we were outside the FTSE 250 and accordingly
the Committee’s constitution complied with Code
guidelines for smaller companies. Since re-joining
the FTSE 250, Shaun McCabe has joined the
Committee on an interim basis as we continue to
search for a new Non-Executive Director
who, once appointed to the Board, will join the
Remuneration Committee.
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 FY20, there were six formal meetings of the
Remuneration Committee, all of which achieved full
attendance by the relevant committee members.
Notwithstanding formal membership, all Non-
Executive Directors of the Company attended
Remuneration Committee meetings held in FY20.
The responsibilities of the Committee are set
out in the Corporate Governance section of the
Annual Report on page 84. The Executive Directors
and the Chief People Officer 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
Deloitte LLP provided advice during the
year to 31 March 2020 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. Deloitte is a signatory to
the Remuneration Consultants Group Code of
Conduct and any advice provided by them is
governed by that code.
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 Deloitte’s advice remains
objective and independent and that the
engagement partner and team, which provides
advice to the Committee, do not have connections
with the Company or any of its Directors, which
may impair their independence.
For the year under review, Deloitte’s total fees
charged were £34,270 plus VAT.
Shareholder feedback (Unaudited)
At the 2018 AGM, the Policy Report and AO
Incentive Plan were put to shareholders for
a binding vote. At the 2019 AGM the Annual
Remuneration Report for the year ended 31 March
2019 was put to shareholders by way of an advisory
vote, with votes cast as follows:
To approve the Directors’
Remuneration Report
To approve the Directors’
Remuneration Policy
Votes in
favour
No. of shares
% Votes against
Total number
of votes cast
%
Votes
Withheld
No. of shares
250,486,042
88.94
31,162,187
11.06
281,548,885
109,998
342,654,617
87.01
51,174,812
12.99
393,829,429
4,077,005
The Committee will continue to monitor developments in market trends and best practice together
with the expectations of investors as part of considerations in the design of a new policy for FY22. As ever,
the Committee welcomes any enquiries or feedback shareholders may have on the Policy or the work
of the Committee.
Luisa D. Delgado
Chair, Remuneration Committee
AO World Plc
13 July 2020
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AO World Plc
Annual Report and Accounts 2020
123
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 2020.
No new appointments were made to the Board during the Period. Following the retirement of Brian McBride
at the Company’s AGM in July 2019, Marisa Cassoni replaced him as Senior Independent Director.
Director
Geoff Cooper
Marisa Cassoni
Luisa D. Delgado
Mark Higgins
Chris Hopkinson
Shaun McCabe
John Roberts
Brian McBride
Jacqueline de Rojas
Position as at 31 March 2020
Chair
Senior Independent Non-Executive Director
Independent Non-Executive Director
Chief Financial Officer
Non-Executive Director
Independent Non-Executive Director
Founder and Chief Executive Officer
Senior Independent Non-Executive Director
Independent Non-Executive Director
Served in the year ended
31 March 2020
Served throughout the year
Served throughout the year
Served throughout the year
Served throughout the year
Served throughout the year
Served throughout the year
Served throughout the year
Resigned 17 July 2019
Resigned 24 September 2019
Their biographical details are set out on pages 78 to 79. Further details relating to Board and Committee
composition are disclosed in the Corporate Governance report and Committee reports on pages 80 to 123.
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: Under the Articles, 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 fewer 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)
(ii)
(iii)
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;
a bankruptcy order is made against that
person;
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)
(vi)
(vii)
in the case of a Director who holds any
executive office, their appointment as such
is terminated or expires and the Directors
resolve that they should cease to be a
Director;
that person is absent without permission of the
Board from Board meetings for more than six
consecutive months and the Directors resolve
that they should cease to be a Director; or
a notice in writing is served upon them
personally, or at their 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 they
shall cease to be a Director with immediate
effect.
For further details of our Directors, please refer to
pages 78 and 79.
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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
2020, the issued share capital of the Company
was £1,194,847.38, comprising 477,938,954 ordinary
shares of 0.25p each.
During the year, the Company issued 6,055,370
ordinary shares of 0.25p each to satisfy the
exercise of options under the AO 2016 Employee
Reward Plan (2016 grant) and AO 2014 Performance
Share Plan (2016 grant). 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 173. All the information
detailed in Note 173 on page 28 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 174
to 176.
At the Annual General Meeting of the Company,
to be held on 20 August 2020, the Directors will
seek authority from shareholders to allot shares
in the capital of the Company up to a maximum
nominal amount of £796,564.92 (318,625,969
shares (representing approximately 66.6% of the
Company’s issued ordinary share capital)) of which
159,312,984 shares (representing approximately
33.3% 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 47,793,895 of its own ordinary
shares, either to be cancelled or retained as
treasury shares. The Directors will only use this
power after careful consideration, taking into
account the financial resources of the Company,
the Company’s share price and future funding
opportunities. The Directors will also take into
account the effects on earnings per share and the
interests of shareholders generally.
Rights attaching to shares
All shares have the same rights (including voting
and dividend rights and rights on a return of
capital) and restrictions as set out in the Articles,
described below. Except in relation to dividends
that 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
that carry special rights with regard to control
of the Company. There are no shares relating to
an employee share scheme that 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 AO Single
Incentive Plan (“AOIP”), where share interests of
a participant in such scheme can be exercised
by the personal representatives of a deceased
participant in accordance with the Scheme rules.
Voting rights
Each ordinary share entitles the holder to vote
at general meetings of the Company. Under the
Articles, 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. In light of the current
UK Government measures and the Company’s
desire to protect the health and safety of our
shareholders and employees the AGM this year will
be run as a closed meeting and shareholders will
not be permitted to attend in person.
Shareholders are therefore strongly encouraged
to vote by taking advantage of our registrar’s
secure online voting service (using the
identification numbers stated on their Form of
Proxy), which is available at aoshareportal.com or
by completing their Form of Proxy and returning
it by post to the Company’s Registrars. 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 them unless
all amounts presently payable by them 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.
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AO World Plc
Annual Report and Accounts 2020
125
Directors’ report continued
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)
(2)
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
in certificated form (whether fully paid or not)
unless the instrument of transfer (a) is lodged,
duly stamped, at the Office or at such other
place as the Directors may appoint and
(except in the case of a transfer by a financial
institution where a certificate has not been
issued in respect of the share) is accompanied
by the certificate for the share to which
it relates and such other evidence as the
Directors may reasonably require to show the
right of the transferor to make the transfer; (b)
is in respect of only one class of share; and (c)
is in favour of not more than four transferees;
or
(3)
in uncertificated form to a person who is to
hold it thereafter in certificated form in any
case where the Company is entitled to refuse
(or is excepted from the requirement) under
the Uncertificated Securities Regulations to
register the transfer; or
(4)
where restrictions are imposed by laws and
regulations from time to time apply (for
example insider trading laws).
In relation to awards/options under the PSP, ERP,
AOIP and the AO Sharesave Scheme, rights are not
transferable (other than to a participant’s personal
representatives in the event of death).
The Directors are not aware of any arrangements
between shareholders that may result in
restrictions on the transfer of securities or on
voting rights. No person has any special rights of
control over the Company’s share capital and all
issued shares are fully paid.
Change of control
Save in respect of a provision of the Company’s
share schemes that 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,
the revolving credit facility agreement entered
into with Lloyds Bank Plc, Barclays Bank plc, HSBC
Bank plc and Natwest Bank plc on 6 April 2020,
there are no significant agreements to which
the Company is a party that take effect, alter or
terminate upon a change of control.
2020 Annual General Meeting
The Annual General Meeting will be held at
8.00 am on 20 August 2020 at 5A The Parklands,
Lostock, Bolton BL6 4SD. In light of the current
UK Government measures and the Company’s
desire to protect the health and safety of our
shareholders and employees, our AGM this year will
be run as a closed meeting and shareholders will
not be permitted to attend in person. The Notice
of Meeting that 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.
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Interests in voting rights
At the date of this report, the Company had been notified in accordance with chapter 5 of the Financial
Services Authority’s Disclosure Guidance and Transparency Rules, or was aware of (to the best of its
knowledge) the following significant interests:
Shareholder
John Roberts*
Camelot Capital Partners LLC
Odey Asset Management LLP (including
through financial instruments)
Steve Caunce
Conifer Capital Management LLC
The London & Amsterdam Trust Company Ltd
Chris Hopkinson
Invesco Advisors Inc
N K Stoller
Julie Holroyd
Number of ordinary shares/
voting rights notified or
aware of
Percentage of voting rights
over ordinary shares of
0.25p each
107,900,612
59,513,287
44,236,972
32,806,342
31,075,092
22,921,251
22,605,429
20,000,000
17,629,098
14,568,397
22.58%
12.45%
9.26%
6.86%
6.50%
4.79%
4.73%
4.18%
3.69%
3.05%
* Excludes 6,348 ordinary shares in the issued ordinary share capital of the Company held by Crystalcraft Limited, which is
connected to John Roberts.
Results and dividends
The Group’s and Company’s audited financial
statements for the year are set out on pages 144
to 192.
No dividend was paid by the Company during the
year to 31 March 2020.
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.
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. Following the decision to
close the Group’s operations in the Netherlands
as announced in November 2019, the Company
has commenced a process to liquidate both of
its subsidiaries registered in this territory. A Group
Company has also been incorporated in Belgium.
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)
(ii)
So far as the Director is aware, there is no
relevant audit information of which the
Company’s Auditor is unaware; and
The Director has taken all the steps that
they ought to have taken as a Director
to make themself 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.
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AO World Plc
Annual Report and Accounts 2020
127
Directors’ report continued
Reporting requirements
The following sets out the location of additional information forming part of the Directors’ report:
Reporting requirement
Location
Strategic report – Companies Act 2006
s414A-D
DTR4.1.8R – management report – the
Directors’ report and Strategic report
comprise the ‘management report’
Directors’ remuneration including disclosures
required by Schedule 5 and Schedule 8
of SI2008/410 – Large and Medium-sized
Companies and Groups (Accounts and
Reports) Regulations 2008
Strategic report on pages 11 to 73
Directors’ report on pages 124 to 129 and the
Strategic report on pages 11 to 73
Directors’ remuneration report on pages 98 to 123
Likely future developments of the business
and Group
Strategic report on pages 11 to 73
Board’s assessment of the Group’s internal
control systems
Corporate governance report on page 77
and the Audit Committee report on page 94
Board of Directors
Community
Directors’ interests
Diversity policy
Employee engagement
Employee involvement
Employees with disabilities
Corporate Governance Statement on pages 78 to 79
Strategic report; corporate social responsibility
report on pages 56 and 57
Directors’ remuneration report on page 117
Corporate social responsibility report on page 52
and the Corporate governance report on page 79
and the Nomination Committee report on page 88
Corporate social responsibility report; how we
engage with our stakeholders on pages 50 to 51 and
page 52
Strategic report; resources and relationships on
page 6 and corporate social responsibility on
page 52
Strategic report; corporate social responsibility on
page 54
Going concern
Strategic report page 48
Greenhouse gas emissions and streamlined
energy and carbon reporting
Corporate social responsibility report; sustainability
pages 59
Details of use of financial instruments and
specific policies for managing financial risk
Note 33 to Group financial statements on
pages 177 to 181
Significant related party agreements
Note 34 to the consolidated financial statements
page 181
Company’s business relationships with
suppliers, customers and others
Corporate social responsibility report; how we
engage with our stakeholders on pages 50 to 51
Statement on corporate governance
Corporate governance report, Audit Committee
report, Nomination Committee report and Directors’
Remuneration Report on pages 80 to 123
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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.
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
13 July 2020
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AO World Plc
Annual Report and Accounts 2020
129
Customer testimonial
“ Joel made sure that
our faulty products
were put right.
I don’t think I’ve ever
dealt with such an
amazing customer
service staff
member before”
Sam,
An AO customer
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Our Results
132
Independent Auditors’ report
144
Consolidated income statement
145
Consolidated statement of
comprehensive income
146
Consolidated statement of
financial position
147
Consolidated statement of
changes in equity
148
Consolidated statement of cash flows
149
Notes to the consolidated
financial statements
187
Company statement of financial position
188
Company statement of changes in equity
189
Notes to the Company financial statements
Shareholder information
196
Important information
197
Glossary
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Independent Auditors’ Report
to the members of AO World plc
1. Our opinion is unmodified
We have audited the financial statements of AO World plc (“the
Company”) for the year ended 31 March 2020 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
Position, 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 2020 and of the Group’s profit 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
4 financial years ended 31 March 2020. 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
£2.0m (2019:£2.0m)
0.2% (2019: 0.2%) of group total revenues
Coverage
Key audit matters
Recurring risks
Event driven
vs 2019
98%(2019: 99%) of group total revenues
Product protection plans contract asset
Network commissions contract asset
Volume rebates receivable
Recoverability of Parent Company’s investment in subsidiaries
and debt due from group entities
The impact of uncertainties due to the UK exiting the European
Union on our audit
Going concern including the impact of Covid 19
New: Recoverability of Goodwill MobilePhonesDirect
2. Key audit matters: including 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 effort s of the engagement team.
We summarise below the key audit matters, 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.
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The impact of uncertainties due to
the UK exiting the European Union
on our audit
Refer to page 40
(Principal Risks),
page 48
(Viability Statement); and
page 97
(Audit Committee Report)
The risk
Our response
Unprecedented levels of uncertainty
All audits assess and challenge the
reasonableness of estimates, in particular
as described in Product protection plans
contract asset, Network commissions
contract asset, Recoverability of
MobilePhonesDirect Goodwill, Volume
rebates receivable and Recoverability
of Parent Company’s investment in
subsidiaries and debt due from group
entities below, and related disclosures and
the appropriateness of the going concern
basis of preparation of the financial
statements (see below). All of these depend
on assessments of the future economic
environment and the group’s future
prospects and performance.
In addition, we are required to consider
the other information presented in the
Annual Report including the principal risks
disclosure and the viability statement
and to consider the directors’ statement
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.
Brexit is one of the most significant
economic events for the UK and its effects
are subject to unprecedented levels of
uncertainty of consequences, with the full
range of possible effects unknown.
We developed a standardised firm
wide approach to the consideration of
the uncertainties arising from Brexit in
planning and performing our audits.
Our procedures included:
• Our Brexit knowledge: We considered
the directors’ assessment of Brexit
related sources of risk for the group’s
business and financial resources
compared with our own understanding
of the risks. We considered the
directors’ plans to take action to
mitigate the risks.
• Sensitivity analysis: When addressing
going concern and other areas that
depend on forecasts, we compared the
directors’ analysis to our assessment
of the full range of reasonably possible
scenarios resulting from Brexit
uncertainty.
• Assessing transparency: As well as
assessing individual disclosures as part
of our procedures on Going concern,
we considered all of the Brexit related
disclosures together, including those
in the strategic report, comparing
the overall picture against our
understanding of the risks.
Our results
• As reported under Product protection
plans contract asset, Network
commissions contract asset,
Recoverability of MobilePhonesDirect
Goodwill, Volume rebates receivable
and Recoverability of Parent Company’s
investment and debt due from
Group entities, we found the resulting
estimates and related disclosures
and disclosures in relation to going
concern to be acceptable. However, no
audit should be expected to predict
the unknowable factors or all possible
future implications for a company and
this is particularly the case in relation
to Brexit.
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Annual Report and Accounts 2020
133
Independent Auditors’ Report
to the members of AO World plc
Going concern including the
impact of Covid-19
page 41 and 42
(Principal Risks),
Refer to page 48
(Strategic Report)
page 97
(Audit Committee report) and;
page 150
(Accounting Policy)
The risk
Our response
Unprecedented levels of uncertainty
The financial statements explain how the
Board has formed a judgement that it is
appropriate to adopt the going concern
basis of preparation for the group and
parent company.
That judgement is based on an evaluation
of the inherent risks to the Group’s and
Company’s business model and how
those risks might affect the Group’s and
Company’s financial resources or ability
to continue operations over a period of at
least a year from the date of approval of
the financial statements.
The risks most likely to adversely affect the
Group’s and Company’s available financial
resources over this period were:
• The uncertainty of the impact of
Covid 19, with the future range of
possible effects currently unknown to
performance, given the rapidly evolving
nature.
• Revenue and margin growth.
• A reduction in supplier days.
There are also less predictable but realistic
second order impacts, such as the impact
of Brexit and the erosion of customer or
supplier confidence, which could result
in a rapid reduction of available financial
resources.
The risk for our audit was whether or not
those risks were such that they amounted
to a material uncertainty that may have
cast significant doubt about the ability
to continue as a going concern. Had they
been such, then that fact would have been
required to have been disclosed.
Our procedures included:
• Sensitivity analysis: We considered
sensitivities over the Group’s level of
available financial resources in the
forecasts, including the Group’s Covid
19 adjusted cash flow forecasts, taking
account of reasonably possible (but
not unrealistic) adverse effects that
could arise individually and collectively
including a reduction in post year end
revenue growth or margin due to Covid
19 and a reduction to supplier days.
• Our sector experience: We evaluated
and challenged assumptions used
in the forecasts, in particular those
relating to revenue growth, margin and
supplier days, through enquiry.
• Historical comparisons: We evaluated
the precision of previous financial
period’s forecasts against actual results
to assess historical accuracy.
• Funding assessment: We reviewed
Board minutes for evidence of the
parent’s covenant compliance
throughout the year ending 31 March
2020 and we reviewed the calculations
submitted to the banks for covenant
compliance. We also reviewed the
calculations in the base and sensitised
forecasts for evidence of covenant
compliance.
• Assessing transparency: We assessed
the completeness and accuracy of the
matters covered in the going concern
disclosure, including the impact of
COVID 19 by verifying whether it is not
contradictory to the findings of the
procedures noted above.
Our results
• We found the going concern disclosure
without any material uncertainty to be
acceptable.
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Product protection plans
contract asset
£81.2 million contract asset
(2019: £74.7 million)
Refer to page 96
(Audit Committee Report),
page 151
(Accounting Policy),
Page 156 and 157
(Other areas of estimation
uncertainty); and
page 168 and 169
(Financial Disclosures)
The risk
Our response
Contract asset is recognised based on
the 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 contract asset is misstated. The
effect of these matters is that, as part of
our risk assessment, we determined that
the carrying value of £81.2 million has a
degree of estimation uncertainty, with a
potential range of reasonable outcomes.
The financial statements note 22 disclose
the sensitivity estimated by the Group.
Data capture
Completeness and accuracy of 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 and
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 contract asset calculation,
such as the life of the plans, cancellation
rates and future contractual margins
based on forecast performance expected
require judgement.
Our procedures included:
• Data comparisons: With the assistance
of our own data modelling specialists we
performed reconciliations of the third
party data and the database system
which stores this data and onwards
into the model. 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: We evaluated
the historical accuracy of the model
with reference to past data e.g.
expected cash cumulative cash
received.
• Benchmarking assumptions: We
assessed the directors’ assumptions
over the average life of the products
against externally available market
data.
• Our sector experience: We challenged
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: We performed
sensitivity analysis on judgemental
assumptions as described above.
• Assessing transparency: We
assessed 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 the
contract asset.
Our results
• We found the carrying value of the
contract asset for product protection
plans to be acceptable (2019:
acceptable).
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AO World Plc
Annual Report and Accounts 2020
135
Independent Auditors’ Report
to the members of AO World plc
Network commission contract asset
£90.9 million contract asset
(2019: £76.3 million)
Refer to page 96
(Audit Committee Report),
page 151
(Accounting Policy),
Page 157
(Other areas of estimation
uncertainty); and
page 167 to 170
(Financial Disclosures)
The risk
Our response
Network commissions contract asset is
based on the value of commissions due
over the expected life of mobile phone
network contracts. As this requires
subjective estimates to be made there is a
risk that the accrued income is misstated.
The effect of these matters is that, as part
of our risk assessment, we determined that
the carrying value of £90.9 million has a
degree of estimation uncertainty, with a
potential range of reasonable outcomes.
The financial statements note 22 disclose
the sensitivity estimated by the Group.
Data capture
Completeness and accuracy of data used
in the models used to calculate the fair
value could be incorrect because of the
complexities and manual nature of the
calculations.
Calculation error
The models used to calculate the fair value
are complex and based on a variety of
different tariffs with different networks and
so open to the possibility of arithmetical
error.
Subjective estimate
Subjective inputs into the network
commissions contract asset calculation,
such as future clawback of upfront
revenue, stretch targets for bonuses,
number of customer disconnections and
monthly expected cash receipts are based
on forecast performance expected and
require judgement.
Our procedures included:
• Data comparisons: We performed
reconciliations of historic cash received
to third party data. We agreed a sample
of income from new connections,
disconnections and renewals of plans
to both bank statements and the
database system.
• Methodology implementation: We
assessed the methodology behind the
calculation to verify whether it does the
intended calculation.
• Historical comparisons: We evaluated
the historical accuracy of the model
with reference to past data e.g. monthly
cash receipts received per network
against expected cash receipts.
• Our sector experience: We challenged
the assumptions made such as
future clawback of upfront revenue,
stretch targets for bonuses, number of
customer disconnections and monthly
expected cash receipts based on our
knowledge of the business and the
group.
• Sensitivity analysis: We performed
sensitivity analysis on judgemental
assumptions as described above
• Assessing transparency: We
assessed 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 the
contract asset.
Our results:
• We found the carrying value of the
network commission’s contract asset to
be acceptable (2019: acceptable).
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The risk
Our response
Recoverability of Goodwill
MobilePhonesDirect £14.5m; (2019:
£14.5m)
Refer to page 96
(Audit Committee Report),
page 152
(Accounting Policy),
Page 156
(Key sources of estimation
uncertainty); and
page 163 and 164
(Financial Disclosure)
Subjective estimate
MobilePhonesDirect Goodwill is significant
and at risk of irrecoverability due to
uncertainty of achieving future forecasts.
The estimated recoverable amount is
subjective due to the inherent uncertainty
involved in forecasting and discounting
future cash flows.
The effect of these matters is that, as part
of our risk assessment, we determined
that the value in use of goodwill has a
high degree of estimation uncertainty,
with a potential range of reasonable
outcomes greater than our materiality for
the financial statements as a whole, and
possibly many times that amount. The
financial statements (note 16) disclose the
sensitivity estimated by the Group.
Our procedures included:
• Historical comparison: We assessed
the reasonableness of the budget by
considering the historical accuracy of
previous forecasts;
• Benchmarking assumptions: We
compared the assumptions to
externally derived data in relation to
key inputs such as projected economic
growth and discount rates;
• Our sector experience: We assessed
whether key assumptions reflect our
knowledge of the business and industry,
including known or probable changes in
the business environment.
• Sensitivity analysis: We performed
sensitivity analysis on the key
assumptions and considered whether
the Directors have identified realistic
worst case scenarios in their own
sensitivity analysis; and
• Assessing transparency: We assessed
whether the group’s disclosures about
the sensitivity of the outcome of the
impairment assessment to changes
in key assumptions reflected the risks
inherent in the valuation of goodwill.
Our results
• We found the carrying amount of
MobilePhonesDirect Goodwill to be
acceptable.
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AO World Plc
Annual Report and Accounts 2020
137
Independent Auditors’ Report
to the members of AO World plc
The risk
Our response
Parent: Recoverability of Parent
Company’s investment in subsidiaries
and debtors due from group entities
Investment in subsidiaries
£83.1m million; (2019: £82.3m)
Refer to page 187
(Accounting Policy and
financial disclosures)
Debtors due from Group entities
£115.8m (2019: £103.8m)
Refer to page 153
(Accounting Policy); and
and page 185
(Company statement of
financial position)
Low risk, high value
The carrying amount of the Parent
Company’s investment in subsidiaries and
debtors due from group entities balance
represents 39% (2019: 43%) and 53% (2019:
54%) respectively of the Company’s total
assets.
The recoverability of investments 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, it
is considered to be the area of greatest
significance in relation to our audit of the
parent Company.
The recoverability of debtors due
from group entities is at increased risk
of recoverability due to the delayed
profitability and cash generative position
of AO Deutschland. The estimated
recoverable amount of this balance is
subjective due to the inherent uncertainty
involved in forecasting future cash flows.
Our procedures included:
• Tests of detail: We assessed 100% of
debtors due from group entities 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.
• Assessing subsidiary audits: We
considered the results of the audit work
on those subsidiaries’ profits and net
assets.
• Comparing valuations: We compared
the carrying amount to the Group’s
market capitalisation to assess whether
there are any indicators of impairment.
• Test of detail: For the investments
where the carrying amount exceeded
the net asset value, comparing the
carrying amount of the investment
with the expected value of the business
based on a suitable measure of the
subsidiaries’ profit.
• Historical comparisons: We assessed
the reasonableness of the budgets by
considering the historical accuracy of
the previous forecasts; and
• Our sector experience: We evaluated
the current level of trading, including
identifying any indications of a
downturn in activity, by examining the
post year end management accounts
and considering our knowledge of the
Group and the market;
Our results
• We found the Group’s assessment of the
recoverability of the Parent Company’s
investment in subsidiaries and debtors
due from group entities balance to be
acceptable (2019: acceptable).
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The risk
Our response
Volume rebates receivable
£11.6m volume rebates receivable ;
(2019: £11.1m)
Refer to page 97
(Audit Committee Report),
page 151
(Accounting Policy); and
page 170
(Financial Disclosures).
Subjective estimate
Volume rebates 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. The effect of these
matters is that, as part of our risk
assessment, we determined that the value
in use of £11.6 million has a high degree of
estimation uncertainty, with a potential
range of reasonable outcomes greater
than our materiality for the financial
statements as a whole.
Data capture
The 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.
Our procedures included:
• Control operation: We tested the
operating effectiveness of controls
over supplier statement reconciliations
including the controls over the
monitoring and timely reconciliations of
the supplier statements.
• Historical comparisons: We evaluated
the accuracy of the Group’s product
volume forecasting against actual
out-turns.
• Reperformance: We recalculated a
sample of rebates based on agreed
and forecast supplier turnover and the
contractual percentages as stated in
the contract.
• Tests of detail: We agreed a sample
of the year end receivable back to
post year end confirmatory evidence,
including credit notes and supplier
email confirmation.
• Assessing transparency: We assessed
whether the group’s disclosures about
the amount of the estimate agreed
post year end was accurate.
Our results
• We found the carrying value of the
volume rebates receivable to be
acceptable (2019: acceptable).
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AO World Plc
Annual Report and Accounts 2020
139
Independent Auditors’ Report
to the members of AO World plc
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 £1060.1 million, of which it represents
0.2% (2019: 0.2% 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 in Europe.
Materiality for the parent company financial statements as a
whole was set at £1.0 million (2019: £1.0 million), determined with
reference to a benchmark of parent company total assets, of
which it represents 0.5% (2019: 0.5% of parent company total
assets).
We agreed to report to the Audit Committee any corrected or
uncorrected identified misstatements exceeding £0.1 million,
in addition to other identified misstatements that warranted
reporting on qualitative grounds.
Of the group’s 13 (2019: 11) reporting components , we subjected
7 (2019: 7) 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 0 (2019: 1)
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.
We conducted reviews of financial information (including
enquiry) at a further 1 (2019: 0) non significant component. The
components for which we performed work other than audits for
group reporting purposes were not individually significant but
were included in the scope of our group reporting work in order
to provide further coverage over the group’s results.
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
98% of group total revenues (2019: 99%), 100% of group total
assets (2019: 100%) and 97% of group total profits and losses
that made up the group loss before tax (2019: 96%).
Group total revenues
£ 1,046.2 m (2019: £902.5m)
Group Materiality
£2.0m (2019: £2.0m)
£2.0m
Whole financial
statements materiality
(2019: £2.0m
£1.5m
Range of materiality at
7 components (£0.3m -£1.8m)
(2019: £0.1m to £1.8m)
Group total revenues
Group materiality
£0.1m
Misstatements reported to the
audit committee
(2019: £0.1m)
Group total revenues
2
2
98%
(2019: 99%)
97
98
Group total assets
1
100%
(2019: 100%)
99
100
Group total profits and losses that
made up the group loss before tax
3
4
97%
(2019: 96%)
96
97
Full scope for group audit
purposes 2020
Specified risk-focused audit
procedures 2020
Full scope for group audit
purposes 2019
Specified risk-focused audit
procedures 2020
Residual components
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4. We have nothing to report on going concern
The Directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the
Company or the Group or to cease their operations, and as they
have concluded that the Company’s and the Group’s financial
position means that this is realistic. They have also concluded
that there are no material uncertainties that could have cast
significant doubt over their ability to continue as a going
concern for at least a year from the date of approval of the
financial statements (“the going concern period”).
Our responsibility is to conclude on the appropriateness of
the Directors’ conclusions and, had there been a material
uncertainty related to going concern, to make reference to
that in this audit report. However, as we cannot predict all
future events or conditions and as subsequent events may
result in outcomes that are inconsistent with judgements that
were reasonable at the time they were made, the absence of
reference to a material uncertainty in this auditor’s report is not
a guarantee that the Group and the Company will continue in
operation.
We identified going concern as a key audit matter (see section
2 of this report). Based on the work described in our response to
that key audit matter, 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 1 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
• the related statement under the Listing Rules set out on page
48 is materially inconsistent with our audit knowledge.
We have nothing to report in these respects, and we did not
identify going concern as a key audit matter.
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.
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 48 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
Our work is limited to assessing these matters in the context of
only the knowledge acquired during our financial statements
audit. As we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent
with judgments that were reasonable at the time they were
made, the absence of anything to report on these statements is
not a guarantee as to the Group’s and Company’s longer-term
viability.
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AO World Plc
Annual Report and Accounts 2020
141
Independent Auditors’ Report
to the members of AO World plc
5. We have nothing to report on the other
information in the Annual Report continued
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 129,
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 general commercial and
sector experience, through discussion with the directors and
other management (as required by auditing standards), and
discussed with the directors and other management the
policies and procedures regarding compliance with laws and
regulations. We communicated identified laws and regulations
throughout our team and remained alert to any indications of
non compliance throughout the audit.
The potential effect of these laws and regulations on the
financial statements varies considerably.
Firstly, the group is subject to laws and regulations that
directly affect the financial statements including financial
reporting legislation (including related companies legislation),
distributable profits legislation, and taxation legislation and
we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial
statement items.
Secondly, the group is subject to many other laws and
regulations where the consequences of non compliance could
have a material effect on amounts or disclosures in the financial
statements, for instance through the imposition of fines or
litigation. We identified the following areas as those most likely
to have such an effect: product protection plan legal status
recognising the regulated nature of the plan and its legal
form. Auditing standards limit the required audit procedures
to identify non compliance with these laws and regulations to
enquiry of the directors and other management and inspection
of regulatory and legal correspondence, if any.
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Irregularities – ability to detect continued
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we
have properly planned and performed our audit in accordance
with auditing standards. For example, the further removed
non compliance with laws and regulations (irregularities) is
from the events and transactions reflected in the financial
statements, the less likely the inherently limited procedures
required by auditing standards would identify it. In addition, 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. We are not responsible for preventing non compliance
and cannot be expected to detect non compliance with all laws
and regulations.
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
14 July 2020
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AO World Plc
Annual Report and Accounts 2020
143
Consolidated income statement
For the year ended 31 March 2020
Continuing operations
Revenue excluding Netherlands
Netherlands revenue
Total revenue
Cost of sales
Gross profit
Administrative expenses
Other operating income
Operating profit/(loss) excluding Netherlands
Netherlands operating loss
Total operating loss
Finance income
Finance costs
Profit/(loss) before tax
Tax (charge)/credit
Profit / (loss) after tax excluding Netherlands
Netherlands loss after tax
Profit/(loss) after tax for the year
Profit/(loss) for the year attributable to:
Owners of the Company
Non-controlling interests
Profit/(loss) per share
Basic profit/(loss) per share
Diluted profit/(loss) per share
2019
£m
Note
2020
£m
Restated
(See note 36)
1,026.9
19.3
1,046.2
880.6
21.9
902.5
(867.9)
(750.0)
178.3
152.5
(183.3)
1.2
(166.6)
1.1
1.4
(5.2)
(3.8)
10.9
(5.6)
1.5
(0.1)
6.6
(5.2)
1.4
1.7
(0.3)
1.4
0.38
0.37
(8.4)
(4.6)
(13.0)
2.6
(9.7)
(20.2)
2.1
(13.3)
(4.8)
(18.1)
(18.6)
0.5
(18.1)
(4.00)
(4.00)
5,6
6
6,7
8
6,8
11
12
13
29
15
15
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Consolidated statement of comprehensive income
For the year ended 31 March 2020
Profit/ (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 Company
Non-controlling interests
2019
£m
2020
£m
1.4
Restated
(see note 36)
(18.1)
(5.5)
(4.1)
(3.8)
(0.3)
(4.1)
2.4
(15.7)
(16.2)
0.5
(15.7)
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AO World Plc
Annual Report and Accounts 2020
145
Consolidated statement of financial position
As at 31 March 2020
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right of use assets
Trade and other receivables
Derivative financial asset
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Corporation tax receivable
Cash and bank equivalents
Total assets
Current liabilities
Bank overdraft
Trade and other payables
Borrowings
Lease liabilities
Derivative financial liability
Provisions
Net current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Trade and other payables
Derivative financial liabilities
Deferred tax
Provisions
Total liabilities
Net assets
Equity attributable to owners of the parent
Share capital
Investment in own shares
Share premium account
Other reserves
Retained losses
Total
Non-controlling interest
Total equity
2019
£m
Restated
(See note 36)
2018
£m
Restated
(See note 36)
28.2
16.9
26.5
63.1
79.4
0.8
4.6
219.5
76.3
114.5
–
0.6
28.9
220.3
439.8
–
(229.8)
(9.5)
(14.3)
(0.6)
-
(254.2)
(33.9)
(20.9)
(67.8)
(7.4)
(2.9)
(2.7)
(2.2)
(103.9)
(358.1)
81.8
1.2
–
103.7
29.0
(51.2)
82.7
(0.9)
81.8
13.5
1.2
28.0
62.0
47.9
2.2
2.5
157.3
53.2
55.1
0.2
0.2
56.0
164.7
322.0
(3.1)
(149.9)
(1.2)
(12.7)
(0.4)
–
(167.3)
(2.6)
(3.4)
(70.2)
–
(3.4)
–
(1.8)
(78.8)
(246.1)
75.9
1.1
–
103.7
5.3
(32.6)
77.5
(1.6)
75.9
2020
£m
28.2
15.8
29.3
64.7
87.9
0.6
4.5
231.0
72.7
137.4
–
1.0
6.9
218.0
449.0
–
(249.6)
(5.2)
(16.1)
(0.2)
(0.7)
(271.8)
(53.8)
(16.7)
(68.0)
(7.5)
(0.8)
(2.6)
(1.9)
(97.5)
(369.8)
79.7
1.2
–
103.7
21.9
(46.1)
80.7
(1.0)
79.7
Note
16
17
18
18
22
33
20
21
22
33
24
23
25
26
33
27
25
26
23
33
20
27
28
28
28
30
29
The financial statements of AO World Plc, registered number 05525751, on pages 144 to 195 were approved by the Board of Directors
and authorised for issue on 13 July 2020. They were signed on its behalf by:
John Roberts
CEO
AO World Plc
Mark Higgins
CFO
AO World Plc
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Consolidated statement of changes in equity
As at 31 March 2020
Other reserves
Share
capital
£m
Investment
in own
shares
£m
Share
premium
account
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
Share-
based
payments
reserve
£m
Translation
reserve
£m
Other
reserve
£m
Retained
losses
£m
Total
£m
Non-
controlling
interest
£m
Total
£m
Reported
Balance at
1 April 2018
Adjustment
on initial
application of
IFRS 16 (net of
tax)
Restated
Balance at
1 April 2018
Loss for the
period
Share-based
payment charge
net of tax
Issue of shares
net of expenses
Foreign currency
gains arising on
consolidation
Acquisition of
non-controlling
entity
At 31 March
2019 as
reported
Cumulative
adjustment
to opening
balance from
application of
IFRS 16 (net of
tax)
Restated
balance at
31 March 2019
Profit for the
period
Share-based
payment charge
net of tax
Issue of shares
net of expenses
Foreign currency
loss arising on
consolidation
Acquisition of
minority interest
Movement
between
reserves
Balance at
31 March 2020
1.1
–
1.1
–
–
–
–
–
1.2
–
1.2
–
–
–
–
–
–
1.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
103.7
4.4
0.5
9.1
(6.6)
(2.1)
(28.9) 81.2
(1.6)
79.6
–
–
103.7
4.4
–
–
–
–
–
–
–
17.8
–
–
–
0.5
–
–
–
–
–
–
9.1
–
4.0
–
–
–
–
–
(3.7)
(3.7)
–
(3.7)
(6.6)
(2.1)
(32.6)
77.5
(1.6)
75.9
–
–
–
2.4
–
–
–
–
–
(0.4)
(18.6)
(18.6)
0.5 (18.1)
–
–
–
–
4.0
17.8
2.4
–
–
–
4.0
17.8
2.4
(0.4)
0.3
(0.1)
103.7
22.2
0.5
13.1
(4.2)
(2.5)
(46.4) 87.5
(0.9) 86.6
–
–
–
–
–
-
(4.8)
(4.8)
-
(4.8)
103.7
22.2
0.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
103.7
22.2
0.5
13.1
–
2.0
–
–
–
(3.4)
11.7
(4.2)
(2.5)
(51.2) 82.7
(0.9) 81.8
1.7
1.7
(0.3)
1.4
–
–
–
–
(0.2)
–
–
–
(5.5)
–
–
–
–
–
–
2.0
–
(5.5)
(0.2)
–
–
–
2.0
–
(5.5)
0.2
–
–
–
–
3.4
–
(9.7)
(2.7)
(46.1) 80.7
(1.0)
79.7
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Consolidated statement of cash flows
For the year ended 31 March 2020
Cash flows from operating activities
Profit/(loss) for the year
Adjustments for:
Depreciation and amortisation
Finance income
Finance costs
Taxation charge/(credit)
Share-based payment charge
Increase in provisions
Operating cash flows before movement in working capital
Decrease/(increase) in inventories
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Total movement in working capital
Taxation refunded
Cash generated from/(used in) operating activities
Cash flows from investing activities
Acquisition of subsidiary (net of cash acquired)
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
Acquisition of non-controlling interest
Movement in bank overdraft
Net proceeds from new borrowings
Interest paid on borrowings
Interest paid on lease liabilities
Repayments of borrowings
Repayment of lease liabilities
Net cash (used in)/generated from financing activities
Net decrease in cash
Cash and cash equivalents at beginning of year
Exchange losses on cash and cash equivalents
Cash and cash equivalents at end of year
2019
£m
Note
2020
£m
Restated
(See note 36)
1.4
21.1
(10.9)
5.6
0.1
2.0
0.4
19.7
4.0
(29.5)
19.7
(5.8)
0.2
14.1
–
0.1
0.1
(6.9)
(1.1)
(7.9)
(0.5)
–
–
(1.5)
(3.7)
(6.4)
(16.2)
(28.2)
(22.1)
28.9
0.1
6.9
(18.1)
18.5
(2.6)
9.7
(2.1)
4.0
0.2
9.6
(16.3)
(10.4)
(4.5)
(31.2)
0.8
(20.8)
(5.9)
0.1
–
(4.2)
(0.5)
(10.5)
(0.4)
(3.1)
27.0
(0.2)
(4.2)
(1.2)
(13.7)
4.2
(27.0)
56.0
(0.1)
28.9
11
12
31
27
11
12
12
24
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Notes to the consolidated financial statements
For the year ended 31 March 2020
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
2020, and as such comply with Article 4 of the EU IAS regulation.
The address of the registered office is given on page 196. The
nature of the Group’s operations and its principal activities are
set out in Note 19 and in the Strategic report on pages 12 to 74.
These financial statements are presented in pounds sterling
(£m) as 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.
During the year, the Group has adopted the following new
accounting standards and interpretations for the first time.
•
•
IFRS 16 Leases.
IFRIC 23 Uncertainty over Income Tax Treatments.
• Annual Improvements to IFRS Standards 2015-2017 Cycle
(Amendments to IFRS 3, IFRS 7, IFRS 9, IFRS 11, IAS 12, IAS 23
and IAS 39).
Other than for IFRS 16 Leases, there has been no impact on the
financial statements as a result of the adoption of these new
accounting standards or interpretations. The detailed impact
of the adoption of IFRS 16 Leases is shown below.
Adoption of IFRS 16 Leases
The Group has applied IFRS 16 in these financial statements.
The standard replaces IAS 17 and sets out the principles for
the recognition, measurement, presentation and disclosure of
leases. The standard is mandatory for the accounting period
beginning on 1 April 2019 and the Group has opted to apply the
new standard using the full retrospective approach utilising
the practical expedient to not reassess whether a contract
contains a lease.
As such, the comparative figures in the financial statement for
the financial year ended 31 March 2019 have been restated as if
IFRS 16 had been applied at 1 April 2018.
The main effect on the Group is that IFRS 16 introduces a single
lessee accounting model and requires a lessee to recognise
assets and liabilities for almost all leases.
In addition, the two capitalisation exemptions proposed by
the standard – lease contracts with a lease term of less than 12
months and lease contracts for which the underlying asset has
a low value (on acquisition) – have been taken by the Company.
The payments for such leases will be recognized in the income
statement on a straight-line basis over the lease term.
The adoption of IFRS 16 has no impact on the operational
performance of the business and has no impact on the Group’s
cash and banking facilities (including any covenants attached
to its revolving credit facility).
AO World plc as a lessee
At inception, the Group assesses whether a contract is or
contains a lease. This assessment involves the exercise of
judgement about whether it depends on a specified asset,
whether the Group obtains substantially all the economic
benefits from the use of that asset and whether the Group has
the right to direct the use of the asset.
The Group recognises a Right of use (ROU) asset and a lease
liability at the lease commencement date. The ROU asset
is initially measured based on the present value of lease
payments plus any initial direct costs incurred and the costs of
obligations to refurbish the asset, less any incentives received.
The ROU asset is subsequently depreciated using the straight-
line method over the shorter of the lease term or the useful life
of the underlying asset. In addition, the ROU asset is subject to
testing for impairment if there is any indication of impairment.
The lease liability is initially measured at the present value of
the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the relevant Company’s
incremental borrowing rate. Generally, the Group uses the
incremental borrowing rate as the discount rate.
The lease liability generally includes fixed payments and
variable payments that depend on an index (such as an inflation
index). When the lease contains an extension or purchase option
that the Group considers reasonably certain to be exercised,
the cost of the extension or option is included in the lease
payments.
ROU assets are separately disclosed as a line in the balance
sheet. The corresponding lease liability is separately disclosed
as “lease liabilities” in both Current and Non-current liabilities.
The Group has classified the principal portion of lease
payments, as well as the interest portion, within financing
activities. Lease payments for short-term leases, lease
payments for leases of low-value assets and variable lease
payments not included in the measurement of the lease liability
are classified as cash flows from operating activities.
AO World plc as lessor
Where the Group is an intermediate lessor, it accounts for its
interests in the head lease and the sublease separately. It
assesses the lease classification of a sublease with reference
to the Right of use asset arising from the head lease, not with
reference to the underlying asset. If a head lease is a short-term
lease, then it classifies the sublease as an operating lease. The
Group recognises lease payments received under operating
leases as income on a straight-line basis over the lease term as
Other operating income. The Group has classified cash flows
from operating leases as operating activities.
As a result of the adoption of IFRS 16 the comparative financial
information has been restated. The effect of the restatement is
set out in detail in Note 36.
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149
Notes to the consolidated financial statements continued
For the year ended 31 March 2020
2. Adoption of new and revised standards continued
New accounting standards in issue but not yet
effective
New standards and interpretations that are in issue but not yet
effective are listed below:
•
Amendments to IAS 1 and IAS 8 Definition of Material.
• Amendments to IFRS 3 Definition of a Business.
• Amendments to References to the Conceptual Framework in
IFRS Standards.
The adoption of the above standards and interpretations is not
expected to lead to any changes to the Group’s accounting
policies or have any other material impact on the financial
position or performance of the Group.
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.
The present-access method is used to value the AO Recycling
Limited 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 to the Group financial statements. All subsidiaries apply
accounting policies which are consistent with those of the rest
of the Group.
150
AO World Plc
Annual Report and Accounts 2020
Going concern
Further information on our risks are shown pages 36 to 48.
Notwithstanding net current liabilities of £53.8m as at 31 March
2020, and a cash outflow for the year of £22.1m, the financial
statements have been prepared on a going concern basis which
the Directors consider to be appropriate for the following reasons.
The Group meets its day to day working capital requirements
from its cash balances and the availability of its revolving credit
facility
The Directors have prepared base and sensitised cash flow
forecasts for a period of at least 12 months from the date of
approval of these financial statements which indicate that
the Group will remain compliant with its covenants and will
have sufficient funds through its existing cash balances and
availability of funds from the new £80m Revolving Credit Facility
(of which £56.7m is currently undrawn) to meet its liabilities as
they fall due for that period. In assessing the going concern
basis, the Directors have taken into account reasonably
possible downsides including, e.g. a reduction in sales growth, a
reduction in margin, tightening of credit terms from suppliers
due to pressure from credit insurers and the potential impact
arising as a result of Covid-19, as well as considering potential
controllable mitigating factors.
In relation to Covid-19, management have considered the
impact of a short term closure of part of its warehousing
capacity in addition to the potential impact on customer
behaviour in respect of product protection plans and mobile
phone disconnections due to an increase in unemployment
post lockdown.
Consequently, the Directors are confident that the Group will
have sufficient funds to continue to meet its liabilities as they
fall due for at least 12 months from the date of approval of the
financial statements and therefore have prepared the financial
statements on a going concern basis.
Revenue recognition
IFRS 15 “Revenue from Contracts with Customers” is a principle-
based model of recognising revenue from customer contracts.
It has a five-step model that requires revenue to be recognised
when control over goods and services are transferred to the
customer. The following paragraphs (which align with the
disaggregation of revenue shown in Note 5) describe the types
of contracts, when performance obligations are satisfied, and
the timing of revenue recognition.
Product revenue
The Group operates through two main websites – AO.com and
AO.de – as well as operating sites for third parties. The AO.nl
website ceased trading during the year. All websites are for the
sale of electrical products. Revenue from the sale of goods is
recognised when a Group entity sells a product to the customer.
Payment of the transaction price is due immediately when the
customer purchases the product and takes delivery or in the
case of certain business to business transactions on credit
terms. Revenue from products is recognised when the product is
delivered.
It is the Group’s policy to sell its products to the end customer
with a right of return within 100 days. Therefore, a returns
liability (included in accruals) and a right to the returned
goods (included in other current assets) are recognised for the
products expected to be returned.
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Accumulated experience is used to estimate such returns at
the time of sale at a portfolio level (expected value method).
Because the number of products returned has been steady
for years, it is highly probable that a significant reversal in the
cumulative revenue recognised will not occur. The validity of
this assumption and the estimated amount of returns are
reassessed at each reporting date.
Service revenue
In addition to the sale of the product, the Group offers the
delivery, collection, connection and disposal of new and old
appliances. Revenue from these services is recognised in line
with when the product is delivered.
Commission revenue
Commission revenue principally relates to revenue received by
the Group in its role as agent/ broker for a third party. The two
principal sources are:
a. Product protection plans
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 & General and
the Group has no ongoing obligations following the sale of such
plans) is included within revenue based on the estimated 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 at the point of sale.
The amounts recognised take into consideration, amongst
other things, the length of the plan and the historical rate
of customer attrition and is discounted. Further details are
included in Note 4 and Note 22.
b. Network commissions
The Group – through AO Mobile Limited – operates under
contracts with a number of Mobile Network Operators (“MNO”).
Over the life of these contracts the service provided by the
Company is the procurement of connections to the MNO’s
network and the delivery of the handset to the end customer (of
which the total cost of sale is £106.6m). The individual consumer
enters into a contract with the MNO for the MNO to supply
the ongoing airtime over that contract period and with AO
Mobile Limited for the supply of the handset. The Group earns
a commission for the service provided to each MNO (“network
commission”).
The method of estimating the revenue and the associated
contract asset in the month of connection is to estimate all
future cash flows that will be received from the network and
discount these based on their timing of receipt. The determined
commission is recognised in full in the month of connection of
the consumer to the MNO as this is the point at which the Group
has completed the service obligation relating to the consumer
connection.
Commission revenue is only recognised to the extent it can
be reliably measured for each consumer. The level of network
commission earned is based on a share of the monthly
payments made by the consumer to the MNO. The total
consideration receivable is determined by both fixed (monthly
line rental) and variable elements (being out of bundle and out of
contract revenue share).
The Group recognises all of the fixed revenue share expected
over a consumer’s contract when a consumer is connected to
the MNO. This gives rise to a contract asset being recognised,
which is collected over the consumer’s contract.
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Estimating in advance variable elements of revenue is subject
to significant judgements and is dependent on consumer
behaviour after the point of recognition. The Group does
consider that the amount of out of bundle and out of contract
revenue can be measured reliably in advance for certain MNOs,
and therefore these revenues are recognised when a consumer
is connected to the MNO. For certain MNOs, where they are
not considered reliably measurable they are recognised in the
month received.
Logistics revenue
The Group provides third party logistics services to a number of
customers. Revenue from logistics is recognised on completion
of the delivery.
Recycling revenue
Revenue from the Recycling of used electrical products is
recognised at the point of sale to the end user.
Volume and marketing related expenditure
At the year end the Group is required to estimate supplier
income receivable due from annual agreements for volume
rebates, some of 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 (in product
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:
•
•
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 contract asset
in relation to product protection plans and network
commissions in excess of their previously recognised 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.
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AO World Plc
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151
Notes to the consolidated financial statements continued
For the year ended 31 March 2020
3. Significant accounting policies continued
Finance costs comprise:
• Movement in the valuation of the put and call options.
• Finance costs incurred on finance leases and Right of use
lease liabilities are recognised in the income statement using
the effective interest method.
• Financing costs of raising debt.
• Foreign exchange losses arising on financing (principally
intra-Group loans).
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair
value less attributable transaction costs. Subsequent to
initial recognition, interest-bearing borrowings are stated at
amortised cost using the effective interest method less any
impairment losses.
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
the goodwill 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.
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
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as short and medium-term business plans. The Directors
draw upon experience as well as external resources in making
these judgements.
Goodwill and 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
Amortisation method and rate
Domain names
Computer software
Marketing related assets
Customer lists
5 years straight-line
3 to 5 years straight-line
10 years straight-line
5 years straight-line
Amortisation methods, useful lives and residual values are
reviewed at each statement of financial position date.
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and accumulated impairment
losses.
Depreciation is recognised so as to write off the cost of
assets (other than freehold land and assets in the course of
construction) less their residual values over their useful lives on
the following bases:
Asset class
Depreciation method and rate
Property alterations
Fixtures,fittings and
plant and machinery
Motor vehicles
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 Computer
equipment 3 to 5 years straight–line
15% reducing balance or 3 to 5 years
straight-line
Leasehold property Depreciated on a straight-line basis
Office equipment
Freehold property
Assets held for
rental purposes
over the life of the lease
25 years straight-line
5 years straight-line
Freehold land and assets in the course of construction are
not depreciated.
The estimated useful lives, residual values and depreciation
method are reviewed at the end of each reporting year, with
the effect of any changes in estimate accounted for on a
prospective basis.
Assets held under finance leases are depreciated over their
expected useful lives on the same basis as owned assets.
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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.
Contract assets
Contract assets arising from sale of product protection plans
and network contracts are recognised in line with the revenue
recognition policies for commission revenue and are disclosed
as a contract asset within trade and other receivables.
It represents the right to consideration in exchange for the
service provided at the balance sheet date in relation to
revenue recognised for the commissions. While the revenue is
recognised at the point of sale, the cash receipts, which reduce
the contract asset, are received over time.
As the consideration is receivable over time but is conditional
on the behaviour of customers post provision of the service,
it is classified as a contract asset under IFRS 15 rather than a
receivable under IFRS 9.
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 (excluding contract assets), cash and cash
equivalents, loans and borrowings, trade and other payables,
and call and put options.
Trade and other receivables (excluding contract assets)
Trade and other receivables are recognised initially at fair
value. Subsequent to initial recognition they are measured at
amortised cost using the effective interest method, less any
allowance for expected credit losses.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand.
Trade and other payables
Trade and other payables are recognised initially at fair
value. Subsequent to initial recognition they are measured at
amortised cost using the effective interest method.
Contract liabilities
Contract liabilities are initially recognised within creditors
as payments on account and cashback liabilities at fair
value. Subsequent to initial recognition they are measured at
amortised cost.
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.
Leases
IFRS 16 Leases was adopted by the Group during the period.
Details of the group accounting policy on adoption can be
found in note 2.
Call and put options
The fair value of the call and put options (arising on the
acquisition of AO Recycling Limited) is 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.
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153
Notes to the consolidated financial statements continued
For the year ended 31 March 2020
3. Significant accounting policies continued
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.
Research and development credits are accounted for in
accordance with IAS 12. The credit is recognised once a
reasonable estimate of the amount can be made.
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 liability is recognised at the expected future tax
rate on the value of intangible assets with finite lives which are
acquired through business combinations representing the tax
effect of the amortisation of these assets in the future. These
liabilities will decrease in line with the amortisation of the related
assets with the deferred tax credits recognised in the Statement
of comprehensive income in accordance with IAS 12.
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.
Fair value is generally 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.
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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.
Alternative performance measures
The Group tracks a number of alternative performance
measures in managing its business. These are not defined
or specified under the requirements of IFRS because they
exclude amounts that are included in, or include amounts that
are excluded from, the most directly comparable measure
calculated and presented in accordance with IFRS, or are
calculated using financial measures that are not calculated
in accordance with IFRS. The Group believes that these
alternative performance measures, which are not considered
to be a substitute for or superior to IFRS measures, provide
stakeholders with additional helpful information on the
performance of the business. These alternative performance
measures are consistent with how the business performance
is planned and reported within the internal management
reporting to the Board. Some of these alternative performance
measures are also used for the purpose of setting remuneration
targets. These alternative performance measures should be
viewed as supplemental to, but not as a substitute for, measures
presented in the consolidated financial statements relating to
the Group, which are prepared in accordance with IFRS. The
Group believes that these alternative performance measures
are useful indicators of its performance.
EBITDA
EBITDA is defined by the Group as earnings before interest, tax,
depreciation, amortisation and profit/loss on the disposal of
fixed assets.
Adjusted EBITDA
Adjusted EBITDA is calculated by adding back or deducting
Adjusting items to EBITDA. Adjusting items are those items
which the Group excludes in order to present a further measure
of the Group’s performance. Each of these items, costs or
incomes is considered to be significant in nature and/or
quantum or are consistent with items treated as adjusting in
prior periods. Excluding these items from profit metrics provides
readers with helpful additional information on the performance
of the business across periods because it is consistent with how
the business performance is planned by, and reported to, the
Board and the Chief Operating Decision Maker.
The Adjusting Items for the current year are as follows:
• Closure costs of the Dutch operations: At the time of the
publication of our interim results in November 2019, the
Group announced the intention to close its operations in the
Netherlands. On 9 December 2019, the website was closed
and subsequent to that date management have worked
with suppliers, staff and the authorities to ensure an orderly
closure of the companies and this has been completed at 31
March 2020. Costs incurred between 9 December 2019 and 31
March 2020 of £2.5m have been treated as the cost of closure
of these operations and include the write-off of unsold stock,
redundancy payments for all staff and legal costs.
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In December 2017, the Group entered into a marketing
contract in Germany which was anticipated to generate
significant additional revenue. In the prior and current
financial years, the performance of this contract has been
reassessed due to significant losses being incurred and the
benefits expected from the contract not materialising. The
Group is however committed to the contract until December
2020 and while management are continuing to explore
routes to renegotiate the contract, it is clear that the cost
of fulfilling the contract over its life will significantly exceed
any benefit gained from it. In line with the treatment in FY19,
management have added back the full cost in the current
period of £1.3m (2019: £1.3m).
• Further to the actions disclosed in the 2019 financial
statements regarding a full review of the European business
following its unsatisfactory performance in the second half of
FY19, the Group has undertaken a restructure of its European
business. In addition to the closure of the Netherlands
operation (see above), costs of £0.9m were incurred, which
principally relates to a reduction in headcount in Germany.
• Following the signing of a new longer term contract with
Vodafone in October 2019, certain historic claims against
AO Mobile Limited (previously MobilePhonesDirect Limited)
were discharged and as a consequence provisions of £2.3m
were released into the income statement. As the provisions
had been created as part of the purchase price allocation
exercise on the acquisition of AO Mobile Limited, the charge
for these claims has never been recognised in the Group
income statement.
In the previous year, the Adjusting Items were:
• 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. These were outside of the normal share schemes
operated by the Group and due to their magnitude and
nature have been treated as an adjusting item. The options
vested in June 2019.
• Following the changes in Chief Executive Officer, the Group
undertook a restructure of its senior leadership team. The
cost of this restructure was £1.2m.
• The Company acquired AO Mobile Limited (previously
MobilePhonesDirect Limited) on 17 December 2018. Fees in
relation to the transaction were £1.6m.
Adjusted EBITDA (excluding Netherlands)
As a consequence of the closure of the Group’s Dutch business
during the period management have also disclosed the
Group’s Adjusted EBITDA, as defined above, excluding the
financial results of the Dutch business prior to its closure as it is
considered an appropriate measure of the continuing Group.
Pre IFRS 16 Leases EBITDA
As a consequence of the adoption of IFRS16 during the year, the
Group has shown an alternative measure of Adjusted EBITDA
(including and excluding the Netherlands) which removes the
impact of IFRS 16 to allow the reader to compare against the
prior year.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2020
4. 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.
Accounting standards require the Directors to disclosure those
areas of critical accounting judgement and key sources of
estimation uncertainty which carry a significant risk of causing
material adjustment to the carrying value of assets and
liabilities within the next 12 months. These are discussed below.
Impairment of intangible assets and goodwill
As part of the acquisition of MobilePhonesDirect Limited in the
prior year, the Group recognised amounts totalling £16.3m in
relation to the valuation of the intangible assets and £14.7m in
relation to residual goodwill.
Intangible assets are reviewed for impairment if events or
changes in circumstances indicate that the carrying amount
may not be recoverable. Goodwill is reviewed for impairment on
an annual basis. When a review for impairment is conducted, the
recoverable amount is determined based on the higher of value
in use and fair value less costs to sell. The value in use method
requires the Group to determine appropriate assumptions
(which are sources of estimation uncertainty) in relation to the
cash flow projections over the three-year strategic plan period,
the long-term growth rate to be applied beyond this three-year
period and the risk-adjusted pre-tax discount rate used to
discount the assumed cash flows to present value.
While at 31 March 2020, the Directors have concluded that the
carrying value of the intangibles and goodwill is appropriate
(after considering certain sensitivities which are set out in
Note 16), changes in any of these assumptions, which could be
driven by the end customer behaviour with the Mobile Network
Operators, could give rise to an impairment in the carrying value.
Other areas of estimation uncertainty
In addition to the specific areas noted above, while the
Directors do not believe that there is a significant risk of a
material adjustment to revenue in the next 12 months, they
believe that disclosure of the assumptions made in relation
to the recognition and assessment of the recoverability of
commissions from both product protection plans and mobile
network operator contracts is important for an understanding
of the financial statements.
The historical information available to the Group, and the
approach taken in calculating the revenue to recognise,
provides us with a high degree of confidence that the initial
revenue recognised would be consistent with the subsequent
receipt of cash.
The nature of the estimates made based on the historical
information available reflects a narrow range of reasonable
outcomes based on the facts and circumstances present at
the year end and so the revenue recognised is not based on
a possible range of outcomes which is expected could either
trigger a material downward future adjustment in that revenue
initially recognised or leave it possible that there could be a
material upward adjustment.
We do however continue to believe that the information
provided is useful for a reader of the Annual Report as it gives
some insight into factors behind the calculation of the relevant
revenue.
Revenue recognition and recoverability of income from
product protection plans
Revenue recognised in respect of commissions receivable over
the lifetime of the plan for the sale of product protection plans is
recognised in line with the principles of IFRS 15, when the Group
obtains the right to consideration as a result of performance of
its contractual obligations (acting as an agent for a third party).
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Revenue in any one year therefore represents an estimate of the
commission due on the plans sold, which management estimate
reliably based upon a number of assumptions, including:
• the length of the policies;
• the commission rates receivable;
• the historical rate of customer attrition; and
• the overall performance of the scheme.
Commission receivable also depends for certain transactions
on customer behaviour after the point of sale. Assumptions are
therefore required, particularly in relation to levels of customer
default within the contract period, expected levels of customer
spend, and customer behaviour beyond the initial contract
period. Such assumptions are based on extensive historical
evidence, and adjustment to the amount of revenue recognised
is made for the risk of potential changes in customer behaviour,
but they are nonetheless inherently uncertain, e.g. any change
in behaviour as a result of Covid-19.
Reliance on historical data assumes that current and future
experience will follow past trends. The Directors believe that
the quantity and quality of historical data available provides
an appropriate proxy for current and future trends. Any
information about future market trends or economic conditions
that we believe suggests historical experience would need to be
adjusted, is taken into account when finalising our assumptions
each year. Our experience over the last decade, which has
been a turbulent period for the UK economy as a whole, is that
variations in economic conditions have not had a material
impact on consumer behaviour and, therefore, no adjustment
to commissions is made for future market trends and economic
conditions.
In assessing how consistent our observations have been,
we compare cash received in a period versus the forecast
expectation for that period as we believe this is the most
appropriate check on revenue recognised. Small variations in
this measure support the assumptions made.
For plans sold prior to 1 December 2016, the commission rates
receivable are based on pre-determined rates. For plans sold
post that date, base assumed commissions will continue to
be earned on pre-determined rates but overall commissions
now include a variable element based on the future overall
performance of the scheme.
Changes in estimates recognised as an increase or decrease
to revenue may be made, where for example more reliable
information is available, and any such changes are required
to be recognised in the income statement. The commission
receivable balance as at 31 March 2020 was £81.2m (2019:
£74.7m). The discount rate used to unwind the commission
receivable is 4.6% (2019: 4.7%).
Revenue recognition and recoverability of income in
relation to network commissions
Revenue in respect of commissions receivable from the Mobile
Network Operators (“MNOs”) for the brokerage of network
contracts is recognised in line with the principles of IFRS 15,
when the Group obtains the right to consideration as a result of
performance of its contractual obligations (acting as an agent
for a third party).
Revenue in any one year therefore represents an estimate of
the commission due on the contracts sold, which management
estimate reliably based upon a number of assumptions,
including:
• Revenue share percentage – the percentage of the
consumer’s spend (to MNOs) to which MPD is entitled;
• Minimum contract period – the length of contract entered
into by the consumer;
• Consumer default rate – rate at which the consumers
disconnect from MNOs;
• Out of bundle spend – additional spend by the consumer
measured as a percentage of total spend (which currently
MPD considers can be measured reliably in advance for
certain MNOs); and
• Spend beyond the initial contract period – period of time
the consumer remains connected to the MNOs after the
initial contract term (which currently MPD consider can be
measured reliably in advance for certain MNOs).
The commission receivable on mobile phone connections can
therefore depend on customer behaviour after the point of sale.
The revenue recognised and associated receivable in the month
of connection is estimated based on all future cash flows that
will be received from the MNO and these are discounted based
on the timing of receipt.
This also takes into account the potential clawback of
commission by the MNOs for which a reduction is made in the
amount of revenue recognised based on historical experience.
The Directors consider that the quality and quantity of the
data available from the MNOs is appropriate for making these
estimates and, as the contracts are primarily for 24 months,
the period over which the amounts are estimated is relatively
short. As with commissions recognised on the sale of production
protection plans, the Directors compare the cash received to
the initial amount recognised in assessing the appropriateness
of the assumptions used.
The commission receivable balance as at 31 March 2020 was
£90.9m (2019: £76.3m). The discount rate used to unwind the
commission receivable is 2.75% (2019: 2.75%).
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Notes to the consolidated financial statements continued
For the year ended 31 March 2020
5. Revenue
The table below shows the Group’s revenue by main geographical area and major business area. All revenue is accounted for at a
point in time as the Group has satisfied its performance obligations on the sale of its products/services.
Major product/services lines
(£m)
Product revenue
Service revenue
Commission revenue
Third party logistics revenue
Recycling revenue
Total revenue
31 March 2020
Europe
140.7
3.4
0.2
–
0.2
144.5
UK
692.8
35.0
143.8
16.6
13.5
901.6
Total
833.5
38.3
144.0
16.7
13.6
1,046.2
31 March 2019
Europe
151.1
1.6
0.3
–
0.1
153.2
UK
628.4
30.1
61.2
15.3
14.3
749.3
Total
779.5
31.8
61.5
15.3
14.5
902.5
Details of the revenue in each category are set out in the accounting policies note on page 150.
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)
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 2020
UK
Europe
901.6
(724.3)
177.4
(153.2)
0.8
25.0
6.4
(4.9)
26.5
–
26.5
144.5
(143.6)
0.9
(30.1)
0.4
(28.8)
4.5
(0.7)
(25.0)
(0.1)
(25.1)
Total
1,046.2
(867.9)
178.3
(183.3)
1.2
(3.8)
10.9
(5.6)
1.5
(0.1)
1.4
31 March 2019
Restated (See note 36)
UK
749.3
(594.2)
155.1
(139.0)
0.6
16.7
2.6
(6.2)
13.0
1.6
14.7
Europe
153.2
(155.7)
(2.6)
(27.6)
0.4
(29.7)
–
(3.5)
(33.2)
0.4
(32.8)
Total
902.5
(750.0)
152.5
(166.6)
1.1
(13.0)
2.6
(9.7)
(20.2)
2.1
(18.1)
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.
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The reconciliation of statutory operating profit/(loss) to adjusted EBITDA is as follows.
Year ended (£m)
Operating profit excluding Netherlands
Netherlands Operating loss
Operating profit/(loss)
Depreciation
Amortisation
Loss/(profit) on disposal of
non-current assets
EBITDA excluding Netherlands
Netherlands EBITDA
EBITDA
Adjusting items (see Note 3):
Adjusting items excluding Netherlands
Netherlands Adjusting items
Total adjusting items
Adjusted EBITDA excluding Netherlands
Netherlands Adjusted EBITDA
Adjusted EBITDA
UK
25.0
–
25.0
15.8
2.2
2020
Europe
(23.5)
(5.2)
(28.8)
3.1
–
(0.1)
0.1
42.8
–
42.8
(2.0)
–
(2.0)
40.8
–
40.8
(20.4)
(5.1)
(25.5)
2.2
2.2
4.4
(18.2)
(3.0)
(21.1)
Total
1.4
(5.2)
(3.8)
18.9
2.2
–
22.4
(5.1)
17.3
0.2
2.2
2.4
22.6
(3.0)
19.6
UK
16.7
–
16.7
14.2
1.1
–
32.0
–
32.0
6.1
–
6.1
38.1
–
38.1
2019
Europe
Total
(25.0)
(4.7)
(29.7)
3.2
–
–
(21.9)
(4.6)
(26.5)
1.2
–
1.2
(20.7)
(4.6)
(25.3)
(8.3)
(4.7)
(13.0)
17.4
1.1
–
10.1
(4.6)
5.5
7.3
–
7.3
17.4
(4.6)
12.8
The table above separates the results of the ongoing Group from those of its Netherlands operation which closed during the year.
The Netherlands operation does not meet the requirement to be disclosed as a discontinued operation. However, the Directors
believe that the separate disclosure assists with the understanding of the overall Group performance in the year as well as providing
a comparator for the ongoing business in FY21.
To assist users of these financial statements in reconciling the above numbers to those reported in the 2019 Annual Report, the
table below removes the impact of IFRS 16 on Adjusted EBITDA to enable a like-for-like comparison. The result for the Netherlands
excludes amounts of £0.7m (2019: £0.6m) which relate to ongoing costs of the Group. These costs are therefore adjusted in arriving at
the Excluding Netherlands Adjusted EBITDA below.
Year ended (£m)
On Pre IFRS 16 Basis
Adjusted EBITDA as above
Less impact of IFRS 16
Adjusted EBITDA pre IFRS 16
Excluding Netherlands
Allocation of costs
Excluding Netherlands adjusted
Netherlands
Allocation of costs
Netherlands adjusted
2020
UK
Europe
40.8
(11.9)
28.9
28.9
–
28.9
–
–
–
(21.1)
(2.6)
(23.8)
(20.1)
(0.7)
(20.8)
(3.7)
0.7
(3.0)
Adjusted EBITDA pre IFRS 16
28.9
(23.8)
Total
19.6
(14.5)
5.2
8.8
(0.7)
8.1
(3.7)
0.7
(3.0)
5.2
UK
38.1
(10.7)
27.4
27.4
–
27.4
–
–
–
2019
Europe
(25.3)
(2.5)
(27.8)
(22.6)
(0.6)
(23.2)
(5.2)
0.6
(4.6)
27.4
(27.8)
Total
12.8
(13.2)
(0.4)
4.8
(0.6)
4.2
(5.2)
0.6
(4.6)
(0.4)
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Notes to the consolidated financial statements continued
For the year ended 31 March 2020
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
2020 (£m)
UK
Europe
2019 (£m) (restated)
UK
Europe
Intangible
assets
1.3
–
1.3
Intangible
assets
0.5
–
0.5
Additions
PP&E
8.3
0.2
8.5
Right of use
assets
13.0
1.3
14.3
Depreciation
Amortisation
15.8
3.1
18.9
2.2
–
2.2
Additions
PP&E
4.7
0.1
4.8
Right of use
assets
Depreciation
Amortisation
11.2
0.7
11.9
14.2
3.2
17.4
1.1
–
1.1
Profit on
disposal
(0.1)
0.1
-
Profit on
disposal
–
–
–
In the previous year, intangible and tangible fixed assets (including Right of use assets) of £17.0m were acquired with AO Mobile
Limited.
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.
7. Administrative expenses
Marketing and advertising
expenses
Warehousing expenses
Research and Development
Other administrative expenses
* Restated (See note 36)
2020
£m
29.8
42.5
9.3
101.7
183.3
2019
£m *
28.2
37.0
6.9
94.5
166.6
8. Operating loss for the year
Operating loss for the year has been arrived at after charging/
(crediting):
Depreciation of:
Owned assets
Right of use assets
Assets held under finance leases
Amortisation
Cost of inventory
Staff costs
Other operating income from
short-term sublets
Adjusting items (see Note 3)
Acquisition costs
Executive restructuring costs
Netherlands closure costs
Provision release
Share-based payments charge
attributable to exceptional LTIP
awards
Onerous contract costs
* Restated (See note 36)
2020
£m
4.0
12.2
2.7
2.2
755.7
114.4
2019
£m *
3.9
11.0
2.5
1.1
665.6
105.1
(1.2)
(1.1)
–
0.9
2.5
(2.3)
-
1.3
2.6
1.2
–
–
2.3
1.2
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2020
£m
2019
£m
6.0
1.9
2.9
0.1
10.9
–
0.2
2.3
0.1
2.6
2020
£m
2019
£m *
3.7
0.6
–
0.3
0.1
0.9
5.6
4.2
0.2
3.0
0.2
1.8
0.3
9.7
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Adjusting items are included in the income statement as follows:
11. Finance income
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit
2020
£m
(2.6)
2.4
(0.2)
2.6
2.4
2019
£m
–
1.2
1.2
6.0
7.2
Foreign exchange gains on intra-
Group loans
Movement in valuation of put and
call option
Unwind of discounting on non-
current contract assets
Other interest
9. Auditor’s remuneration
The analysis of the Auditor’s remuneration is as follows:
2020
£m
2019
£m
12. Finance costs
Interest on lease liabilities
Interest on bank loans
Foreign exchange losses on
intra-Group loans
Unwind of discounting on
long-term payables
Movement in valuation of put and
call option
Other finance costs
* Restated (See note 36)
Fees payable to the Company’s
Auditor and their associates for
the audit of the Company’s annual
accounts
Fees payable to the Company’s
Auditor and their associates for
other services to the Group
• the audit of the Company’s
subsidiaries
Total Auditor’s remuneration
0.1
0.1
0.5
0.6
0.3
0.4
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 were safeguarded are set out in the Audit Committee
Report on page 97. No services were provided on a contingent
fee basis.
Non-audit fees of £45,000 were also incurred in relation to the
review of the interim financial statements (2019: £40,000) and,
in the year ended 31 March 2019, £30,000 in relation to work
performed on the acquisition of MobilePhonesDirect Limited.
10. Staff numbers and costs
The average monthly number of employees (including Directors)
was:
Sales, marketing and distribution
Directors (Executive and Non-
Executive)
2020
Number
3,219
8
3,227
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Contributions to defined
contribution plans (see Note 33)
Share-based payment charge
(see Note 31)
2020
£m
97.6
9.4
5.0
2.0
114.1
2019
Number
3,110
9
3,119
2019
£m
89.5
9.1
4.9
4.0
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161
Notes to the consolidated financial statements continued
For the year ended 31 March 2020
2020
£m
2019
£m *
15. Earnings/(loss) per share
The calculation of the basic and diluted earnings/(loss) per
share is based on the following data:
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 charge/(credit)
* Restated (See note 36)
0.1
–
0.1
1.0
(1.0)
0.1
0.2
–
0.2
(2.0)
(0.3)
(2.1)
The expected corporation tax charge for the year is calculated
at the UK corporation tax rate of 19% (2019: 19%) on the profit
before tax for the year. Taxation for other jurisdictions is
calculated at the rates prevailing in the respective jurisdictions
in which the Group operates.
The Group has recognised deferred tax in relation to UK
companies at 19%. The charge for the year can be reconciled to
the profit in the statement of comprehensive income as follows:
Year ended 31 March
Profit/(loss) before tax on
continuing operations
Tax at the UK corporation tax rate
of 19% (2019: 19%)
Ineligible expenses
R & D tax credit
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
2020
£m
1.5
0.3
0.3
–
(0.3)
1.5
(0.2)
(1.5)
1.0
(1.0)
0.1
2019
£m
(20.2)
(3.8)
1.6
0.2
(0.3)
–
0.1
–
0.4
(0.3)
(2.1)
14. Dividends
The Directors do not propose a dividend for the year ended
31 March 2020 (2019: £nil).
Profit/(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
Earnings/(loss) per share (pence
per share)
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
* Restated (See note 36)
2020
£m
2019
£m *
1.7
(18.6)
472,462,309
4,857,812
463,153,515
6,447,240
477,320,121
469,600,755
0.38
0.37
(4.00)
(4.00)
In the previous year, as the potentially dilutive shares do not
result in a reduction a loss per share, the diluted loss per share
has been restricted to the basic loss per share.
The basic earnings/(loss) per share is affected by significant
foreign exchange movements arising from intra-Group funding
arrangements therefore an adjusted basic earnings/(loss)
per share has been calculated below excluding this impact as
management believe it provides helpful additional information
for stakeholders in assessing the performance of the business.
The foreign exchange movement has arisen as a result of the
change in the exchange rate between sterling and the euro in
the period.
Management do not adjust for all the items included in the
Adjusted EBITDA alternative performance measure as when
considering these significant items impacting profit/ (loss)
before tax from one period to the next, significant foreign
exchange movements arising from intra-group funding has the
largest impact.
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Year ended 31 March
Earnings/(loss)
Profit/(loss) attributable to owners
of the parent company
(Reduction)/add back of foreign
exchange movements
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
Earnings/(loss) per share
(in pence)
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Adjusted loss per share
16. Goodwill
2020
£m
2019
£m *
1.7
(18.6)
(6.0)
(4.3)
3.0
(15.5)
472,462,309
4,857,812
463,153,515
6,447,240
477,320,121
469,600,755
0.38
0.37
(0.91)
Carrying value at 31 March 2018
Additions
Carrying value as reported at 31 March 2019
Adjustment in hindsight period
Carrying value as restated at 31 March 2019
Carrying value at 31 March 2020
(4.00)
(4.00)
(3.36)
£m
13.5
14.1
27.6
0.6
28.2
28.2
Historical 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).
The movement in the previous year represented the residual
goodwill on the acquisition of MobilePhonesDirect Limited (now
AO Mobile Limited) by AO Limited.
As set out in Note 36 the balance sheet at 31 March 2019
has been restated to reflect the final changes to the assets,
liabilities and subsequent goodwill arising from the acquisition
of MobilePhonesDirect Ltd (now AO Mobile Limited) in December
2018. This has had the impact of increasing goodwill by £0.6m.
Impairment of goodwill
UK CGU - £13.5m
At 31 March 2020, goodwill acquired through UK business
combinations (excluding MobilePhonesDirect Limited) 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
2020. 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 estimate discount rates using pre-tax rates that
reflect current market assessments of the time value of money
and the risks specific to this CGU. In arriving at the appropriate
discount rate to use, we adjust the CGU’s post-tax weighted
average cost of capital to reflect the impact of risks and tax
effects specific to the cash flows. The weighted average pre-tax
discount rate we used was approximately 9.1% (2019: 9.1%).
The key assumptions, which take account of historic
trends, upon which management have based their cash flow
projections are sales growth rates, selling prices and
product margin.
Management do not believe that any reasonable possible
sensitivity would result in any impairment to this goodwill.
MobilePhonesDirect Limited - £14.7m
The Group has assessed the goodwill arising on the acquisition
of MobilePhonesDirect Limited in December 2018. This was
performed based on a value in use calculation in the same
way as for the UK business noted above but using a weighted
average cost of capital appropriate for MPD as a standalone
business of 11.7% (2019: 13.4%).
The total recoverable amount in respect of goodwill for this CGU
group is greater than the carrying value by £24.4m. The main
assumptions underlying the value in use calculation are revenue
growth, gross margin and the discount rate. The Directors have
performed sensitivity analysis on the numbers included in
the three year strategic plan for the business in assessing the
value in use. Revenue in FY21-FY23 is on average £169m and
would need to reduce by c23% in each year, the gross margin
percentage in FY21-FY23 is on average 6.6% and would need
to reduce by 1.5% and the discount rate of 11.7% would need
to increase in excess of 8% (with all other inputs remaining the
same) for the recoverable amount to be equal to its carrying
value. For this reason this area of estimation uncertainty set
out in note 4.
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Notes to the consolidated financial statements continued
For the year ended 31 March 2020
17. Other intangible assets
Cost
At 1 April 2018
Acquired with subsidiary
Additions
At 31 March 2019
Additions
Disposals
At 31 March 2020
Amortisation
At 1 April 2018
Charge for the year
At 31 March 2019
Charge for the year
Disposals
At 31 March 2020
Carrying amount At 31 March 2020
At 31 March 2019
Domain
names
£m
Software
£m
Marketing
related
assets
£m
Customer
lists
£m
1.4
–
–
1.4
0.1
–
1.5
1.0
0.1
1.1
–
–
1.1
0.3
0.3
2.4
1.1
0.5
4.0
1.2
(0.3)
4.9
1.6
0.5
2.1
0.7
(0.2)
2.7
2.2
1.8
–
14.8
–
14.8
–
–
14.8
–
0.5
0.5
1.4
–
1.9
12.9
14.3
–
0.4
–
0.4
–
–
0.4
–
–
–
0.1
–
0.1
0.4
0.4
Total
£m
3.8
16.3
0.5
20.6
1.3
(0.3)
21.6
2.6
1.1
3.7
2.2
(0.2)
5.7
15.8
16.9
Amortisation is charged to Administrative costs in the consolidated income statement.
Intangible assets acquired with subsidiary in the prior year were based on an external valuation and represent marketing related,
customer related and technology related assets recognised on the acquisition of MobilePhonesDirect Limited in December 2018.
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18. Property, plant and equipment
Land and
buildings
£m
Assets in the
course of
construction
£m
Property
alterations
£m
Fixtures,
fittings,
plant and
machinery
£m
Motor
vehicles
£m
Computer
and office
equipment
£m
Assets held
for
rental
purposes
£m
Owned assets
Cost
At 1 April 2018
Additions
Acquired with subsidiary
(see Note 35)
Disposals
Exchange differences
At 31 March 2019
Additions
Reclassification from
Prepayments
Disposals
Exchange differences
At 31 March 2020
Accumulated depreciation
At 1 April 2018
Charge for the year
Disposals
At 31 March 2019
Charge for the year
Disposals
At 31 March 2020
Carrying amount
At 31 March 2020
At 31 March 2019 restated
3.3
(0.1)
–
–
(0.1)
3.1
0.2
–
–
0.1
3.3
0.4
0.1
–
0.5
0.4
–
0.9
2.4
2.4
–
0.8
–
–
–
0.8
3.6
0.8
–
–
5.2
–
–
–
–
–
–
–
5.2
0.8
12.6
0.8
0.2
–
–
13.5
0.9
–
–
–
14.4
3.8
1.4
–
5.2
1.2
–
6.4
7.9
8.6
11.9
1.3
–
–
–
13.2
1.5
–
(0.2)
–
14.5
3.9
0.6
–
4.5
1.5
(0.2)
5.9
8.7
8.5
11.0
0.8
–
(0.3)
–
11.5
0.9
–
(0.3)
–
12.1
4.3
2.6
(0.3)
6.6
2.1
(0.3)
8.4
3.7
4.9
7.4
1.3
–
(0.1)
–
8.7
1.1
–
(0.2)
–
9.6
5.8
1.6
(0.1)
7.3
1.3
(0.1)
8.4
1.1
1.4
Total
£m
46.2
4.8
0.2
(0.4)
(0.1)
50.8
8.5
0.8
(0.7)
0.1
59.4
18.2
6.4
(0.4)
24.2
6.6
(0.6)
30.1
–
–
–
–
–
–
0.3
–
–
–
0.3
–
–
–
–
–
–
–
0.3
–
29.3
26.5
At 31 March 2020, the net carrying amount of leased plant and machinery included above was £10.1m (2019: £8.7m). The leased
equipment secures lease obligations (see Note 26).
From 31 March 2019, the Group has adopted IFRS 16 Leases (see Notes 2 and 36). Right of use assets recognised are reflected in the
following asset classes:
Right of use assets
Cost
At 1 April 2018
Additions
Acquired with subsidiary (see Note 35)
Exchange differences
At 31 March 2019
Additions
Disposals
Exchange differences
At 31 March 2020
Accumulated depreciation
At 1 April 2018
Charge for the year
At 31 March 2019
Charge for the year
Disposals
At 31 March 2020
Carrying amount
At 31 March 2020
At 31 March 2019
Land and
buildings
£m
Motor
vehicles
£m
Computer
equipment
£m
69.4
7.7
0.5
(0.2)
77.4
9.1
(1.0)
0.4
85.8
17.0
6.6
23.7
7.1
(0.2)
30.6
55.3
53.7
11.6
3.3
–
–
14.8
5.2
–
–
20.0
2.0
4.2
6.2
4.9
–
11.1
8.9
8.6
–
1.0
–
–
1.0
–
–
–
1.0
–
0.1
0.1
0.2
–
0.4
0.6
0.9
Total
£m
81.0
11.9
0.5
(0.2)
93.2
14.3
(1.0)
0.4
106.8
19.0
11.0
30.0
12.2
(0.2)
42.0
64.7
63.1
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The expense relating to short term leases and low value assets included within the Income Statement amounted to £0.1m (2019: £0.1m).
At 31 March 2020, the Group was not committed to any leases which had not yet commenced (2019: nil).
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Notes to the consolidated financial statements continued
For the year ended 31 March 2020
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 2020.
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
AO Recycling Limited
WEEE Collect It Limited
WEEE Re-use It Limited
Electrical Appliance Outlet
Limited
MobilePhonesDirect Limited
AO Mobile Limited
BERE Limited
AO Business Limited
AO B2B Limited
AO Trade Limited
AO Rental Limited
AO Care Limited
AO Premium Care Limited
AO Club Limited
AO Distribution Limited
AO Logistics Limited
Principal place of
business
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Germany
United Kingdom
Belgium
Netherlands
Netherlands
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Jersey
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Class of shares held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Proportion of ownership
interests and voting rights
held by AO World Plc
100%†
100%†
100%
100%
100%
100%‡
100%
99.99%*
100%
100%
74.4%
100%
100%
100%
Ordinary
Ordinary
Ordinary and
redeemable preference
100%
100%†
100%
Principal activity
Retail
Logistics and transport
Holding company
Retail
Holding company
Retail
Holding company
Dormant
Retail
Logistics and transport
WEEE recycling
Dormant
Dormant
Retail
Dormant
Retail
Investment company
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
All companies within the Group are registered at the same address disclosed on page 196 apart from BERE Ltd, AO.NL BV, AO
Logistics (Netherlands) BV and AO.BE SA who are registered at the addresses listed below.
BERE Ltd
44 Esplanade
St Helier
Jersey
JE4 9WG
AO.NL BV
AO Logistics (Netherlands) BV
AO.BE SA
Nijverheidsweg
33
Utrecht
The Netherlands
Nijverheidsweg
33
Utrecht
The Netherlands
Naamloze Vennootschap
Esplanade
Heysel 1
Bus 94
1020
Brussels
*
†
‡
0.01% of the investment in AO.BE SA is owned by AO Deutschland Limited.
Indirectly owned through AO Limited.
Indirectly owned through Worry Free Limited (50%) and Appliances Online Limited (50%).
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20. Deferred tax
The following is the asset recognised by the Group and movements thereon during the current and prior reporting year.
Share
options
£m
Accelerated
depreciation
£m
Short-term
timing
difference
£m
Intangible
fixed assets
£m
Transitional
relief on IFRS
16 adoption
£m
Losses and
unused tax
relief
£m
Total
£m
Restated
At 1 April 2018
Acquired with subsidiary
(see Note 36)
Credit to income statement
(Debit)/credit to reserves
At 31 March 2019
(Debit)/credit to income statement
At 31 March 2020
0.9
–
0.4
(0.1)
1.2
(0.4)
0.8
0.6
–
0.2
–
0.8
0.7
1.5
0.2
–
0.1
–
0.3
–
0.3
–
(2.7)
–
–
(2.7)
0.1
(2.6)
0.8
–
0.2
-
1.0
–
0.9
–
–
1.4
–
1.4
(0.4)
1.0
The above are disclosed as follows in the statement of financial position:
Deferred tax asset
Deferred tax liabilities
Net deferred tax
2.5
(2.7)
2.3
(0.1)
2.0
–
2.0
4.5
(2.6)
2.0
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 £7.4m (2019: £5.4m) in respect of unused losses carried forward.
21. Inventories
Finished goods
2020
£m
72.7
2019
£m
76.3
Included within inventories are stock provisions of £0.5m (2019:
£1.1m).
22. Trade and other receivables
Trade receivables
Contract assets
Prepayments and accrued income
Other receivables
2020
£m
20.5
172.1
29.7
3.0
225.3
* Restated (See note 36).
The trade and other receivables are classified as:
Non-current assets
Current assets
2020
£m
87.9
137.4
225.3
2019
£m*
12.9
151.1
26.5
3.4
193.9
2019
£m*
79.4
114.5
193.9
All of the amounts classified as Non-current assets relate to
contract assets.
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167
Notes to the consolidated financial statements continued
For the year ended 31 March 2020
22. Trade and other receivables continued
Contract assets
Contract assets principally represents the expected future
commission receivable in respect of product protection plans
and mobile phone connections. As set out in Note 4, the Group
recognises revenue in relation to these plans and connections
when it obtains the right to consideration as a result of
performance of its contractual obligations (acting as an agent
for a third party). Revenue in any one year therefore represents
the estimate of the commission due on the plans sold or
connections made.
The reconciliation of opening and closing balances for contract
assets is shown below:
Balance brought forward
Acquisition of subsidiary
Revenue recognised *
Cash received
Revisions to estimates
Unwind of discounting
Balance carried forward
2020
£m
151.1
–
153.8
(134.7)
(0.7)
2.6
172.1
2019
£m
Restated
61.6
76.6
54.6
(48.0)
3.9
2.3
151.1
* Revenue recognised is gross, that is excluding the deduction
of cashback payments, which are deducted from revenue in the
Income Statement but are shown as contract liabilities in the
Statement of Financial Position.
Product protection plans
Under our arrangement with Domestic & General (“D&G”),
the Group receives commission in relation to its role as agent
for introducing its customers to D&G and as set out in the
accounting policies in Note 3 recognises revenue at the point of
sale as it has no future obligations following this introduction.
A discounted cash flow methodology is used to measure the
estimated value of the revenue and contract assets in the
month of sale of the relevant plan, by estimating all future
cash flows that will be received from D&G and discounting
these based on the expected timing of receipt. Subsequently,
the contract asset is measured at the present value of the
estimated future cash flows.
The key inputs into the model which forms the base case for
management’s considerations are:
• the contractually agreed margins which differ for each
individual product covered by the plan as is included in the
agreement with D&G;
• the number of plans based on information provided by D&G
(See below);
• the discount rate using external market data - 4.6% (2019:
4.7%);
• historic rate of customer attrition which uses actual
cancellation data for each month since the start of the plans
in 2008 to form an estimate of the cancellation rates to use
by month going forward (Range of 0% to 10.7% weighted
average cancellation by month);
• the estimated length of the plan based on historical data
plus external assessments of the potential life of products (5
to 16 years); and
• the estimate of profit share relating to the scheme as a whole
based on information provided by D&G.
The last three inputs are estimated based on extensive
historical evidence obtained from our own records and from
D&G. The Group has accumulated historical empirical data over
the last 13 years from circa 2.0 million plans which have been
sold. Of these, 0.8 million are live.
Applying all the information above, management calculate
their initial estimate of commission receivable. Consideration
is then given to other factors outside of the historical data
noted above which could impact the valuation. This primarily
considers the reliance on historical data as this assumes that
current and future experience will follow past trends. There is
therefore a risk that changes in consumer behaviour reduce
or increase the total cash flows ultimately realised over the
forecast period. Management make a regular assessment
of the data and assumptions with a detailed review at half
year and full year to ensure this continues to reflect the best
estimate of expected future trends.
As set out in Note 4, the Directors do not believe there is
a significant risk of a material adjustment to the revenue
recognised in relation to these plans over the next 12 months.
The sensitivity analysis below is disclosed as we believe it
provides useful insight to the users of the financial statements
into the factors taken into account when calculating the
revenue to be recognised. The table shows the sensitivity of the
carrying value of the commission receivables and revenue to a
reasonably possible change in inputs to the discounted cash
flow model over the next 12 months.
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Sensitivity
25% reduction in terminal drop off
rate after actual data available
10% increase in terminal drop off
rate after actual data available
Cancellations increase by 1%
Cancellation rate reduces by 0.5%
Impact on
contract
asset
£m
Impact on
revenue
£m
1.1
(0.4)
(0.8)
0.6
1.1
(0.4)
(0.8)
0.6
Terminal drop off rate – cancellations
The total expected life length of the average plan is dependent
on an estimated end of life cancellation. Due to having less
empirical data, management accelerated the drop off rate of
cancellations beyond the period for which there is actual data
as inherently there is a greater degree of judgement required.
The drop off rate assumptions used by management have not
changed during the year albeit over the past year there has
been a 25% improvement in the terminal drop off rate. As the
amount of data beyond the period is limited, no adjustment has
been to the assumption in the model. However, we believe it is
more likely that there would be an improvement in the terminal
drop off rate.
Cancellations
The number of cancellations and therefore the cancellation
rate can fluctuate based on a number of factors. These
include macro economic changes e.g. unemployment but will
also reflect the change in nature of the plan itself (insurance
plan versus service plan). The impact of reasonable potential
changes are shown in the sensitivities above.
Other areas
Sensitivities related to changes in margins have not been
included due to the extensive amount of historical data our
valuation assumptions are based on and the fact that the
data is based on actual prices changed by D&G. Any change
in price of a plan would need to be agreed between D&G and
AO and we consider therefore the likelihood of any significant
impact related to changes in price and hence margin is remote;
therefore, no sensitivity has been included.
Network commissions
The Group operates under contracts with a number of Mobile
Network Operators (“MNOs”). Over the life of these contracts the
service provided by the Group to each MNO is the procurement
of connections to the MNO’s networks. The individual consumer
enters into a contract with the MNO for the MNO to supply the
ongoing airtime over that contract period. The Group earns
a commission for the service provided to each MNO (“network
commission”). Revenue is recognised at the point the individual
consumer signs a contract with the MNO. Consideration from
the MNO becomes receivable over the course of the contract
between the MNO and the consumer. The Group has determined
that the number and value of consumers provided to each MNO
in any given month represents the measure of satisfaction of
each performance obligation under the contract.
A discounted cash flow methodology is used to measure the
estimated value of the revenue and contract assets in the
month of connection, by estimating all future cash flows that
will be received from the MNOs and discounting these based
on the expected timing of receipt. Subsequently, the contract
asset is measured at the present value of the estimated future
cash flows.
The key inputs to management’s base case model are:
•
revenue share percentage, i.e. the percentage of the
consumer’s spend (to the MNO) to which the Group is entitled;
• the discount rate using external market data - 2.75% (2019:
2.75%);
• the length of contract entered into by the consumer (12 to 24
months);
• consumer default rate – rate at which consumers disconnect
from the MNO (0% - 5%); and
• spend beyond the initial contract period – period of time the
consumer remains connected to the MNO after the initial
contract term.
The last three inputs are estimated based on extensive
historical evidence obtained from the networks, and adjustment
is made for the risk of potential changes in consumer behaviour.
Applying all the information above, management calculate
their initial estimate of commission receivable.
Consideration is then given to other factors outside of the
historical data noted above which could impact the valuation.
This primarily considers the reliance on historical data as this
assumes that current and future experience will follow past
trends. There is therefore a risk that changes in consumer
behaviour reduce or increase the total cash flows ultimately
realised over the forecast period. Management make a regular
assessment of the data and assumptions with a detailed review
at half year and full year to ensure this continues to reflect the
best estimate of expected future trends.
As set out in Note 4, the Directors do not believe there is
a significant risk of a material adjustment to the revenue
recognised in relation to the networks over the next 12 months.
The sensitivity analysis below is disclosed as we believe it provides
useful insight to the users of the financial statements by giving
insight into the factors taken into account when calculating
the revenue to be recognised. The table shows the sensitivity of
the carrying value of the commission receivables, revenue and
finance income to a reasonably possible change in inputs to the
discounted cash flow model over the next 12 months.
Sensitivity
1.5% increase in contractual
entitlements
1% increase in the default rate
Impact on
contract asset
£m
Impact on
revenue
£m
0.7
(0.9)
0.7
(0.9)
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169
Notes to the consolidated financial statements continued
For the year ended 31 March 2020
Contract entitlement
Additional contract entitlement includes Out of bundle and
Out of contract revenue together with annual increases for RPI.
Out of bundle/ Out of contract revenue is recognised when the
Group has sufficient historical data to estimate the behaviour of
the end customer outside of the normal terms of the contract.
In the majority of cases this revenue is recognised on the receipt
of cash due to its variable nature. With certain MNO’s as further
information is considered there is a reasonable probability
that this source of revenue may become more predictable.
The sensitivity above is based on the amount of revenue being
recognised at the point of sale rather than on receipt as the
Group gains more information.
Default rate
The revenue recognised considers amongst other things
the length of the contract, the revenue share agreed with
the networks and the default/cancellation rates of the end
customers. The majority of contracts are for upto 2 years and,
dependent on the network, the Group estimates revenue share
at between 21 and 24 months based on historical information.
Whilst the above restriction on the months recognised, together
with the estimated clawback provision for contracts cancelled
in the early months gives management a reasonable basis on
which to recognise revenue, the sensitivity above represents a
reasonable possible adjustment should cancellations increase.
However, with the restricted recognition of out of bundle and out
of contract revenue, management believe that the total amount
of revenue recognised remains appropriate.
Prepayments and accrued income
At 31 March 2020, there is £11.6m (2019: £11.1m) included in
prepayments and accrued income in relation to volume rebates
receivable. The amounts are largely coterminous and are mainly
agreed in the month after recognition.
At 31 May 2020, the balance outstanding was £2.7m
(2019: £3.0m).
23. Trade and other payables
Trade payables
Accruals
Contract liabilities
Deferred income
Other payables
2020
£m
139.6
23.1
61.5
15.2
17.6
257.1
2019
£m*
140.9
17.9
55.9
8.2
14.3
237.2
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. The
average credit period taken for trade purchases is 52 days
(2019: 58 days).
Contract liabilities includes payments on account from Mobile
Network Operators where there is no right of set off with the
contract asset and cashback liabilities due to the end customer
(see note 27).
The trade and other payables are classified as:
Current liabilities
Long-term liabilities
* Restated (See note 36)
24. Net debt
Cash and cash equivalents at
year end
Borrowings – Repayable within
one year
Borrowings – Repayable after
one year
Lease liabilities – Repayable
within one year
Lease liabilities – Repayable
after one year
Net debt
* Restated (See note 36)
2020
£m
249.6
7.5
257.1
2020
£m
6.9
(5.2)
(16.7)
(16.1)
(68.1)
(99.1)
2019
£m*
229.8
7.4
237.2
2019
£m*
28.9
(9.5)
(20.9)
(14.3)
(67.8)
(83.5)
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24. Net debt continued
Movement in financial liabilities in the year was as follows:
Balance at 1 April 2019
Changes from financing cash flows
Repayment of borrowings
Payment of interest
Repayment of lease liabilities
Total changes from financing cash flows
Other changes
New lease liabilities
Reclassification of debt
Reassessment of lease term
Interest expense
Exchange difference
Total other changes
Balance at 31 March 2020
Balance at 1 April 2018
Changes from financing cash flows
Proceeds from loans
Repayment of borrowings
Payment of interest
Repayment of lease liabilities
Total changes from financing cash flows
Other changes
New lease liabilities
Leases acquired on acquisition of subsidiary
Interest expense
Exchange difference
Total other changes
Balance at 31 March 2019
Borrowings
£m
30.4
Lease
liabilities
£m
82.0
(6.4)
(0.6)
–
(7.0)
–
(2.0)
–
0.6
–
(1.4)
21.9
–
(3.7)
(16.2)
(19.9)
16.8
2.0
(1.0)
3.7
0.4
22.0
84.1
Borrowings
£m
4.6
Lease
liabilities
£m
82.9
27.0
(1.2)
(0.2)
–
25.6
–
–
0.2
–
0.2
30.4
–
–
(4.2)
(13.6)
(17.9)
12.6
0.5
4.2
(0.3)
17.1
82.0
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AO World Plc
Annual Report and Accounts 2020
171
Notes to the consolidated financial statements continued
For the year ended 31 March 2020
25. Borrowings
Secured borrowing at amortised cost
Bank loans
Amount due for settlement within 12 months
Amount due for settlement after 12 months
2020
£m
21.9
5.2
16.7
21.9
2019
£m
30.4
9.5
20.9
30.4
At 31 March 2020, AO Limited, a direct subsidiary of AO World Plc, had undrawn amounts on its Revolving Credit Facility of £56.7m
(2019: £56.1m). The total facility is £60m. The amount drawn at the year end was in relation to letters of credit (£2.3m) and payment
guarantees (£1.0m). The Revolving Credit Facility was due to expire in June 2021.
During the previous year, AO Limited entered into a term loan agreement under which it borrowed £24m to partly fund the
acquisition of MobilePhonesDirect Limited. This is repayable in quarterly instalments starting on 1 April 2019 with a final repayment
date in June 2021 in line with the Revolving Credit Facility noted above. At 31 March 2020, £20m was outstanding.
In addition, AO Recycling Limited entered into £3m term loan to part fund the capital expenditure required for the development of
its new Plastics Plant. During the current year £2.0m of the loan has been converted into finance leases. Following the year end the
remaining £1.0m was repaid in full.
On 6 April 2020, AO Limited entered into a new Revolving Credit Facility of £80m. This replaced the existing revolving credit facility
and the term loan. At 6 April 2020 £56.7m was available under the facility with the drawn amounts relating to letters of credit and
payment guarantees. The facility expires in April 2023 and is secured by a debenture over the assets of the relevant companies, a
charge over the shares in the relevant companies and a charge over the AO.com domain name
26. Lease liabilities
Amounts payable under lease liabilities:
Within one year
Greater than on year but less than five years
Greater than five years but less than ten years
Beyond ten years
Amounts payable under lease liabilities:
Within one year
Greater than on year but less than five years
Greater than five years but less than ten years
Beyond ten years
27. Provisions
Provisions
* Restated (See note 36).
172
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Annual Report and Accounts 2020
Minimum lease payments
2020
£m
19.8
53.2
22.6
1.2
96.8
2019
£m
17.8
49.5
26.8
2.8
97.0
Present value of minimum
lease payments
2020
£m
16.1
45.7
21.5
0.8
84.1
2020
£m
2.6
2019
£m
14.3
41.5
25.0
1.2
82.0
2019
£m*
2.2
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Provisions are classified as:
Current liabilities
Non-current liabilities
At 31 March 2019
Utilised in the year
Provisions created in the year
At 31 March 2020
The dilapidations provision is created for 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.
28. Share capital, investment in own
shares and share premium
29. Non-controlling interest
Number
of shares
m
471.9
6.1
477.9
Share
capital
£m
1.2
–
1.2
Share
premium
£m
103.7
–
103.7
At 1 April 2019
Share issue
At 31 March 2020
On 17 July 2019 the Company issued 6.1 million shares to satisfy
awards under the vested ERP and 2016 LTIP share scheme
(see Note 31). These shares were acquired, and are held in an
Employee Benefit Trust (EBT), at nominal values, and the EBT
transfers to the participants as they are exercised.
As the shares are held by the EBT they are treated as Treasury
Shares on consolidation and are shown as a reduction in equity
in the Statement of financial position.
2020
£m
0.7
1.9
2.6
2019
£m
-
2.2
2.2
Dilapidations
provision
£m
2.2
(0.6)
1.0
2.6
2019
£m
1.6
(0.3)
(0.5)
0.9
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Balance at 31 March 2019
Share of loss/(profit) for the year
Acquisition of minority interest
Balance at 31 March 2020
2020
£m
0.9
0.3
(0.2)
1.0
During the year, AO World Plc exercised its second option
over the share capital of AO Recycling Limited and as a result
acquired a further 7.2% of its share capital (See note 33).
The non-controlling interest now relates to 25.6% (2019: 32.8%) of
the share capital of AO Recycling Limited (formerly known as The
Recycling Group Limited) not currently owned by AO World Plc.
At 31 March 2020, AO Recycling Limited had non-current assets of
£17.0m (2019: £13.1m), net current liabilities of £14.2m (2019: £9.0m)
and non-current liabilities of £7.0m (2019: £7.4m). During the year,
AO Recycling Limited contributed £12.6m (2019: £13.7m) and
£0.8m (2019: £2.3m) to the Group’s revenue and Adjusted EBITDA
respectively. Its retained loss for the year was £1.5m (2019: £0.2
profit). Net cash outflow was £2.6m (2019: £2.7m inflow).
If the stake in AO Recycling Limited had remained at 67.2%, the
share of losses attributable to the Group would have reduced
by £0.1m.
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173
Notes to the consolidated financial statements continued
For the year ended 31 March 2020
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.
The merger reserve at 1 April 2018 arose on the purchase of
DRL Limited (now AO Retail Limited) in the year ended 31 March
2008. The movement in the prior year relates to the premium
on shares issued by the Company in relation to the acquisition
of the whole of the issued share capital of MobilePhonesDirect
Limited.
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. The movement in the current year
reflects the impact of the acquisition of the second tranche of
options (see Note 29).
31. Share-based payments
Performance Share Plan
The table below summarises the amounts recognised in the
income statement during the year.
2016 LTIP
ERP
2017 LTIP
2018 SIP
2019 SIP
Sharesave scheme
Total share scheme charge
2020
£m
–
–
0.4
0.1
0.5
1.0
2.0
The table below shows the share-based payment charge
in relation to exceptional LTIP charges (included in the
charge above).
ERP
Employer’s NI on exceptional ERP
Exceptional LTIP awards
2020
£m
-
-
-
2019
£m
0.2
2.1
0.5
0.5
–
0.7
4.0
2019
£m
2.1
0.2
2.3
The details regarding each of the schemes is as follows:
Schemes vesting in the current year
The performance periods for both the 2016 LTIP and the ERP
concluded 31 March 2019 and, following approval at the Board
meeting in July 2019 the share awards under these schemes
vested. The number of shares vesting under the 2016 LTIP
scheme was 172,036 and under the ERP was 5,883,334.
2017 LTIP Awards
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)
Company’s TSR
percentile ranking against
comparator group
0%
25%
100%
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)
Group Adjusted EBITDA
for the financial year ended
31 March 2020
0%
25%
62.5%
100%
<£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)
Sales growth over the
three-year performance
period
0%
25%
62.5%
100%
<£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.
2020
No. of
options
2020
WAEP (£)*
2019
No. of
options
2019
WAEP (£)*
Outstanding at
the beginning
of the year
Granted during
the year
Forfeited
during the
year
Outstanding
at the end of
the year
2,200,899
–
(884,716)
–
–
–
3,119,992
–
(919,093)
1,316,182
– 2,200,899
* Weighted average exercise price.
–
–
–
–
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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 and 31 March 2019.
The awards are subject to the following performance criteria:
Forty per cent of the awards are subject to a Group Revenue
performance condition for the year ended 31 March 2020 as
shown below:
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.
Group Revenue for the performance
period
Below £1,102.2m
£1,102.2m (Threshold)
£1,160.2m (Target)
£1,218.2m or higher (Stretch)
Extent to which
performance
condition satisfied
0%
25%
62.50%
100%
The weighted average fair value of options granted was £0.96.
For the shares outstanding at 31 March 2019, the remaining
average contractual life is 1.3 years.
Thirty per cent of the awards are subject to a Group EBITDA
performance condition for the year ended 31 March 2020 as
shown below:
The performance period for measuring the potential award
under the scheme ended on 31 March 2020 and, subject
to approval of the financial statements by the Board, it is
anticipated that 635,000 share options will vest in July 2020.
Single Incentive Plan 2018
On 19 July 2018, the Company adopted the AO 2018 Incentive
Plan (the “Plan”) in which the Directors and key members of
staff participate. The Plan combines an annual bonus element
(33.33%) and a conditional share award (66.67%) based on
various financial and non-financial performance criteria (see
below) as well as the continuing employment of the individuals.
The bonus and number of conditional share awards was initially
calculated based on the performance criteria for the year
ended 31 March 2019. The vesting date for the conditional shares
is July 2022.
The fair value was determined to be the share price at grant
date of £1.01.
Based on the performance criteria achieved, and subject to
continued employment, the number of conditional shares
relating to the scheme is 1,983,322.
Single Incentive Plan 2019
On 19 July 2019, the Company adopted the AO 2019 Incentive
Plan (the “Plan”) in which the Directors and key members of
staff participate. The Plan combines an annual bonus element
(33.33%) and a conditional share award (66.67%) based on
various financial and non-financial performance criteria (see
below) as well as the continuing employment of the individuals.
The bonus and number of conditional share awards was initially
calculated based on the performance criteria for the year
ended 31 March 2020. The vesting date for the conditional
shares is July 2023.
The fair value was determined to be the share price at grant
date of £0.767.
Group Adjusted EBITDA for the
performance period
Below £0.44m
£0.44m (Threshold)
£5.62m (Target)
£10.80m or higher (Stretch)
Extent to which
performance
condition satisfied
0%
25%
62.50%
100%
Ten per cent of the awards are subject to a Group cash outflow
performance condition for the year ended 31 March 2020 as
shown below:
Group cash flow for the
performance period
Above £40.4m
£40.4m (Threshold)
£35.3m (Target)
£30.1m or lower (Stretch)
Extent to which
performance
condition satisfied
0%
25%
62.50%
100%
Ten per cent of the awards are subject to a Group weighted
average NPS performance condition for the year ended 31
March 2020 as shown below:
Net promoter score for the
performance period
Below +70
+ 70 (Threshold)
+ 75 (Target)
+ 80 or higher (Stretch)
Extent to which
performance
condition satisfied
0%
25%
62.50%
100%
The remaining 10% of awards are subject to the successful
leverage of the AO Ecosystem which will be determined by the
Remuneration Committee.
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175
Notes to the consolidated financial statements continued
For the year ended 31 March 2020
31. Share-based payments continued
The following table illustrates the number and weighted average exercise price (WAEP) of, and movements in, share options granted
under the SIP 2019 awards.
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Outstanding at the end of the year
2020
No. of
options
–
8,155,410
(1,189,168)
6,966,242
2020
WAEP (£)*
2019
No. of
options
2019
WAEP (£)*
–
–
–
–
–
–
–
–
–
–
–
–
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 Black–Scholes model.
The following table illustrates the number and weighted average exercise price (WAEP) of, and movements in, share options granted
under the Sharesave scheme:
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Lapsed in the year
Outstanding at the end of the year
* Weighted average exercise price.
2020
No. of
options
2,920,071
2,349,838
(1,519,585)
(312,909)
3,437,415
2020
WAEP (£)*
0.97
0.77
0.87
1.25
0.83
2019
No. of
options
2,288,418
885,016
(159,383)
(93,980)
2,920,071
2019
WAEP (£)*
1.01
0.98
0.82
2.27
0.97
During the year ended 31 March 2020 options were granted on 22 January 2020. For the shares outstanding at 31 March 2020, the
remaining weighted average contractual life is 2.28 years (2019: 1.92 years). The weighted average fair value of options granted
during the year was £0.77 per share.
The following table gives the assumptions made during the year ended 31 March 2020:
For options
granted on
Risk-free rate
Expected volatility
Expected dividend yield
Option life
29 Jan
2016
0.54%
43.53%
0.00%
3 years
1 Mar
2017
0.41%
49.9%
0.00%
3 years
1 Feb
2019
0.79%
46.5%
0.00%
3 years
22 Jan
2020
0.79%
46.5%
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.
32. Retirement benefit schemes
Defined contribution schemes
The pension cost charge for the year represents contributions payable by the Group and amounted to £5.0m (2019: £4.9m).
Contributions totalling £0.5m (2019: £0.5m) were payable at the end of the year and are included in accruals.
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33. 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 23, 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 likely 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.
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. All prior year numbers have been restated following the adoption of IFRS 16.
Financial assets designated as fair value through profit or loss
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
Trade payables (see Note 23)
Other payables excluding deferred income (see Note 23)
Borrowings (see Note 25)
Lease liabilities (see Note 26)
Financial liabilities at fair value through profit and loss
Put option to acquire non-controlling interest
Total financial liabilities
Total financial instruments
* Restated (see Note 36).
2020
Carrying
amount
£m
2020
Fair value
£m
2019
Carrying
amount
£m *
2019
Fair value
£m *
0.6
6.9
20.5
32.7
60.8
(139.6)
(102.3)
(22.0)
(84.1)
(1.0)
(349.0)
(288.2)
0.6
6.9
20.5
32.7
60.8
(139.6)
(102.3)
(22.0)
(84.1)
(0.3)
(348.3)
(287.5)
0.8
28.9
12.9
30.0
72.6
(140.9)
(88.1)
(30.4)
(82.1)
(3.6)
(345.1)
(272.5)
0.8
28.9
12.9
30.0
72.6
(140.9)
(88.1)
(30.4)
(82.1)
(0.9)
(342.4)
(269.8)
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Annual Report and Accounts 2020
177
Notes to the consolidated financial statements continued
For the year ended 31 March 2020
33. Financial instruments continued
The table below shows the movement in valuation for both the call and put option during the year.
Call option
At 1 April 2018
Exercised in the year
Change in valuation
At 31 March 2019
Change in valuation
At 31 March 2020
Put option
At 1 April 2018
Exercised in the year
Unwind of discount
Change in valuation
At 31 March 2019
Exercised in the year
Unwind of discount
Change in valuation
At 31 March 2020
£m
2.4
(0.2)
(1.4)
0.8
(0.1)
0.6
£m
3.8
(0.4)
0.3
(0.1)
3.6
(0.6)
0.3
(2.2)
1.1
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 separate 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.
As set out in Note 29, AO World Plc exercised its option over the second tranche of shares during the year and as a result acquired a
further 7.2% of the issued share capital of AO Recycling Limited for consideration of £0.5m.
Fair value hierarchy
Financial instruments are measured at fair value and are split into a fair value hierarchy based on the valuation technique used to
determine fair value. The hierarchies are:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Financial assets
Call option
At 31 March 2020
Call option
At 31 March 2019
Financial liabilities
At 31 March 2020
Put option to acquire non-controlling interest
At 31 March 2019
Put option to acquire non-controlling interest
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
–
–
–
–
–
–
–
–
0.6
0.6
0.8
0.8
0.6
0.6
0.8
0.8
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
–
–
–
–
1.1
1.1
3.6
3.6
The fair value hierarchy for the call and put options is consistent for both the Group and parent Company.
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Management assess the counter party risk relating to these
assets which comprise commissions receivable from blue chip
Mobile Network Operators or from the Groups protection plan
partner. The level of counter party risk is considered low. Having
applied IFRS 15 to the balances on initial recognition of revenue,
restrictions on the amounts recognised based on assumptions
from historical data provide further reassurance that the
amount recognised is recoverable and hence no further
expectated credit loss provision is required.
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.
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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 trade receivable balances comprise a number
of individually small amounts from unrelated customers
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:
Trade receivables
2020
£m
20.5
20.5
2019
£m
12.9
12.9
Credit quality of financial assets and impairment losses
The ageing of trade receivables at the statement of financial
position date was:
Gross
£m
Impairment
£m
Not past due
Past due 0–30 days
Past due 31–120 days
More than 120 days
At 31 March 2020
Not past due
Past due 0–30 days
Past due 31–120 days
More than 120 days
At 31 March 2019
12.5
3.4
3.2
1.5
20.6
11.9
0.7
0.3
–
12.9
–
–
(0.1)
–
(0.1)
–
–
–
–
–
Net
£m
12.5
3.4
3.1
1.5
20.5
11.9
0.7
0.3
–
12.9
The current year includes an impairment charge of £0.1m (2019:
£nil) to trade receivables.
Contract assets are also assessed for credit risk. Total
contract assets at 31 March 2020 were £172.1m (2019: £151.1m).
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179
Notes to the consolidated financial statements continued
For the year ended 31 March 2020
33. Financial instruments continued
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the effect of
netting agreements:
Non-derivative financial liabilities
Trade and other payables
Bank loans
Lease liabilities
At 31 March 2020
Non-derivative financial liabilities
Trade and other payables
Bank loans
Lease liabilities
At 31 March 2019
Carrying
amount
£m
Contractual
cash flows
£m
Within 1 year
£m
Between
1 and 5 years
£m
Between 5
and 10 years
£m
In more than
10 years
£m
241.9
22.0
84.1
348.0
241.9
22.6
96.8
361.3
234.4
5.7
19.8
259.9
7.5
16.9
53.2
77.6
–
–
22.6
22.6
–
–
1.2
1.2
Carrying
amount
£m
Contractual
cash flows
£m
Within 1 year
£m
Between
1 and 5 years
£m
Between 5
and 10 years
£m
In more than
10 years
£m
229.0
30.4
82.1
341.5
229.0
31.9
97.0
357.9
220.2
7.2
17.8
245.3
8.8
24.7
49.5
83.0
–
–
26.8
26.8
–
–
2.8
2.8
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 33f.
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
2020
£m
9.4
21.0
30.4
2019
£m
11.0
27.0
38.0
If interest rates increased by 1%, there would be an impact on
the finance cost of approximately £0.6m.
The Board has delegated responsibility for routine capital
expenditure to the management of the business. All significant
expenditure is approved by the Board.
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:
Liabilities
Assets
2020
£m
142.9
2019
£m
136.0
2020
£m
42.3
2019
£m
40.8
Euros
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 reason for the
foreign exchange exposure is due to the loans being issued in
GBP and the European business reflecting how much it will cost
them to repay in Euros.
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 an
£80m Revolving Credit Facility which expires in April 2023.
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
Directors’ 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.
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35. Acquisition of subsidiaries
Acquisition of AO Mobile Limited (MobilePhonesDirect
Limited)
In the prior year, the Group acquired the whole of the issued
share capital of AO Mobile Limited (formerly MobilePhonesDirect
Limited) for total consideration of £39.6m.
In the period from acquisition to 31 March 2019 the Company
contributed £30.1m to consolidated revenue and £1.4m to the
consolidated loss after tax. If the acquisition had occurred on
the first day of the prior period Group revenues would have been
£1bn and the loss before tax would have been £19.2m.
At 31 March 2019, the fair value adjustments had been
determined on a provisional basis and in line with relevant
accounting standards had to be finalised in the 12 month
period following the acquisition. The Company has finalised
the fair value adjustments in the period totalling £0.6m mainly
in relation to provisions against the recoverability of network
commissions. In line with IFRS 3, the comparative numbers at
31 March 2019 have been restated as if these final adjustments
had been made on the date of acquisition.
The acquisition had the following effect on the Group’s assets
and liabilities (which have been subject to reclassification
between contract assets, contract liabilities and provisions as
set out in Note 36).
Sterling strengthens by 10%
Sterling weakens by 10%
Euro currency impact
2020
£m
(10.1)
9.2
2019
£m
(9.5)
8.7
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. The impact of foreign exchange movements in
the current year is set out in Note 10.
34. 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 on
the right.
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
2020
£m
2019
£m
3.5
3.0
0.1
6.6
3.7
3.0
0.1
6.8
Further information about the remuneration of individual
Directors is provided in the audited part of the Directors’
remuneration report on pages 111 to 119.
£m
Tangible fixed assets
Right of use assets
Intangible fixed assets
Inventory
Trade receivables
Prepayments and contract assets
Cash
Trade payables
Right of use lease liabilities
Corporation tax
Deferred tax
Other creditors and contract liabilities
Accruals and deferred income
Provisions
Purchase consideration
Residual goodwill
Provisional
fair value
adjustments
–
–
15.9
(0.1)
(0.1)
(2.6)
–
–
–
0.5
(2.7)
(2.5)
(0.1)
(0.1)
8.2
Book
value
0.2
0.5
0.4
6.6
0.7
81.1
15.8
(29.4)
(0.5)
(0.3)
–
(55.5)
(2.3)
-
17.3
Fair value
of assets/
(liabilities)
acquired
0.2
0.5
16.3
6.5
0.6
78.5
15.8
(29.4)
(0.5)
0.2
(2.7)
(58.0)
(2.4)
(0.1)
25.5
39.6
14.1
Final fair
value
adjustments
–
–
–
–
–
(0.5)
–
–
–
–
–
–
(0.1)
–
(0.6)
Fair value
of assets/
(liabilities)
acquired
0.2
0.5
16.3
6.5
0.6
78.0
15.8
(29.4)
(0.5)
0.2
(2.7)
(58.0)
(2.5)
(0.1)
24.9
39.6
14.7
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Notes to the consolidated financial statements continued
For the year ended 31 March 2020
35. Acquisition of subsidiaries continued
Purchase consideration comprised:
The net cash flow from the acquisition is as follows:
Cash
Fair value of shares issued
Total consideration
£m
21.8
17.8
39.6
Cash consideration
Less: cash acquired with the
business
Net cash on acquisition of subsidiary
£m
21.8
(15.8)
5.9
The Company issued 13,095,104 shares to the sellers of
MobilePhonesDirect Limited as part of the consideration. The
fair value of the shares was determined with reference to the
average share price of AO World Plc shares over the five day
period prior to the signing of the sale and purchase agreement.
The fair value price was £1.3616.
Goodwill has arisen on the acquisition primarily because of the
value in relation to the relationships with the mobile networks,
which, as they are relatively short-term and are not any more
advantageous than another party in the market could achieve, do
not qualify as acquired intangible assets. In addition, no value is
attributable to future synergies in the identifiable assets acquired.
Acquisition related costs
The Group incurred acquisition related costs of £2.6m related to
adviser fees in the prior year. These costs have been included in
administrative expenses in the Group’s consolidated statement
of comprehensive income and due to their size have been added
back as exceptional items in arriving at Adjusted EBITDA.
36. Restatement of comparatives
The 31 March 2019 comparatives for the primary statements have been restated following the adoption of IFRS 16 Leases, the
completion of the purchase price allocation exercise on the acquisition of AO Mobile Limited and a number of presentational
changes following further consideration of the definitions in IFRS 15 and its practical application. The 31 March 2018 statement
of financial position has also been restated for IFRS 16 Leases only. The impact on the income statement, statement of financial
position and statement of cash flows as a result of the reinstatements are presented below:
Income statement (including segmental analysis)
£m
Revenue
Cost of sales
Gross profit
Administrative expenses
Other operating income
Operating loss
Finance income
Finance costs
Loss before tax
Tax credit
Loss for the year
31 March 2019 as reported
Effect of IFRS 16 adoption
31 March 2019 as restated
UK
Europe
Total
UK
Europe
Total
UK
Europe
Total
749.3
(594.5)
154.9
(141.0)
1.0
14.9
2.5
(3.4)
14.0
1.5
15.5
153.2
(155.7)
(2.6)
(27.9)
0.5
(30.1)
-
(2.8)
(32.9)
0.4
(32.5)
902.5
(750.2)
152.2
(168.9)
1.5
(15.2)
2.5
(6.2)
(18.9)
1.9
(17.0)
–
0.2
0.2
2.0
(0.4)
1.8
0.1
(2.8)
(1.0)
0.2
(0.8)
–
–
–
0.4
–
0.4
–
(0.7)
(0.3)
0.1
(0.3)
–
0.2
0.2
2.4
(0.4)
2.2
0.1
(3.5)
(1.3)
0.2
(1.1)
749.3
(594.3)
155.0
(139.0)
0.6
16.6
2.6
(6.2)
12.9
1.7
14.6
153.2
(155.7)
(2.6)
(27.5)
0.5
(29.6)
-
(3.5)
(33.1)
0.5
(32.6)
902.5
(750.0)
152.5
(166.6)
1.1
(13.0)
2.6
(9.7)
(20.2)
2.1
(18.1)
The reconciliation of statutory operating profit to Adjusted EBITDA is as follows:
31 March 2019 as reported
Effect of IFRS 16 adoption
31 March 2019 as restated
£m
UK
Europe
Operating loss
Depreciation
Amortisation
EBITDA
Share-based payment
charges attributable to
exceptional LTIP awards
Fees incurred on
acquisition of subsidiary
Onerous contract costs
Restructuring costs
Adjusted EBITDA
14.9
5.3
1.1
21.3
2.3
2.6
–
1.2
27.4
(30.1)
1.1
–
(29.0)
–
–
1.2
–
(27.8)
Total
(15.2)
6.4
1.1
(7.7)
2.3
2.6
1.2
1.2
(0.4)
UK
Europe
Total
UK
Europe
1.8
8.9
–
10.7
–
–
–
–
10.7
0.4
2.1
–
2.5
–
–
–
–
2.5
2.2
11.0
–
13.2
–
–
–
–
13.2
16.6
14.2
1.1
32.0
2.3
2.6
–
1.2
38.1
(29.6)
3.2
-
(26.5)
–
–
1.2
–
(25.3)
Total
(13.0)
17.4
1.1
5.5
2.3
2.6
1.2
1.2
12.8
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36. Restatement of comparatives continued
The restatements principally relate to the removal of the rental charge from cost of sales and administrative expenses in relation to
assets acquired previously under operating leases which are replaced with a depreciation charge on the new Right of Use asset (in
cost of sales and administrative expenses) and an interest charge in relation to the related lease liability.
The restatement of the Income Statement has also resulted in Earnings per Share being restated. The loss attributable to
shareholders in the prior year has increased from £17.5m to £18.6m as a consequence of the adoption of IFRS 16 which results in
Basic loss per share 4.00p (2019 reported: 3.78p) and diluted loss per share being 4.00p (2019 reported: 3.78p).
Statement of financial position
£m
Non current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right of use assets
Trade and other receivables
Deferred tax asset
Derivative financial asset
Current assets
Inventories
Trade and other receivables
Corporation tax receivable
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Lease liabilities
Derivative financial liability
Provisions
Net current (liabilities)/assets
Non current liabilities
Borrowings
Lease liabilities
Trade and other payables
Derivative financial liability
Deferred tax liability
Provisions
Total liabilities
Net assets
Share capital
Share premium account
Other reserves
Retained losses
Total
Non controlling interest
Total equity
At 31 March
2019 reported
Effect of
IFRS 3
IFRS 15
Reclassification
Effect of
IFRS 16
adoption
At 31 March
2019
restated
27.6
16.9
26.8
–
79.4
3.6
0.8
155.0
76.3
118.0
0.6
28.9
223.8
378.8
(230.1)
(9.5)
(2.8)
(0.6)
(8.3)
(251.3)
(27.5)
(20.9)
(4.8)
(7.0)
(2.9)
(2.7)
(2.6)
(41.0)
(292.2)
86.6
1.2
103.7
29.0
(46.4)
87.5
(0.9)
86.6
0.6
–
–
–
–
–
–
0.6
–
(0.5)
–
–
(0.5)
0.1
(0.1)
–
–
–
–
(0.1)
(0.5)
–
–
–
–
–
–
–
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2.8)
–
–
(2.8)
(2.8)
(5.6)
–
–
–
8.3
2.7
(0.1)
–
–
(0.4)
–
–
0.5
0.1
2.8
–
–
–
–
–
–
–
–
–
–
(0.3)
63.1
–
1.0
–
63.8
–
(0.2)
–
–
(0.2)
63.6
6.0
–
(11.5)
–
–
(5.5)
(5.7)
–
(63.0)
–
–
–
–
(63.0)
(68.5)
(4.8)
–
–
–
(4.8)
(4.8)
–
(4.8)
28.2
16.9
26.5
63.1
79.4
4.6
0.8
219.5
76.3
114.5
0.6
28.9
220.3
439.8
(229.8)
(9.5)
(14.3)
(0.6)
–
(254.2)
(33.9)
(20.9)
(67.8)
(7.4)
(2.9)
(2.7)
(2.2)
(103.9)
(358.1)
81.8
1.2
103.7
29.0
(51.2)
82.7
(0.9)
81.8
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AO World Plc
Annual Report and Accounts 2020
183
Notes to the consolidated financial statements continued
For the year ended 31 March 2020
36. Restatement of comparatives continued
The restatement principally reflects the recognition of Right
of Use assets in relation to assets previously financed through
operating leases and the related lease liability. The difference
is recognised as a movement in equity. The movement in
payables relates to the reversal of rent free periods in relation
to certain properties as these are now built into the value of the
Right of Use asset and associated lease liability.
In the prior year, the Group adopted IFRS 15 ‘Revenue from
contracts with customers’. Following further consideration of the
definitions in IFRS 15 and its practical application, the Group has
reconsidered and amended the presentation of certain balance
sheet amounts as described below. Comparative amounts have
been restated for consistency in line with a change in accounting
policy, but the changes in presentation have had no effect on
net assets or profit and loss for any period presented.
In the prior year, receivables in relation to commission from
product protection plans and mobile network operators
were classified as receivables at fair value through profit or
loss on the basis that the Group has no further obligations to
undertake after the point of sale when revenue is recognised
and therefore commissions receivable were only dependent on
the passage of time (albeit subject to the behaviour of the end
customer). As a consequence, amounts recognised as accrued
income in the 31 March 2019 statement of financial position of
£151.1m have been presented as a contract asset under IFRS
15, reflecting the variable nature of the commission receivable
based on future customer behaviour.
In the prior year, clawback provisions in relation to commission
from mobile network operators were classified as provisions.
As the clawback provision relates to commissions which could
be returned to the mobile network operators should a customer
cancel a contract, the amounts have now been included as
a reduction in contract assets to more appropriately reflect
the net amount of commission receivable. As a consequence,
£2.8m has been reclassified against the contract asset and the
comparatives changed accordingly. There is no impact on the
income statement.
In the prior year, cashback provisions in respect of cashback
schemes operated by MobilePhonesDirect, which were
calculated based on historic redemption rates, were included
with provisions. Payments are expected to be made up to 23
months from the year end. Having considered the requirements
of IFRS 15, because the company does not receive any goods
or services in relation to the cash paid to the end customer,
management believe it is appropriate to treat these as a
reduction in revenue and a contract liability. As a consequence
£6.1m of provisions at 31 March 2019 have been reclassified as
contract liabilities. As the impact on the income statement was
immaterial in the prior year (£1.3m) the income statement has
not been restated.
In addition, as set out in Note 35, the balance sheet at
31 March 2019 has been restated to reflect the final changes
to the assets, liabilities and subsequent goodwill arising from
the acquisition of AO Mobile Limited in December 2018. The
has had the impact of reducing contract assets by £0.5m and
increasing accruals by £0.1m and increasing goodwill by £0.6m.
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£m
Non current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right of use assets
Trade and other receivables
Derivative financial asset
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Corporation tax receivable
Cash and bank equivalents
Total assets
Current liabilities
Bank overdraft
Trade and other payables
Borrowings
Lease liabilities
Derivative financial liability
Net current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Derivative financial liabilities
Provision
Total liabilities
Net assets
Share Capital
Share premium account
Other reserves
Retained losses
Total
Non-controlling interest
Total equity
At 31 March
2018 reported
Effect of
IFRS 16
adoption
At 31 March
2018
restated
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)
(1.2)
(3.0)
(0.4)
(163.7)
0.7
(3.4)
(7.0)
(3.4)
(1.8)
(15.6)
(179.3)
79.6
1.2
103.7
5.3
(28.9)
81.2
(1.6)
79.6
–
–
–
62.0
–
–
0.8
62.8
–
0.3
–
–
–
0.3
63.0
–
6.1
–
(9.7)
–
(3.6)
(3.3)
–
(63.2)
–
–
(63.2)
(66.7)
(3.7)
–
–
–
(3.7)
(3.7)
–
(3.7)
13.5
1.2
28.0
62.0
47.9
2.2
2.5
157.3
53.2
55.1
0.2
0.2
56.0
164.7
322.0
(3.1)
(149.9)
(1.2)
(12.7)
(0.4)
(167.3)
(2.6)
(3.4)
(70.2)
(3.4)
(1.8)
(78.8)
(246.1)
75.9
1.2
103.7
5.3
(32.6)
77.5
(1.6)
75.9
The restatement principally reflects the recognition of Right of Use assets in relation to assets previously financed through
operating leases and the related lease liability. The difference is recognised as a movement in equity. The movement in payables
relates to the reversal of rent free periods in relation to certain properties as these are now built into the value of the Right of Use
asset and associated lease liability.
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AO World Plc
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185
Notes to the consolidated financial statements continued
For the year ended 31 March 2020
Statement of cash flows
£m
Cashflows from operating activities
Loss for the period
Depreciation and amortisation
Finance income
Finance costs
Taxation credit
Share based payment charge
Increase in provisions
Net operating cashflows 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
Net cash used in operating activities
Cashflows from investing activities
Acquisition of subsidiary (net of cash acquired)
Acquisition of non-controlling interest
Interest received
Acquisition of property, plant and equipment
Acquisition of intangible assets
Net cash used in investing activities
Cashflows from financing activities
Acquisition of non-controlling interest
Movement in bank overdraft
New borrowings
Interest paid on borrowings
Interest paid on lease liabilities
Repayment of borrowings
Repayment of lease liabilities
Net cash generated from investing activities
Net decrease in cash
Cash and cash equivalents at beginning of the period
Exchange gains and losses
Cash and cash equivalents at end of the period
Year ended
31 March 2019
reported Reclassification
IFRS 15
Reclassification
Effect of
IFRS 16
adoption
Year ended
31 March 2019
restated
(17.0)
7.5
(2.5)
6.2
(1.9)
4.0
0.1
(3.6)
(16.3)
(10.2)
(5.2)
(31.7)
0.8
(34.5)
(5.9)
(0.4)
–
(4.5)
(0.5)
(11.2)
–
(3.1)
27.0
(0.2)
(0.7)
(1.2)
(3.1)
18.6
(27.0)
56.0
(0.1)
28.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.4
–
–
–
0.4
(0.4)
–
–
–
–
–
–
(0.4)
–
–
–
–
–
–
–
–
–
–
0.1
0.1
–
(0.2)
0.1
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.1)
11.0
(0.1)
3.5
(0.2)
–
–
13.2
–
–
0.5
0.5
–
13.8
–
–
0.1
0.3
–
0.3
–
–
–
–
(3.5)
–
(10.5)
(14.1)
–
–
–
–
(18.1)
18.5
(2.6)
9.7
(2.1)
4.0
0.2
9.6
(16.3)
(10.4)
(4.5)
(31.2)
0.8
(20.8)
(5.9)
–
0.1
(4.2)
(0.5)
(10.5)
(0.4)
(3.1)
27.0
(0.2)
(4.2)
(1.2)
(13.7)
4.2
(27.0)
56.0
(0.1)
28.9
The restatement principally relates to operating lease payments previously recognised under IAS 17 being removed from the loss for
the period to be replaced by a depreciation charge and a repayment of lease liabilities, the latter shown within financing activities.
The Group has also reclassified the payments made to acquire non-controlling interest from investing activities to financing
activities as required by IAS 7.
In addition, as a consequence of the reclassifications in the statement of financial position regarding IFRS 15, the movements
in provisions and working capital have been restated to reflect the revised classification. There is no impact on cash from the
restatement.
37. Post Balance Sheet events
As set out in note 8, on 6 April 2020, AO Limited entered into a new Revolving Credit Facility of £80m. This replaced the existing
revolving credit facility and the term loan. At 6 April 2020 £56.7m was available under the facility with the drawn amounts relating
to letters of credit and payment guarantees. The facility expires in April 2023 and is secured by a debenture over the assets of the
relevant companies, a charge over the shares of the companies and a charge over the AO.com domain name.
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Company statement of financial position
As at 31 March 2020
Non-current assets
Intangible assets
Property, plant and equipment
Right of use assets
Investment in subsidiaries
Amounts owed by Group undertakings
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
Derivative financial liability
Trade and other payables
Borrowings
Lease liability
Net current liabilities
Non-current liabilities
Borrowings
Lease liability
Derivative financial liability
Total liabilities
Net assets
Equity
Share capital
Share premium
Merger reserve
Capital redemption reserve
Share-based payments reserve
Other reserves
Retained losses
Total equity
Note
4
5
5
3
7
11
11
8
11
9
10
10
10
10
11
12
12
2019
Restated
(see Note 13)
£m
2018
Restated
(see Noted 13)
£m
0.7
3.3
7.9
82.3
103.1
1.5
0.8
199.6
0.3
–
0.8
–
1.1
200.7
(2.9)
(0.2)
(80.4)
(0.3)
(0.7)
(84.5)
(83.4)
(0.2)
(7.7)
(0.7)
(8.5)
(93.0)
107.7
1.2
103.7
22.2
0.5
13.1
(0.2)
(32.8)
107.7
0.7
2.6
6.8
63.1
73.6
0.8
2.2
149.8
0.2
0.2
1.0
8.6
10.0
159.8
–
–
(60.7)
(0.3)
(0.6)
(61.6)
(51.6)
(0.6)
(6.3)
–
(6.9)
(68.5)
91.3
1.1
103.7
4.4
0.5
9.1
–
(27.5)
91.3
2020
£m
1.0
2.6
7.3
83.1
115.8
1.3
0.6
211.7
0.8
-
1.5
2.6
4.9
216.6
–
(0.3)
(89.9)
(0.2)
(1.1)
(91.5)
(86.6)
-
(7.4)
–
(7.4)
(98.9)
117.8
1.2
103.7
22.2
0.5
11.7
0.1
(21.6)
117.8
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The financial statements of AO World Plc, registered number 05525751, were approved by the Board of Directors and authorised for
issue on 13 July 2020. They were signed on its behalf by:
John Roberts Mark Higgins
CEO
CFO
AO World Plc
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AO World Plc
Annual Report and Accounts 2020
187
Company statement of changes in equity
As at 31 March 2020
At 1 April 2018
Adjustment on initial application of
IFRS 16 (net of tax)
Restated at 1 April 2018
Loss for the year (as previously
reported)
Share-based payments charge
net of tax
Issue of shares (net of expenses)
Acquisition of non-controlling entity
At 31 March 2019 as reported
Cumulative adjustment to opening
balance from application of IFRS 16
(net of tax)
Balance at 31 March 2019 restated
Profit for the year
Share-based payments charge
net of tax
Issue of shares (net of expenses)
Acquisition of shares in non-controlling
interest
Movement between reserves
Balance at 31 March 2020
Share
capital
£m
1.1
–
1.1
–
–
–
–
1.2
–
1.2
–
–
–
–
–
1.2
Share
premium
account
£m
103.7
–
103.7
–
–
–
–
103.7
–
103.7
–
–
–
–
–
103.7
Merger
reserve
£m
Capital
redemption
reserve
£m
Share-
based
payments
reserve
£m
Other
reserve
£m
Retained
losses
£m
4.4
–
4.4
–
–
17.8
–
22.2
–
22.2
–
–
–
–
–
22.2
0.5
–
0.5
–
–
–
–
0.5
–
0.5
–
–
–
–
–
0.5
9.1
–
9.1
–
4.0
–
–
13.1
–
13.1
–
2.0
–
–
(3.4)
11.7
–
–
–
–
–
–
(0.2)
(0.2)
-
(0.2)
–
–
–
0.3
–
0.1
Total
£m
91.4
(0.1)
91.3
(27.4)
(0.1)
(27.5)
(5.4)
(5.4)
–
–
–
(32.0)
(0.8)
(32.8)
7.8
–
–
–
3.4
(21.6)
4.0
17.8
(0.2)
108.5
(0.8)
107.7
7.8
2.0
–
0.3
–
117.8
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Notes to the Company financial statements
For the year ended 31 March 2020
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.
2. Operating 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 2019
Additions
Transfer to subsidiary undertakings
Amounts written off
Group share-based payments
Cost at 31 March 2020
The additions in the current year relate to:
2020
£m
82.3
27.0
(0.6)
(26.5)
0.9
83.1
2019
£m
63.1
18.2
–
–
1.0
82.3
Under section s408 of the Companies Act 2006, the Company is
exempt from the requirement to present its own profit and loss
account.
i. The acquisition of further shares in AO Recycling Limited for
£0.5m following the exercise of the second tranche of options
put in place on the original acquisition in 2015.
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.
Adoption of new and revised standards
During the year the Company adopted IFRS 16. The basis on
which the AO World Plc Group has adopted IFRS 16 is set out in
Note 2 to the Group financial statements. The impact on the
Company following the adoption of IFRS 16 is set out in Note 13.
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 150.
ii. The capitalisation of certain intra-Group loans owed by
AO.NL BV as part of the closure of the operations of AO
World’s Dutch business. As the business will no longer trade
and is expected to enter liquidation the whole value of the
investment has been written off.
The transfer to subsidiary undertakings in the current year
relates to:
i. The cost of investment in AO Deutschland Limited was
transferred to Appliances Online Limited and Worry Free
Limited, with both companies acquiring 50% each.
In addition, the Company has made capital contributions to its
subsidiaries of £0.9m (2019: £1.0m) in relation to the allocation of
share-based payment charges.
4. Intangible assets
Domain
names
£m
Software
£m
Total
£m
Cost
At 31 March 2019
Additions
Disposals
At 31 March 2020
Amortisation
At 31 March 2019
Charge for the year
Disposals
At 31 March 2020
Carrying amount
At 31 March 2020
At 31 March 2019
1.2
–
–
1.2
0.9
–
–
0.9
0.3
0.3
1.0
0.6
(0.1)
1.6
0.7
0.2
–
0.9
0.7
0.4
2.2
0.6
(0.1)
2.8
1.5
0.3
–
1.8
1.0
0.7
Amortisation is charged to administrative costs in the income
statement.
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Notes to the Company financial statements continued
For the year ended 31 March 2020
5. Property, plant and equipment and Right of use assets
Computer and
office equipment
£m
Leasehold
improvements
£m
Total
£m
Right of use
assets
£m
Cost
At 31 March 2019
Additions
At 31 March 2020
Accumulated depreciation
At 31 March 2019
Charge for the year
At 31 March 2020
Carrying amount
At 31 March 2020
At 31 March 2019
The carrying value of Right of use assets is analysed as follows:
Right of use assets
Land and buildings
Motor vehicles
6. Subsidiaries
Details of the Company’s subsidiaries at 31 March 2019 are as follows:
2.3
0.2
2.4
0.9
0.5
1.4
1.0
1.4
2.6
0.1
2.7
0.6
0.5
1.1
1.6
2.0
4.9
0.3
5.1
1.5
1.0
2.5
2.6
3.3
2020
£m
6.9
0.3
7.3
9.2
0.4
9.6
1.3
1.0
2.3
7.3
7.9
2019
£m
7.7
0.1
7.9
Class of shares held
Principal place of
business
Name of subsidiary
United Kingdom Ordinary
AO Retail Limited
United Kingdom Ordinary
Expert Logistics Limited
United Kingdom Ordinary
Worry Free Limited
United Kingdom Ordinary
Elekdirect Limited
United Kingdom Ordinary
Appliances Online Limited
Germany
Ordinary
AO Deutschland Limited
United Kingdom Ordinary
AO Limited
Ordinary
Belgium
AO.BE SA
Ordinary
Netherlands
AO.NL BV
Netherlands
Ordinary
AO Logistics (Netherlands) BV
United Kingdom Ordinary
AO Recycling Limited
United Kingdom Ordinary
WEEE Collect It Limited
WEEE Re-use It Limited
United Kingdom Ordinary
Electrical Appliance Outlet Limited United Kingdom Ordinary
United Kingdom Ordinary
Mobile Phones Direct Limited
United Kingdom Ordinary
AO Mobile Limited
Jersey
BERE Limited
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%
67.2%
100%
100%
100%
100%
100%†
100%
Principal activity
Retail
Logistics and transport
Holding company
Retail
Holding company
Retail
Holding company
Dormant
Retail
Logistics and transport
WEEE recycling
Dormant
Dormant
Retail
Dormant
Retail
Investment company
AO Business Limited
AO B2B Limited
AO Trade Limited
AO Rental Limited
AO Care Limited
AO Premium Care Limited
AO Club Limited
AO Distribution Limited
AO Logistics Limited
United Kingdom Ordinary
United Kingdom Ordinary
United Kingdom Ordinary
United Kingdom Ordinary
United Kingdom Ordinary
United Kingdom Ordinary
United Kingdom Ordinary
United Kingdom Ordinary
United Kingdom Ordinary
* 0.01% of the investment in AO.BE SA was held in AO Deutschland.
† Indirectly owned by AO Limited.
‡ Indirectly owned through Worry Free Limited (50%) and Appliances Online Limited (50%).
100%
100%
100%
100%
100%
100%
100%
100%
100%
190
AO World Plc
Annual Report and Accounts 2020
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
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All companies within the Group are registered at the same address disclosed on page 196 apart from BERE Ltd, AO.NL BV, AO
Logistics (Netherlands) BV and AO.BE SA 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 Brussels
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 2018
Credit to income statement
Deferred tax asset at 31 March 2019
(Debit)/credit to income statement
Deferred tax asset at 31 March 2020
Other timing
difference
£m
–
0.2
0.2
(0.1)
0.1
Share
options
£m
0.8
0.2
1.0
(0.3)
0.7
Losses and
unused tax
£m
–
0.2
0.2
0.1
0.3
Transitional
relief
£m
–
0.2
0.2
–
0.2
Total
£m
0.8
0.7
1.5
(0.3)
1.3
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 £nil (2019: £0.1m) in respect of share options.
8. Trade and other receivables
Prepayments
Other receivables
9. Trade and other payables
Trade payables
Accruals
Other payables
Amounts owed to Group undertakings
The carrying amount of trade payables approximates to their fair value.
Amounts owed to Group undertakings are payable on demand and carry no interest
2020
£m
1.0
0.5
1.5
2020
£m
1.2
5.0
0.7
83.0
89.9
2019
£m
0.6
0.2
0.8
2019
£m
1.3
5.0
0.9
73.2
80.4
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Notes to the Company financial statements continued
For the year ended 31 March 2020
10. Borrowings and Lease Liabilities
a. Borrowings
Secured borrowing at amortised cost
Bank loans
Amount due for settlement within 12 months
Amount due for settlement after 12 months
Total borrowings
2020
£m
2019
£m
0.2
0.2
-
0.2
0.5
0.3
0.2
0.5
2019
£m
8.4
0.7
7.7
8.4
Bank loans interest rates range from 4.3%–4.6% with all loans maturing in the financial period ending 31 March 2021.
b. Lease liabilities
Secured borrowing at amortised cost
Lease liabilities
Amount due for settlement within 12 months
Amount due for settlement after 12 months
Total borrowings
2020
£m
8.5
1.1
7.4
8.5
Bank loans interest rates range from 4.3% to 4.6% with all loans maturing in the financial period ending 31 March 2021.
Movements in the year were as follows:
At 1 April 2019
Changes from financing cash flows
Repayment of borrowings
Repayment of lease liabilities
Payment of interest
Total changes from financing cash flows
Other changes
New lease liabilities
Interest charge
Total other changes
At 31 March 2020
Borrowings
£m
Lease leases
£m
0.6
8.4
(0.4)
–
–
(0.4)
–
–
–
0.2
–
(1.2)
(0.5)
(1.7)
1.3
0.5
1.8
8.5
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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 2018
Change in valuation
Exercised in the year
At 31 March 2019
Change in valuation
At 31 March 2020
Put option
At 1 April 2018
Change in valuation
At 31 March 2019
Change in valuation
Exercised in the year
At 31 March 2020
£m
2.4
(1.4)
(0.2)
0.8
(0.1)
0.6
£m
–
(0.9)
(0.9)
0.3
0.2
(0.3)
12. Share capital and share premium
At 1 April 2019
Share issue
At 31 March 2020
Number
of shares
m
471.9
6.1
477.9
Share
capital
£m
Share
premium
£m
1.2
–
1.2
103.7
–
103.7
Merger
reserve
£m
22.2
–
22.2
On 17 July 2019 the Company issued 6.1 million shares to satisfy awards under the vested ERP and 2016 LTIP share scheme
(see note 31). These shares were acquired, and are held in an Employee Benefit Trust (EBT), at nominal values, and the EBT transfers
to the participants as they are exercised.
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Notes to the Company financial statements continued
For the year ended 31 March 2020
13. Restatement of comparatives
As described in Note 2 to the Group financial statements the Company has adopted IFRS 16 and as a consequence the 31 March
2019 and 31 March 2018 the comparatives have been restated.
The impact on the statement of financial positions as a result of the restatement is presented below:
£m
Non-current assets
Intangible assets
Property, plant and equipment
Investment in subsidiaries
Right of use asset
Amounts owed from group undertakings
Deferred tax asset
Derivative financial asset
Current assets
Corporation tax receivable
Trade and other receivables
Total assets
Current liabilities
Bank overdraft
Derivative financial liability
Trade and other payables
Borrowings
Lease liabilities
Net current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Derivative financial liability
Total liabilities
Net assets
Equity
Share capital
Share premium account
Merger reserve
Capital redemption reserve
Share-based payments reserve
Other reserves
Retained losses
Total equity
At 31 March
2019
as reported
Effect of
IFRS 16
adoption
At 31 March
2018
as restated
0.7
3.5
82.3
–
103.8
1.4
0.8
192.4
0.3
0.8
1.1
193.5
(2.9)
(0.2)
(80.6)
(0.3)
–
(84.1)
(83.0)
(0.2)
–
(0.7)
(0.9)
(84.9)
108.5
1.2
103.7
22.2
0.5
13.1
(0.2)
(32.0)
108.5
–
(0.2)
–
7.9
(0.7)
0.2
–
7.3
–
–
–
7.3
–
–
0.3
–
(0.7)
(0.4)
(0.4)
–
(7.7)
–
(7.7)
(8.1)
(0.8)
–
–
–
–
–
–
(0.8)
(0.8)
0.7
3.3
82.3
7.9
103.1
1.5
0.8
199.6
0.3
0.8
1.1
200.7
(2.9)
(0.2)
(80.4)
(0.3)
(0.7)
(84.5)
(83.4)
(0.2)
(7.7)
(0.7)
(8.5)
(93.0)
107.7
1.2
103.7
22.2
0.5
13.1
(0.2)
(32.8)
107.7
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Non-current assets
Intangible assets
Property, plant and equipment
Right of Use assets
Investment in subsidiaries
Amounts owed by group undertakings
Deferred tax asset
Derivative financial asset
Current assets
Corporation tax receivable
Derivative financial asset
Cash and bank
Trade and other receivables
Total assets
Current liabilities
Trade and other payables
Borrowings
lease liabilities
Net current liabilities
Non-current liabilities
Borrowings
lease liabilities
Total liabilities
Net assets
Equity
Share Capital
Share premium account
Merger reserve
Capital redemption reserve
Share-based payments reserve
Retained losses
Total equity
At 31 March
2018 as
reported
£m
The effect
of IFRS 16
adoption
£m
At 31 March
2018 as
restated
£m
0.7
2.6
63.1
73.7
0.8
2.2
143.1
0.2
0.2
8.6
1.0
10.0
153.1
(60.8)
(0.3)
-
(61.1)
(51.1)
(0.6)
-
(0.6)
(61.7)
91.4
1.1
103.7
4.4
0.5
9.1
(27.4)
91.4
–
–
6.8
–
(0.1)
–
–
6.7
–
–
–
–
–
6.7
0.1
–
(0.6)
(0.5)
(0.5)
–
(6.3)
(6.3)
(6.7)
(0.1)
–
–
–
–
–
(0.1)
(0.1)
0.7
2.6
6.8
63.1
73.6
0.8
2.2
149.8
0.2
0.2
8.6
1.0
10.0
159.8
(60.7)
(0.3)
(0.6)
(61.6)
(51.6)
(0.6)
(6.3)
(6.9)
(68.4)
91.3
1.1
103.7
4.4
0.5
9.1
(27.5)
91.3
The restatement principally relates to the removal of the rental charge from administrative expenses in relation to assets acquired
previously under operating leases which are replaced with a depreciation charge on the new Right of use asset (in administrative
expenses) and an interest charge in relation to the related lease liability.
The net impact of adopting IFRS 16 increased the loss in the year ended 31 March 2019 by £0.8m.
The adoption of IFRS 16 had no impact on the operations of the Company or its cash flow.
14. Share-based payments
The Company recognised total expenses of £1.0m (2019: £3.0m) in the year in relation to both the Performance Share Plan (referred
to as LTIP or SIP) 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:
Interest charged to AO Recycling Limited
At 31 March 2020, the balance outstanding with AO Recycling Limited was £2.3m (2019: £1.5m).
2020
£m
0.1
2019
£m
–
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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
aoshareportal.com where you can view and manage all aspects
of your shareholding securely.
Investor relations website
The investor relations section of our website, 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 (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 8.00 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 EC2V7HN
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: linkassetservices.com
Email: shareholder.services@link.co.uk
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Glossary
Adjusted EBITDA means Profit/(loss) before tax, depreciation,
amortisation, net finance costs, “adjustments” and exceptional
items
Adjusting items means the items as set out on page 155
AGM means the Group’s Annual General Meeting
An AOer means one of our amazing employees
AOIP means The AO 2018 Incentive Plan, a form of LTIP
AO World, AO or the Group means AO World Plc and its subsidiary
undertakings
Europe means the Group’s entities operating within the European
Union, but outside the UK
FY19, FY20 and FY21 mean the financial year of the Company
ended 31 March 2019, 31 March 2020 and 31 March 2021
respectively
GAAP means Generally Accepted Accounting Practice
GHG means greenhouse gas
IAS means International Accounting Standards
IFRS means International Financial Reporting Standards
AV means audio visual products
IPO means the Group’s Initial Public Offering in March 2014
B2B means business to business
KPMG means KPMG LLP
B2C means business to consumer
LSE means London Stock Exchange
Board means the Board of Directors of the Company or its
subsidiaries from time to time as the context may require
LTIP means Long-term Incentive Plan
MDA means major domestic appliances
Code means the UK Corporate Governance code published by
the FRC in 2018
Companies Act means the Companies Act 2006
Company means AO World Plc, a company incorporated in
England and Wales with registered number 05525751 whose
registered office is at 5A The Parklands, Lostock, BL6 4SD
CRM means customer relationship management
CRR means Corporate Risk Register
DC means distribution centre
D&G means Domestic and General
EPS means earnings per share
ERP means the AO Employee Reward Plan
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
RMC means our Risk Management Committee
SDA means small domestic appliances
SECR means Streamlined Energy and Carbon Reporting
SEO means Search Engine Optimisation
SG&A means Selling, General & Administrative Expenses
SID means Senior Independent Director
SKUs means stock keeping units
UK means the Group’s entities operating within the
United Kingdom
VCP means the proposed value creation plan, a form of LTIP
WEEE means Waste Electrical and Electronic Equipment
There’s lots more online:
UK sites:
Customer
ao.com
ao-delivery.com
ao-mobile.com
ao-recycling.com
ao-business.com
mobilephonesdirect.co.uk
Corporate
ao-world.com
German site:
Customer
ao.de
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AO World Plc
AO, 5A The Parklands
Lostock
Bolton BL6 4SD
AO-World-AR2020.indd 3
27474 15 July 2020 1:38 pm Proof 13
15/07/2020 14:19:08