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The destination
for electricals
AO World Plc
Annual Report and Accounts 2021
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We make customers’
lives easier by helping
them brilliantly
We are an online leading retailer,
specialising in electronics.
In 2000, we started by selling white goods, big items
like fridge freezers, cookers and washing machines.
We now sell all kinds of electricals: major domestic
appliances, small domestic appliances, audiovisual
equipment, computing, mobile, gaming and smart
home technology. We now sell over 8,500 different
products on ao.com to millions of happy customers,
and we are able to deliver these at speed with our
tried-and-tested logistics network. It doesn’t stop
there: we install these products and recycle our
customers’ old ones and, finance and insurance are
offered on them too.
Contents
Overview
02 Financial and operational highlights
04 Investment case
Strategic Report
08 Chair’s statement
10 Chief Executive Officer’s
strategic review
14 How we create value
16 Our culture
18 Our values
20 Our customers
22 Our suppliers
24 Our technology
26 UK Retail
30 Logistics
32 Recycling
36 Germany
38 Our markets
42 Our strategy
44 Key performance indicators
46 Chief Financial Officer’s review
54 Our risks
66 Engaging with our stakeholders
68 Sustainability
Governance
88 Chair’s letter and introduction
92 Board of Directors
94 Corporate governance report
104 Nomination Committee report
108 Audit Committee report
114 Directors’ remuneration report
140 Directors’ report
Our Results
148 Independent Auditor's Report
157 Consolidated income statement
158 Consolidated statement of
comprehensive income
159 Consolidated statement of
financial position
160 Consolidated statement of
changes in equity
161 Consolidated statement of cash flows
162 Notes to the consolidated
financial statements
196 Company statement of
financial position
197 Company statement of
changes in equity
198 Notes to the Company
financial statements
Shareholder Information
204 Important information
205 Glossary
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Our Mission
The global destination for electricals
Our Strategy
We will leverage and support the scalability of our
business model and market-leading customer proposition
to achieve our mission and support our purpose through
our four strategic objectives
Read more about our strategy on pages 42 to 43
Our Purpose
We make customers’ lives easier by
helping them brilliantly
Read more about our purpose on page 16
Our Values
We treat every customer like our gran
We make decisions that would make our mums proud
We have a growth mindset
We operate at AO speed
Read more about our values on pages 18 and 19
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Overview Financial and operational highlights
It has been a year of outstanding
strategic, operational and financial
progress for AO, resulting in a significant
step change for our business...
See pages 42 and 43 for details on our strategy
Financial highlights
Group revenue increased 62% to
£1,661m (20201 :£1,026m2)
Group Adjusted EBITDA3
increased 191% to
£64m (20201: £22m2)
Group EBITDA margin doubled to
4%
Group Profit Before Tax
increased to
£20m (20201: £1m)
Cash generation of
£60m
and reduction of net debt to
£28m (2020: £99m)
Operational highlights
Over 2m new customers4 welcomed to
The AO Way during the year
Net Promoter Score5 remains world class
at 85 in the UK and 89 in Germany
Strategic investment in warehousing,
vehicles and people to respond to the
accelerated move to the digital environment
Ambitious Value Creation Plan launched to
all employees, giving ever AOer the chance
to share in exceptional growth
1. Prior year numbers have been restated as set out in Note 35 to the Financial
statements on pages 194 and 195.
2. For the prior year comparative (i)) excludes revenue and losses generated by ao.nl,
our Netherlands website, which was closed during the quarter ended 31 March 2020.
3. Adjusted EBITDA is defined by the Group as profit/(loss) before tax, depreciation,
amortisation, net finance income, profit/loss on disposal of fixed assets and other
adjusting items (e.g. non-cash one-off items).
4. A customer is defined as an individual customer who has purchased via ao.com in
the UK and ao.de in Germany.
5. Net Promoter Score or “NPS” is an industry measure of customer loyalty and
satisfaction. UK NPS comprises ao.com and mobilephonesdirect.com and is
calculated on a revenue weighted average basis.
...but it’s not what we’ve done,
it’s how we’ve done it;
this is The AO Way.
See pages 16 and 17 for our culture and how we deliver success
02
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Overview
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AO World Plc Annual Report and Accounts 2021
03
01
Investment case
The electricals market has increasingly moved to a digital environment as
customers gravitate to a richer, “cradle to cradle” customer experience.
As one of the market leaders in digital retailing of electricals, we are focused
on cementing this change in consumer habits to ensure that AO is the
destination of choice in electrical retailing.
Through The AO Way, we leverage our centres of expertise in the UK across all our businesses to deliver a seamless and compelling
customer offer. Our continuing investment in infrastructure, the knowledge of our teams and our strong supplier relationships mean that
we have successfully managed to scale our model while maintaining exceptionally high customer satisfaction ratings.
We continue to drive growth through investment to enhance market share, expand our product range, develop new product offerings and grow
in new territories. Our strong and sustainable cash flow and solid UK market positions underpin our investment case and high-growth model.
01
04
Long-term partner relationships
Our relationships with manufacturers span the full range of
internationally recognised household names who rely on us to create
a quality digital experience for their products and our customers.
We also collaborate with them to ensure that our customers have the
widest choice of products to meet their specific needs at attractive
pricing levels. Manufacturers also collaborate to help formulate our
B2B offering and support our sustainability initiatives, working with
us to research ways of reusing high engineered plastic parts in new
build models.
We also work with a valued network of suppliers, from small local firms
to large international businesses including mobile network providers,
delivery firms and financial services providers that underwrite our
product protection and consumer credit plans. These partners help
ensure that our customers have the best possible experience from
the start of their purchase journey to recycling of their old products at
our own recycling site.
Read more about our relationships on pages 22 and 23
05
Financial strength to drive
high-growth model
Through our leading market position in MDA, we generate strong,
sustainable cash flows that underpin our high-growth model. We
continually reinvest profits in new products and new territories to
enhance our market share and drive further growth. Our strong
balance sheet, net cash reserves and a supportive syndicate of
banking partners, together provide a solid foundation to support our
growth ambitions. As we are vertically integrated, we can manage
our cost base more flexibly to meet changing market conditions,
with careful management of working capital to maximise capital
availability for peak demand periods and ensure efficient stock
management.
Read more in the CFO review on pages 46 to 53
The destination of choice for
digital electrical retailing
We are a digital retailer of electricals with a leading market share in
major domestic appliances (“MDA”) and a significantly growing market
share in small domestic appliances (“SDA”), computing, consumer
electronics and mobile. We are a natural market disrupter with an
ambitious high-growth mindset, opening up new markets through
an exceptional digital customer experience underpinned by strong
partner relations and efficient logistics operations.
Read more about our markets on pages 38 to 41
02
A compelling customer offering that is
at the heart of our strategy
We focus on being brilliant for our customers, and our teams care
passionately about keeping our customers happy. We make it
easy for customers to buy what they need, when they need it,
with comprehensive product information, next day delivery and
installation, competitive pricing and recycling. Our focus on creating
an exceptional customer experience is the basis of our long-term
market leadership strategy. We empower our people to make the right
decisions, not necessarily the easy ones, to deliver for our customers
and partners.
Read more about our customers on pages 20 and 21
03
The One AO platform that leverages our
centres of expertise to create an efficient,
scalable business model
We operate a centralised and vertically integrated model where global
experts in our disciplines create best practice solutions and drive
innovation efficiently and consistently across our businesses. This
low-cost operating model enables us to scale our business quickly as
we grow, without adding layers of management and operating costs,
allowing us to gain maximum operational gearing at the lowest cost
per sale. It also guarantees a consistently high-quality customer
experience across our businesses.
Read more about how we create value on pages 14 and 15
04
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01
Overview
06
Supporting sustainability to
create a better world
Changing regulation, government initiatives on reducing our carbon
footprint and our customers’ concerns about sustainability, as well as
our own corporate culture to do the right thing at all times, means that
sustainability is at the heart of our corporate culture and strategy.
We manage our own high-quality recycling services for both our own
operations as well as for third-party customers, handling packaging
waste, WEEE-regulated products, plastics and metals. Last year, we
signed up to the British Retail Consortium’s Climate Action Roadmap
goal of Net Zero 2040, and we are now working on our detailed strategy
to achieve these goals.
Read more about our recycling services on pages 32 to 35
Read more about our ESG and sustainability initiatives on pages 68 to 85
07
Our amazing culture
Our excellent 4.7 star Trustpilot rating and world class net promoter
scores are the result of our enthusiastic and dedicated AOers. Our
people are at the heart of our strategy, and we inspire them to be
innovative and bold in delivering for our customers. We encourage
collaboration and innovation across our businesses and motivate
them to work at AO speed to deliver today rather than tomorrow.
This entrepreneurial culture of seeking out and developing new
opportunities keeps us growing and adapting to changes in our fast-
moving markets and relentlessly striving to do better. Our focus on
building a high-growth mindset underpins our strategic ambitions
to be one the market leaders in the global electronics market.
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 supporting our
continued growth.
Read more about our culture and values on pages 16 to 17
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AO World Plc Annual Report and Accounts 2021
05
Strategic
Report
08 Chair’s statement
10
Chief Executive Officer’s
strategic review
14
16
How we create value
Our culture
18
Our values
20 Our customers
22 Our suppliers
24 Our technology
26
UK Retail
30
Logistics
32
Recycling
36 Germany
38 Our markets
42 Our strategy
44 Key performance indicators
46 Chief Financial Officer’s review
54 Our risks
66
Engaging with our stakeholders
68
Sustainability
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“ The whole experience with
ao.com was five star from
start to finish... I will definitely
go to them first the next time
I need to shop.”
Janet
AO Customer
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]
Chair’s statement
“ There is no doubt that Covid has changed the face of
retailing for good, with the steady shift to the digital
environment accelerated by events this year. We believe
that much of this channel switch will be permanent,
and we have therefore invested early in our people and
infrastructure to support current and future growth.”
Geoff Cooper
Chair
This has been an unprecedented year for
our business, as well as for our employees,
customers and business partners. The
Covid-related restrictions presented
both a challenge and an opportunity
for all leading online retailers, and AO
was no exception. Whilst we benefited
from the shift to online shopping and
the change in customer lifestyles, AOers
have had to work hard under difficult
conditions to satisfy a significant increase
in demand and maintain our high levels
of customer service. Through their
dedication, agility and innovation, they
demonstrated The AO Way with an ever-
ready smile. We continued to deliver for
all our customers, providing the essential
electrical products that they needed
throughout the pandemic. Our people
worked swiftly to ensure that safety was
never compromised for all colleagues,
customers and partners. We thank them
for their hard work, this year and every
year, as we strive to deliver our brilliant
customer experience.
The demand for AO’s products increased
significantly at the start of the first
lockdown as bricks and mortar stores
closed and nearly 100% of the market
migrated online overnight. Under the
direction of CEO and Founder John
Roberts, and with the support of our
strong Executive and Operational
Committees, our business demonstrated
its exceptional resilience as we navigated
a ‘new normal’. This produced an increase
in Group revenue of 621% and profit after
tax of £17.1m (FY20: £0.7m), with Germany
achieving the strategic milestone of
breaking even (on an Adjusted EBTIDA
basis) during the Q3 peak trading
period. Much of that success is based
on the ground work undertaken in 2019,
establishing the ‘One AO’ platform to
embed centres of expertise capable of
being leveraged across our businesses and
refocusing on our strong cash generation.
When Covid struck, we were therefore
already in a strong position to respond
to customer demand with AO speed and
operational flexibility.
Covid restrictions and social distancing
requirements also caused disruption
in our supply chains, with some
reductions in product availability as
manufacturers struggled to keep
production lines operating in the face
of component shortages and difficult
working restrictions. We worked closely
with our manufacturers and supplier
partners to help mitigate the effect on
our customers. As a vertically integrated
company, we were also able to manage
our Logistics and Recycling operations to
cope with demand peaks. Strong partner
relationships with all our stakeholders
enabled us to work collaboratively to keep
products flowing to our customers despite
these challenges. We thank our partners
for their support and are pleased that
our relationships with all stakeholders
have deepened during this time.
There is no doubt that Covid
has changed the face of
retailing for good, with an
acceleration in the
previously established
shift to digital channels.
We believe that much of
this channel switch will
be permanent, and
have therefore
invested early in
our people and
infrastructure
to support
current
08
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Group turnover
+62%1
Group PBT
£20m
All employee
VCP
launched
and future growth. Over the year, the
Executive team initiated an in-depth review
of our Company purpose, mission and
values to ensure that our 4,400 employees,
including the many new employees we
welcomed over the year, are united behind
a common ambition. You can read more
about our purpose and culture on pages
16 and 17. Whilst business media gives
the impression that the corporate world
has only recently discovered ‘purpose’, it
has long been at the core of enduringly
successful business, and AO is no exception.
The Board also worked with the Executive
team on evolving our strategy, to ensure
we are well placed to seize the developing
opportunities from these long-term
market shifts. The review produced no
fundamental change in our strategy
but, instead, a continuing evolution as
the changes in our markets accelerate.
To meet these emerging challenges, we
foresee in the near term that “Fit for the
Future” will be our catchphrase.
What does this mean? The next two to
three years offer an exciting opportunity
for AO, and we will be investing to cement
our longer-term success. Investment
into our technology platforms will be a
priority. Our systems have served us well
as they are highly customised and flexible.
However, expanding into new products
and territories will require a higher degree
of consistency and standardisation in
our support platforms. Similarly, as our
brand recognition continues to grow, we
will be investing in our brand, marketing,
and social media to capitalise on the
growth in our market profile. We aim to
launch a creative hub in the second half of
the year dedicated to creating a unique
customer experience. Germany has also
now reached a critical tipping point in its
development – investment to increase
market share will be a strategic priority to
ensure that we capitalise on Germany’s
current success. You can read more about
our vision for AO in the CEO’s review on
page 10 to 13.
Climate change, sustainable economics
and greater inclusion have become
increasingly important to our stakeholders
and our customers. The Board engaged
with our stakeholders over the year
to ensure that their priorities are
incorporated into our longer-term vision:
details of our discussions can be found
on pages 66 and 67. AO has always had
a strong commitment to sustainability
with our own state-of-the-art recycling
plants. We have invested over £6m in
a new plastics recycling operation to
complement our established general
appliance recycling plant that is now in
operation. We passionately believe in the
circular economy where waste products
are recycled into new products, and we
are collaborating with some suppliers
with the aim of using our recycled and
refined plastics for new appliances.
Several of our suppliers are working
with us on manufacturing high-quality
components for new products from
recycled ones. Creating efficient and
high-quality recycling facilities will be a
continued priority.
We equally believe that those who have
contributed to our longer-term success
should have a stake in it. This year, we
launched our Value Creation Plan (“VCP”),
which will allow ALL employees to share
in the future value we create. The VCP
was received with some excitement by
our people and was approved by our
shareholders, with over a 90% majority.
The VCP is tied to share price targets,
which will be the output of exceptional
performance, further uniting everyone
behind our common purpose.
With so many strategic initiatives and
opportunities, I, as Chair, want to ensure
that our Board is also Fit for the Future. We
will be looking to broaden and strengthen
the skill set of the Board through the
recruitment of two additional Non-
Executive Directors. We are currently in
the process of defining the brief for these
new Directors, whilst having regard to the
diversity of our Board, and in line with wider
workforce policy. We expect to commence
this search in the coming months. With
this in mind, we may have to look further
than the traditional search advisers as, to
date, they all seem to be chasing the same
diminishing pool of people that meet this
specification.
In conclusion, I am pleased to report
that we closed the year in a strong
position, strategically, financially and
commercially. The coming year will bring
new challenges as we all navigate the
post-Covid world, but we are convinced
of the permanency of the switch to online
markets. We will build on our existing
strengths and seize new opportunities,
as we see them, with confidence and
enthusiasm. This year has demonstrated
the innate resilience of our operating
model, and we will invest to ensure that we
maintain our strategic advantages.
Geoff Cooper
Chair
30 June 2021
1. Excluding the impact of our Netherlands business, which ceased trading in the prior year.
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AO World Plc Annual Report and Accounts 2021Strategic Report Chief Executive Officer’s
strategic review
“ It has been an incredible year and I am hugely
grateful to our brilliant AOers, our leadership team,
our supportive Board and all our trading partners,
who have stood shoulder to shoulder with us as we
have navigated the unknown together.”
John Roberts
Founder and Chief Executive Officer
and most are now viewing the world with a
digital-first lens. Some are more advanced
than others in their understanding – but
our improving capabilities mean that
AO can offer them the ability to tell their
product stories brilliantly to customers
after they have invested so much in their
own R&D.
This is a significant opportunity for us
to double down on our already market-
leading content capability. We
will be investing around £15m this
year with a simple mandate to do to
product content what Pixar so
creatively and imaginatively did to
animated films, with our investment
including the opening of a new London
creative hub. We will then repeat
and leverage this capability, and the
playbooks we create, into more
categories and markets.
The attractive dynamics of our business
model and flywheel have been clear
through this period of growth. Our
infrastructure was able to flex up quickly
to realise our scale leverage and the sales
opportunity creating a step change
during the year on all metrics across sales,
profit, cash generation and return on
capital employed.
In a year like no other, it has been a
privilege to see our people come together
and truly deliver for those that matter
most – our customers. I would like to thank
all AOers for their efforts to deliver an
outstanding year of financial, operational
and strategic progress for the business.
We have relished the opportunity to
impress over 2m new customers during
the year, so that a total of over 10m
customers have now discovered a better
way to shop electricals.
Ten years of change accelerated into the
last year on all levels. At times, the forced
closure of stores moved near 100% of the
electricals market online and the nation
became ubiquitously connected as online
became a lifeline. Some people got to
experience online shopping for the very
first time, and they were impressed. We
know this because our customers tell us.
We believe that structural change will stick
and a tipping point has been reached.
Once people find a better way to do
something, they rarely go back. Who would
drive around trying to find a Blockbuster
video store once they have discovered
Netflix and Prime Video? My view is that
the online retail market for electricals will
settle this year at about 60–65% of the
market and then start to grow again as it
has every year for the last 20 years.
It’s worth remembering that the store
shopping experience is about as good
as it’s going to get, but the pace of
change and innovation means the
online experience will never be worse than
it is today.
In the physical world, retailers may use
technology to reduce cost but not, in
our view, to transform the customer
experience. Brands have realised this too
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1.9m
new UK customers
0.3m
new German
customers
1,200+
new roles created
AO has meaningful structural cost
advantages to be able to drive investment
in accelerating the experience for
customers to make it better, easier,
quicker, cheaper and more convenient
than ever before, whilst always ensuring
there is no price premium. Most companies
see this as a choice but our operational
gearing benefit from our central
investments allows us to do both. I am
super excited by our pipeline of innovation
ahead to realise this.
This year has been one of uncertainty for
all areas of life and business. We invested
early and boldly in our capacity, capability
and infrastructure to enable us to serve
our customers through such unpredictable
periods. We focused on the opportunity
that the lockdowns drove to impress so
many customers rather than on how to
make as much money as possible.
Our culture is to serve customers as if they
were our own gran and to make decisions
that would make our mums proud. We
lived this in spades and at times with
meaningful costs attached that we view
as great investments in customer life time
value. It was certainly a time to have a well
invested culture and not a time to start
building one.
Since the onset of the pandemic, we
have near doubled our UK warehousing
footprint to create the capacity for both
increased demand and the inevitable
supply chain disruption. We have created
over 1,200 new roles, and have navigated
the welcome of our new AOers to the team
while a lot of our office-based workforce
were working from home.
We have also accelerated our growth in
newer categories and have brought more
of that capability in-house to further
drive our frequency and share of wallet;
therefore, driving our flywheel faster.
There have been meaningful headwinds
for the team to cope with as well. Our
first priority was, of course, to keep our
customers and all our team safe. Covid
working practices have been expensive,
particularly in our logistics operations.
Manufacturers have faced unprecedented
challenges from supply chain to after sales
service. We have been there shoulder to
shoulder to navigate together in the best
way possible with a laser focus on our
mutual customers rather than cost. This
has also allowed us to continue to deepen
these key strategic relationships.
For context, our commitment to this
saw us invest another £60m of our cash
generation into more stock holding that
now requires 1.8m sq ft of warehousing
in the UK and Germany to house it. It’s
easy to forget the size of the things we
sell! That took our total stock holding to
nearly £140m as a Group at 31 March 2021.
We expect the supply chain challenges to
continue through the next 12–18 months
and so see this capability as a key
structural advantage. This is already
being meaningfully felt across our B2B
business as these customers realise the
benefits of working with AO as a large
integrated business with scale to provide
next day delivery.
The long and painfully drawn out process
of Brexit was also navigated during the
period. Although this had no significant
impact on our business during the
reporting period, as Covid restrictions
continue to ease and sectors reopen,
we have begun to experience some
challenges in recruiting for certain roles.
Tech developers, for example, was already
a pool of talent in high demand and has
been put under further pressure following
the acceleration to a digital environment.
We are also experiencing some
uncertainty around the procurement of
drivers following the sustained increase
in home delivery demand as a large
proportion of these drivers are EU workers
who may have returned to their home
country following Brexit and Covid.
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AO World Plc Annual Report and Accounts 2021Strategic Report Chief Executive Officer’s
strategic review continued
We entered FY21 having resolved the
key fundamental issues in our German
business so that growth was a good
thing. Our achievement is not to be
underestimated: had Covid happened a
year earlier, it would have been challenging
for this business to meet increased
demand and deliver for our customers
as we were not operating as efficiently as
possible. The refocused team in Germany
responded brilliantly to the same
challenges as the UK, and grew sales by
81% achieving profitability at an Adjusted
EBTIDA level during our third quarter.
Looking ahead our focus in Germany
is now about growth with discipline. The
market opportunity in Germany is twice
that of the UK and we have now worked
out how to realise it. We will, therefore, be
investing all incremental profit in Germany
to accelerate our growth and realise the
opportunity. We are leveraging our 20 years
of experience and our learnings during
that journey through to operating as One
AO and repeating proven playbooks on
all core elements while respecting cultural
differences where appropriate.
Over recent years, we have complicated
our business significantly with new
products, services, geographies,
acquisitions and additions to our business
model, so this year we have also spent a
lot of time considering our bench strength,
our structure and our ways of working, and
have made investments accordingly. We
have invested in our teams, processes and
people development; we will continue to do
so as we grow.
Our AO magic happens when informality
meets discipline and when our intuition
compounds the data. How we set ourselves
up to be a repeatable model as we scale,
delivering playbooks beyond our current
categories and markets has taken a lot of
commitment from our leadership team.
Building our foundations to become a
global electrical retailer has been a learning
journey as we grow. I underestimated the
scale of transition from theory to practice
but am now delighted we stayed the course.
It’s a big part of the invisible value we’ve
been creating in the background that will
make growth a lot clearer in the future.
For those customers who don’t shop
online, we will find new and different ways
to enable them to still benefit from the AO
experience. An example is our trial of five
“store within a store” in partnership with
Tesco. Launched in November, these stores
have largely been closed due to Covid but
the trial is raring to give customers the
12
convenience of browsing and ordering
large appliances for delivery while taking
away smaller appliances with their grocery
shopping. They will be met by the same
passionate AO customer service we’re
known for online, with the convenience
of being located where they are already
shopping, again with far superior cost
dynamics than a standalone store.
Our recycling and plastics plants are now
back to full capacity after some in-year
Covid-related famine followed by feast
and associated indigestion. We have
been working for the last five years on the
full cycle economy and hope in the year
ahead to finally be selling cradle-to-cradle
appliances manufactured in part from the
output materials of products collected
from our customers.
We believe that customers increasingly
care about this area of business and the
legislative direction of travel certainly now
supports the investments we have been
making for many years on the basis that it
was the right thing to do and would make
our mums proud. I believe, going forward,
we will start to get the reputation we
deserve in this area and it will be great fuel
for our flywheel.
Our B2B business was in its infancy in the
prior year and this year will record sales
over £100m. It turns out that organisations
like insurance companies, government,
housebuilders, student accommodation,
kitchen manufacturers and retailers, as
well as the army of SMEs that power the
UK economy, all like having a better range,
delivery proposition and AO service for
no price premium. This really is as simple
as doing what we do for grans in retail,
for business customers and so really
drives our flywheel. We are carrying good
momentum here into the new financial
year with lots of interesting and exciting
opportunities ahead.
We had challenges in the year in our
mobile business and for all the tailwinds
Covid delivered across the Group,
our mobile business took some of the
biggest headwinds in a perfect storm
as customer behaviour changed. We
have now fixed this by amending our
proposition and introducing more
sophisticated commercial controls and
have learned a lot from the process. It has
really crystallised our view of the mobile
market and we remain totally committed
to continuing to disrupt on behalf of
customers in this area in the year ahead.
By far the weakest element of our business,
in my view, is our brand awareness. I believe
it represents our single biggest opportunity.
Our brand investment strategy is to get
customers to love AO. That is not a single
bullet and will not be achieved by shouting
at them via TV advertising. We will be
investing with a long-term horizon in a
spectrum of projects that differentiate
AO and allow us to create activation and
participation with customers.
Our commitment to the AO Arena in
Manchester is one example, the AO Bear
is another, and our partnerships with
influencers to tell our recycling story
another. We will back ideas that we can
build on over time and we will be happy to
push some boundaries to be different and
reinforce what AO is about.
Our ultimate differentiator is our people
and so I was very proud this year that
our remuneration chair, Luisa Delgado,
was brave enough to help us design and
implement a unique value creation plan,
which will allow all AOers to share the
exceptional value that I believe we can
create together.
We want our people to think like owners
and understand how and why they are
investing for the long term. To do that,
it rather helps if they act as owners and
so the Value Creation Plan will deliver for
everyone in the business if we achieve the
goals we have set out over the next five
years as part of our strategic plan.
What is good for customers is good for
our people and our shareholders, and so
we will always put long-term revenue and
reinvestment in the business ahead of
short-term profits. This drives our flywheel
harder and faster, while building huge
customer loyalty towards our business
over time.
I would like to end where I began. It
has been an incredible year and I am
hugely grateful to our brilliant AOers, our
leadership team, our supportive Board
and all our trading partners who have
stood shoulder to shoulder with us as we
have navigated the unknown together.
We will cement this step change in
our business and focus on the growth
opportunities ahead. I look forward to
seeing what more we can all do together
as we position ourselves to be The Global
Destination for Electricals.
John Roberts
Founder and CEO
30 June 2021
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13
Strategic Report w
How we create value
What we do, how we do it and how we create value is
best illustrated through the AO Way Flywheel.
This is how we will achieve our mission to be the
global destination for electricals.
e n e w o p p o r t u n i t i es
g
a
r
e
v
e
L
5.
Innovate and
invest bravely
Choices
4.
Efficiencies
through
investment
Increase
profitability
6.
Grow our customer base
1.
Brilliant customer
proposition and
brand values
3.
Efficiencies
from scale
2.
Increasing
sales and
market share
1.
2.
Customers are at the heart of our
strategy. Everyone at AO is dedicated to
giving our customers the best possible
experience, from finding the right product
at the right price, to delivery, installation
and recycling, all with an AO smile.
Once customers experience The AO
Way and a better way to shop online for
electricals, they return to us for other
category purchases and additional
services like installation and peace of
mind warranties. They are proud to share
their exceptional customer experience
with family and friends, building our
brand presence through personal
recommendation and digital channels.
3. As we build scale, our operational
gearing means that each sale becomes
increasingly profitable. Our commercial
partnerships deepen, resulting in
further enhancement of our customer
experience in choice, pricing and services.
The marginal costs of delivery, installation
and recycling all decrease, boosting
profits for reinvestment.
4. Technology and innovation continually
refresh and enhance our customer
experience, operational efficiencies and
competitive positioning. Rising profits
give us choices and create a virtuous
circle of investment, innovation and
customer satisfaction.
5.
We can then choose to fund further
investment in our other businesses,
including recycling, mobile, B2B,
logistics, financial services and brand
development. These feed back into
enhancing our customer experience, as
well as underpinning our reinvestment in
technology.
6. The virtuous circle driven by customer
focus, operational leverage, and
profitability underpin longer-term
growth ambitions through broadening
our product offerings, expanding our
customer experience into new
territories and applying continuous
innovation to our digital
experience. This is what makes
our flywheel fly.
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AO World Plc Annual Report and Accounts 2021 w
Key resources
Our competitive advantage
For over 20 years, we have been developing and refining our business model with a laser
focus on brilliant customer service that sets us apart from the competition. That focus on
the customer feeds our flywheel and permeates everything we do and how we do it. Creating
a unique customer experience supported by quality services and choice helps build a moat
around our business and strengthens our competitive advantage.
• Our amazing culture: Our Trustpilot
ratings (4.7 out of 5 on over 250,000
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.
How we create value
Who The AO Way benefits
Our 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 flywheel
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.
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 awake lives 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
We take a long-term view of how to
build value in our business. We are
entrepreneurial, looking for new
ways to connect with our customers
and drive growth by investing in new
products, services and territories.
For over 20 years, we have returned
consistent double-digit growth for
our share owners through our passion
and dedication to our customers.
Our business has the unique
ability to scale quickly with strong
operating leverage inherent in our
vertically integrated model which
allows us to control our cost base
and create value.
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AO World Plc Annual Report and Accounts 2021Strategic Report w
Our culture
One AO – where brilliant people deliver incredible things
Our AO “let’s go” culture is how we deliver for our customers and make
AO a great place to work. Our exceptional 4.7 star Trustpilot rating and
NPS results don’t just happen by accident, nor do our expanding
competencies. Behind every happy customer is around 4,400 AOers,
across two countries, making our customers’ lives easier
by helping them brilliantly.
How we will drive our culture
To achieve our mission, purpose and
strategy, we need a high-performing
culture and the values that underpin this
have to be real for all AOers.
This requires a cultural step change whilst
retaining what’s made AO successful for
21 years, and we will achieve this by:
• Bringing AO to life – we’ll help all
AOers connect with and understand
our culture by sharing practical
experiences of our culture and values in
action in local workshops.
• Living our values – we will bring the
values to life by using role models to
show how are values are lived each
day, helping AOers build trust in them,
create shared understanding and
provide guidance.
• Changing behaviours – our leaders will
be empowered to manage our business
and guide their teams by using the
values in a practical way every day.
• We’re always AO – our customers,
suppliers and partners’ experience
of interacting with AO should be
consistent with our culture and values.
• Measuring our progress – we’ll use our
people data on engagement, learning,
turnover, inclusion and well-being, as
well as feedback, to tell us whether
our actions are driving change
and understand whether what
we say matches what we do.
To operate as One AO, we organise
ourselves under three distinct pillars:
Centres of Expertise, Operations, and
Enabling Functions. Our Centres of
Expertise allow us to scale. They are
global experts in their disciplines who
create the playbook and drive innovation,
only deploying what’s necessary locally.
Playbooks give consistency in our
operations and standards.
Operations teams are responsible for the
on-the-ground execution, tasked with
delivering amazing efficient service and
include business units that have not yet
scaled internationally.
Enabling Functions are responsible for
servicing the Group, setting and driving
best practices and standardisation to
create leverage.
Our low cost, One AO operating model
enables cost efficient scale to be built at
pace as we grow. Operating as One AO
and stitching the different parts of our
business, together results in decisions that
mean we serve our customers brilliantly
and benefit the Group as a whole.
Our purpose
“ We make customers’
lives easier by helping
them brilliantly.”
We are a One AO team where everyone
contributes. Operational excellence is
part of our DNA; our service is hassle
free with total support and lifetime value
for customers. We make the experience
intuitive, simple, easy with amazing
content and we’re always convenient at
every step of the journey. We offer a full
range that’s always available, with the best
price, simple payments and a full service.
We’re always human, we care, we are fair
and we’re always there.
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 its people to collaborate
and innovate, supported by the right
information and tools to do their job;
and
• empowers its people to thrive by
creating an inclusive environment
where people feel they belong and can
be their true selves.
We 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 are at our best
when our backs are against the wall. 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 and create
magic in the moments that matter so
that we constantly exceed our customers’
expectations 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, mission, values and business
strategy 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.
One AO
We can only realise our full potential by
working and thinking as a One AO team;
we are one united team, working together
towards shared goals with shared values.
This means we are more than the sum of
our parts.
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“ The people are what make
AO - a never ending line of
helpful AOers who want to
share knowledge and help
one another.”
An AO Employee
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AO World Plc Annual Report and Accounts 2021Strategic Report Our values
18
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AO World Plc Annual Report and Accounts 2021Strategic Report Our customers
Every AOer is committed to being
magical in the moments that matter
for our customers
“ First class, really
helpful and just
brilliant all round.
I’ve told a few people
and at least one has
jumped online to
place an order.”
Sean, an AO customer
UK NEW CUSTOMERS VS REPEAT CUSTOMERS %
r
e
b
m
u
n
r
e
m
o
t
s
u
C
New
60%
40%
30%
20%
50%
10%
0%
Q1 Q3 Q1 Q3
0
1
Y
F
0
1
Y
F
1
1
Y
F
1
1
Y
F
Q1
2
1
Y
F
Q3 Q1 Q3 Q1 Q3
3
4
2
1
1
1
Y
Y
Y
F
F
F
4
1
Y
F
3
1
Y
F
Q1 Q3 Q1 Q3
6
5
1
1
Y
Y
F
F
6
1
Y
F
5
1
Y
F
Q1
7
1
Y
F
Q3 Q1 Q3 Q1 Q3
8
9
7
1
1
1
Y
Y
Y
F
F
F
8
1
Y
F
9
1
Y
F
Q1
0
2
Y
F
Q3 Q1 Q3
0
1
1
2
2
2
Y
Y
Y
F
F
F
First order time
Repeat
Repeat %
AO.COM ON SOCIAL MEDIA
TRUSTPILOT
+260k
reviews
FY20: 150k
FACEBOOK
+1.87m
followers
FY20: 1.8m
TWITTER
+76k
followers
FY20: 66k
INSTAGRAM
+77k
followers
FY20: 31k
4.7/5
average
rating
+3m
impressions
+210k
impressions
+240k
impressions
Data during w/c 22 March 2021. Impressions are
defined as the number of times a social media
post is viewed in users’ social media feeds.
DE NEW CUSTOMERS VS REPEAT CUSTOMERS %
r
e
b
m
u
n
r
e
m
o
t
s
u
C
30%
25%
20%
15%
10%
First order time
New
Repeat
Repeat %
5%
0%
Q3 Q4 Q1 Q2
6
5
1
1
Y
Y
F
F
6
1
Y
F
5
1
Y
F
Q3
6
1
Y
F
Q4 Q1 Q2 Q3 Q4
6
7
7
1
1
1
Y
Y
Y
F
F
F
7
1
Y
F
7
1
Y
F
Q1 Q2 Q3 Q4
8
8
1
1
Y
Y
F
F
8
1
Y
F
8
1
Y
F
Q1
9
1
Y
F
Q2 Q3 Q4 Q1 Q2
0
9
9
2
1
1
Y
Y
Y
F
F
F
0
2
Y
F
9
1
Y
F
Q3
0
2
Y
F
Q4 Q1 Q2 Q3 Q4
0
1
1
2
2
2
Y
Y
Y
F
F
F
1
2
Y
F
1
2
Y
F
NET PROMOTER SCORE1 FY21
85
UK2
average
(FY20: 84)
89
Germany
average
(FY20: 89)
1. NPS is a industry measure of customer loyalty
and satisfaction.
2.
UK is based on a weighted average of ao.com
and MPD.
UK CUSTOMERS1 ('000S)
GERMANY CUSTOMERS1 ('000S)
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1,400
1,200
1,000
800
600
400
200
0
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
FY16
FY17
FY18
FY19
FY20
FY21
1. A customer is defined as an individual customer
who has purchased through us via ao.com in the
UK and ao.de in Germany.
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21
We work collaboratively with our
suppliers building strong relationships...
Our suppliers
Our suppliers are key to ensuring that we
consistently deliver a brilliant customer
experience. We work with a range of
suppliers, from global manufacturers with
household names and international mobile
network operators to national parcel
delivery services, to individual contracted
drivers and small local businesses who
provide the two-man home delivery service
for our products. We also work with DPD and
Collect+, to whom we outsource smaller
product deliveries, NewDay, our credit
provider and finance partner, and Domestic
and General, for whom we promote product
protection plans as agent.
Our belief is that both we and our suppliers
benefit the most where we have long-
term mutually supportive relationships
in place; we recognise that driving a fair
bargain rather than a hard bargain will
build long-lasting and fruitful relationships.
We are careful to listen to the concerns
of all suppliers and act accordingly. 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 can 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.
Manufacturer suppliers
Customers begin their journey with us
when they start searching for a product.
We have long-standing relationships with
all the leading global manufacturers
of MDA products, who help us provide
customers with a wide range of products
and price points so that they can choose
the right product for their needs. Our
partnerships with our manufacturer
suppliers go deeper than just product
distribution. We are working with several
manufacturers on innovation in recycling,
turning waste plastic into new high-quality
product components such as base plates,
ducts, grill covers and connectors as part
of our cradle-to-cradle customer service
philosophy. Other manufacturers are
collaborating with us on enhancing the
digital experience for customers in the
post-Covid world.
Product delivery and installation
Contracted drivers and delivery crews
are the face of AO when they visit our
customers and, as with all our suppliers,
we expect them to deliver great service.
In return, they receive competitive market
rates and have the opportunity to grow
their own businesses.
Corporate partners
We partner with several corporate
entities to supply ancillary services
including product protection plans,
services, customer financing and
mobile network contracts.
Our Mobile Phones Direct business,
acquired in December 2018, offers
a range of mobile phone contracts
with the network operators Vodafone,
O2 and Three, and handsets from
manufacturers such as Apple, Samsung,
and Sony. Mobiles are an indispensable
product for most of our customers and
add an important customer touch point
and entry into our wider product range.
NewDay has worked with AO Finance
since 2019, offering customers the
ability to spread the cost of purchases
through easy and affordable payment
options using a flexible finance account.
Customers have access to a range of
convenient finance options so they can
repay their balance in ways that suit them.
Customers want options whilst shopping,
and AO Finance, in partnership with
NewDay, gives them lots of choices.
Domestic and General have been a
trusted provider of service plans and
insurance for millions of domestic
appliances for over 100 years and are
the UK’s leading provider of appliance
breakdown protection for a broad range
of domestic products and consumer
electronics, ranging from televisions
to washing machines. AO has been
partnering with Domestic and General
since 2004 to provide peace of mind for
millions of our customers.
Our recycling facilities are amongst
the most advanced in the UK, constantly
innovating and improving our cradle-
to-cradle customer experience. We
constantly seek to improve our best-
in-class recycling facilities through
partnerships, third-party providers of
significant plant and infrastructure to
meet our exacting standards.
22
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Our suppliersAO World Plc Annual Report and Accounts 2021
“ ...We continue to work with AO in developing
content that supports the consumer’s purchase
journey, delivering information that allows the
consumer to discover the best product for
them and their family’s needs.”
Gunjan Srivastava,
BSH
“ Our long-standing partnership with AO
has always been focused on delivering
an exceptional and innovative consumer
experience … Both our companies continue to
invest in innovative shopping, supply chain and
service solutions that always put the shopper
first. Importantly, both AO and Whirlpool
colleagues worked together throughout the
whole lockdown period to continue to provide
ways to serve and care whilst prioritising safety
for our colleagues and consumers.”
Andrzej Tuleja, Managing Director,
Whirlpool UK and Ireland
“ We have been supporting and supplying the
business for some time now and, with the help
offered and provided by the depots, over the
years, we have found it very beneficial to run a
multi-crew.
It can be very challenging at times but through
hard work and guidance from the business, the
multi-crew scheme has allowed us to start and
grow a business.”
Barry and Simon,
Multi-crew
...with a laser
focus on
our mutual
customers.
AO World Plc Annual Report and Accounts 2021
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Strategic Report
Our technology
Delivering a brilliant customer
experience relies on brilliant
underlying technology...
Our current core technology systems are
a blend of commercial off-the-shelf and
custom-built components. This affords
us a loosely coupled, highly configurable
enterprise technology estate that is also
integrated with our key suppliers, with a
shared ownership model for integrations.
We continue to invest in technology and
innovation to create a simple, intuitive
shopping experience to help. Customers
are looking for information relevant to their
shopping needs so that they can quickly
and easily find the product that meets
their needs.
We regularly work with suppliers to improve
integrations at both sides, offering advice
and support on best practice. Cloud
services are employed 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.
The flexibility of our current systems
served us well during a year of Covid-
related challenges and unprecedented
customer demand, allowing us to adapt
quickly and agilely to the huge changes
in our supply chain and the surge in
demand as customers moved to full online
shopping during lockdowns. As we added
warehousing space and new outbases, our
technology systems ensured that we were
able to keep delivering for our customers.
Through technology, we’re improving
the customer proposition further with
additional delivery capacity, quicker
payment options and more services. Our
technology systems allow us to “sweep”
the market several times per day to ensure
that our prices remain competitive and
that our customers never miss the best
price in their purchase.
Delivering a brilliant customer experience
relies on brilliant underlying technology.
Making our customer journey simple, clear
and enjoyable is a fundamental part of our
laser focus on the customer experience.
24
We are also using technology to create
unique product experiences that bring
products to life on our website and in our
Tesco “store within a store” trials. Product
displays feature interactive screens that
allow customers to “interrogate” the
product to learn about features, how it
will fit with their lifestyles and compare
product performance. We have several
new initiatives that are being tested, which
we expect to roll out in the coming year.
This year, we have focused on applying
technology to improve our operating
efficiencies, brand presence and customer
experience. Some of our initiatives over the
year included:
• Moved to a One AO ‘centre of expertise’
for marketing, e-commerce and
creative, integrating Germany & MPD;
• Enhanced our brand identity by
updating assets right across the
customer journey to support the new
visual identity and tone of voice in both
UK and Germany;
• Developed an award-winning algorithm
to increase personalisation across our
websites;
• Improved our customer online
purchase experience, resulting in
increased completed purchases; and
• Significantly increased SEO traffic and
social media effectiveness.
Priorities for FY22
As an online electrical retailer, technology
underpins all aspects of our customer
lifetime journey, from the customer’s
experience to logistics and recycling.
As we continue to grow and expand
internationally, technology will play an
essential role in ensuring that our new
territories will be able to access our UK
centres of expertise easily and efficiently
to support them. This approach keeps
overhead costs low.
As a rapidly growing Company, our
technology systems need to grow with us
and retain efficiency and flexibility across
borders while maintaining a consistently
excellent customer experience. Over the
next few years, we will be investing in our
technology systems to ensure that they
are fit for our future ambitions. We are
transforming some of our key systems
and will replace some of our custom-built
systems and provide modern back-office
support.
Technology will also play a key role in
enhancing our customer experience.
Through interactive technology, our
customers will soon be able try new
products, visualise how they work and
interrogate our product range to find the
exact product that meets their needs.
Appropriate personalisation will make
the customer purchase journey more
intuitive and frictionless. Manufacturer
suppliers increasingly consider digital as
their preferred customer environment. We
are working with our suppliers to develop
unique customer content produced by
our new creative hub. Technology
will continue to be at the heart of our
customer experience.
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AO World Plc Annual Report and Accounts 2021 Delivering a brilliant customer
experience relies on brilliant
underlying technology...
...and we keep
innovating
to continually
improve.
AO World Plc Annual Report and Accounts 2021
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Strategic Report UK Retail
We continue to grow and
innovate our proposition...
Business overview
Established over 20 years ago, our UK
business is one of the leading retailers in
the online electricals market, selling a full
range of MDA products, complemented by
an ever growing range of SDA, computing,
AV, mobile phones, consumer electronics,
gaming, and smart home products. Our
UK business benefits from significant
economies of scale, generating strong and
sustainable cash flows, which underpin our
wider international growth strategy.
AO.com is the main business in UK Retail,
which continues to grow and innovate.
UK Retail also encompasses Mobile
(MobilePhonesDirect), B2B selling to
housebuilders and other industries
requiring scale MDA installations,
consumer financing, warranties and
services such as installation and rental.
Review of the year
AO.com had a another highly successful
year, coping well with the surge in demand
as customers massively shifted to online
shopping during the Covid periods of
lockdown. In the UK, we introduced
1.9m new customers to The AO Way of
buying electricals, despite the significant
challenges of remote working for our
office-based people. The lockdown also
caused significant supply chain disruption
to product development, component
availability and delayed orders. We coped
with these challenges with energy and
innovation, with revenues increasing
significantly year-on-year, as well as
winning new supply contracts from our
business partners. Good relationships
with suppliers, coupled with our laser focus
on customer service, helped us increase
both sales and market share during a
turbulent year.
As the market shifted online, we invested
early and boldly, adding new warehousing
space and vehicles, enabling us to stay
ahead of supply chain inefficiencies
that would have impacted our ability to
deliver the brilliant customer experience,
which is embedded in our culture. The
step change in customer demand, supply
chain inefficiencies and product range
shortages were all challenges that we
successfully managed through prudent
investment, the creation of new roles,
improved operational agility and working
in The AO Way, managing significant
growth while maintaining our world-class
ratings for customer satisfaction at +801.
Our UK business had an exceptionally
strong year, increasing market share in
MDA by 8 ppts to 23 %, making us one
of the market leaders in our category.
We have also accelerated our growth in
newer categories, with our online market
share in SDA rising to 5%. Our market
share in televisions and audio visual also
showed strong growth, achieving total
market shares of 6% and 4%, respectively.
These are significant milestones in our
strategy as a global electricals retailer.
We continue to invest in enhancing our
customer experience through increased
personalisation, investment in our online
brand and improvement in our website
functionality. We are investing in our
customer experience by developing world-
class product content and information
in partnership with our manufacturers
to create a unique and trusted online
retailing experience.
1. Net Promoter Score (“NPS”) is an industry
measure of customer loyalty and satisfaction.
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AO World Plc Annual Report and Accounts 2021 ...introducing
1.9m new UK
customers to
The AO Way.
AO World Plc Annual Report and Accounts 2021
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Strategic Report UK Retail continued
During the year, we also launched a
trial with Tesco opening AO concession
stores in larger format Tesco stores to
showcase our brand and amazing services
to customers in person. Although these
stores were affected by Covid restrictions,
we are pleased with the reaction from
customers so far and hope to be able to
build on our good relationship with Tesco.
AO Mobile (Mobile Phones Direct)
completed its integration into the wider
Group, following our acquisition of the
business in December 2018. We currently
offer competitive network contracts from
O2, Vodafone and Three across a wide
range of handsets. Mobile experienced
higher levels of cashback redemptions
throughout the period, which we consider
are Covid-related, and higher levels of
early churn on contracts, and the business
has adjusted its sales model to consider
these new behaviours and refined the
customer proposition. We continue to work
collaboratively with our network partners
to rebase our growth strategy for the
coming year.
Our B2B division experienced another
good year, despite the effect of house
building delays over the year, as
construction sites were closed under Covid
restrictions. We now work in partnership
with four of the top five housebuilders,
where our next day logistics capabilities
offer maximum flexibility to housebuilders
managing complex workflows. We are
also exploring B2B opportunities in new
markets.
Our Financial Services business also
experienced good growth this year, as
the increase in our customer numbers fed
through to growth in additional services,
financing and warranties. Additional
product lines in consumer electronics,
mobiles and tablets were brought under
our service and warranty contracts,
adding to our cradle-to-cradle customer
experience and further expanding the
reach of our additional services. Growth
in finance was somewhat constrained
by credit contraction in the uncertain
Covid period but our strong partnership
with Domestic & General (AO Care) and
NewDay (AO Finance) helped us ensure
high customer service levels throughout
this challenging period. We continue to
work closely with both partners to cement
our vision for these products as part of our
customer experience and adding to our
international expansion strategy.
AO rental provides disadvantaged
customers in housing association
properties with the ability to rent key
domestic products at an affordable weekly
rate. We passionately believe that everyone
deserves access to necessary appliances
and wider electricals that can help create
a better living environment. We are, without
doubt, ahead of the curve but, particularly
with the current landscape, we see a wider
understanding by other parties developing
and a desire to work with us to roll out and
“ We make
customers’
lives easier by
helping them
brilliantly.”
28
AO World Plc Annual Report and Accounts 2021
really make a difference for those who need
this product most.
Priorities for FY22
Our strategy is to be the destination
for electrical retailing that offers many
opportunities for continued growth in our
core MDA market, as well as in new product
lines, such as personal care and gardening
products, and extending our reach in SDA,
AV and consumer electronics.
With mobile now fully integrated into our
culture and systems, the Mobile Phones
Direct brand is well placed to grow going
forward as our contract mobile offering.
We believe, however, that over time, and
with the development of eSIM, network
contracts and handsets will become
segregated, and customers will want
to purchase mobiles in a different way.
Accordingly, we plan to improve our
handset only offering on ao.com.
Additional services and warranties that
complement our product offerings
also offer opportunities to enhance
to the AO customer experience and
customer lifetime value. The expected
growth in the housing market will also
provide a promising environment for our
B2B business working with the leading
housebuilders and we are exploring other
routes to market in the B2B field.
We have invested significantly in extending
our brand awareness, and this will continue
to be a key area of focus in the near term
with one of our initiatives being the launch
of Bear (our AO-branded green teddy).
We are experimenting with new ways of
reaching customers who still prefer to view
products in a physical location and are
trialling our “store within a store” concept
in five Tesco shops. Customers can view
products in a home setting and use
interactive technology to visualise how a
range of different products could best suit
their needs in an immersive AO experience.
Visualisation, interactive product
information and a creative customer
experience will be further areas of focus
as we invest in continually improving
and enhancing our brilliant customer
experience. Digitalisation will transform
how customers buy their electrics, and
we are at the forefront of leveraging our
position as a leading online retailer.
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wwwwwww-
wwwwwwwwwwwwwwwwwwwww
FY21 UK Net
Promoter Score
85
c.970,000
fridges and freezers
sold during FY21
in the UK
Excellent Trustpilot
score of
4.7
1.
FY21 average score based on an ao.com and MPD turnover weighted average.
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AO World Plc Annual Report and Accounts 2021Strategic Report Logistics
We’ve shown that we can
successfully scale AO...
Business overview
In the UK, our market-leading in-house
logistics infrastructure enables the delivery
of millions of products a year, nationwide,
seven days a week, to customers on behalf
of AO’s Retail business and a growing
number of third-party retail clients.
Our scalable delivery network operates
from our hub in Crewe, comprising our
warehouses and distribution centres,
with a total of over 850,000 sq ft of space,
and via our network of 22 delivery depots
(“outbases”) across the UK. We also have
an additional 500,000 sq ft of storage
capacity in Stafford and Stoke. Our current
fleet comprises around 110 trucks, 840
home delivery vans and 300 trailers.
The services we offer to the end consumer
are broad; from the basics of unpacking
and inspecting customers’ products, to
complex duel fuel cookers, American
side-by-side fridges, integrated appliance
installations, hanging TVs 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 fast
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, with 15 outbases and
customer service centres across the
country and we are building our third-
party delivery proposition.
30
Review of the year
Nowhere was the value and benefit of
our well-invested culture more evident
than in our logistics business, and we
are incredibly proud of our people and
their achievements over the reporting
period. Heightened and sustained
levels of demand for AO’s products and
services coupled with social distancing
requirements resulted in numerous
operational challenges and inefficiencies.
Our teams navigated these quickly
to ensure we could continue to deliver
products and maintain levels of service
whilst always ensuring that the safety of
our customers, our people and our delivery
partners was prioritised. We are grateful to
all our front line AOers for their dedication
and commitment.
We focused on developing new ways of
working with enhanced safety and hygiene
measures to protect our drivers and those
in front line operational roles, whether
in our warehouse or making deliveries.
Our distribution network remained open
throughout the pandemic; however, for a
time, we paused some of our additional
services, for example the installation of
certain products and indoor recycling
collections, to minimise the amount of time
drivers were in customers’ homes. We also
moved to doorstep delivery of products,
although our people and drivers were
empowered to safely help the vulnerable
or those for whom doorstep delivery was
not an option. We reintroduced services
gradually once we were confident that
we could mitigate the risk to our people,
drivers and customers.
To facilitate our rapid levels of growth,
during the year, we invested early in our
infrastructure and opened four new
warehouses, providing over 600,000 sq ft
of additional space, and five new outbases.
The additional warehousing capacity has
helped the retail business increase its stock
holding by over 120% during the reporting
period. This has helped to mitigate issues in
the supply chain and ensured we are able
to range the widest possible assortment
of stock to consumers. The additional
outbases allowed us to deliver increased
volumes and be nearer to our customers
providing efficiencies from reduced mileage
between deliveries. In addition, we have
nearly doubled the number of our delivery
vehicles on the road when compared to our
2019 peak trading period. We significantly
increased the number of self-employed
drivers/multi-crews to support ongoing
demand and created an additional 500
operational roles in our warehouses to
satisfy our peak demand period.
We enhanced our self-employed driver
model during the year by ensuring
drivers who deliver a consistent five-star
service (as rated by our customers), are
paid higher rates. To deliver products to
our customers, we source independent
contractors to make these deliveries for
us. Drivers are free to accept or reject
work offered and are under no obligation
to provide the services personally. In fact,
many of our contracts are with drivers or
companies who run their own businesses
supplying a number of “sub-crews”, which
they engage to provide delivery services
for us.
As we adapted to new ways of working
for a short period of time at the start of
the first lockdown, we paused offering
our logistics services to new third-party
clients but continued to maintain our
services to our existing base. We continue
to review our logistics offering to ensure
that it is aligned not only with the needs
of our AO retail customers but also those
of our third-party clients as we continue
to target additional clients and volumes
and leverage our market-leading two-
man delivery proposition and excellent
customer services into new areas.
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AO World Plc Annual Report and Accounts 2021 22
outbases across the
UK, driving efficiencies
of scale
UK warehousing
capacity increased to
1.3m sq ft
Delivery seven days a
week; next day delivery
available for over
90%
of UK postcodes
Crewe distribution centres
Other distribution centres
Outbases
...increasing
speed and
efficiency.
AO World Plc Annual Report and Accounts 2021
31
Priorities for FY22
Our investment in people and
infrastructure provides us with a strong
foundation to continue to grow and
develop. Over the next year, we will look
to open additional delivery depots and
further increase our warehousing space
to ensure that the momentum achieved
during the pandemic can be maintained
to support the shift to online. We will refine
our infrastructure to have the best, most
efficient and customer-centric network in
the UK and will build on our learnings from
the last 12 months. We will also continue
to innovate, improving service and
revolutionising proposition and customer
choice. In addition, the development of
electric vehicles on our home delivery fleet,
whilst reviewing the use of fossil fuels in our
trunking operations, will be a priority.
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Strategic Report Recycling
In the true AO Way, we have taken
a problem and innovated...
Our goal is to make new fridges and other white
goods out of old ones by using the plastics we
recycle. We are uniquely placed to make this happen
because of our vertically integrated structure and
our strategic relationships with manufacturers
through our retail business.
Business overview
Delivering for customers with pace and
passion is at the heart of everything AO
does. How we help them to dispose of
electrical goods responsibly at the end of
their useful life is just as important as what
happens when they decide to buy from us.
Recycling The AO Way
We own and run one of the biggest fridge
recycling plants in Europe. AO Recycling
in Telford is where we process – to leading
industry standards – all the old fridges and
other white goods (also known as waste
electrical and electronic equipment or
WEEE) that we collect from customers.
Opened in 2017, the plant recycles old
white goods collected from our customers
and third parties. The plant is able to
process all major domestics appliances,
but specialises in refrigeration products
including large American fridges capturing
gases and oils harmful to the environment.
AO Recycling also has its own highly skilled
repairs team, which refurbishes appliances
delivered to the plant that still have a
useful life. These are then sold via trade or
our own outlet shops.
We also recycle packaging collected from
customers’ homes. We stay true to our
values by delivering and collecting using
our own logistics company so just one
journey is made – which, of course, is better
for the environment.
Cradle-to-cradle electricals
Our bigger goal is one of true circularity,
backed by continued and significant
investment in the latest technology;
pushing the boundaries of what is
technically possible.
In 2019, we opened the UK’s only plant to
process plastics from fridges and other
appliances, using the latest technology
and science to create the purest form of
recycled fridge plastic.
Our plastics plant separates, cleans,
sorts and enhances plastics from the old
appliances we’ve processed for another
life in a new product.
The plant creates an economically viable,
high-quality plastic, which could be used in
new white goods and electronic products.
It can also be recycled again and again.
Our output materials are regularly
above 99% pure, consistently above
97%, against a market where 90–95% is
deemed acceptable.
See pages 68 and 69 of our ESG report for
more details on our environmental strategy.
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AO World Plc Annual Report and Accounts 2021 In the true AO Way, we have taken
a problem and innovated...
...turning our
solution into
a point of
difference.
AO World Plc Annual Report and Accounts 2021
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Strategic Report Recycling continued
Review of the year
The year under review has been like no
other for the recycling industry but the
resilience of our recycling team has been
remarkable, and our values really shone
through. Our priority was, and continues
to be, to ensure the safety of our people,
customers and partners and we quickly
adapted our operations to comply
with social distancing measures and
improved hygiene requirements in line with
government guidance.
A significant challenge for our recycling
business over the review period was
managing the dramatic spikes in volumes.
A high proportion of the appliances
we recycle are derived from our local
authority clients where we utilise our
UK-wide logistics network to collect from
them, helping us to also drive efficiencies
across the Group. The decision by local
councils to close household waste
and recycling centres during the first
lockdown, coupled with a reduction in
our own collections from AO customers
as we limited in-home collection services,
resulted in a significant fall in the volume
of products to our recycling and plastics
plants. For a short period of time at the
start of the pandemic, we therefore had
to significantly reduce our operations.
We did, however, use this time as an
opportunity to review our operations,
particularly in our plastics facility. We
optimised and simplified processes where
possible, made some small investments to
improve our infrastructure and undertook
some engineering work.
Once our plants were operating normally
and we commenced doorstep recycling
collections, our volumes from our AO
customers dramatically increased in line
with the growth in AO’s sales and built-up
supply. These volumes, together with those
from local authority clients, means we now
continue to operate at full capacity. The
maintained levels of high volumes have
resulted in the need to for us to send excess
products to third parties for processing,
which has increased our costs. We pride
ourselves on our high levels of customer
service and environmental standards,
which we have maintained throughout the
reporting period and so in choosing third
parties to process our excess products
we have sought to use those, which most
closely mirror our own standards.
34
Here’s how we recycle fridges, which we believe is one of the safest,
cleanest and most efficient processes in the UK…
01
02
The refrigerant and oil inside the motor
are carefully removed. To do this, we
manually drill into the fridge’s internal
workings to drain everything away.
The motor is removed
using giant, heavy-duty
cutters and sent away for
recycling.
The prices we receive for output materials
from our plants, however, have been
volatile and generally not favourable
during the whole reporting period. During
the year, we were excited to continue
discussions with a number of product
manufacturers about using these raw
materials to build new products, which
should also help to mitigate the volatility in
output material pricing.
In the prior year, through our One AO
approach, we utilised our web design
knowledge, UK-wide logistics network and
routing capabilities to develop and launch
our “AO Collects” and “Collect & Recycle”
propositions allowing businesses and
retail customers to arrange collection and
recycling of old products. Whilst not only
providing an efficient, hassle-free doorstep
collection, this proposition also allows
customers to experience AO standards
of service, encouraging new customers to
purchase their future electrical products
from AO. These services remained in
operation during the year, providing
customers with an avenue to dispose of
their old appliances when household
waste and recycling centres were closed,
and we are pleased with the levels of
volume achieved.
Priorities for FY22
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. To maintain
our high service levels and environmental
performance, it is important that we
control the end-to-end process.
The implications of Extended Producer
Responsibility reforms will require
producers of a product, including
appliances, to take responsibility,
physically and financially, for the lifecycle
of their products, by requiring retailers to
collect waste products for free. This could
significantly increase the demand for
recycling services and we are exploring
how we can increase our recycling
capacity accordingly.
We will also continue to innovate our
technology to improve performance
and efficiency.
We will expand our recycling services
through our plastics recycling facility
and continue to work with product
manufacturers and other clients to explore
how we can make new products from the
outputs of our plastics plant. We hope to
develop and grow our portfolio over the
next 12 months to create an additional
revenue stream. Our ultimate ambition is
that an appliance can be made using the
plastics from our plant.
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AO World Plc Annual Report and Accounts 2021 03
04
The rest of the fridge is then sent into a
sealed chamber to extract the gases in the
fridge’s insulation foam. To do this, oxygen
is removed and replaced with nitrogen to
prevent anything igniting.
The fridge is then dropped inside a massive
shredder, where heavy-duty steel chains
spin around like a kitchen blender. This
motion forms a vortex that breaks the
outer shell of the fridge into smaller pieces.
The insulation foam is smashed into
powder to release more of the gases.
06
05
Nitrogen is used to condense
the gases into liquid so they
can be safely sent away for
disposal elsewhere.
The rest of the fridge remains are
dropped onto a heated conveyor
belt below. The heat, again, helps
to release and neutralise any
leftover gases.
07
08
What’s left of the fridge’s remains is sent through
four different filtration systems, to separate the
different materials from each other.
Plastics, metals and foam are sorted into
individual storage containers. These are then
shipped on to be recycled into other products,
maybe even another fridge.
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AO World Plc Annual Report and Accounts 2021Strategic Report Germany
We have successfully fixed the
fundamentals in our German business...
and bricks and mortar retailers closed
their stores. We experienced a substantial
increase in demand and some limited
inefficiencies and cost increases due
to the impact of implementing social
distancing and enhanced hygiene
measures. Some of these inefficiencies
were, however, offset to some degree by
improved delivery rates with customers at
home to receive deliveries.
At the start of the pandemic, we ceased
offering all additional services, for example
connections and installations, and made
doorstep only deliveries. We focused on
developing new ways of working with
enhanced safety and hygiene measures to
protect our customers, drivers and people
in front line operational roles, whether
in our warehouse or making deliveries.
In subsequent lockdowns, we were able
to take a more tailored approach when
confident that we could mitigate the risks
to our people, drivers and customers, for
example we capped the availability of
our installation services based on local
incident rates in customer geographies.
We could not have more pride in the
way our teams reacted navigate the
challenges and to ensure the safety for our
people, customers and partners.
During the year, we made investments in
our infrastructure to support growth for
not only our products but our services
too through expanding our van fleet and
warehouse equipment These investments
also support our strategy to extend
our service-oriented delivery approach
in Germany through offering delivery
services to third parties, as in the UK. We
were pleased to gain two new clients during
the year as we look to build this additional
revenue stream.
Our customer proposition remains a key
focus to ensure we offer great value to our
customer base and drive new customers
to the ao.de website. Enhancements
to our proposition during the year
included the ability for customers to
book delivery timeslots, have washing
machines and dryers stacked in their
homes or have fridge doors switched over.
This is in addition to our standard and
premium services that cover everything
from connecting a washing machine to
installing an induction hob. New customers
to our website grew by 75% during the
year, demonstrating our growing brand in
Business overview
One of AO’s key advantages is its ability
to scale because the products we sell
are fundamentally the same in all the
territories we identify in our markets
section, the global manufacturers are
the same (albeit they may operate local
brands) and the methods of shopping
online are the same, as are the digital
marketing techniques for reaching
customers. Warehousing systems and
delivery processes follow the same high-
level structure and all customers want a
friction-free customer journey, without
paying more than they must or waiting
longer than needed to for delivery.
Our One AO model underpins our strategy
to scale internationally. This approach is
focused on ensuring that all employees,
across all parts of AO, behave as one
and operate efficiently. A centralised
approach only devolves functions to
local operations where necessary,
ensuring no duplication of costs and
driving operational efficiencies. It also
creates a scalable model for growth,
providing consistency in operations and
standards. We therefore leverage the
skills, knowledge and expertise of our UK
teams into Germany, particularly in our
e-commerce, marketing and logistics
disciplines. Under this approach, we are
mirroring and building our business using
our UK platform creating a scalable model
for growth.
We chose Germany as our first step
into Europe because it was the largest
electricals market, with a significantly
underdeveloped e-commerce offering.
As we have grown the business, we have
evolved the operating model to create the
One AO playbook that we will use as we
enter new territories.
36
Review of the year
We are delighted with the performance of
our German business during the reporting
period as it reached profitability at an
adjusted EBITDA level during our third
quarter. At the start of the reporting
period, we had completed much of
the heavily lifting required to fix and
reposition the business, which we started
to implement during 2019. We centralised
through the One AO approach driving best
practice sharing, cost effectiveness and
cultural alignment whether in conversion
management, content, our approach to
suppliers or logistics.
Critically we now have the long-term
support and trust of our product
manufacturers who see AO as a long-
term participant in the market. This has
resulted in improved ranges, terms and
coordination on promotions, all of which
have helped to improve profitability
during the year. We continue to add
new manufacturer relationships as they
recognise not only the permanency of
the shift to online but also in recognition
of AO’s increasing position in the
marketplace.
We have focused on efficiency, particularly
in logistics, where we restructured our
delivery operations, improving van fill
through initiatives including investment
in new vehicles with higher payloads. We
improved our customer acquisition efforts,
driving efficiencies on our acquisition
spend, focusing on successful channels and
driving conversion to improve our return in
this area. We have continued to build on this
throughout the reporting period.
As a result of the actions above we were
well placed to deliver for our German
customers during the pandemic. As in the
UK, the German online market migrated to
online overnight as lockdown commenced
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AO World Plc Annual Report and Accounts 2021
Strategic Report
Bergheim distribution centre
Outbases
Achieved
break-even
during the 3rd quarter
2 millionth
appliance sold
during the year
0.3m
new customers
added in FY21
logistics network optimisation. We will also
benefit from AO-wide process and system
improvements to enable efficient growth
and drive best practice.
As we aim to become Germany’s
destination for electricals, we will continue
to improve our customer proposition, honed
to the local market as necessary. We will
achieve this by expanding and developing
our service offering, be it helping customers
with warranty repairs or expanding our
AV service offering, expanding into new
categories (ensuring these also have a good
range of services available) and exploring an
improved finance offering. We will continue
to optimise the consumer journey, which in
turn, will benefit our product manufacturers
as we drive innovation around the
presentation and explanation of product
features to educate customers.
We will continue to optimise our
logistics operations so that they
continue to support our growth
and further lower our cost
to deliver. We will look to
expand our delivery
network to reach our
customers faster
and offer improved
delivery timelines,
and continue to
build our third-
party logistic
proposition
and increase
our client
base.
...so we
can now
accelerate
our growth.
AO World Plc Annual Report and Accounts 2021
37
this market with a significant opportunity
still ahead of us.
Although we believe that the pandemic
has, to some degree, accelerated our
performance this year, our ability to
continue deliver for our customers
during the pandemic whilst maintaining
our exceptionally high NPS customer
satisfaction levels was only achievable
because of the changes implemented
in the business in the prior year and on
which we continue to build. Our strong
overall proposition is resonating with our
customers as evidenced by our growing
repeat purchase metrics, our growth
outstripping the total online market during
the period and increases in our share
of the total MDA addressable market.
Online penetration in Germany is still
significantly behind the UK, providing AO
with a substantial opportunity to grow,
particularly in MDA.
The changes implemented over the last
two year means that our processes and
capacity are now scalable. We are well
positioned to service the shift to online as
a result of the compounding factors of
an overall growing market and increased
online penetration.
Priorities for FY22
We will reinvest the majority of our profits to
leverage the improvements that enabled
us to achieve a break-even position
during the reporting period, scaling our
current operations with sales growth,
driving more revenue through improved
customer acquisition, conversion and
range expansion paired with ongoing
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Strategic Report
Our markets
Geographical opportunity
The UK and Germany addressable B2C electricals1 market is currently worth a
combined total of £70bn2. The next three largest addressable markets in Europe are
France, Italy and Spain, taking the total addressable market (“TAM”) for the top five
European countries to £117bn2. The TAM for Western Europe is £158bn2, providing us
with a huge amount of potential.
UK
Germany
France
Italy
Spain
Remainder of Western Europe
Total Western Europe
TAM2*
£28bn
£42bn
£21bn
£15bn
£11bn
£41bn
£158bn
£28bn
UK
£42bn
Germany
s s a ble marke
e
r
t
£
2
8
b
n
2
tal a d d
o
T
* TAM for GfK quoted figures relate to product sales inclusive of VAT (AO sales have been adjusted to include VAT to aid comparison).
1. Electricals is defined by GfK as MDA, SDA, AV, computing, mobile, smarthome, photography equipment, office equipment and personal care.
2. Source: GfK Western Europe addressable market 2020 across Austria, Belgium, Denmark, Finland, France, Germany, Great Britain, Greece, Ireland, Italy,
Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden and Switzerland for 12 months to 31 December 2020.
3. AO currently operates in the following categories in the UK: MDA, SDA, AV, computing, mobile, gaming, gardening & DIY, smarthome and wearables. And in
Germany: MDA, SDA and AV.
38
AO World Plc Annual Report and Accounts 2021
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Strategic Report
Category opportunity
Being the destination for electricals
means having an expansive, curated range
of products across all electrical categories
to serve the widest possible customer
base. One of our strategic objectives
is to have comprehensive category
coverage across all our territories so we
are aiming to increase our offering. In
the UK, we currently offer nine electrical
categories3 and we are aiming to roll out
two new categories during our current
financial year (FY22), which will add an
additional c.£1bn2 of addressable market.
Expansion into new categories increases
the frequency of purchases, allows cross
selling into new categories and builds
long-term relationships with our customers
across a range of products.
The German TAM is around 50% larger
than the UK but our current category
range covers MDA, SDA and AV only. To
be the true destination for electricals in
Germany we need to expand our category
coverage significantly and plans are in
place to quickly roll out new categories
over the coming years allowing us to
participate in Germany’s total electrical
market of £42bn2. As we currently only
operate in £44bn2 of the total £70bn2
electrical market for UK and Germany,
we have a significant opportunity for
future growth, especially as these markets
experienced double-digit growth during
the year.
UK 2020
TAM Growth2
Germany 2020
TAM Growth2
tal a d d
o
T
15%
UK
s s a ble marke
e
r
t
£
2
8
b
n
2
AO current
addressable market
£26bn2
d
d
Tot al a
14%
Germany
r e s s a ble market £
4
2
b
n
2
AO current
addressable market
£18bn2
AO FY21
UK product sales (gross)
£1.4bn*
AO FY21
Germany product sales (gross)
£263m*
AO World Plc Annual Report and Accounts 2021
39
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Our markets continued
Market trends
Customer behaviour changes
• The digital shift
Covid has significantly changed
consumer’s lives, including the way they
shop. Many shoppers were forced to use
the online channel as stores closed and, in
the UK, internet sales increased by 73%5
during 2020. This shift also impacted our
core electricals market where 72%4 of
all MDA products were purchased online
during our financial year, compared with
43%4 in the comparable prior year period.
We believe that the rapid acceleration to
the digital environment presents us with
a unique opportunity to be the leading
online electrical specialist and we are,
therefore, working hard to improve our
customer value proposition, category
coverage, service proposition and are
scaling our platform for growth to enable
us to capitalise on this shifting landscape.
ONLINE PENETRATION – UK4
72%
76%
74%
89%
83%
86%
43%
42%
36%
55%
49%
51%
46%
52%
57%
33%
MDA
SDA
AV
Computing
Gaming
Mobile
SmartHome Garden & DIY
ONLINE PENETRATION – GERMANY4
FY20
FY21
55%
40%
45%
30%
27%
20%
MDA
SDA
AV
4. Source: GfK Annual Report Apr20-Mar21 across Great Britain and Germany for the
period 29 March 2020 to 3 April 2021.
5. https://blazon.online/online-shopping-statistics-from-the-uk-for-a-profitable-2021/.
40
• Home is the new hub
Covid forced many to adopt a remote
working model and homes were
transformed into places of work overnight.
This trend is expected to have a lasting
impact on consumers who are now
seeing their home as a place of work,
entertainment and wellness. Consumers
are now investing more in electricals, for
example upgrading household appliances,
purchasing more computing and gaming
devices, and investing in smaller kitchen
and smart tech devices and, of course,
they are using them a whole lot more. This
trend is driving category growth and is
expected to continue for the coming year.
Technological changes
Having a brilliant customer journey is
essential for AO as an e-commerce retailer,
and investment into personalisation and
great online shopping experiences is more
important than ever. As an online retailer,
we are ahead of many British retailers in
developing new techniques to improve the
consumer shopping experience, but we
realise that the shift to the online channel
is also forcing our competitors, who have
historically operated a bricks and mortar
model, to focus and invest more online.
MDA appliances are evolving, and global
MDA brands are developing fridges and
washing machines that use AI technology
to save consumers time, improve product
experience and save energy. AO is
passionate about making these smart
products available to the customers and
we are working hard with our suppliers to
make this happen.
Big in Asia, “Live Commerce” is a new
way to shop online and uses live video
streaming to demonstrate products and
interact with shoppers in real time to
encourage purchases. This trend is not
widely adopted in the UK or the electricals
sector but is something we are monitoring
as we look for new ways to connect with
our customers.
Smart robots and automation in the retail
industry have also seen a recent boom,
and as we build a scalable operating
model, this would allow us to be prepared
for the digital shift and leverage our scale.
Environmental
The electricals market is witnessing drastic
changes, which aim to improve product
efficiency and reduce waste. These new
regulations around sustainability mean the
following rules will apply to electronics and
electronical retailers in the European Union:
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AO World Plc Annual Report and Accounts 2021 Strategic Report
• Energy labels change
To help EU consumers cut their energy
bills and carbon footprint, a new version of
the widely recognised EU energy label is
applicable in all shops and online retailers
from March 2021.
• Distributor Take-back Scheme (“DTS”)
Changes to recycling obligations will
require electrical retailers to provide a
takeback service for WEEE into their
stores from 2021. This legislation will impact
all our major competitors who, unlike
AO, outsource all their WEEE recycling
capabilities.
What this means for AO?
The electricals market continues to grow
and, as consumers spend more time in
their homes, they are investing in more
gadgets and electrical home comforts.
During periods of the lockdown the
majority of electricals shoppers migrated
online and as online retail continues
to evolve, as an agile business, we are
constantly investing and adapting to
meet new expectations from customers.
We continue to build on our already
market-leading levels of customer
service, proposition and journey through
technology investments in personalisation
and content. Giving the customer
confidence in their purchase has never
been so important and by providing
them with information, inspiration and a
seamless shopping experience, we know
that once a customer has tried The AO
Way they will keep coming back, which
further increases the shift to online as the
preferred way of purchasing electricals.
AO is well positioned to adapt to the
legislative changes in the electricals
sector. We have brilliant relationships with
our suppliers from an energy labelling
perspective and we are working closely
with them to ensure we can educate
and provide up-to-date information to
consumers, giving them confidence when
making their purchase through AO. Our
recycling plant in Telford enables us to
meet our distributor take-back obligations.
We have the internal capabilities to
responsibly return and recycle our
customers appliances, and are able to
dispose of old appliances safely.
For details of our Group and ESG strategy
see pages 42 and 43 and pages 68 and 69 respectively
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AO World Plc Annual Report and Accounts 2021
41
Our strategy
Our strategy is to leverage and support the scalability of our business model and
market-leading customer proposition in order to achieve our mission to become the
Global Destination for Electricals.
Our mission is to be
“The Global Destination for Electricals”
1
INVESTING TO BUILD A BRILLIANT
CUSTOMER JOURNEY
2 COMPREHENSIVE CATEGORY COVERAGE
Through understanding our customers, we will be able
to satisfy their needs and create a brilliant journey,
providing them with information, inspiration and a seamless
shopping experience.
Through expanding our product ranges, we will position AO
as a broad electricals retailer, serving the widest possible
customer base.
As we build our offering through addressing the needs of our
customers, we will cement our position as a leading electrical
retailer in all our territories, allowing us to increase selling
opportunities and building customer lifetime value.
See pages 26 to 29 to discover how we have continued to
enhance our customer journey during the year
See pages 22 and 23 to discover how we have worked with our
suppliers to improve our product offering during the year
... that are underpinned by our values:
We treat every
customer like our gran
We make decisions that
make our mums proud
To fulfil our purpose:
To make customers’ lives easier
42
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AO World Plc Annual Report and Accounts 2021 Given the scale and pace of growth seen during the year, we have reviewed
and evolved our strategy to focus on the four key pillars explained below.
Together, these pillars present us with a clear direction across our business
to guide us in achieving our mission and our purpose.
This aspiration means operating on an international basis and being the household name for
electrical products and services, delivered by our four strategic objectives:
3 OFFERING SUPPORTING SERVICES
4 BUILDING A SCALABLE OPERATING MODEL
We will enhance our customer offering with a full range
of services, for both existing and new categories. We will
continually improve our best-in-class delivery, easy returns,
product installation and set-up, and recycling propositions.
Enhancing the customer lifecycle through services such
as warranties, product trade-ins, repair and maintenance
provides us with another touch point and builds our long-term
relationship with our valued customers.
Through our One AO platform, we will leverage our UK centres
of expertise to support growth and expansion into new and
existing markets and territories.
As we grow, we will benefit from economies of scale and
enhanced purchasing power with our suppliers to enable us to
provide enhanced product choice for our customers.
Being vertically integrated allows us to enhance profitability
through our scalable model.
See pages 30 to 35 to discover the developments we have
See pages 36 and 37 for developments in our German business
made to our services during the year
over the year
We have a
growth mindset
We operate
at AO speed
To fulfil our purpose:
To make customers’ lives easier
by helping them brilliantly
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AO World Plc Annual Report and Accounts 2021Strategic Report Key performance indicators
Group revenue (£m)
701
797
903
1046 1661
£1,661m
FY17
FY18 FY19 FY20 FY21
Group Adjusted EBITDA1 (£m)
2.5
19.1
64.4
£64.4m
Significance:
Revenue trends measure the attractiveness of our customer
offer, market share gains and growth in new markets as well
as being linked to operating leverage. Revenue growth also
measures progress against our strategic priorities. This
measure is reported to the Board.
This year:
Total revenues grew 59% driven by significant market shifts
to online accelerated by Covid restrictions and Germany
benefiting from market share gains.
Significance:
Provides the basis of comparing profitability, as it eliminates
the potentially distorting effects of financing and capital
expenditures. Adjusted EBITDA is a close proxy for cash flow.
This measure is reported to the Board.
This year:
Adjusted EBITDA increased 238% as we benefited from
the operating leverage inherent in our business model.
FY19 FY20 FY21
Cash flow2 (£m)
(4.2)
(21.5)
(32.2)
(22.1)
60.2
£60.2m
Significance:
Cash flow and associated liquidity underpins our growth
strategy and funds investment.
This year:
£60m of cash was generated over the year, equivalent
to 93% of EBITDA, driven by increased revenues and
improvements in working capital .
FY17
FY18 FY19 FY20 FY21
44
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AO World Plc Annual Report and Accounts 2021 Total new customers3 gained ('000)
1,186
1,211
1,190 1,137
2,182
2.2m
Significance:
New customers growth indicates the attractiveness of our
customer offer, successful marketing and conversion rates.
This year:
Customer growth increased as Covid restrictions forced all
shopping for electrical goods online.
FY17
FY18 FY19 FY20 FY21
Net promoter score4
84
84
86
84
85
92
91
91
89
89
FY17
FY18 FY19 FY20 FY21
UK5
85
Germany
89
Significance:
Measures the number of customers who are likely to be
influencers or promoters of the Company.
This year:
Germany once again achieved a world-class NPS score.
The UK’s score increased slightly on the prior year despite
Covid-related effects on extreme customer demand, delivery
services restrictions and supply chain disruption.
1. For consistency, only 2019–2021 figures are included as these have been restated for IFRS 16.
2. Cash generated before new borrowings/proceeds from shares issued.
3. A customer is defined as an individual customer who has purchased through us via ao.com or ao.de, but excludes customers from MPD.
4. NPS is an industry measure of customer loyalty and satisfaction.
5. For FY20 and FY21, UK NPS is based on a turnover weighted average of ao.com and MPD.
Key
Financial
Non-financial
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AO World Plc Annual Report and Accounts 2021Strategic Report Chief Financial Officer’s review
“ The Group continues to make considerable progress
against its strategic objectives, with good cash
generation, strong growth in our UK business and
significant margin improvement in Germany.”
Mark Higgins
Chief Financial Officer
I am pleased to report another strong
financial performance despite the
challenges and opportunities in a year
dominated by Covid-related events.
The continued shift to online shopping,
accelerated by Covid restrictions, created
a strong sales momentum, which was
reflected in our results for the year, as was
the operational leverage inherent in our
vertically integrated model. As a result,
our business achieved an operating
profit of £30m compared to an operating
loss in FY20.
In our January Q3 trading statement and
in our April post-close trading statement,
we referred to an increase in warranty
plan cancellations and announced our
intention to conduct a full review of the
customer base. Having completed a
full reconciliation, we discovered that a
number of plans that were treated as live
on the customer database had actually
been cancelled, with the vast majority of
these cancellations relating to previous
years. In addition, a number of live plans
had not been reported to the Group. As
a consequence, revenue, finance income
and the associated contract asset have
been overstated in these prior periods. The
errors have been corrected by restating
each of the affected financial statement
line items for prior periods, resulting in
a cumulative adjustment to reserves of
£11.1m. This change is discussed in more
detail below and in Note 35 in the Financial
Statements.
The Group has made considerable
progress against its strategic objectives,
with good cash generation, strong
growth in our UK business and Germany
achieving break even sales performance
during the peak period, on an Adjusted
EBITDA basis. We increased capacities in
our warehousing space as supply chain
disruption caused a rise in inventories, and
we invested in additional stock to meet
the surge in customer demand. Whilst this
helped drive considerable volume growth,
we incurred increased costs in assuring
the safety of both our customers and
staff. The Covid-related lockdowns also
forced us to pause our installation services
at certain times. In addition, our store
trials with Tesco were closed for much of
the year and our Recycling facilities were
affected by regular closures and social
distancing measures.
£(m)
Total Group revenue
UK revenue
Germany revenue
Group Adjusted EBITDA2
UK Adjusted EBITDA2
Germany Adjusted EBITDA2
Group Operating profit/(loss)
Profit before tax
Basic earnings per share
Cash generated/(utilised)
Net debt3
FY21
FY201 % change
1,661
1,435
226
64
67
(3)
30
20
3.73p
60
(28)
1,026
901
125
22
41
(18)
(4)
1
0.21p
(22)
(99)
62%
59%
81%
191%
68%
83%
850%
1,900%
1,676%
372%
(71)%
Unless otherwise disclosed, all figures stated throughout the strategic review (including the
CFO review) are on a post-IFRS 16 basis, which we adopted in the prior financial year. Figures
are also stated on a pre-adjusting items basis and exclude the performance of our
Netherlands operations, which closed in 2019. A comparison including past performance of
our Netherlands operations is provided on a comparison basis. 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 FY21 and FY20 are defined as the 12 months to 31 March 2021 and the
12 months to 31 March 2020, respectively.
1.
The prior year comparative excludes revenue and losses generated by ao.nl, our
Netherlands website, which was closed during the quarter ended 31 March 2020. Prior
year numbers have been restated as set out in Note 35 to the Financial Statements.
2. Please refer to our alternative performance measures detailed on page 50.
3. Net debt is defined as cash less borrowings less Lease Liabilities and less overdrafts
as per the consolidated statement of financial position.
46
AO World Plc Annual Report and Accounts 2021
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£1.7bn
Group revenue
£64m
Group Adjusted
EBITDA
£20m
Group PBT
Revenue (see Table 1)
Total Group revenue (excluding the Netherlands) grew 62% to £1,661m (2020: £1,026m)
with both the UK and Germany recording considerable growth. UK revenues grew 59% to
£1,435m (2020: £901m). Revenues in Germany grew 81% to £226m (2020: £125m).
Product revenue
Total revenue growth was primarily driven by the increase in our product sales. As Covid
restrictions resulted in most retail outlets closing for much of the year, most non-essential
retailing gravitated online, accelerating structural shifts towards the digital environment.
In the UK, product revenue increased 73% to £1,200m (2020: £693m). MDA grew 61%
as demand for larger fridges, chest freezers and other home appliances soared
during lockdown. We also enjoyed growth in our SDA category of over 100% albeit
from a smaller base and increasing our market share. Additional categories relating
to home entertainment all grew strongly during the Covid restrictions, including AV
(109%), consumer electronics (126%) and Gaming (127%). Our AO Business, which sells to
housebuilders and other large volume businesses, continued to build momentum, growing
69% year-on-year.
Our business in Germany experienced robust growth from a smaller base. Due to Covid-
related restrictions on store openings, the online MDA market almost doubled over the
year, with our market share growing by 1.3ppts to 3.2% and product revenue growing 82%
to £221m (2020: £122m).
1 REVENUE
12 months to
31 March 2021
12 months to 31 March
2020 (restated)
% change
Revenue £m1
UK Germany Total
UK Germany Total
UK Germany Total
54
1,200
Product
revenue
Service
revenue
Commission
revenue
Third-party
logistics
17
Recycling
18
Total revenue 1,435
Total revenue
including NL1
1,435
146
221
1,421
693
122
814
73%
82% 75%
4
–
58
35
146
143
3
–
38
54%
17% 51%
143
2%
28% 2%
1
–
18
18
226 1,661
17
14
901
–
–
17
14
125 1,026
(1)% 2,019% 6%
32%
32%
81% 62%
59%
–
226 1,661
901
145 1,046
59%
57% 59%
Totals may vary due to effects of rounding.
1.
The majority of revenue generated in our Netherlands business in the prior year was classified
as Product revenue.
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AO World Plc Annual Report and Accounts 2021Strategic Report
Chief Financial Officer’s review continued
Service revenue
Service revenue comprises service
bundles, such as gas installations through
our premier fleet, installing televisions on
walls and timed delivery slots.
UK Service revenue increased 54% to
£54m compared to £35m for the same
period last year. Covid restrictions on
social distancing resulted in the pausing of
many of our normal services propositions,
although customer demand remained
strong outside the lockdown period.
Services therefore reported good growth
overall, albeit at a lower rate than our
headline revenue growth.
Germany experienced a similar market
experience; however, the German market
was under heavier restrictions than the UK
and, consequently, many of our normal
services were constrained for longer
periods than in the UK, although overall
service revenue growth remained pleasing
at 17%.
Other revenue
Revenue from commissions comprises
revenues from the Mobile Network
Operator (“MNO”) for the procurement of
connections to the MNO’s network and
the delivery of the handset to the end
customer. It also includes the revenue from
selling our AO Care branded insurance
plans where we act as agent for D&G.
During the year, our commissions revenue
from the MNOs grew by 2% with our AO
Care plan income increasing by 34%.
As reported at the half year, we
experienced a shift in customer
behaviour in the mobile business with
increased cashback redemption rates
and cancellation of contracts, which
management believe was mainly Covid
related. We consequently reviewed
the estimates and judgements used in
assessing previously recognised revenue,
which resulted in a revenue reduction
of £10.8m in the reporting period. We
reacted quickly to these shifts in customer
behaviour, moving our propositions to
more upfront cash deals, which reduced
the monthly recurring charge (“MRC”)
for the consumer but also improved the
customer journey with simpler, customer-
friendly offers. As a result, our Mobile
business continued to grow in a mobile
contract market that declined 5% year-
on-year, whilst also achieving an improved
Net Promoter Score.
Our AO Care insurance offering is a
regulated product, which provides
customers with the security that their
new product can be repaired or replaced
if required. Revenue from AO Care grew
in line with product revenue during the
year and, as more customers were at
home during the pandemic, conversion
rates for AO Care products increased
modestly. However, as a result of the
restatement of comparatives, this
performance was partly offset by the
impact of the reassessment of estimates
and judgements relating to previously
recognised revenue, as set out on page
52. As a result, revenue in the period was
constrained by £8.1m.
In the UK, revenues from third-party
logistics were broadly flat, as we focused
on utilising capacity for our ao.com and
existing third-party customers. Deliveries
were also constrained by certain products
being classified as non-essential under
UK Government Covid guidelines. Third-
party logistics services performed well in
Germany as a new service.
Despite Covid restrictions, which meant
recycling centres were closed for long
periods under Government guidelines,
recycling revenue grew 32%, driven mainly
from increased volumes from both our
own collections from our AO customers
and from local authority clients. We are
also pleased that our new plastics centre
became fully operational during the year,
which meant we have generated our first
revenues from selling recycled plastics.
Gross margins (see Table 2)
Total gross profit for the Group, which
includes product margins, delivery costs,
commissions from selling insurance plans
and network connections and other
ancillaries, increased 63% to £293m (2020:
£179m). Gross margin increased slightly as a
percentage of revenue from 17.4% to 17.6%.
UK gross profit grew by 54% to £273m
(2020 restated: £177m). Gross margin was
broadly unchanged but was impacted
by the changes to estimates and
judgements in both Mobile and Aftercare
as discussed above. Excluding the impact
of the changes above, our gross margin
remained broadly flat at 19.0% (2020:
19.6%).
We anticipate that UK gross margin will
reduce slightly in the near term as we grow
our share in new product categories in
line with our strategy of being the global
destination for electricals. Efficiency gains
in logistics for these products will help
offset the dilutive effect on margins.
In Germany, gross margin improved
strongly to 9% from 1%, and further
improving from 2019, when gross margin
was negative 2%. This reflects the
operational leverage in our business, our
achievement in bringing pricing in line with
that of the UK and negotiation of more
favourable supplier terms. Increased
product sales also drove efficiencies in
our logistics operation. Gross profit grew
strongly to £20m (2020: £2m).
2 GROSS MARGINS
Gross profit £m1
Gross profit
Gross margin
Gross margin including NL
Totals may vary due to effects of rounding.
48
12 months to
31 March 2021
12 months to
31 March 2020 (restated)
% change
UK Germany
Total
UK Germany
Total
UK Germany
Total
273
19%
19%
20
9%
9%
293
18%
18%
177
20%
20%
1
1%
0.6%
63%
54% 1,011%
178
17% (0.6)ppts 7.2ppts 0.2ppts
17% (0.6)ppts 8.0ppts 0.6ppts
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AO World Plc Annual Report and Accounts 2021 Selling, general & administrative
expenses (“SG&A”) (see Table 3)
Total SG&A costs increased over the
year but as a percentage of revenue
decreased to 16% (2020: 18%). SG&A
costs for the Group increased to £264m
(2020: £183m) as we invested in our
logistics infrastructure, IT systems and
additional people to manage the increase
in customer demand and people with
specific technical skills.
In the UK, SG&A costs increased 54%
to £236m (2020: £153m), although as
a percentage of revenue, this was a
decrease of 0.6ppts. During the year, we
invested in our warehousing, near doubling
our capacity as we anticipated the likely
disruption in our supply chain during Covid
restrictions. This helped us to strengthen
our supplier relationships as we were able
to absorb additional product stock when
retail stores closed and, as a result, we were
able to satisfy customer demand when
product availability was curtailed as well
as building supplier credibility.
We also took the strategic decision to
invest in marketing and brand advertising
to support our revenue growth, running
several successful marketing campaigns
across television and social media, and
sponsored several sporting events, taking
advantage of competitive rates during
Covid lockdowns. These activities helped
drive a total of 1.9m new customers to our
UK website during the year and increased
website traffic by 83%.
UK other administration expenses
increased to £118m (2020: £84m), although
as a percentage of revenue, this was
a decrease of 0.9ppts. Expenditure
included costs associated with the start
of our investment to transform our IT
infrastructure and the procurement of the
necessary skills required to support the
next phase of our growth.
In Germany, we increased our SG&A
expenditure to £28m (2020: £25m),
although it reduced as a percentage of
revenue by 8ppts. This level is now below
that of the UK as we further leverage our
One AO platform, together with improving
efficiencies in our local logistics and
admin operations.
Advertising and marketing costs in
Germany decreased as a percentage of
revenue by 2ppts, as similarly to the UK,
customer demand outstripped supply in
certain categories in the early part of the
reporting year.
Warehousing as a percentage of
revenue improved slightly by 0.3ppts as
we leveraged our scale with the
increased volumes.
We have seen substantial efficiency
gains in Germany, which reduced other
administration expenses by 5ppts. This is
a result of the continuation of the work we
commenced during FY20 in restructuring
our operations and leveraging our skills
and knowledge in the UK as part of the
One AO platform.
Operating profit and Adjusted
EBITDA (see Table 4)
We are pleased to report a substantial
increase in operating profit for the period
to £30m (2020: £(4)m restated loss).
Alternative performance
measures
The Group tracks several 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
3 SELLING, GENERAL & ADMINISTRATIVE EXPENSES
SG&A costs £m1
UK Germany
Total
UK Germany
Total
UK Germany
12 months to
31 March 2021
12 months to
31 March 2020 (restated)
% change
Advertising and marketing
% of revenue
Warehousing
% of revenue
Research and development
% of revenue
Other admin
% of revenue
Adjustments
% of revenue
Administrative expenses
% of revenue
Administrative expenses including NL
% of revenue
Totals may vary due to effects of rounding.
43
3%
59
4%
15
1%
118
8%
–
–
236
16%
236
16%
7
3%
7
3%
–
–
14
6%
–
–
28
12%
28
12%
50
3%
66
4%
15
1%
132
8%
–
–
264
16%
264
16%
22
2%
38
4%
9
1%
84
9%
–
–
153
17%
153
17%
7
5%
4
3%
–
–
13
11%
1
1%
25
20%
30
24%
29
3%
42
4%
9
1%
97
10%
1
0.1%
178
17%
183
18%
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98%
7%
Total
76%
56%
65%
57%
66%
–
66%
41%
6%
36%
–
(100)% (100)%
54%
12%
48%
54%
(7)%
44%
49
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AO World Plc Annual Report and Accounts 2021Strategic Report Chief Financial Officer’s review continued
reported within the internal management
reporting to the Board. Some of these
alternative performance measures are
also used for the purpose of setting
remuneration targets. These alternative
performance measures should be viewed
as supplemental to, but not as a substitute
for, measures presented in the consolidated
financial statements relating to the
Group, which are prepared in accordance
with IFRS. The Group believes that these
alternative performance measures are
useful indicators of its performance.
EBITDA
EBITDA is defined by the Group as profit/
(loss) before interest, tax, depreciation,
amortisation and profit/loss on the
disposal of fixed assets.
Adjusted EBITDA
The reconciliation of statutory operating
profit to Adjusted EBITDA is set out in
table 4.
Adjusted EBITDA is calculated by
adding back or deducting adjusting
items to EBITDA. Adjusting items are
those items that the Group excludes to
present a further measure of the Group’s
performance. Each of these items, costs
or income, is considered to be significant
in nature and/or quantum or is 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.
During the 12 months to 31 March 2021, the
following adjustments (“Adjusting Items”)
were made:
• Management have reassessed the
impact on future expected cancellation
rates as a result of an increase in
cancellations seen through the second
half of the year. As a result, revenue
has been further constrained by
£8.1m with a corresponding reduction
in the contract asset. Given the size
and nature of the adjustment and its
link to the prior period adjustment,
the amount has been added back in
arriving at Adjusted EBITDA.
• Consistent with the treatment
adopted in prior periods, the full cost
of an onerous marketing contract in
Germany (which ended in December
2020) has been added back in arriving
at Adjusted EBITDA. In the 12 months to
31 March 2021, this amounted to £2.2m
(2020: £1.3m) and have been added
back due to their size, timing and the
onerous nature of the contract, which
we consider to be exceptional.
During the 12 months to 31 March 2020,
as well as the matter noted above on
marketing costs, the Adjusting Items were
as follows:
• Closure costs of our Netherlands
operations: At the time of the
publication of our interim results in
November 2019, the Group announced
its intention to close its operations
in the Netherlands. On 9 December
2019, the website was closed and, after
that date, we worked with suppliers,
staff and the authorities to ensure an
orderly closure of the companies, which
completed at 31 March 2020. Costs of
£2.5m incurred between 9 December
2019 and 31 March 2020 have been
4 OPERATING INCOME AND ADJUSTED EBITDA
Operating income and Adjusted EBITDA £m1
UK Germany
Total
UK Germany
Total
UK Germany
Total
12 months to
31 March 2021
12 months to
31 March 2020 (restated)
% change
Operating profit/(loss)
excluding Netherlands
Netherlands operating loss
Operating profit/(loss)
Depreciation
Amortisation
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
Adjusted EBITDA as % of Revenue
Totals may vary due to effects of rounding.
50
38
–
38
19
3
59
–
59
8
–
8
67
–
67
5%
(8)
–
(8)
3
–
(5)
–
(5)
2
–
2
(3)
–
(3)
1%
30
–
30
22
3
54
–
54
10
–
10
64
–
64
4%
25
–
25
16
2
43
–
43
(2)
–
(2)
41
–
41
5%
(24)
(5)
(29)
3
–
(20)
(5)
(26)
2
2
4
(18)
(3)
(21)
17%
55%
–
55%
18%
24%
41%
–
41%
500%
–
502%
68%
–
68%
1
(5)
(4)
19
2
22
(5)
17
–
2
2
22
(3)
19
2%
64% 3,052%
(100)% (100)%
(71)% (791)%
16%
24%
147%
100%
223%
2%
–
74%
100%
80%
–
4,708%
(100)% (100)%
331%
(51%)
83%
100%
86%
191%
100%
237%
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AO World Plc Annual Report and Accounts 2021 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.
• Following the closure of the Netherlands
business, the Group restructured its
European business, with additional
costs of £0.9m incurred relating to
the closure, principally headcount
reduction in Germany.
• Following the signing of a new longer
term contract with Vodafone in October
2019, certain historic claims against AO
Mobile Limited were discharged and,
consequently, provisions of £2.3m were
released to 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
had never been recognised in the Group
income statement.
Taxation
The tax charge for the year was £3.1m
(2020 restated: £0.1m credit), resulting
in an effective rate of tax for the year of
15.4% (2020: 5.8%), which is lower than the
UK corporation tax rate for the period
of 19%, due to the corporation tax relief
claimed on the share exercises that have
occurred in the current year. In addition,
the following permanent adjustments
also impact on the effective tax rate:
non-deductible foreign exchange losses
arising on intercompany balances, the
share-based payment charges, and non-
qualifying depreciation.
The Group is subject to taxes in the UK,
Germany, Netherlands and Belgium.
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.
Operations in the Netherlands ceased in
December 2019. The Dutch entities are
in the process of being of liquidated and
therefore there are no longer any brought
forward losses in these entities that can be
utilised in the Netherlands.
A prior period adjustment to deferred tax
of £0.1m credit has also been recognised
in the period due to an increase in carried
forward losses.
Tax losses in Germany from prior years
remain as carried forward losses for UK
tax purposes. To the extent that those
losses arose before April 2017, deferred
tax has not recognised on these losses.
However, following the change in the
Group relief rules in the UK from April 2017,
losses arising after this date have been
recognised for deferred tax purposes.
Our tax strategy can be found at ao-world.
com/responsibility/group-tax-strategy.
Retained profit for the year and
earnings per share (see Table 5)
Retained profit for the year was £17.1m
(2020 restated: £0.7m). The improvement
in operating profit noted above has been
partly offset by net interest paid, taxation
and movements in non-cash financing
items which include the exchange
movement on intra-group loans (resulting
in a loss of £6.8m) and the unwind of
discounting on long term contract assets.
Basic earnings per share was 3.73p (2020
restated: 0.21p) and diluted earnings per
share was 3.68p (2020 restated: 0.21p).
Basic earnings per share is reconciled
to adjusted basic loss per share (after
excluding the impact of foreign exchange
differences – see above) of 5.15p (2020
restated: (1.08)p loss).
5 RETAINED PROFIT FOR THE YEAR AND EARNINGS PER SHARE
Retained profit and earnings per share
Earnings (£m)
Profit attributable to owners of the Parent Company
Foreign exchange losses/(gains) on intra-Group loans
Adjusted profit/(loss) attributable to owners of the Parent Company
Number of shares
Weighted average number of ordinary shares
Potentially dilutive share options
Diluted weighted average number of shares
Earnings/(loss) per share (in pence)
Basic earnings per share
Diluted earnings per share
Adjusted basic earnings/(loss) per share
Totals may vary due to effects of rounding.
12 months to
31 March
2021
12 months to
31 March
2020
(restated)
18
7
25
1
(6)
(5)
475,626,353 472,462,309
4,857,812
477,320,121
6,337,186
481,963,539
3.73
3.68
5.15
0.21
0.21
(1.08)
51
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AO World Plc Annual Report and Accounts 2021Strategic Report Chief Financial Officer’s review continued
Restatement of comparatives
In conducting a reconciliation of
its customer base with the Group’s
insurance plan partner, D&G, the Group
discovered that a number of plans
that were treated as live on the Group’s
database had actually been cancelled.
In addition, a number of live plans
had not been reported to the Group.
These arose primarily as a result of the
misinterpretation of data received from
the third party and related to the period
2008 to 2020. As a consequence, revenue,
finance income and the associated
contract asset have been overstated
in these past periods. The errors have
been corrected by restating each of the
affected financial statement line items
for prior periods, resulting in a cumulative
adjustment to reserves of £11.1m. Further
detail is provided in Note 35 to the
Financial Statements.
Cash resources and cash flow
Cash balances as at 31 March 2021
were £67m (2019: £7m). The increase in
cash was largely driven by the strong
operating performance discussed above
and a working capital inflow resulting
from the operating leverage inherent in
our business. This was partly offset by
the repayment of borrowings and lease
liabilities of £40m and capital expenditure
of £6m.
Borrowings, which comprises bank
borrowings and lease liabilities, decreased
to £95m (2020: £106m) with the repayment
of the Group’s term debt of £20m. This was
partly offset by the recognition of the new
right-of-use lease liabilities as the Group
invested in its infrastructure.
6 WORKING CAPITAL
Working capital £m
Inventories
As % of cost of goods sold
Trade and other receivables
As % of revenue
Trade and other payables
As % of cost of goods sold
Net working capital
Change in net working capital
Totals may vary due to effects of rounding.
52
On 6 April 2020, the Group refinanced its
debt facilities by consolidating the existing
£60m Revolving Credit Facility (“RCF”) and
the £20m outstanding balance on the
Term Loan into a new £80m RCF, which
matures in April 2023, through a banking
facility with HSBC Bank plc, Lloyds Bank
Plc (subsequently replaced by UniCredit
Bank AG), Barclays Bank Plc and NatWest
Bank plc. The facility is available for general
corporate purposes, including UK working
capital movements. This results in total
liquidity headroom of £143m at the period
end with an undrawn amount at 31 March
2021 of £76m. The amount utilised relates to
letters of credit and payment guarantees.
Working capital (see Table 6)
At 31 March 2021, the Group had net current
liabilities of £59m (2020 restated: £56m).
UK inventories increased over the period,
and at 31 March 2021 stood at £115m (2020:
£62m) due to Covid-related inefficiencies in
the supply chain and increased customer
demand stimulated by Covid restrictions.
We anticipate that inventory levels will
remain higher than normal when normally
inventories tend to adjust to sales growth.
UK average stock days remained broadly
consistent against the prior year at 29
days (2020: 27 days).
UK trade and other receivables (both
non-current and current) totalled £230m
as at 31 March 2021 (2020 restated:
£205m), principally reflecting an increase
in commercial income receivable such
as rebates as a result of the significant
increase in trading.
UK trade and other payables increased
to £392m (2020: £247m), reflecting the
significant increase in trade, which has
increased both trade payables and
deferred income.
At 31 March 2021, Germany’s inventories
increased to £25m (2020: £11m), reflecting
similar increases as seen in the UK in
response to the Covid-related restrictions.
Trade and other receivables increased
to £21m (2020: £9m) due to the uplift in
revenue in the year and an increase in
commercial income receivable.
Trade and other payables increased to
£28m (2020: £10m), due to the significantly
higher stock levels.
Capital expenditure
Total cash capital expenditure in the
year was £6.3m (2020: £6.9m). This mainly
comprised investment in IT equipment
partly as a result of the change in working
arrangements during the pandemic,
continued investment in our plastics plant/
recycling facility and outbases and initial
costs of the fit out of stores in our trial
with Tesco.
In the prior year, expenditure 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.
12 months to
31 March 2021
Europe
Total
25
12%
21
9%
(28)
13%
18
8
140
10%
251
15%
(419)
31%
(28)
(58)
UK
115
10%
230
16%
(392)
34%
(46)
(66)
12 months to
31 March 2020 (restated)
UK
62
9%
205
24%
(247)
34%
20
(3)
Europe
11
8%
9
6%
(10)
7%
10
(2)
Total
73
8%
214
22%
(257)
30%
30
(6)
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AO World Plc Annual Report and Accounts 2021 Outlook for 2021/22
We are pleased to have reported a robust
set of results for FY21, with both benefits
and challenges driven by the exceptional
Covid pandemic and its restrictions on
normal life. We believe the shift to online,
accelerated by Covid, will continue, but
markets are volatile and forecasting the
next 12–18 months remains difficult.
Our strong business model is underpinned
by our vertical integration, One AO centres
of expertise and a clear vision of our high
growth potential in emerging sectors. Our
Recycling facilities contribute an added
advantage as regulations tighten and
customers increasingly demand that
companies take responsibility for their role
in improving our environment.
These factors give us confidence in
our strategy and our vision, and we
remain cautiously optimistic about the
coming year.
Mark Higgins
Group Chief Financial Officer
30 June 2021
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AO World Plc Annual Report and Accounts 2021
53
Strategic Report 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 109
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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AO World Plc Annual Report and Accounts 2021
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 Group Head of 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.
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.
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;
IT Systems Resilience and Agility; Business Interruption;
Compliance with Laws and Regulation; the UK Electricals
Market; Key Commercial Relationships; and Funding and
Liquidity.
In addition, we carry some 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, which
are set out on page 111.
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.
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AO World Plc Annual Report and Accounts 2021Strategic Report Our risks continued
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.
The year’s achievement
and further actions
The risk management processes are well
embedded in the Group and there is a
common understanding and language
around the risk management framework,
risk appetite and risk mitigation. There is
both a top-down and bottom-up approach
to risk management as the processes
in place with the RMC, attended by the
Executive team, are replicated at business
unit level with the local senior managers.
Each of the business units maintain a risk
register, which is consistent with the CRR.
Replicating risk management processes
in the business units enables increased
risk maturity in the management teams
responsible for day-to-day ownership of
risk. They gain 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.
56
The RMC, attended by the Executive
Directors, the Legal Director and the
Head of Audit and Risk, has continued
to meet on a quarterly basis to discuss
current and emerging risk. These sessions
are 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.
The CRR has been developed to include
improved risk descriptions, risk scenarios
and accurate risk quantification. This has
enabled management to define the root
of the risk and the potential impact it will
have on the Group if the risk crystallises.
In FY22, the improved risk assessment
process will be extended to the business
unit risk registers to maintain consistency.
The risk registers have been developed to
apply a reputational damage weighting to
each of the risks, which increases the gross
risk on those that would attract adverse
media or public attention. Previously there
was a standalone ‘reputation’ or ‘brand’
risk on the CRR; however, it is recognised
that reputational damage would be
caused by the crystallisation of a risk and
is part of overall impact. The reputational
weighting enables attention to be given
to risks that would appear to contradict
the “make your Mum proud” ethos if they
occurred. Further, the gross risk scale on
the CRR has been reviewed and amended
to proportionately reflect the financial
performance of the Group in FY21.
In FY21, we enhanced our focus on the
three lines model and will continue this
strategy in the coming year; there will be
increased focus ensuring that this is fully
embedded across all business units.
The backdrop of risk management
activity in FY21, and at present, remains
the external factors of Covid and Brexit.
Both areas have been a key focus of the
RMC, dedicated working groups and
the business units. Covid has presented
operational disruption across the
Group and has required ongoing focus
to ensure that AO workplaces remain a
safe environment for our employees. In
terms of Brexit, all practical mitigating
actions to reduce the immediate impact
of the transition period coming to an
end in December 2020 were taken by AO.
However, several risk areas remain
including movement of goods and labour
availability. These will continue to be
monitored in FY22.
We have also carried a robust exercise
to better understand the commercial
risks in our mobile business, following
increased cashback redemptions,
increased customer fraud and network
commission claw-backs over the period in
that business unit. This has resulted in the
reduction or removal of cash back offers
and increasing the use of upfront deposits
appropriate to the ongoing monthly tariff.
These repositioned offers, whilst remaining
competitive in the marketplace, ensure
a more safer and sustainable mobile
business for us going forward.
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. Further
we note the Government’s intention
to introduce extended producer
responsibility with the possibility
that retailers are forced to take back
customers’ waste electricals for free
(and no longer be able to charge
transportation costs). This, in the
short term, could cause operational
challenges with regard to van fill and
recycling capacity.
• 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,
manufactures who wish to sell direct to
consumer or other 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 Annual Report and Accounts 2021 • In the year(s) ahead, the business will
undergo significant transformation as
we embark on our next stage of growth.
As part of this work, we are looking to
implement an Enterprise Resource
Platform, which will require significant
investment both from a financial and
time perspective and an overhaul of
processes. Major change programmes
are often complicated, interlinked
and require considerable resource
to deliver. As a result, the expected
benefits, timescale for delivery and
cost of implementation of each project
may slip. AOer engagement may be
impacted during a period of significant
change and efficiency focus.
Covid-19: how this has affected
our business and principal risks
The global pandemic of Covid-19 has
presented us, as with many businesses,
with operational challenges and
significant market uncertainties.
Sales have performed well during the
pandemic, 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 also experienced
challenges with supply of WEEE to our
Recycling business, which materially
reduced operations during the initial
lockdown while local recycling centres were
closed and we reduced the collections
from consumer houses; however, in recent
months, the problem has reversed and we
are at capacity limits.
We see that our key risks fall into two
categories: General Disruption to
Operations and Macroeconomic risk.
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AO World Plc Annual Report and Accounts 2021
57
Strategic Report Our risks continued
AREA OF RISK
MITIGANTS
GENERAL DISRUPTION TO OPERATIONS
• Supply chain: The impact of supplier factory
closures has led to reduced availability of goods.
• Skills shortage: Due to the easing of Covid-19
restrictions and reopening of various sectors (and
also partly due EU workers returning home because
of Brexit and the pandemic), we could see challenges
in recruitment for certain roles such as tech
developers and also in the procurement of drivers
following the increase in home delivery demand.
• People availability: Uncertainty on future
waves of illness
MACROECONOMIC RISKS
Consumer confidence/demand:.
• With the furlough scheme expected to end by
October 2021 there are risks of redundancies and
increased unemployment which could impact
disposable incomes.
• 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.
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. We are working to create talent
pools we can tap into should we need it. We are reviewing our self-
employed driver model to better optimise it and are reviewing all our
working practices to ensure they are relevant to the future of work in a
post Covid-19 environment.
• 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.
The future economic effects of Covid-19 remains highly uncertain; however,
we believe 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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AO World Plc Annual Report and Accounts 2021 Link to strategy
1 Investing to
build a brilliant
customer journey
2 Comprehensive
category
coverage
3 Offering
supporting
services
4 Building a
scalable
operating model
Risk trend
Increase
Decrease No change
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 111
RISK
NATURE OF RISK
MITIGATING ACTIVITIES
OVERALL CHANGE DURING THE YEAR
A
Culture and
People
Relevant
strategic pillar
1 2 3
4
Risk trend
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.
AO’s culture is supported by a
wide range of tools, workshops
and events with a dedicated
employee events team.
The Group leadership team have
a shared responsibility to drive
culture throughout the business
on the basis of AO’s values.
Senior employees continue to
receive attractive remuneration
packages and we have an
effective incentive package,
which drives motivation
and 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.
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The last year has been like no other in
the history of AO with our culture well
and truly tested. The vast majority of our
office-based AOers have spent the last
year working remotely and we have had
to introduce new ways of working in our
operational areas in accordance with safe
practices. Furthermore, we have increased
our headcount by c.1,200 and have had to
onboard many newcomers with a virtual AO
experience. We have recognised the mental
health risks associated with the pandemic
and remote working. It has been a key
priority for the people team to support our
AOers with their well-being over the past
year. We have done this by recruiting a
dedicated culture team: experts in well-
being, engagement, diversity and inclusion
to support our AOers.
It is testament to a strong and engrained
culture that the business has thrived over
the year and we are pleased that our
Employee NPS scores are strong at +30
despite significant disruption.
Whilst technology has meant we can stay in
touch and we have increased engagement
and communications across a variety of
remote channels, we have missed the face-
to-face contact, inspiration, collaboration
and fun that being together in person can
create. We look forward to being able to
bring our AOers back together physically
when regulations permit, although clearly
the future of work will look different going
forward and we are mindful of the need
to have a more flexible approach to
remote working.
The introduction of the VCP has been well
received amongst colleagues, evidencing
inclusion across all AOers and further
cementing our culture, alongside being
a tool with which to motivate and retain
our people.
Tech vacancy numbers are expected
to remain a challenge, particularly
following the IR35 reforms, which are
having an impact on this sector. A unique
AO employer brand has been created
to showcase AO Tech as a destination
employer and fly the flag for AO, together
with a strategic partnership with Tech
Returners aimed at those who have
stepped out of the industry to redevelop
their skills and be recruited into a career in
tech with AO.
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AO World Plc Annual Report and Accounts 2021Strategic Report
Our risks continued
RISK
B
IT systems
resilience
and agility
Relevant
strategic pillar
1 4
Risk trend
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.
AO’s system estate is comprised of
bespoke self-built applications and
enterprise-grade commercial off-
the-shelf (“COTS”) products.
The majority of customer orders
are taken through our proprietary
websites, 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 regulatory
complaints/investigations 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.
All self-built applications are built
with high levels of redundancy,
operational monitoring, active
alerting, security best practice and
fault tolerance. These systems are
supported 24/365.
COTS products are subject to a
procurement and review process
to ensure that their failure
modes, availability service levels
and security qualities are well
understood.
Change is tested and follows
release processes before being
deployed in a live environment.
Disaster recovery plans are in
place to ensure business can
recover from interruptions with
minimal impacts.
In addition, AO takes a multi-
layered, continuously improvement
approach to information security,
including physical, digital and
human controls.
The cyber threat landscape
continues to become more
complex (and there has been
an increase in cybercrime and
ransomware threats during the
Covid-19 pandemic). Against this,
there has a been a programme
of security improvements and
developments over the year.
Through the year, we have
continued to improve the
operational qualities of our
systems estate, with regard to
availability, performance, recovery
and security as we have built out
additional features and systems to
support the enterprise.
Additionally, this year, we have
planned and built capability to
simplify and consolidate a large
part of our middle and back-
office systems, to ensure that
the foundations of the business
systems remain resilient and
scalable, long into our future.
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AO World Plc Annual Report and Accounts 2021
Link to strategy
1 Investing to
build a brilliant
customer journey
RISK
C
Compliance
with laws and
regulation
Relevant
strategic pillar
1 4
Risk trend
2 Comprehensive
category
coverage
3 Offering
supporting
services
4 Building a
scalable
operating model
Risk trend
Increase
Decrease No change
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 and privacy;
• 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; and
• 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.
Regulation continues to develop
at pace. Since Brexit, we are
aware laws could diverge across
the legal jurisdictions in which we
operate across the Group, creating
additional complexity.
AO is supported by a legal team
who promote awareness and best
practice, and an internal audit
team who provide assurance
on compliance. We further have
specific governance and steering
committees who oversee key
regulatory risks such as data
protection, health and safety and
SM&CR.
Third-party legal advice is
sought where necessary and
any recommendations are
implemented and subject to
ongoing monitoring.
In our key “legal” risk areas:
• Data protection and privacy :-
Whilst we have not seen
significant changes in legislation
over the period under review,
we are mindful of (i) how strictly
the regulators are interpreting
the legislation, (ii) the additional
guidance being issued by
regulators in this area, and (iii)
the extent of enforcement by
the regulators. Our e-commerce
businesses rely heavily on the
ability to conduct direct and
electronic marketing, and,
as we look to develop more
personalised and targeted
approaches, this is at somewhat
odds with the direction of travel
in this area.
• Drivers – high-profile cases
such as the Supreme Court’s
decision in Uber together with
socio-economic pressures
could increase the chance of
legislative change in this area
and/or increase the likelihood of
claims relating to worker status.
• Health and safety – at a
macro-level, the pandemic has
increased the health and safety
risks to our people and therefore
the potential for claims if we are
found not to have employed
safe working practices. Against
this, our in-house health and
safety team have been working
hard to keep people safe in line
with Government guidance and
specific advice from the Health
and Safety Executive.
We acknowledge increasing
regulation and governance in
the ESG space and have recently
recruited a dedicated team to
support us in this area.
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Our risks continued
RISK
D
Business
interruption
Relevant
strategic pillar
1 2 3
4
Risk trend
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 the UK and
Germany, may affect the ongoing
performance of our operations
and negatively impact the Group’s
finances and our customers.
Government restrictions impact
the ability for people to travel or
operate safely at work
Two NDCs (and additional storage
facilities 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.
The Group has successfully
maintained operations
throughout the Covid-19 pandemic
with increased controls at AO sites
and in the delivery operation to
ensure the safety of employees
and customers.
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 with support
from a third-party specialist.
Insurance policies are also in place
to further mitigate this risk.
The Group is also working towards
the implementation of an improved
business continuity plan (“BCP”)
with the assistance of a third-party
provider. The expansion of the
physical warehousing estate has
reduced risk through decreasing
the reliance on individual sites and
the BCP requires alignment to
the changes made to the estate.
The BCP is also being modernised
to a SaaS solution to increase
usability and availability if a
disastrous event occurred.
Uncertainty in the UK economy
following the Covid-19 pandemic
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.
E
UK electricals
market
Relevant
strategic pillar
2
Risk trend
Customer proposition remains
strong and continued migration
to online shopping should soften
macro-economic 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.
We closely monitor competitor
activity and have the ability
to react quickly to ensure our
proposition remains competitive.
Continued uncertainty in the
economy surrounding 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 over the year and an
increased reliance on appliances
and electricals for the home. Our
sales continue to be strong but
there is no guarantee this will be
maintained for the long term.
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AO World Plc Annual Report and Accounts 2021
Link to strategy
1 Investing to
build a brilliant
customer journey
2 Comprehensive
category
coverage
3 Offering
supporting
services
4 Building a
scalable
operating model
Risk trend
Increase
Decrease No change
RISK
NATURE OF RISK
MITIGATING ACTIVITIES
OVERALL CHANGE DURING THE YEAR
F
Key
commercial
relationships
Relevant
strategic pillar
1 2
3 4
Risk trend
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;
and
• 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.
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.
Although there has been a
reduction in the warranty contract
asset over the year, our relationship
with D&G has continued to go
from strength to strength over the
pandemic through collaboration
and trust.
Relationships with the mobile
network operators have been re-
established over the period with
management changes and we are
working together to improve joint-
led proposition improvements and
mitigate risks.
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AO World Plc Annual Report and Accounts 2021Strategic Report
Our risks continued
Link to strategy
1 Investing to
build a brilliant
customer journey
RISK
G
Funding and
liquidity
Relevant
strategic pillar
1 2 4
Risk trend
2 Comprehensive
category
coverage
3 Offering
supporting
services
4 Building a
scalable
operating model
Risk trend
Increase
Decrease No change
NATURE OF RISK
MITIGATING ACTIVITIES
OVERALL CHANGE DURING THE YEAR
Given the financial resources
available to the Group including
its cash resources and the RCF
that was renewed in April 2020
and which runs to April 2023, we
currently have sufficient funding
and cash resources to continue to
support the investment in both the
UK and Germany.
Our three-year plan models the
impact of reduced market share in
the UK and Germany post-Covid-19
and in a number of different
scenarios modelled we continue to
be viable – please refer to page 65.
We have amended and extended
our RCF facility in April 2020,
which now is an £80m facility and
matures in April 2023. The Group
has been cash generative in the
year with an increase in cash
resources of c.£60m.
With the improved results, credit
insurer sentiment has improved and
the continued strong relationships
with suppliers has contributed to
the improved cash position. We
continue to recognise that we are
still heavily reliant on suppliers and
their credit insurers for maintaining
credit limits at existing levels.
Our ambition is to have market-
leading high-growth businesses
and roll out our UK model overseas.
This requires continual substantial
investment both in the UK and
overseas.
During FY21, the Group has
benefited from the shift online and
has increased its market share in
both the UK and Germany. This
has driven a significant increase in
revenue, profitability and cash in
the Group.
As lockdown measures ease and
bricks and mortar competitors
are able to open their stores, there
remains a level of uncertainty
regarding customers future
shopping behaviours.
A return to pre-Covid-19 shopping
habits would potentially impact on
market share and reduce the level
of revenue growth in the Group,
which may therefore impact on
the Group’s ability to invest both
in the UK and overseas. Whilst
support from suppliers has been
good throughout the last year, with
them being able to increase their
position with AO through both self-
insurance and credit insurers, there
is a risk that, if growth declines,
suppliers may require a reduction
in terms ,which coupled with a less
favourable position from the credit
insurers, could cause liquidity
problems for the Group.
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AO World Plc Annual Report and Accounts 2021
In assessing the going concern basis,
the Directors have taken into account
reasonably possible downsides to sensitise
its base case. These primarily include an
assessment of how market share could
be impacted as Covid-19 restrictions
continue to ease and consumers are able
to shop in bricks and mortar stores again
without precaution. Whilst the Directors are
confident that a majority of new customers
attracted during the past year will continue
to enjoy the benefits of shopping online
with AO, the sensitivity analysis has
explored reduced market shares and a
severe but plausible downside of a return
to online MDA sales levels experienced
in FY20. Under this severe but plausible
downside scenario the Group continues
to demonstrate headroom on its banking
facilities of £45.9m and remains compliant
with covenants.
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.
Viability assessment
In accordance with paragraph 31 of the
2018 UK Corporate Governance Code,
the Directors have assessed the viability
of the Company and the Group over
a three-year period to 31 March 2024.
The Directors believe this period to be
appropriate as the Company’s and the
Group’s strategic planning encompasses
this period, and because it is typically a
reasonable period over which the impact
of key risks can be assessed within a fast-
moving retail business, and changes in
the economic environment that may alter
customer demand patterns. The Directors
are mindful, however, of the heightened
uncertainty driven by the Covid-19
pandemic and accept that forecasting
across this time frame is more challenging.
In making this viability statement, the
Directors have reviewed the overall
resilience of the Group and have
specifically considered:
• 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 59 to 64 and in the Corporate
Governance Statement on page 97;
and
• Financial analysis and forecasts
showing current financial position and
performance, cash flow and covenant
requirements. It assumes that a new
like-for-like revolving credit facility is
obtained on the expiry of the current
facility in April 2023.
The Directors have 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,
overall market share, the share of the
online market and their impact on revenue,
margin and working capital requirements),
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,
the Board has a reasonable expectation
that the Group and Company will be able
to continue in operation and meet its
liabilities as they fall due, retain sufficient
available cash and not breach any
covenants under any drawn facilities
over the remaining term of the current
facilities. As is customary when dealing
with longer-term debt facilities, the Board
would expect these to be renewed well in
advance of their next term.
Going concern statement
The Company’s business activities,
together with the factors likely to affect
its future development, performance and
position, are set out in the Strategic Report
on pages 2 to 85. The financial position
of the Company and its cash flows are
described in the Chief Financial Officer’s
review on pages 46 to 53. 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 54 to 65.
Notwithstanding net current liabilities of
£59.0m as at 31 March 2021, 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 which at the date
of approval of these Financial Statements
amount to £67.1m.
The Directors have prepared base and
sensitised cash flow forecasts for the Group
covering a period of at least 12 months from
the date of approval of these Financial
Statements (“the going concern period”),
which indicate that the Group will remain
compliant with its covenants and will have
sufficient funds through its existing cash
balances and availability of funds from
its Revolving Credit Facility to meet its
liabilities as they fall due for that period.
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AO World Plc Annual Report and Accounts 2021
65
Strategic Report Engaging 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. The examples that
follow demonstrate consideration
of the matters set out in Section
172 of the Companies Act 2006.
The Corporate Governance section
(pages 89 and 103) sets out in
more detail how the Board has
approached its duty under
section 172.
s.172 statement
The Board confirms that, during the
reporting period, in using its good
faith and judgement, it has acted in
a way that would be most likely to
promote the success of the Group
for the benefit of its shareholders,
whilst having due regard to the
matters set out in section 172(1)
(a) to (f) of the Companies Act. This
statement includes the information
demonstrating how the Board has had
regard to these matters in its actions
as set out in this section and in the
Corporate Governance Report on
page 103.
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.
How we engage
• Dedicated, highly responsive customer
service centre and variety of digital
communication channels including social
media platforms and Chatbot
• Dedicated account management for
B2B clients
• Collection of customer satisfaction
metrics and use of feedback and review
platforms
• Dedicated customer development team
• Extensive customer research including
surveys, customer focus groups and
forums to gather insight
• Currently trialling on-site customer survey
and feedback tools
• Customer lab sessions: we invite
customers to feed back their thoughts on
existing or proposed customer journey
aspects
What matters to them/
key topics raised
• Proposition: customer service, product
range, value, ease of journey and
convenience
• Reputation
• Data protection and compliance
• Environmental impacts
How we have responded
• Continued to serve customers safely
through social distances measures and
enhanced cleaning regimes throughout
the pandemic period
• Enhanced customer communications
during the pandemic including creation
of dynamic videos provide reassurance
around service, delivery processes
and practices
• Improvements in communications and
process in the event of order issues, delays
or faulty products
• Introduction of customer self- serve
functionality around Returns and
Additional Services in My Account
Our AO Let’s Go culture is the most
important element in binding the
competencies in our business model
together.
How 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
What matters to them/
key topics raised
• Culture
• Reputation
• Reward and benefits
• Career and development opportunities
• Well-being/health and safety
How we have responded
• We are currently creating an AO
Culturebook to help engage and inspire
colleagues on what it means to work
for AO
• Implementation of the Value Creation
Plan, allowing all AOers to share in the
success of the business
• Increased colleague engagement
and communication throughout the
pandemic
• Support of home working where
possible and adaptation of working
environments introduced for Covid-19
safety measures
• Development of health and well-being
initiatives
• Continued focus on diversity and
inclusion
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Our relationships with suppliers and
As a Group, we aim to build relationships
Access to capital is vital to the long-term
partners is critical to our performance.
and support the communities where we
performance of our business. We aim to
We believe that we and our suppliers
benefit the most where we have long-
operate. We consider the social
and environmental impact of our
provide fair, balanced and understandable
information to shareholders and analysts
term mutually supportive relationships,
operations and are fully committed to
including our strategy, business model,
and work with them to ensure that our
responsible retailing.
culture, performance and governance.
How we engage
• Liaison with charity partners
• Support to charities and fundraising
initiatives
How we engage
• Financial results presentations
• Institutional investor roadshow and
investor conferences
• Promotion of career opportunities
• Engagement with Board Committee
respective standards and expectations of
business conduct are adhered too.
• Steering and governance meetings with
How we engage
• Annual supplier conference
• “Top to top” (CEO) meetings
• Buying trips
finance partners
• Client meetings for B2B
• Logistics and Recycling
What matters to them/
key topics raised
• Long-term mutually supportive and
collaborative relationships
• Customer proposition enhancements
• Growth opportunities
• Responsible retailing, trust and ethics
• Payment practices
How we have responded
• We are currently developing a supplier
onboarding manual to help suppliers
understand and meet AO’s required
standards
• Held our annual supplier conference
virtually, allowing broad involvement
• Opening of new London creative hub
Chairs and SID
• Capital markets days
• View of investors a regular Board
agenda item
What matters to them/
key topics raised
• Financial performance
• Opportunities and strategic ambition
• Operating and financial information
• Governance
• Confidence in Directors and
management
• Shareholders returns
How we have responded
• Recruitment of a dedicated Director
of IR to help strengthen quality of
information available to shareholders
and to act as a further point of contact
• Use of pre-record results video and
enhanced live Q&A session
with universities
• Links with schools
• Employability forums
• Participation in recycling forums
and events
• Good relations with the Environment
Agency and bodies such as
WEEELABEX
What matters to them/
key topics raised
• Environmental performance
• Health and safety record
• Procurement decisions
• Investment and community support
• Sustainability initiatives
How we have responded
• Donation of appliances, prioritisation
of key delivery slots and product
discount to NHS workers throughout
the pandemic
• Worked with Cheshire Food Hub to
supply slow cookers to vulnerable
members of the community and
laptop donation to young people in our
communities
• Continued to work with Housing
Associations to offer a £2 per week
rental model to residents as we
continue to explore ways to challenge
appliance poverty
AO World Plc Annual Report and Accounts 2021 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.
How we engage
• Annual supplier conference
• “Top to top” (CEO) meetings
• Buying trips
• Steering and governance meetings with
finance partners
• Client meetings for B2B
• Logistics and Recycling
What matters to them/
key topics raised
• Long-term mutually supportive and
collaborative relationships
• Customer proposition enhancements
• Growth opportunities
• Responsible retailing, trust and ethics
• Payment practices
How we have responded
• We are currently developing a supplier
onboarding manual to help suppliers
understand and meet AO’s required
standards
• Held our annual supplier conference
virtually, allowing broad involvement
• Opening of new London creative hub
Understanding our customers is critical
to the success of our Group. This allows
us to continually improve our customer
Our AO Let’s Go culture is the most
important element in binding the
competencies in our business model
proposition, thereby driving sales, increasing
together.
profitability and allowing us to invest and
innovate our capabilities, and leverage new
opportunities.
How we engage
• Dedicated, highly responsive customer
service centre and variety of digital
communication channels including social
media platforms and Chatbot
• Dedicated account management for
B2B clients
• Collection of customer satisfaction
metrics and use of feedback and review
platforms
• Dedicated customer development team
• Extensive customer research including
surveys, customer focus groups and
forums to gather insight
How 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
• Currently trialling on-site customer survey
• Dedicated diversity, inclusion and well-
and feedback tools
being lead
• Customer lab sessions: we invite
customers to feed back their thoughts on
existing or proposed customer journey
aspects
• Designated Non-Executive Director as
employee voice representative
• Policies, procedures, employee
handbook and Code of Conduct
What matters to them/
key topics raised
• Proposition: customer service, product
range, value, ease of journey and
What matters to them/
key topics raised
• Culture
• Reputation
convenience
• Reputation
• Data protection and compliance
• Environmental impacts
How we have responded
• Continued to serve customers safely
through social distances measures and
• Reward and benefits
• Career and development opportunities
• Well-being/health and safety
How we have responded
• We are currently creating an AO
Culturebook to help engage and inspire
colleagues on what it means to work
enhanced cleaning regimes throughout
for AO
the pandemic period
• Enhanced customer communications
during the pandemic including creation
of dynamic videos provide reassurance
around service, delivery processes
and practices
• Improvements in communications and
process in the event of order issues, delays
or faulty products
• Introduction of customer self- serve
functionality around Returns and
Additional Services in My Account
• Implementation of the Value Creation
Plan, allowing all AOers to share in the
success of the business
• Increased colleague engagement
and communication throughout the
pandemic
• Support of home working where
possible and adaptation of working
environments introduced for Covid-19
safety measures
• Development of health and well-being
• Continued focus on diversity and
initiatives
inclusion
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 and governance.
How 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
What matters to them/
key topics raised
• Financial performance
• Opportunities and strategic ambition
• Operating and financial information
• Governance
• Confidence in Directors and
management
• Shareholders returns
How we have responded
• Recruitment of a dedicated Director
of IR to help strengthen quality of
information available to shareholders
and to act as a further point of contact
• Use of pre-record results video and
enhanced live Q&A session
As a Group, we aim to build relationships
and support the communities where we
operate. We consider the social
and environmental impact of our
operations and are fully committed to
responsible retailing.
How 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
What matters to them/
key topics raised
• Environmental performance
• Health and safety record
• Procurement decisions
• Investment and community support
• Sustainability initiatives
How we have responded
• Donation of appliances, prioritisation
of key delivery slots and product
discount to NHS workers throughout
the pandemic
• Worked with Cheshire Food Hub to
supply slow cookers to vulnerable
members of the community and
laptop donation to young people in our
communities
• Continued to work with Housing
Associations to offer a £2 per week
rental model to residents as we
continue to explore ways to challenge
appliance poverty
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AO World Plc Annual Report and Accounts 2021Strategic Report Sustainability
Our operations, behaviour and how
we treat our people and communities
have a wide-reaching impact on
the environment and society. We
understand the importance of aligning
our purpose, values and strategy with
the needs of our stakeholders to build
long-term value in a sustainable way.
We see sustainability as an investment
to stay relevant for customers and
our people, and we aim to embed
responsible and ethical Environmental,
Social and Governance (“ESG”)
business practices in all that we do.
Across AO’s business there are a variety of ESG-focused
initiatives in place, for example our recycling facilities,
projects to make improvements to vehicle efficiency, the
well-being of our people and community outreach projects.
We recognise that we need to streamline our approach
and develop an over-arching ESG strategy to support the
long-term performance and sustainability of the business.
We believe that in the long term, customers and talent will
gravitate towards companies that are properly addressing
the fundamental sustainability challenges faced by our
industries. Our approach is structured as:
s
e
s i n
s e t h i c s ,
o m p li a n c e a n d
r a t e g y
t
x s
a
t
B
u
c
rnanc e
e
v
o
G
Health and safety
S
o
c
i
a
l
pendence
ersity
d div
e
d
d in
n
a
r
a
o
B
n
o
i
t
a
r
e
v
i
t
u
e
c
n
e
u
x
m
E
e
r
R
e
s
o
u
r
c
Environ m e n t
a l
e
s a
n
d w
aste
Our sustainability journey
2020
Dedicated resource to
review and develop AO’s ESG
performance and strategy.
Signed up to the British Retail Consortium’s Net Zero Climate Action
Roadmap, including the following shared targets:
2030: Target for net zero emissions from purchased electricity
2035: Target for net zero emissions from fleet vehicles and heating
2040: Target for net zero emissions across product value chain,
both from suppliers and from customers
Innov at i o n
Innov atio n
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s
s e t h i c s ,
e
s i n
o m p li a n c e a n d
r a t e g y
t
x s
a
t
B
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c
Health and safety
rnanc e
e
v
o
G
P
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o
p
l
e
*
S
o
c
i
a
l
Working towards the
UN Sustainable Development Goals
AO’s business strategy contributes to a range of the United
Nations Sustainable Development Goals (“SDG”) and we
continue to work on those areas where we feel uniquely
placed to make a positive difference. We recognise the
power of working in collaboration to drive real change in the
industry, which is why we have committed to ensure that SDG
17 (Partnership for the goals) runs across the breadth of our
efforts as we aim to enable progress in all areas of our work.
AO SDG contribution
Environment
Social (our people and communities)
C
o
m
m
u
n
itie
s
Environ m e n t
a l
C li m ate
Innov at i o n
Innov atio n
Governance
* Engagement, well-being, diversity, equality and inclusion, talent attraction and
retention, learning and development
2021
Task Force for Climate-related
Financial Disclosures (“TCFD”) Gap
Analysis, Climate Screening and
Materiality Assessment looking at key
risks and opportunities across our
ESG footprint undertaken; alignment
to UNSDGs.
2021/22
• ESG strategy defined as part of overall strategy work.
Baseline carbon footprint determined, and scenario
analysis to be undertaken
• Full implementation of TCFD recommendations
• Aim to be able to set science-based targets (“SBTs”)
in line with the Paris Agreement on Climate Change
AO World Plc Annual Report and Accounts 2021
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Strategic Report Sustainability continued
The environment
To challenge the extremely wasteful narrative that encapsulates the electricals
industry, we take responsibility for the entire lifecycle of our products. We offer
our customers the option of collection of their Waste Electrical and Electronic
Equipment (“WEEE”) and take it back to our facilities where we maximise the
value recovered. Our priority is to repair and refurbish an appliance, giving it a
new lease of life thus preventing goods from being prematurely recycled. Once
these options have been exhausted, we responsibly recycle the product.
Over
1.3m
appliances recycled
in FY21
42%
of customer
products returned
to us are skilfully
repaired and
refurbished
Processed the
equivalent of
568m
single-use plastic
bottles
As shown in the following diagram, our
priority approach is to repair the pre-owned
appliances to meet our world-leading
standards and give them a new lease of life.
Around 42% of customer returns are resold
and we are pleased to have our own outlet
stores to sell the good quality and durable
products at heavily discounted prices.
Customer returns account for around 7%
of products coming back to us and the rest
is electronic waste that has reached the
end of its first life. Our experts work hard to
repair and service these appliances, and
when this is not possible, it is recycled to the
highest standard.
Through brand collaboration, we are
working to create a closed-loop process
where the appliances that have reached
the end of their first life do not get wasted,
but instead the materials are broken down
and will be used to make new appliances.
Currently, the materials have been used
to make recycled fence posts and air
vent components and we are continually
working to improve the quality of the
recycled content, to allow us to replace
the use of virgin raw materials used in
electronic appliances.
The following flow map shows the journey of
products after they have been discarded
by consumers.
Moving towards circularity
AO Recycling is the first in the world to be
certified to a new standard for turning
waste electricals into reuse appliances.
In November 2020, our facility in Telford
achieved the EN 50614 - Preparing for
Reuse of WEEE Standard, with its industry-
leading practices officially recognised for
the first time. We are proud to have gained
this accreditation, being the only recycling
facility in England to do so. Our recycling
facility also meets the highest standard
for WEEE disposal set by CENELEC (the
European Committee for electrotechnical
standardisation) and we are proud to be the
UK leader in blowing agent capture rates.
For the third year running, our Telford
recycling facility has been awarded
the Gold RoSPA for Health and Safety.
Additionally, an independent report by
Anthesis (Fridge Recycling Standards,
November 2019) showed that our fridge
recycling plant was the only one meeting
UK standards for collecting harmful gases.
We are proud to be setting the bar for
recycling electricals in the UK. This year,
we have made investments in our recycling
facilities including new dock bays and
improvements in our packaging system
to increase the take back of product
packaging. We will continue to innovate and
do the right thing for customers by caring
about products at all the stages of life.
When appliances are no longer wanted,
we can pick them up and take them back
to our rework facilities, even if the product
is not from AO. This past year, we have
scaled up our collections and taken back
more appliances than ever before, not only
collecting from houses but also on behalf of
local authority recycling centres.
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AO World Plc Annual Report and Accounts 2021 Collection
point
AO
collection
Cooling
units & LOA
AO
Logistics
AO
Crewe
Inspection and repair
When a product goes through our circular
process, it is first inspected and then repaired
and resold if possible
Re sale
Our resale models allow us to ensure
discarded yet reusable goods are in use for
longer, reducing the impact of waste
Recycle
Most products coming
to us have been
discarded, and while we
do prioritise repair and
reuse, most products
have reached their end
of life. When this is the
case, we responsibly
recycle the products in
our specialised
facilities, meeting
CENELEC standards
AO outlet at
Telford
After e-waste has been
skilfully repaired and
refurbished in our reuse
workshop at Telford,
meeting world-leading
standards, they are put
back into the market
either at our AO outlet
store in Telford or on to
second-hand traders
AO outlet
EleckDirect at
Bolton
When products are
returned from
customers, they are
repaired in Telford and
Crewe, and then sold in
our AO outlet
ElekDirect store in
Bolton or through
second-hand traders
Service care
When products reach
us that need
technical repairs, our
partners at Service
Care repair, refurbish
and return them to
market
Plastics plant
Our recycling process maximises the value
recovery of a products’ components and
materials. Using our four-acre WEEE plant, we
can clean and refine the plastics from
products, transforming them into high-quality
reusable materials.
Aim for closed-loop system
Efforts to reuse these materials in other
products and create a truly closed-loop
circular process are underway. This will not
only reduce our operations carbon impact but
will also minimise the unnecessary use of virgin
materials.
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Sustainability continued
The environment
What’s next?
Over 155,000 tonnes of electricals are
discarded every year instead of being
reused or recycled. This results in a huge
loss of valuable resources while increasing
the demand for virgin raw materials to
be mined at significant environmental
cost. AO is dedicated to working with
our customers, industry partners and
governments to drive improvements and
innovation in the management of waste
electricals and electronic equipment. We
strive to reduce the volume of e-waste
and the major threats it poses to the
environment and human health.
We continue to be ambitious within our
own operations when it comes to creating
a truly closed-loop recycling process
and exploring more circular and fair
models of consumption. We are currently
collaborating with brand partners and
experts in our plastics recycling labs
to explore the possibility of refining the
processed material from our plastics
recycling facilities for use directly in the
production of new products. Shortly after
the end of our reporting period, we were
pleased to announce that we are now
working with domestic ventilation fan
manufacturer Volution Group, who are
using plastics recycled from close to 63,000
old fridges collected from customers
and processed in our facility in Telford to
produce sustainable ventilation products.
We also continue to seek ways of extending
the life of electrical products through
innovative customer offerings and our in-
house AO repair and recycling services.
Our journey to net zero
We are fully committed to meeting our
environmental responsibilities and limiting
the negative impact of our operations.
A dedicated ESG team was established
this year with a view to ensuring we create
value and a positive impact on all our
stakeholders.
To fulfil this ambition and do our part in
limiting global warming to 1.5 degrees, we
plan to accelerate our efforts to reduce
our greenhouse gas emissions. By working
with a third-party expert, we have been
able to calculate Scope 1 and 2 emissions
as well as significant elements of Scope 3
emissions. Through this initial calculation,
it is evident that our Scope 3 value chain
footprint is considerably larger than our
Scope 1 and 2 footprint and, as a result, we
are in the process of accurately measuring
our entire value chain emissions before
setting science-based targets (“SBTs”).
Beyond our own actions, we understand
that the scale of the decarbonisation
challenge will require a concerted pre-
competitive action from retailers. Through
working together with our suppliers and
other stakeholders alongside government
action, we are committed to supporting the
necessary technological, behavioural and
market transformations that are required.
Executive remuneration for the
forthcoming year will incorporate metrics
linked to our stakeholder relationships,
which we recognise are important to
drive sustainable growth. Further, we
have included a performance underpin
requiring the development of a Group-
wide ESG strategy, which will include our
recycling capabilities as a key component.
Initiatives to improve our
environmental performance
95% of electricity used by our UK
operations is renewable. We are continually
working towards our target of 100%
renewable energy supply by 2030 and
we continue to explore opportunities to
collaborate with property owners on the
development of on-site renewables via
Power Purchase Agreements.
We currently have 360 carbon fibre trailers
on the road that significantly lower the
weight of each vehicle and therefore
increase fuel efficiency. Our trailers have
been specifically designed so that they
can be transferred to electric vehicles at
the appropriate time. We maximise our fuel
efficiencies using vehicle telematics and,
by employing double-decker trunking, we
can deliver more products per journey to
our outbases.
Technologies such as voice picking in
our warehouse, chatbots and the more
recently developed augmented reality
features on our website, are being used to
help customers purchase the right goods
for them, first time. By ensuring we give
customers the information they need and
by allowing them to view products in their
home via augmented reality, we aim to
both delight our customers and reduce
the number of products being returned.
The transition to a decarbonised fleet is a
strategic priority over the coming years.
We have installed four charge points
between our Potters Bar and Heywood
outbases and have electric delivery
vehicles taking part in a trial. The charge
points have adapted data interfaces and
the results of the trial will be monitored
to help inform our medium to long-term
strategic plan for decarbonisation.
72
Industry collaboration
The retail industry in the UK is the largest
private sector employer, with a customer
base of 67m people. It therefore has a
significant role to play in tackling climate
change. As well as providing goods and
services for UK customers and supporting
livelihoods for millions within global supply
chains, the industry also contributes
significantly to the underlying drivers of
climate change, with value chain emissions
of approximately 215 MtCO2e (million
tonnes CO2-equivalent) per year.
AO and 65 other UK retailers have come
together as signatories of the British
Retail Consortium (“BRC”) Climate Action
Roadmap to ensure that British Retail
takes the steps necessary to achieve a Net
Zero UK ahead of the UK Government’s
2050 target.
The Climate Action Roadmap describes
action in five key areas:
• Putting greenhouse gas data at the
core of business decision making;
• Operating efficient sites powered by
renewable energy;
• Moving to low carbon logistics;
• Sourcing sustainably; and
• Helping employees and customers to
live low carbon lifestyles.
Task Force on Climate-related
Financial Disclosures (“TCFD”)
The Board recognises the importance
of understanding and managing the
impact of potential climate-related
risks and opportunities on AO’s business
and strategy. AO therefore supports
the recommendations of TCFD and has
engaged the support of a third-party
expert to support us in preparing to make
the relevant disclosures for the coming
year.
During the year, we have completed a
gap analysis to understand what we need
to do to meet the TCFD obligations and
conducted a series of climate screening
workshops with senior management from
across the business. These workshops
have educated management on the
requirements of TCFD and the landscape
of climate-related risks and opportunities.
Governance
The Board will have oversight of material
climate related risks and opportunities,
receiving regular updates from the ESG
Steering Committee, chaired by the CFO.
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73
Strategic Report Sustainability continued
The environment
Strategy
In our current financial year, we will
perform relevant scenario analyses to
better understand the likelihood and
potential estimated financial impacts
of the material climate risks and
opportunities identified during the climate
screening workshops.
Our initial review has illustrated that AO
has resilience to both transitional and
physical climate risks, but that we need
to ensure we keep pace with consumer
and market pressures to respond to
climate change and provide services to an
increasingly environmentally conscious
customer base. We will continue to
demonstrate an ability to adapt and move
quickly to shifts in consumer demands,
and as new technologies become
commonplace.
We will seek to diversify our product ranges
and product categories in response to
the physical risk of climate change and
harness long-term competitive advantage
from our recycling operations in response
to expected legislative changes around
the treatment of waste electricals.
Risk management
Climate risk is evaluated by the Risk
Committee as part of the Group’s overall
risk management framework. Where
climate risks do not feature as a current
principal risk, they are quantified and
reviewed as part of a new standalone ESG
Risk Register, and full integration of climate
risks and opportunities will continue to be
developed alongside a climate strategy.
Metrics and targets
We have committed, as a signatory of the
British Retail Consortium’s (“BRC”) Net Zero
Roadmap, to become a net zero carbon
business by 2040. In addition to this, we
intend to set our own specific science-
based targets across our Scope 1, 2
and 3 emissions.
The disclosure of our Scope 1, 2 and 3
emissions will be connected to the relevant
risks identified in the climate screening.
Greenhouse gas emissions
The non-renewable energy sources used
to power our buildings, recycling facilities
and the products we sell, fossil fuels used
in our transport fleet, and manufacturing
within our global supply chains, all create
greenhouse gases that are warming
our planet.
At AO, we are committed to reduce our
consumption wherever we can and seek
renewable energy alternatives. We also
know that we must be more ambitious
by looking at our impacts, not just within
our own operations but across our entire
value chain, including how our customers
use the products that we supply to them
and ultimately how they are repaired or
recycled at the end of their first life.
This year, AO partnered with an expert
third party to carry out a high-level
estimation of Scope 3 emissions for
FY20/21. Further analysis will be carried
out to improve the accuracy and provision
of the results, with FY20/21 acting as a
baseline for the establishment of science
based targets in the year ahead.
AO reports on all of the Greenhouse Gas
(“GHG”) emission sources as required
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 GHG emissions and energy
use is the GHG Protocol Corporate
Accounting and Reporting Standard
(revised edition) and ISO 14064.
Emissions from electricity use have been
estimated using “location-based” and
“market-based” approaches. For the
location-based approach, the average
emissions factor for the country is used,
applying country-specific emissions
factors published annually by the
International Energy Agency (“IEA”). The
alternative market-based approach refers
to renewable energy certificates (given
zero emissions), and where no supplier-
specific data is held, factors published for
residual emissions.
Other emissions factors that have been
used to convert activity data (e.g. kWh
energy or passenger kilometres travelled)
are taken from the “UK Government
GHG Conversion Factors for Company
Reporting” published annually by BEIS
and DEFRA.
In order to express our annual emissions
in relation to a quantifiable factor
associated with our activities, we have
used revenue as our intensity ration as this
is a relevant indication of our growth and is
aligned with our business strategy.
The total calculated Scope 1 and 2
emissions for the reporting year are shown
in Table 1 below.
1 SUMMARY OF AO WORLD PLC GHG EMISSIONS
Carbon emissions (tonnes of CO2e)
Emissions from operations and
combustion of fuel: Scope 1
Emissions from energy usage: Scope 2
location-based
Total
Intensity ratio:
Tonnes of CO2e per £m of revenue
Emissions from energy usage: Scope 2
market-based
2021
2020
2019
32,176
26,587
25,836
3,411
35,587
21.43
1,284
3,679
30,266
3,887
29,723
28.55
32.93
1,697
–
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75
Strategic Report Sustainability continued
Social responsibility
Our people
Our 4,400 AOers are the foundation of our business. Their dedication, innovation and ambition
contribute to the success and sustainability of our business. We believe that happy people care
more and do the right thing. So, we make sure they are 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 live our values. They care not only
about our customers but other AOers too, our suppliers and, of course, do it all with a sense of fun.
The last year was one of significant growth,
which presented challenges and rapid
change across the Group. The pandemic
highlighted the value of our well invested
culture and we are very proud of how
every AOer came together as a One
AO team to steer the business through
a record year. Our culture and values
encourage transformative thinking and
collaboration to drive innovation and
create best practices. During the last
year, we developed new capabilities and
ways of working, which have created firm
foundations for growth.
Our highest priority during the pandemic
was to keep AOers and customers safe
whilst fulfilling the unprecedented demand
for AO products and services. This required
an enormous effort from across the
business and our partners. These unique
circumstances amplified our appreciation
of Logistics as our front-line business
alongside our Customer Experience teams
who kept services and communication
with our customers open and seamless.
The rapid response to workplace changes,
moving from on-site to remote working
wherever possible, was enabled through
our Business Continuity team working
across tech, facilities, people and
communications, underpinned by the
strength of our unifying culture to do the
right thing and work as One AO.
We are currently reviewing future ways of
working. We are assessing our learnings,
both positive and negative, of flexible
working over the last year. We will define
our policy on this over the coming year
and will invest where required to keep our
AOers safe, innovating where necessary,
recognising that flexibility will be required
from across the business.
Engagement
We recognise that strong employee
engagement will help drive business
sustainability through increasing
customer satisfaction, boosting
productivity, retaining the best talent
and enhancing Company culture. We
have enhanced our people experience
by actively listening to our AOers through
our annual engagement survey, quarterly
pulse surveys and regular AOer forums.
Our listening channels have been an
important way of gathering views and
providing a credible voice from AOers,
particularly so during the pandemic.
As well as employee surveys, we have
implemented an AO Engagement
Champions and People Forum network,
where AOers from across the business get
together to share experience and create
solutions to improve how we work.
We use the results from our engagement
surveys, employee forums and external
metrics such as Glassdoor to take action
to improve the people experience. This
insight allows us to work to increasing one
of our key people metrics, our Employee
Net Promoter Score (“eNPS”) as well as
other identified priority areas that need to
be addressed so that we can focus local
and Group level actions.
Chris Hopkinson, a Non-Executive
Director, is our People Champion. As part
of our listening approach, Chris attends
quarterly engagement lead sessions with
AOers from across the Group to allow a
diverse and wide viewpoint to be gathered.
The sessions focus on how AOers are
feeling, a review of the results from our
regular surveys and a review of the actions
we are taking to make improvements.
Chris’ involvement allows the Board to hear
direct feedback from our AOers helping
to build an open and transparent culture.
During the year, Chris has helped to drive
momentum on Group-wide and business
unit specific action plans including
areas such as career development and
opportunity, reward, recognition and AOer
well-being. We were pleased that our eNPS
score at the end of the reporting period
was five points above our target, providing
encouragement that the feedback
process and the changes we have
implemented in response, are working.
To support our engagement strategy,
we use a number of ways to engage with
AOers to understand what matters to
them to ensure successes are recognised
and that there is a broad understanding of
business wide performance. This includes
a monthly “State of the Nation” led by
our CEO who provides a business update
followed by a live Q&A session. There are
also monthly meetings with the top 130
leaders from which we provide a structured
cascade so that all AOers hear the latest
messages from their senior manager.
We also use a number of internal social
media channels such as Yammer and
YouTube, both to ensure all AOers are
kept up to date with the latest news and
developments across the Group and also
enable two-way conversations between
AOers across the business.
The Group’s SharePoint site also allows
AOers easy access to Group policies
and procedures.
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77
Strategic Report Sustainability continued
Social responsibility
Diversity, equity and inclusion
We are committed to creating an inclusive
environment and attracting a more diverse
team of AOers.
As our business grows, we want to have
people from different backgrounds play a
part right across our organisation. As well
as being the right thing to do, we also know
our diversity of thought and contribution is
critical to our success.
We aim to be a welcoming place where
everyone can be their true self, feel they are
included, celebrated and that they belong.
Our dedicated diversity and inclusion
manager focuses entirely in this area, with
our CFO having Board responsibility for our
diversity initiatives. 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 Committee did not have
any female representation, our Senior
Leadership team (which reports directly
into our Executive Committee) was 25%
female including the members of the
Executive Committee, and the number of
female AOers across the whole business
was 31%. We aim to collect ethnicity data
this year along with other demographic
data at point of attraction, onboarding and
for our existing people.
As well as striving for better representation,
we are working relentlessly to make
our culture even more inclusive. We are
promoting the sense of belonging through
our recently introduced “Building an
inclusive AO” forums. These working groups
are focused on highlighting and driving
opportunities for action that will drive
inclusivity for our AO women, LGBTQ and
race communities, alongside “AO Inspire”
talks, learning events and awareness days.
There are numerous activities to support
these groups and to engage all AOers
including International Women’s Day and
Black History Month. We will continue to
raise awareness through celebration of
key dates across the Group, as well as
building a programme of activities to
build inclusive leadership skills with all line
managers including a focus on improving
our listening skills, using data to drive our
decision making and recruiting The AO
Way. We are committed to working with all
our employees to build a place where they
can belong, feel safe and included.
78
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 AOers
are also treated fairly in respect of career
development. Should an AOer 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.
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
• AOers 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 with a
snapshot date of 5 April 2020 can be found
at ao-world.com. We were pleased to report
that, due to our recent focused activity, our
gender pay gap is below the median for the
industry. However, we recognise that there
is still more to do to close the gender pay
gap. Our future initiatives include:
• Inclusive policy and practice: We are
reviewing and revising our policies to
make sure they are in line with best
practice standards. This includes our
family policy and equality, diversity and
inclusion policy.
• Engaged Employee Network Groups:
The thoughts and views of our AOers
are important to us, so we will build on
the success of our race network group
by launching new networks focused on
family.
• Transparent recruitment: We will
improve the visibility and openness of our
recruitment selection criteria and make
sure that, wherever possible, there is more
than one woman in shortlists for mid and
senior level roles. Women in tech will be an
emphasis this year and our recruitment
for these roles will pay special attention to
attracting women to apply.
• Supporting AOers’ career development:
We will put an inclusion lens over our
leadership pipeline and succession
process and will focus on building
inclusive practices into our leadership
programmes. This is coupled with
inclusion learning for all our AOers.
• Engaging with initiatives and events:
We will celebrate the contribution of
our women on International Women’s
Day and Ada Lovelace Day. We will also
support women returning to work, both
from maternity and from extended
career breaks, by engaging with
programmes such as Tech Returners.
Over the coming year, we will continue to
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. Creating an inclusive
environment where everyone can succeed
and be rewarded for their efforts will
continue to be a priority.
Keeping people safe
At AO, we are committed to providing a safe
and healthy environment for our AOers 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 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 created a 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 in a ‘One AO’ approach.
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Strategic Report 01
Sustainability continued
Social responsibility
Talent attraction and retention,
learning and development
People are at the heart of our business and
build our success, so we continue to invest
in them. We recognise the importance of
learning and development and have a
culture of continuous improvement.
We know competition for talent is fierce
and we are building our reputation by
proactively marketing AO’s unique culture.
Our accelerated growth during the
year resulted in the creation of 1,200
new roles. We evolved our approach in
talent acquisition, focusing our efforts
in: attracting talent where there are skills
shortages; raising the bar in our selection
and interview process; deepening our
leadership capabilities through attraction
and development; and using AI and
technology to our advantage to support
the quality and speed of recruitment in
higher volume areas.
Our learning philosophy is accessible,
engaging, personalised and scalable, with a
clear focus on AOers being the best version
of themselves and understanding their role
in a high-performing team. It is important
we provide a clear development journey.
During the year, we reviewed the learning
experience for AOers at every stage and
every level and have increased overall
capability. Going forward, we will leverage
a new, more scalable learning platform for
AOers to access the learning experiences
they need.
We created a digital “AO Hello’”welcome
programme for new joiners and optimised
our face-to-face operations training. We
have also made on-demand learning and
live events available to all AOers via our
Learning Hub.
We were pleased to commence
partnerships with Henley Business School,
Critical Eye and LEAP development group
during the year so we can look to support
our leaders and managers through 2021
in expanding their networks, building
self-leadership, nurturing innovation and
high-performance teams, accelerating our
growth and transformation. We have also
sought to embed a consistent approach
across the Group for talent and succession
planning, especially for strategically critical
roles, to build a shared understanding
and calibration of potential and high
performance across the business.
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 and our internal audit
function. We actively promote open
conversation with the enforcing bodies
within health and safety as we seek to be
the best at what we do.
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.
We prioritise well-being at AO, and this
has been especially true through the
pandemic. We embedded well-being
into our ways of working and delivered
mental health awareness training to
our managers, launched an online Well-
being Hub providing support and advice
for health, well-being sessions, fitness
classes, social and financial well-being, on
demand digital learning and 24/7 well-being
support through our Employee Assistance
Programme, and supported AOers
with schooling from home and learning
materials for children.
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; and
• 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 in enhanced
safety/hygiene measures to protect
our people in frontline operational roles,
whether in our warehouses, plants, stores or
whilst making deliveries. We also equipped
everyone who can work from home with
what they need to do so and supported our
people in frontline operational roles.
80
Over the next year, we will look to optimise
roles, technologies, structures and ways
of working. We will continue to increase
the quality of new hires, create a clear
skills framework, extend our learning
opportunities and continue to focus on
high-performance leadership teams. We
also plan to introduce Objectives and
Key Results (“OKRs”) to align AOers, drive
high performance and stimulate growth
and innovation. All of this, together with
streamlined people processes and our
investment in a core people system to
improve efficiencies and make it easier for
all AOers to get the information and advice
they need, will ensure that we are fit for the
future and that our people are set- up for
personal and business success.
Reward
We believe that a fair and attractive reward
package makes an important contribution
to both employee engagement and the
attractiveness of AO as a place to work.
During the year, we have made progress
on a modern and sustainable reward
strategy underpinned by a philosophy and
principles, which incorporate the strong
link between reward and value creation
assessed through performance, of which
behaviours are an important component.
We have designed and implemented a new
job classification framework, based on
work levels, so that every AOer knows how
their role contributes to the success of the
business and have introduced additional
transparency into our annual salary review
process. We have set out our intention to
pay market competitive base salaries,
at or above the relevant market median
for AOers once they are established and
performing effectively in their role and
made progress towards this in our 2021
pay review. We are building on this with a
full and detailed market review this year to
ensure our pay is competitive at all levels
and roles so that we can attract and retain
the best talent.
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AO World Plc Annual Report and Accounts 2021 01
Critical to our reward strategy is the ability
of our employees to share in our success
and, in September 2020, we were pleased to
launch our Value Creation Plan (“VCP”). The
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
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 all
our people. All employee participation is a
key feature of this incentive plan. The VCP is
aimed not only at incentivising exceptional
performance but also to assist with the
retention of our talented team with the
maximum opportunity only achievable if
our growth plans are sustained in the long
term and provides financial motivation
for our entire workforce to accelerate
profitable growth.
We also offer an annual Sharesave scheme
to all UK employees, providing them with the
opportunity to purchase ordinary shares
in the Company. This helps to encourage
employee interest in the performance of
the Group. During the year, we refreshed our
communications, creating a short video to
help explain the details of the scheme in
a clear and engaging way.
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AO World Plc Annual Report and Accounts 2021
81
Strategic Report use-dispose model of purchasing, which
currently dominates the electrical industry.
Young people - laptop donation
Adapting to an online lifestyle this past
year has brought attention to the digital
divide particularly amongst young people,
with many not having the necessary
digital access to switch to home- schooling
during the pandemic. We believe, as a tech-
based retailer, it is our responsibility to
collaborate with others within our industry
to reduce the inequalities associated with
digital exclusion and ensure the young
people in our communities have access
to the required technology. As a result, we
joined other retailers in donating laptops
to the Greater Manchester Tech fund and
made a further donation of laptops to the
charity Onside.
AO continues its support of Onside
and this year became a founding
ambassador for Onside’s Hide Out Youth
Zone, supporting the new centre and its
young members through AOers from our
Manchester office volunteering their time
and supporting fundraising efforts.
This past year, we have also become a
founding ambassador of Fast Futures.
This initiative allows us to engage with
Sustainability continued
Social responsibility
Our community
Supporting the NHS
during Covid-19
To show our appreciation for all the NHS
staff working on the frontline, we were
pleased to have been able to support
them in various ways. We have donated
kitchen appliances to several hospitals
so that NHS staff can prepare their own
food and hot drinks without risking the
spread of the virus at busy canteens. We
listened to the needs of frontline workers
and offered free delivery slots of their
choice thereby ensuring that deliveries of
essential electricals could fit in with shift
times. We have offered NHS workers a 10%
discount on large domestic appliances
continuously since the start of the
pandemic in March 2020. This is one of the
longest standing discounts AO has ever
offered and show of gratitude to those
that have cared and looked after us all.
Rental model
Prior to the Covid-19 crisis, 4.8m people
in the UK were living without at least one
essential household appliance (Turn2Us,
Jan 2020). We want to challenge the
current trajectory of appliance poverty by
addressing the financial premiums faced
by members of society who have the least
financially. We believe that everybody
should have access to reliable and
affordable appliances. As a tech retailer
with its roots in Greater Manchester, it is
hugely important for us to help the people
in our communities to access quality
electricals at affordable prices.
This past year, we have continued our
rental model proposition whereby
customers can rent electrical items for
£2 a week via their Housing Association.
This includes the delivery and installation
of the product along with its repair or
replacement when required. We continue
to reflect upon and learn from our rental
model and partnerships with housing
associations.
Supporting vulnerable
members of the community
Covid-19 has exposed and deepened the
inequalities within our society. The scale of
those struggling to make ends meet and
feed their families is demonstrated by the
increasing numbers of people reliant on
emergency foodbanks. The January 2020
Turn2Us Report highlighted that this issue
is worsened by 2.8m people in the UK not
having access to a freezer. The absence of a
freezer is estimated to add £1,365 a year on
to the average family food bill as it prevents
the ability to bulk buy and often leads to the
increased wastage of fresh food.
We are proud to have teamed up with
Cheshire Food Hub, The Welcome Network
and The Recipe Exchange, to be a part
of the Love Slow Cookers, Hate Food
Waste campaign. The project supports
families across Cheshire with recipes and
ingredients to prepare low-cost nutritious
meals in a slow cooker. The campaign aims
to help families minimise food waste, learn
cooking skills and reduce energy bills with
a slow cooker costing just 18p an hour to
run. After the successful delivery of 200
slow cookers to Cheshire Food Hub, we are
in the process of providing a further 2,000
slow cookers and are committed in the
coming year to exploring new initiatives to
effectively support the most vulnerable
members of society.
82
We remain optimistic that AO can make
a real difference in the rental space,
increasing fair access to appliances
whilst also challenging the take-make-
Jo Garner at Cheshire Food
Hub receives the first delivery
of slow cookers from AO
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AO World Plc Annual Report and Accounts 2021 high-potential, diverse young people
and support their employability within
the digital sector. In addition, we have
collaborated with different organisations
and charities to support young people in
our communities; these include Career
Ready UK, The Prince’s Trust, Engineering
& Design UTC, Cheshire & Warrington LEP
and Learn Live with Job Centre Plus. With
the help of our key collaborators, we are
building a mentoring culture throughout
our business, with 52 AOers mentoring
young people this past year. The support
of our mentors’ ranges from work
experience, enterprise projects, interview
coaching and sessions focusing on mental
well-being and resilience.
Growing and retaining diverse talent
across the business is important to us, and
so this past year, we have participated
in 26 career events for young people. In
October 2020, we established our AO
Academy: a recruitment programme
for individuals who want to work at AO
but have barriers to employment or are
retraining after being displaced from
their jobs due to Covid-19. Jobseekers
are referred to the AO Academy where
they are offered training resulting in a
level 2 certificate in Warehousing and
Storage, along with employability skills
training. After the seven-day programme
is completed, the individuals undertake
a working trial where currently 70% are
offered jobs at AO.
AO Smile
We support our people to make a positive
contribution to the wider community.
Smile was awarded the top award of
Diamond Payroll Giving Award by the
Government’s Cabinet Office for the
second year running. To facilitate
volunteering, we offer two paid Make A
Difference (“MAD”) days a year to every
AOer. In addition, when AOers raise money
for a charity close to their hearts, AO Smile
foundation boosts the money raised.
Whilst AO Smile has supported numerous
charities this past year through donating
£47,450, the main beneficiary has been the
Cash for Kids campaign. This campaign
offers support to vulnerable children and
families in the UK who are most impacted
by the Covid-19 pandemic. Smile’s summer
and Christmas campaign for Cash for Kids
raised £9,630 supporting 321 families (£30
per family). During the year, AOers donated
£41,559 to AO Smile though payroll giving.
AOers are offered two
volunteering days a year
to make a difference
Head teacher Paul Eckley
receives the delivery of new
laptops from AO
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AO World Plc Annual Report and Accounts 2021
83
Strategic Report Sustainability continued
Governance: responsible retailing
At AO we recognise that being an environmentally responsible and ethically
focused business is valued by all stakeholders, along with presenting
commercial opportunities.
Business ethics and compliance
We have partnered with third-party
experts to undertake an ESG Materiality
Assessment with input from key
stakeholder groups including senior
management, employees, customers,
suppliers, investors and NGOs. This is
intended to reaffirm the ESG risks and
opportunities for AO and will inform the
Risk and Audit Committee’s approach.
Tax strategy
As part of our Group strategy, we believe
in doing what is right and fair. Our tax
strategy seeks to serve the overall Group
strategy, enhancing shareholder value for
our shareholders and ensuring that the
tax obligations are managed effectively
minimising risk and uncertainty for the
business. We will continue to review the tax
strategy to ensure that the two are aligned
on a regular basis.
Board independence, diversity
and Executive remuneration
Our Corporate Governance reports sets
out further details of our governance
around Board independence and diversity
and Executive remuneration.
Risk management
Details of our risk management practices
can be found on page 54 and 55.
Our Modern Slavery statement for the
year ended 31 March 2020 was published
during the year. 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 formal
anti-bribery policy and whistleblowing
procedures. Our whistleblowing
procedures allow our people to raise
any issues of impropriety in confidence.
As noted in the governance section, we
have undertaken an assessment of these
procedures during the year and are
confident these are working effectively.
Work is underway to review our supplier
onboarding process including the creation
of a supplier code of conduct, ensuring
alignment to the Modern Day Slavery
Act 2015; and we continue to look at our
procurement processes and focus on our
key risks.
In light of the financial pressures impacting
some customers during the pandemic, and
having regard to FCA guidance on treating
customers fairly, during the year, we have
developed and rolled out a vulnerable
customer e-learning tool for the contact
centre and have also worked with our
supplier partners to ensure their practices
treat customers fairly too.
For our people, we are working on the
creation of a Culture Book, which will
include a Code of Ethics, replacing our
existing Code of Conduct. Our policies,
including cyber security, GDPR, modern
slavery and anti-bribery are supported
through our employee learning hub, which
helps to ensure that these principles are
fully understand and are at the forefront
of minds.
84
Our key objectives include:
• Maintaining integrity in respect of
compliance and reporting;
• Controlling and mitigating tax risks; and
• Enhancing shareholder value.
A copy of our current tax strategy can
be found at on our corporate website at
ao-world.com/responsibility.
REPORTING
REQUIREMENT
POLICIES AND STANDARDS THAT
GOVERN OUR APPROACH
Environmental
• Environmental policy
• Group employee
handbook
• Whistleblowing policy
• Health and safety policy
• Code of conduct
• Modern slavery policy
• Data protection policy
• Modern slavery policy
• Code of conduct
• Hospitality and gifts policy
• Anti-bribery policy
• Hospitality and gifts policy
Employees
Social matters
Human rights
Anti-corruption and
bribery
Principal risks and
impact on the
business
Description of
business model
Non-financial KPIs
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.
• Equal
opportunities
policy
• Flexible working
• Data protection
policy
policy
INFORMATION NECESSARY TO
UNDERSTAND OUR BUSINESS
AND ITS IMPACT, POLICY DUE
DILIGENCE AND OUTCOMES
Sustainability report: our
environment, pages 70 to 75
Sustainability report: SECR/
GHG emissions, page 74
Our culture, pages 16 and 17
Sustainability report: our
people, pages 76 to 81
Sustainability report: our
communities, pages 82
and 83
Sustainability report:
responsible retailing, pages
84 and 85
Sustainability report:
responsible retailing, pages
84 and 85
Risk report, pages 54 to 56
Our business model, pages
14 and 15
KPIs, pages 44 and 45
Our policies and procedures are available
on our corporate website or from our
Company Secretary on request.
The Company’s Strategic Report is set out
on pages 8 to 85 and was approved by the
Board on 30 June 2021 and signed on its
behalf by:
Julie Finnemore
Company Secretary
30 June 2021
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AO World Plc Annual Report and Accounts 2021 Strategic Report
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AO World Plc Annual Report and Accounts 2021
85
Governance
Board of Directors
88 Chair’s letter and introduction
92
94 Corporate governance report
104 Nomination Committee report
108 Audit Committee report
114 Directors’ remuneration report
140 Directors’ report
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“ Excellent service.
Easy-to-use website,
great communication
before delivery... will
definitely purchase
from AO again.”
Jean,
AO Customer
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Chair’s letter and introduction
“ Driving good corporate governance to help
steer the Company and achieve its purpose.”
Geoff Cooper
Chair
Working closely with management, the
Board also conducted a robust review
and assessment of the evolution of Group
strategy. Several Board strategy days
were scheduled to allow the Directors to
debate, challenge and understand the
opportunities ahead. Further details of our
strategy can be found on pages 42 and 43.
The Code requires a FTSE 350 Board
to conduct an externally facilitated
review of its effectiveness at least
every three years. Our last such review
was conducted for the year ending
31 March 2018 and so we had anticipated
conducting an external review during
the reporting period. However, the Board
determined that, given the challenges
arising from Covid-19, management should
not be distracted. Further, the lack of
Board face-to-face meetings meant that
Dear shareholder
I am pleased to present our Corporate
Governance report for the year ended
31 March 2021. At AO, we believe that
a healthy culture, positive values and
high-quality team members are the key
to delivering our strategic objectives
and to supporting the long-term success
of the Company. This, together with
the “backstop” of a robust corporate
governance framework, which provides
effective control and oversight, combined
with the entrepreneurial spirit of the
business has been instrumental to the
success of the Group, particularly during
the challenges of Covid-19.
In this report, we set out our approach to
governance and the initiatives undertaken
during the year. Our statement of
compliance with the 2018 UK Corporate
Governance Code is set out on page 90.
The focus of the Board this year has
been to oversee the Group’s response
to Covid-19, whilst supporting significant
transformation within the business and the
design of a five-year strategy.
Our key priority has been, and continues
to be, ensuring the safety of our people
and customers through a period of rapid
growth. To support this growth and to
further improve operational efficiency, the
Board reviewed and approved a number
of investments in infrastructure including
additional warehousing space, new
outbases and fleet. These investments will
ensure that we are well placed to capitalise
on the consumer shift to online and to
deliver the Group’s future objectives.
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such a review would have been conducted
in somewhat artificial circumstances. We
therefore intend to conduct an external
review as soon as possible once normal
working practices have been restored and
settled down.
Instead, we conducted an internal review
of the Board’s effectiveness, led by me. The
results indicated that the Board is working
well and that there are no significant
concerns about its effectiveness. Last
year, we highlighted that the Board
had determined that an additional
Independent Non-Executive Director
should be appointed. The Nomination
Committee has now commenced work to
shape the process for the recruitment of
two additional Independent Non-Executive
Directors. This will be a focus over the
coming months as we look to identify
individuals who can help expand the Board’s
experience and skill set, to provide new
avenues of thought to drive growth. We will
conduct our search as broadly as possible
as we seek to increase the level of diversity
in our Boardroom. With this in mind, we may
have to look further than the traditional
search advisers as, to date, they all seem
to be chasing the same diminishing pool of
people that meet this criteria.
During the year, we procured the
services of a third party to assist with
improvements to Board information. This
includes improvements to Board papers
through training for report writers to
produce streamlined, high-impact papers
to facilitate effective discussion.
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. This has been particularly
important during the Covid-19 crisis and
it has been clear that the relationships
we have previously built have served us
well. We were able to collaborate with our
employees and suppliers to resolve issues
relating to the pandemic and to continue
to serve our customers brilliantly by
adapting to the challenging environment.
AO exists “To make customers’ lives easier
by helping them brilliantly”. The culture
to underpin and enable this to happen
begins by the tone set in the Boardroom.
This year, we have sought to increase the
Board’s review of AO’s culture through more
refined and regular reports from the Chief
People Officer. We have also enhanced the
levels of employee engagement to take
into account the move to homeworking
for many of our employees and have had
a particular focus on mental health and
overall well-being initiatives to support
our people.
The Board understands that a highly
engaged workforce is critical to our
success. During the year, Chris Hopkinson
began his work as the Designated Non-
Executive Director responsible for reviewing
and supporting workforce engagement.
Through Chris’ involvement in the Group’s
quarterly Voice to the Board forums,
he gives our employees a voice in the
Boardroom by promoting and directly
representing them in Board discussions and
feeding back the steps that the Board are
taking to address any concerns or issues
they have raised. This process helps the
Board to understand how we can maintain
a highly engaged and motivated workforce.
We have also established a dedicated
ESG team to review and develop our ESG
strategy as part of the overall strategy
work, and this will be of particular focus
to the Board over the coming year. You
can read more about this work in our
Sustainability report (pages 68 to 85)
Our AGM will be held on 29 September
2021. At the time of writing, we are
hopeful that we can conduct an open
meeting; however, the Board remains
cognisant of ongoing risks to public
health from Covid-19 and so we will keep
our arrangements under constant review,
and advise shareholders of any changes
accordingly. Notwithstanding the ability to
hold an open meeting, should shareholders
wish to discuss any governance matters
in advance of the meeting, 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
30 June2021
AO World Plc Annual Report and Accounts 2021
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Our Governance Chair’s letter and introduction continued
AO’s compliance with the 2018
UK Corporate Governance 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 (the
“Code”) during the reporting period. The
Financial Reporting Council is responsible
for the publication and periodic review
of the UK Corporate Governance Code.
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, regarding
share capital, are set out in the Directors’
report on pages 140 and 141. Disclosures
required by DTR 7.2.8 relating to the
Group’s diversity policy are detailed in
the Sustainability: Our people report on
page 78 and in the Corporate Governance
report on pages 98 and 99. Directors’
biographies and membership of Board
Committees are set out on pages 92
and 93.
The table below summarises how the
Directors have applied the key principles
of the Code during the year and where
key content can be found in the report.
The Directors consider that the Company
has, throughout the period under review,
substantially complied* with the provisions
of the Code. The Directors confirm
that, through the activities of the Audit
Committee described on page 109, it
has reviewed the effectiveness of the
Company’s system of risk management
and internal controls.
SECTION OF THE CODE
Board leadership
and Company
purpose
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.
Division of
responsibilities
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.
Composition,
succession and
evaluation
Audit, risk and
internal control
Remuneration
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.
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.
The Remuneration Committee sets levels of remuneration that
are designed to promote the long-term success of the Group and
structures remuneration to link it to both corporate and individual
performance, thereby aligning management’s interests with those of
shareholders.
FURTHER INFORMATION
Business model – pages 14 and 15
Risk management – pages 54 to 65
Board of Directors – pages 92 and 93
Board leadership and purpose – page 95
Shareholder and stakeholder engagement – pages
66 and 67
People and culture – pages 16 and 17
Workforce engagement– pages 66 and 67
Governance framework – page 94
Board of Directors – pages 92 and 93
Division of responsibilities – pages 94 and 95
Independence and time commitments – page 100
Nomination Committee report – pages 104 to 107
Board evaluation – page 99
Nomination Committee report – pages 104 to 107
Board skills and experience – pages 92 and 93
Risk management report – pages 54 to 65
Audit Committee report – pages 108 to 113
Remuneration Committee report – pages 114 to 139
* The Board did not complete an externally facilitated review of the Board during the reporting period but expects to do so in the current year. More details can
be found on page 106. Further, whilst we have had more engagement with our workforce on reward in general, we recognise the need to further engage with the
workforce to explicitly set out how Executive compensation aligns with the rest of the workforce. Designing an overarching reward philosophy and framework has
been a key work stream for the Remuneration Committee and our People team over the reporting period. This will be implemented in the current year and will be the
basis on which we can engage properly with this workforce on reward.
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AO World Plc Annual Report and Accounts 2021
91
Our Governance Board of Directors
Geoff Cooper
Non-Executive Chair
John Roberts
Founder and
Chief Executive Officer
Mark Higgins
Chief Financial Officer
Marisa Cassoni
Senior Independent
Non-Executive Director
Committee membership
None
Committee membership
None
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 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
Limited 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, 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
Committee membership
N
Appointment to the Board
1 July 2016
Relevant skills and
experience
• Over 25 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
• Former non-executive
chairman of Bourne Leisure
Holdings, 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
None
Independent
Yes
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AO World Plc Annual Report and Accounts 2021 Key
A
N
Audit
Committee
Nomination
Committee
R Remuneration
Committee
P People
Champion
Chair of
Committee
Chris Hopkinson
Non-Executive Director and
Employee Champion
Shaun McCabe
Non-Executive Director
Luisa D. Delgado
Non-Executive Director
Committee membership
Committee membership
Committee membership
N
P
A
R
A
N
R
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 Limited
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 several 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 of Trainline
Plc and non-executive Director
and audit and risk committee
chair at boohoo group plc
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.
Significant current external
appointments
Non-executive director at INGKA
Holding B.V. (IKEA), Aryzta AG,
Barclays Bank (Suisse) SA, Telia
Company AB (publ) and Fortum Oyj
Independent
Yes
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AO World Plc Annual Report and Accounts 2021Our Governance Corporate governance report
Governance framework
The Board is responsible for maintaining a
strong and effective system of governance
throughout the Group. Day-to-day
management of the implementation
of the matters approved by the Board,
the Group’s activities, governance and
oversight is delegated to the Executive
Committee comprising the CEO, CFO
and COO. The Executive Committee are
supported by the Senior Leadership team,
a team of highly skilled and experienced
senior management, comprising the
Chief People Officer, Director of IT and
the Managing Directors of the Group’s
Retail and Logistics operations. The Senior
Leadership team meet with the Executive
Committee twice a month and are focused
on long-term planning and the achievement
of the Group’s strategic priorities.
Operational Committee meetings, led by
the COO, are held weekly. This Committee
focuses on operational delivery and
driving the business commercially and
culturally, and is formed by the senior
operational layer of the business including
the managing directors of the business
units, along with individuals who are
responsible for certain key centralised
Group functions. The Senior Leadership
team also hold regular “deep dive” sessions
for each business unit and function.
Steering Committees are also in place
for key areas of compliance such as
GDPR, SM&CR, and health and safety and
are also formed for specific projects as
required, for example, the Covid-19 BCP
team and the One AO Transformation
team. Formal Board meetings of our
operating subsidiary companies are
also held on a regular basis. Our Risk
Management Committee, which reports to
the Audit Committee and which includes
the members of the Executive Committee,
also meets at least quarterly to ensure
robust risk management procedures are
implemented and to critically review the
Group’s register.
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
Board
Committee
Operational
Committee
(Operational delivery)
Senior Leadership
team
(Strategic delivery and
long-term planning)
Audit
See page 108
Risk
See pages
54 and 55
Remuneration
See page 114
Nomination
See page 104
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AO World Plc Annual Report and Accounts 2021 Board leadership and
Group purpose
Our Board is collectively responsible for the
Group’s performance and to shareholders
for the long-term sustainability and
success of the Company; we recognise
that a clearly defined and well-established
strategy and purpose combined with the
Group’s culture and values are critical to
achieving this.
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 on pages 92 and 93.
The positions of our Chair 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
KEY RESPONSIBILITIES
Chair
Geoff Cooper
Founder and
Chief Executive Officer
John Roberts
• Providing 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
• 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
• Providing entrepreneurial leadership of the Company to ensure the delivery of the strategy
agreed by the Board
Chief Financial Officer
Mark Higgins
• Providing 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
• Acting as an internal sounding board for the Chair and serving as an intermediary for the other
Directors, with the Chair, when necessary
• Being 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
Designated Non-Executive
Director – People
Champion
Chris Hopkinson
• Bringing independence, impartiality, experience and special expertise to the Board
• Constructively challenging 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
• Provide an appropriate avenue for AOers to raise any areas of concern
• Ensuring a regular dialogue between employees and the Board to aid information flow and to
communicate the views and concerns of the workforce
• Working with the Board to take appropriate steps to evaluate the impact of Board proposals
on the workforce
• Assessing and monitoring the Group’s culture
• Ensuring workforce policies and practices are consistent with the Company’s values
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AO World Plc Annual Report and Accounts 2021Our Governance 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 and the reports of the Committee Chairs are set out on pages 104 to 139.
COMMITTEE
ROLE AND TERMS
OF REFERENCE
MEMBERSHIP REQUIRED
UNDER TERMS OF REFERENCE
MINIMUM NUMBER OF
MEETINGS PER YEAR UNDER
TERMS OF REFERENCE
COMMITTEE REPORT ON
PAGES UNDER TERMS OF
REFERENCE
At least three Independent
Non-Executive Directors
Three
108 to 113
Audit
Reviews and reports to
the Board on the Group’s
financial reporting,
internal control and
risk management
systems, whistleblowing,
internal audit and the
independence and
effectiveness of the
External Auditors
Remuneration
Nomination
Responsible for all elements
of the remuneration of the
Executive Directors and
the Chair, the Company
Secretary and the direct
reports of the CEO
At least three Independent
Non-Executive Directors (or
such number as is required
from time to time by the
UK Corporate Governance
Code)
Reviews the structure, size
and composition of the
Board and its Committees,
and makes appropriate
recommendations to the
Board
At least three 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
Three
114 to 139
Two
104 to 107
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.
Board meetings
The Board meets as often as necessary
to effectively conduct its business. Eight
formal meetings are scheduled each year
plus additional meetings to exclusively
discuss the Group’s strategy. Unscheduled,
ad hoc meetings are arranged as required
where, for example, additional time is
required or where a decision is required
outside of the Board’s normal meeting
cycle. The Board also, in usual times,
holds several informal dinners before or
after a Board meeting, which help foster
a healthy culture and promote open and
transparent debate.
The Board has an annual rolling plan of
items for discussion, which is reviewed
and adapted regularly to ensure all
matters reserved for the Board, with other
items as appropriate, are discussed.
Pre-agreed meeting agendas ensure
that time is balanced between operating
performance, strategy, governance
and compliance so that the Board can
discharge their duties effectively. To
ensure the Board’s time is used effectively
in meetings, papers are circulated several
days in advance using a secure, electronic
portal to provide adequate time for
reading and to raise any specific queries
or questions.
At each meeting, the Chief Executive
Officer updates the Board on key
operational developments, provides an
overview of the market, 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 feedback and
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 Chief Operating
Officer attends Board meetings to update
on operational performance and reports
on health and safety. 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.
Ordinarily, external speakers are also
invited to present to the Board on topical
industry and regulatory issues, although
this was hampered during the year by
the impact of Covid-19. These topics lead
to discussion, debate and challenge
amongst the Directors.
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AO World Plc Annual Report and Accounts 2021 There is a formal schedule of matters
reserved to our Board for decision, which
the Company Secretary ensures is
complied with and which is available on the
Company’s website at ao-world.com, and
from the Company Secretary upon request.
Key Board activities during the
year to 31 March 2021
Examples of some of the key matters
considered by the Board during the year
are set out below.
Strategy
• Oversaw the Group’s response to
Covid-19, and reviewed and approved
the investments required to support
growth and assessed the new health
and safety measures implemented
• Conducted a robust review and
assessment of the Group’s strategy
and priorities including presentations
from management on our markets
and opportunities, our customers,
marketing and tech investment. Several
strategy days were held to facilitate full
debate and discussion
• Through, and with, the Remuneration
Committee supported the design and
implementation of the all-employee
Value Creation Plan, which supports
and incentivises execution of strategy
Operational performance
• Review of regular reports from senior
management on trading, business
performance and health and safety
• Received update presentations from
managing directors
• Approved the annual budget, the
business plan for the Group and
individual capital expenditure projects
Finance and investor relations
• Reviewed and approved the Group’s full-
year and half-year results, together with
trading statements and the Group’s
Viability Statement and going concern
status
• Reviewed the monthly reports
produced by the CFO
• Received reports and updates on
investor relations activities and the
views of shareholders
Governance
• Continuing review of compliance with
the Code
• Consideration of the composition and
effectiveness of the Board
Board meeting attendance
The table below summarises the attendance of the Directors during the year ended
31 March 2021.
Director
Geoff Cooper
John Roberts
Mark Higgins
Chris Hopkinson
Marisa Cassoni
Shaun McCabe
Luisa D. Delgado
Meetings eligible
to attend
9/9
9/9
9/9
9/9
9/9
9/9
9/9
• Received updates from the Chief
People Officer on people issues, for
example, Gender Pay Gap analysis
• Improved workforce engagement
process with updates provided
from the Non-Executive Director
People Champion on the results and
key matters highlighted in people
engagement forums and feedback
from employee surveys
• Conducted the annual review and
approved the appropriate updates of
matters reserved for the Board and
other policies and statements including
the Company’s share dealing code
and procedures, Gender Pay Gap
statement and annual Modern Day
Slavery statement
BOARD MEETING ATTENDANCE
100%
Risk management
• Undertook the annual review of
the principal and emerging risks of
the Group and consideration of risk
appetite. Via the Audit Committee,
reviewed and validated the
effectiveness of the Group’s systems
of internal controls and risk
management framework
• Received reports on specific risk
areas across the Group including
GDPR, the IT security environment and
business continuity
AO World Plc Annual Report and Accounts 2021
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Our Governance Corporate governance report continued
BOARD GENDER
BOARD TENURE AT 31 MARCH 2021
29%
Female
71%
Male
Shaun McCabe
Luisa D. Delgado
Geoff Cooper
Mark Higgins
Marisa Cassoni
Chris Hopkinson
John Roberts
2-3 years
2-3 years
4-5 years
5-6 years
7-8 years
10+ years
10+ years
BOARD ROLE AND INDEPENDENCE
BOARD SKILLS
r
e
p
o
o
C
f
f
o
e
G
s
t
r
e
b
o
R
n
h
o
J
29%
14%
50%
Independent
(excluding the Chair)
Retail/customer-focused business experience
57%
Digital experience
Finance and accounting
International experience
Functional experience in management
and operations
Marketing
Strategy
Public Company governance
Independent including the Chair*
Non-Independent NED
Executive Director
i
n
o
s
s
a
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n
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Composition, succession
and evaluation
Composition
As at the date of this Annual Report,
the Board comprises seven members:
the Chair, two Executive Directors and
four Non-Executive Directors, which
includes the Senior Independent
Director. Excluding the Chair, three Board
members are considered independent
in line with the Code. All current Directors
served throughout the year. No new
appointments were made to the Board
during the year. Details of the skills, career
background, Committee membership,
tenure and external appointments of all
Directors are set out on pages 92 and 93.
Further details on the role of the Chair
and members of the Board can be found
on pages 94 and 95. The Chair, Senior
Independent Director and Non-Executive
Directors are appointed for a three-year
term, subject to annual re-election by
shareholders following consideration of
the annual Board effectiveness evaluation.
Our Board currently includes two women,
representing 29% of its membership
(2020: 29%). The Board’s policy on diversity
is set out in the Report of the Nomination
Committee on page 105. 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 Sustainability: our people
report on pages 76 to 81.
The composition of the Board has been
an area of focus for the Nomination
Committee this year as it considers
succession planning and seeks to ensure
that the Board maintains the appropriate
balance of skills, experience and
independence, as well as providing
the appropriate challenge and to
promote diversity.
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AO World Plc Annual Report and Accounts 2021
The Board had planned to conduct a
search for a replacement Non-Executive
Director during the reporting period.
However, the impact of Covid-19 and the
work to support significant transformation
with the business and the design of a
five-year strategy has delayed this during
the reporting period. The Nomination
Committee has now commenced work
to shape the process for the recruitment
of two additional Independent Non-
Executive Directors. This will be a key area
of focus over the coming months as we
look to identify individuals who can help
expand the Board’s experience and skill
set, to provide new avenues of thought to
drive growth. We will conduct our search as
broadly as possible as we seek to increase
the level of diversity in our Boardroom.
In making new appointments, the Board
will explore all avenues and opportunities
to identify suitable candidates and will
continue to make appointments based on
merit and against objective criteria. The
process will take into account suitability
for the role, the Board’s composition, its
balance and the required mix of skills,
background and experience, with due
regard for the benefits of diversity and
delivery of our strategy. The Nomination
Committee has delegated authority
for any new appointments to the
Board following a formal, rigorous and
transparent procedure with the decision
for any appointment a matter reserved for
the Board.
Further detail on the work of the
Nomination Committee during the
year, including the Board’s Diversity
Policy, can be found on page 105. For
information on our procedures concerning
the appointment and replacement of
Directors, please see the Directors’ report
on page 140.
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, Chair 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 be seen from the
biographies on pages 92 and 93, and the
skills matrix on page 98, the Chair and the
Non-Executive Directors collectively have
significant industry, public company and
international experience, which will support
the Company in executing its strategy.
Directors’ skills and experience
The Board skills and experience matrix
opposite details some of the key skills and
experience that our Board has identified
as particularly valuable to the effective
oversight of the Company and execution
of our strategy.
Induction process
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, with each Director’s
individual experience and background
taken into account in developing
a programme tailored to their own
requirements. The induction typically
includes the provision of background
material on the Company, one-to-one
meetings with the CEO, CFO and COO
and briefings with senior management as
appropriate. Any new Director will also be
expected to meet with major shareholders
if required. New Directors also receive
appropriate guidance on key duties as a
Director of a listed company.
Evaluation and effectiveness
The effectiveness and performance of
the Board is vital to our success. The
Code requires that there should be a
formal and rigorous annual evaluation
of the performance of the Board, its
Committees, the Chair and individual
Directors and that consideration should
be given to conducting a regularly,
externally facilitated Board evaluation,
which for FTSE 350 companies should be
at least every three years. Our last external
evaluation was carried out in the year
ending 31 March 2018 and so an externally
facilitated review was required during this
year under the Code.
The Nomination Committee considered
the requirement and determined that
given the pace at which the business was
operating during the reporting period an
externally facilitated review should not be
prioritised, particularly as, the impact of
Covid-19 restrictions on the usual workings
of the Board (such as reduced face-to-face
meetings) meant that a review during that
financial year would not necessarily be a
true reflection of the way in which the Board
was operating. Therefore, it was determined
that an internal evaluation was appropriate
for the year under review. We intend to
conduct an external review as soon as
possible once normal working practices
have been restored and settled down.
The internal evaluation was led by the
Chair. As part of this process, a skills matrix
was used to assess the skills, experience
and knowledge of each Director in matters
of Board operations, the markets in
which the Group operates, leadership
and business performance. One-to-one
meetings were also conducted with all
Directors who were given the opportunity
to express their views about:
• the performance of the Board and
its Committees, including how the
Directors work together as a whole;
• the balance of skills, experience,
independence and knowledge of the
Directors; and
• individual performance and whether
each Director continues to make an
effective contribution.
The results of the evaluation were collated by
the Chair and an assessment was provided
to the Nomination Committee for further
discussion. The results of the evaluation
indicated that the Board is working well
and that there are no significant concerns
among the Directors about its effectiveness.
Some actions were agreed and will be
progressed over the coming year, for
example strengthening the Non-Executive
Director component of the Board to ensure
the correct mix of skills and to provide
appropriate support to the Executive
Directors in pursuit of achieving the Group’s
strategic objectives. The evaluation also
highlighted that additional focus was
needed on: succession planning of the
Group’s Senior Management team and how
this team’s capabilities specifically in
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AO World Plc Annual Report and Accounts 2021Our Governance Corporate governance report continued
technology, digital, mobile and international
management could be developed; how to
attract quality external talent and develop
home grown talent; and how to develop the
Company’s ESG strategy.
During the year, the Chair met with the
Non-Executive Directors without the
Executive Directors present to discuss
Board balance, monitor the powers
of individual Executive Directors and
raise any issues between themselves
as appropriate. An annual appraisal
of the performance of the Chair by
the Non-Executive Directors, led by the
Senior Independent Director, was also
conducted. 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.
Information, support and
development opportunities
available to Directors
All Board Directors have access to the
Company Secretary, who advises them
on governance matters. The Chair 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.
During the year, we procured the
services of a third party to assist with
improvements to Board information. This
includes improvements to Board papers
through training for report writers to
produce streamlined, high-impact papers
to facilitate effective discussion and
contribution from the Board at meetings.
A secure portal is also used to enable easy
access to papers. The portal also contains
a resources and information area which
includes analysts’ reports, regulatory
publications, codes and best practice
guides, relevant Group policies and
procedures, and other ad hoc information
provided to the Board outside of standard
Board packs, for example, strategy
documents or updates from the Company
Secretary or IT.
100
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
Auditor 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. Directors are
encouraged to be proactive and identify
areas where they would like additional
information to ensure that they are
adequately informed about the Group.
The Board confirms that all members
have the requisite knowledge, ability and
experience to perform the functions
required of a Director of a UK premium
listed company.
External directorships and
time commitment
Each Director is expected to attend
all meetings of the Board and of those
Committees on which they serve, and is
required to be able to devote sufficient
time to the Group’s affairs allowing them
to fulfil their duties effectively as Directors.
In accordance with the Code, full Board
approval is sought prior to a Director
accepting an external appointment
to a publicly listed company or other
significant commitment. Prior to the
approval of any external appointments,
the Board considers the time commitment
required by Directors to perform their
duties effectively. As part of the selection
process for any new Board candidates,
any significant time commitments are
considered before an appointment is
agreed. All Non-Executive Directors are
required to devote sufficient time to
meet their Board responsibilities and
demonstrate commitment to their role.
During the year, Shaun McCabe requested
approval from the Board to accept an
external non-executive directorship with
boohoo group plc. The Board assessed
the appointment and was satisfied
that the time commitment required
would not prevent Shaun McCabe from
performing his duties to AO effectively
and approval was granted. Shortly after
the end of the reporting period, Luisa D.
Delgado requested approval from the
Board to accept external non-executive
directorships with Telia Company AB (publ)
and Fortum Oyj. The Board assessed the
appointments and was satisfied that the
time commitment required would not
prevent Luisa D. Delgado from performing
her duties to AO effectively and approval
was granted. As part of its annual review,
the Nomination Committee has also
considered the external directorships
and time commitment of all the Directors
and agreed that these do not impact
on the time that any Director devotes
to the Company, and believes that such
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. Mark Higgins holds
no external directorships. Details of the
Directors’ significant external directorships
can be found on pages 92 and 93.
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 Director’s 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.
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AO World Plc Annual Report and Accounts 2021 “ Punctual, helpful,
resourceful and polite.
I know that I rely on AO
for reliability and for
having skilled fitters.”
Richard,
AO Customer
AO World Plc Annual Report and Accounts 2021
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Our Governance Corporate governance report continued
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.
Whistleblowing and anti-bribery
and corruption procedures
AO is committed to the highest
standards of ethical conduct, honesty
and integrity in our business practices.
The Board recognises that transparent
communication is essential to maintain
our business values and is supportive of
a culture where there is genuine means
for the workforce to raise any concerns.
During the year, the Board, via authority
delegated to the Audit Committee,
reviewed the whistleblowing policies in
place across the Group and received
regular updates on reports arising from
its operation. The review confirmed that
AO’s policies were appropriate, accessible
and comprehensive, and provided
colleagues with the opportunity to raise
concerns about any form of wrongdoing
anonymously.
The Group also has zero tolerance of
corruption, fraud, criminality (including
financial crime), or the giving and
receiving of bribes for any purpose.
The Group’s Code of Conduct sets out
what is expected from our people and
our stakeholders. The Group has online
training modules via its learning and
development platform for competition
law and anti-bribery and corruption, which
colleagues are required to complete
periodically. Any breach of procedures
will be regarded as serious misconduct,
potentially justifying immediate dismissal.
Shareholder engagement
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 them. The Company has
established an Investor Relations function,
headed by the Investor Relations Director,
who reports to the Chief Financial Officer.
The Investor Relations Director 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.
102
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 Investor Relations
Director generally deals with ad hoc
queries from individual shareholders. The
Remuneration Committee Chair also
engages in discussion with shareholders
on significant matters relating to
Executive remuneration, in particular any
amendments or material changes to our
Remuneration policy and the Chair of the
Board also engages with shareholders as
and when requested or required.
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, Jefferies and Numis Securities,
and more recently Goldman Sachs, 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).
Annual General Meeting
Based on the Government’s current
roadmap to ease the restrictions around
public gatherings in light of Covid-19,
the Board currently plans to hold an
open AGM at 8.00 am on Wednesday
29 September 2021 at the Company’s
Manchester office at Baskerville House,
Browncross Street, West Riverside, Salford
M60 9HP. However, the Board remains
cognisant of the ongoing public health
risk and recognises that the situation
in relation to the pandemic can change
quickly and that social distancing
requirements may make an open meeting
impractical. The Board will, therefore,
continue to monitor developments and
will make changes to the arrangements
for the meeting as necessary. Any such
changes will be advised to shareholders
though the Company’s website and, where
appropriate, by RNS announcement.
Should an open meeting be held, all
shareholders have the opportunity
to attend and vote, in person or by
proxy, at the AGM. The notice of the
AGM can be found in a booklet that 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. However, 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 27 September 2021.
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 2021AGM@ao.com and these will
be responded to on an individual basis.
The results of the voting will be announced
to the London Stock Exchange and made
available on our corporate website as soon
as practicable after the meeting. At last
year’s AGM, all resolutions were passed
with votes in support ranging from 90.5%
to 100%.
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AO World Plc Annual Report and Accounts 2021 Stakeholder voice into
the Boardroom
Section 172 of the Companies Act 2006
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.
Further information on how the Group
engages with its key stakeholders
including suppliers, employees and
the community and the Group’s s.172
statement can be found on pages
66 and 67. In setting and monitoring
strategy, the Board is mindful of the
impact that its decisions will have on
the Group’s stakeholders.
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.
The following are used to bring the voice
of the stakeholder into the Boardroom:
• 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
• The Non-Executive Director People
Champion, Chris Hopkinson,
provides regular feedback and
updates from the Employee Voice to
the Board forum
• The CEO holds a monthly State of
the Nation, a live update given to all
employees including an interactive
Q&A session
• The Board’s strategy sessions
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
Further information on how the Group
engages with its stakeholders can be found
on pages 66 and 67.
Examples of how the Board has
considered stakeholders in its decision-
making process during the year are set
out below.
Covid-19
During the year, the Board considered
the interests of all the Group’s
stakeholders when responding to the
impact of Covid-19 on the business.
The health and safety of our
people and our customers was, and
continues to be, our top priority.
During the pandemic, we adapted the
services we offer, invested to ensure
social distancing and enhanced
safety measures to protect our
people in frontline operational roles,
whether in our warehouses or making
deliveries. We prioritised services
to the most vulnerable members
of society and donated essential
products to those in need.
We also equipped everyone who
can work from home with what they
needed to do so. We embedded well-
being into our ways of working and
delivered mental health awareness
training to our managers, launched
an online Well-being Hub providing
support and advice for health,
well-being sessions, fitness classes,
social and financial well-being, on
demand digital learning and 24/7
well-being support through our
Employee Assistance Programme,
and supported AOers with schooling
from home and learning materials for
children.
Having regard to the performance
of the Group during the reporting
period, the Board also took the
decision not to take advantage of
the Government’s Coronavirus Job
Retention Scheme (“furlough”), and
either did not claim, or have repaid
any amounts received.
We increased the level of engagement
with all our stakeholders, for example,
created dynamic videos to reassure
customers around our service and
delivery processes /practices during
the pandemic, and we worked
closely with suppliers to deal with the
logistical challenges of getting stock
into our supply chain.
Valuation Creation Plan
We were pleased to launch our
Value Creation Plan (“VCP”) during
the year following strong support
from our shareholders. Critical to
our reward strategy is the ability
of our employees to share in our
success and the 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 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 all our people.
All-employee participation is a key
feature of this incentive plan. The
VCP is aimed not only at incentivising
exceptional performance but also
to assist with the retention of our
talented team with the maximum
opportunity only achievable if our
growth plans are sustained in the
long term and provides financial
motivation for our entire workforce
to accelerate profitable growth.
We believe that this innovative all-
employee model reflects the unique
culture at AO, and its core role at the
heart of our business.
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AO World Plc Annual Report and Accounts 2021Our Governance Nomination Committee report
“ Delivering a balanced Board with
the right skills mix.”
Geoff Cooper
Chair
• Under its Terms of Reference, the
Committee is required to meet no
less than twice a year. This year the
Committee met twice; this number
being deemed appropriate to the
Committee’s role and responsibilities
during the year.
• The timing of meetings is scheduled
to coincide with key dates in the
Group’s financial cycle and in advance
of a Company Board meeting to
maximise effectiveness. 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.
I am pleased to introduce the report of
the Nomination Committee for the year
ended 31 March 2021. Full details of the
Committee and its activities during the
year are given below.
Geoff Cooper
Chris Hopkinson
Luisa D. Delgado
Meeting
attendance
2/2
2/2
2/2
Membership and meetings
• During the year, the Nomination
Committee comprised three Non-
Executive Directors,
• The Code requires that the majority of
the Committee are Independent Non-
Executive Directors. Luisa D. Delgado is
deemed independent. I am Chair of the
Board and of the Committee, and was
deemed independent on appointment
and the Board considers that I
continue to be so. Chris Hopkinson is
not deemed to be independent due
to his historic involvement with the
Company; however, the continuity,
experience and knowledge of Chris
made a significant contribution to
the work of the Committee, ensuring
it was run effectively. Therefore, the
Board considers that the Committee
comprises a majority of Independent
Non-Executive Directors and complies
with the requirement of the Code.
• Detailed experience, skills and
qualifications of all Committee
members can be found on pages 92
and 93.
• The Group Legal Director 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, Chief People
Officer and the other Non-Executive
Directors.
104 AO World Plc Annual Report and Accounts 2021
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Key responsibilities and
Terms of Reference
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 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 and with regard to the results of
the review of Board effectiveness.
The Nomination Committee takes into
account the provisions of the Code and
any regulatory requirements that are
applicable to the Company.
The Chair 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.
The responsibilities of the Committee are
delegated by the Board and are set out
in its written Terms of Reference, which
are reviewed, updated as necessary
and approved each year. A copy of the
Terms of Reference is available on our
corporate website or upon request from
the Company Secretary.
Board appointment process
The Nomination Committee has a formal,
rigorous and transparent procedure
for the appointment of new Directors
to the Board. When the need to appoint
a Director is identified, the Committee
determines the role profile including
the skills, knowledge and experience
required. This takes into account the
existing composition of the Board and any
required experience and understanding
of our stakeholders. We use a combination
of external recruitment consultants
and personal referrals in making any
required appointments. We consider the
gender, nationality, ethnic background,
educational and professional background
of candidates, as well as individual
characteristics that will enhance diversity
of thinking of the Board and delivery of
our strategy. Suitable candidates are
interviewed by Committee members and
the CEO. We give careful consideration to
ensure proposed appointees have enough
time available to devote to the role and
that the balance of skills, knowledge and
experience on the Board is appropriate.
When the Nomination Committee has
identified a suitable candidate, we then
make a recommendation to the Board
who have responsibility for making the
final decision. All appointments are made
on merit, against objective criteria and
with due regard to the benefits of diversity
on the Board.
Board composition and
succession planning
There were no changes to the composition
of the Board during the year and it
remains compliant with the provisions of
the Code as half the Board, excluding the
Chair, are Independent Non-Executive
Directors. Following the resignation of a
Non-Executive Director, in the prior year, the
Committee determined that an additional
Independent Non-Executive Director
should be appointed to the Board to further
strengthen and diversify its work and had
planned to conduct a search during the
reporting period. However, the impact of
Covid-19 and the work to support the five-
year strategy design and transformation
within the business has delayed this.
A recent review by the Committee of
succession planning, together with its
ongoing requirement to ensure that the
Board maintains the appropriate balance
of skills, experience and independence, as
well as providing the appropriate challenge
and to promote diversity, confirmed
that it was now an appropriate time to
recommence this work. The Committee
is currently shaping the process for the
recruitment of two additional Independent
Non-Executive Directors. This will be a key
area of focus for the Committee over the
coming months as we look to identify
individuals who can help expand the
Board’s experience and skill set, to provide
new avenues of thought to drive growth.
We will conduct our search as broadly as
possible as we seek to increase the level of
diversity in our Boardroom, bearing in mind
the targets set by the Hampton-Alexander
Review and the Parker Review.
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.
Diversity and inclusion
The Board’s diversity policy forms part of
AO’s Group-wide diversity and inclusion
strategy, which seeks a workforce with
a culture that truly accepts diversity
of thought, equity and inclusion. The
Board believes that diversity in its
composition is an important part of its
overall effectiveness and that a diverse
Board with different perspectives, and
those that reflect the Group’s customer
base, will enhance the quality of debate
and decision making. The Directors
consider that, although relatively small
in number, its composition should
aim to reflect diversity in its broadest
sense including aspects such as
diversity of skills, perspectives, industry
experience, educational and professional
background, gender, ethnicity and age.
All these aspects are to be considered in
determining the optimum composition of
the Board and the Executive Committee to
ensure an appropriate balance.
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AO World Plc Annual Report and Accounts 2021Our Governance Nomination Committee report continued
Reappointment of Directors
On the recommendation of the Nomination
Committee and in line with the Code, all
currently appointed Directors will retire
at the 2021 AGM and offer themselves for
reappointment. The biographical details
of the current Directors can be found on
pages 92 and 93. 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.
Looking ahead
Over the coming year, the Committee
will be focused on the appointment of
the two new Independent Non-Executive
Directors, conducted through a broad
search to identify appropriate skill sets
and experience, whilst having regard to
increasing the diversity of the Board.
Senior management succession planning
and strengthening our senior talent
pipeline will also remain key priorities,
along with supporting the business
as it continues to build on the work
undertaken to build a more diverse and
inclusive business. We also look forward
to conducting an externally facilitated
review of the Board’s effectiveness and
considering the findings.
Geoff Cooper
Chair, Nomination Committee
AO World Plc
30 June 2021
The Directors remain supportive of
the recommendations in both the
Hampton-Alexander Review on gender
diversity and the Parker Review on ethnic
diversity, and are committed to achieving
female representation of 33% as soon
as practicable, and a minimum of one
Director of ethnic minority background
on the Board by 2024. The Board and the
Committee will look to drive the agenda on
diversity and inclusion across the Group
over the coming year.
Prior to the resignation of Jaqueline
de Rojas in September 2019, the Board
complied with the Hampton-Alexander 33%
female representation target. However, with
no Board changes made since that time,
female representation is currently 28.7%
and senior management (as defined by the
Code) has 25% female representation, with
no ethnic diversity at either of these levels.
The section above on Board Composition,
and on page 89 of the Corporate
Governance report, details the Board’s
intention to commence a search to identify
an additional two Non-Executive Directors.
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 Sustainability:
our people report on page 78.
Board effectiveness
Pursuant to the recommendation set out
in the Code, an externally facilitated review
was required to be undertaken during the
reporting period. However, the Nomination
Committee determined that, given the
pace at which the business was operating
and the impact of Covid-19 restrictions
on the usual workings of the Board (such
as reduced face-to-face meetings), an
externally facilitated review should not
be prioritised. An internal process of
evaluating the performance of the Board,
led by myself, was instead undertaken.
We intend to conduct an external review
as soon as practicable during the current
financial year. In addition to supporting
the Committee’s assessment of Board
composition and succession planning,
it will also provide a unique opportunity
to consider how the Board performed in
response to the Covid-19 pandemic and to
capture any learnings for the future.
106
A number of highly productive and
effective strategy days were held
during the reporting period, which have
also helped to foster relationships and
encourage a more open culture of debate
and challenge between Board members.
Further details of this year’s internal review
and its results can be found on page 89
of the Corporate Governance section.
Overall, the evaluation indicated that
the Board is working well and that there
are no significant concerns about its
effectiveness.
Assessment of independence
and time commitments of the
Non-Executive Directors
Following our assessment this year, the
Nomination Committee is satisfied that,
throughout the year, all Non-Executive
Directors remained independent as to
both character and judgement and in
accordance with the Code. This was with
the exception of Chris Hopkinson who is
designated as non-independent due to
his tenure of appointment and historic
involvement with the Company. However,
the Committee remains confident that
the continuity, experience and knowledge
of Chris continued to make a significant
contribution to the work of the Board over
the reporting period.
Before appointing prospective Directors,
the Board takes into account the other
demands on the Directors’ time and
any significant time commitments are
disclosed prior to appointment. The
letters of appointment for the Chair and
Non-Executive Directors set out their
expected time commitments to the Group.
Any additional external appointments
following appointment to the Board
require prior approval by the Board in
accordance with the Code.
In its assessment of the effectiveness
of the Board, the Committee gave
consideration to the number of external
appointments held by the Non-Executive
Directors, including the time commitment
required for each. No instances of
over boarding were identified and the
Nomination Committee confirms that all
individual Directors have sufficient time
to fulfil their responsibilities and are fully
engaged with the Group’s business. As set
out on page 100, during the year, Shaun
McCabe requested and was granted
approval from the Board to accept an
external non-executive directorship with
boohoo group plc.
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AO World Plc Annual Report and Accounts 2021 “ AO has a culture that
embraces people’s skill
sets, characteristics,
beliefs and outlooks – and
empowers them.”
An AO employee
AO World Plc Annual Report and Accounts 2021
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Our Governance Audit Committee report
“ Ensuring effective internal
control and risk management,
together with fair, balanced and
understandable reporting.”
Marisa Cassoni
Chair, Audit Committee
Key responsibilities and
Terms of Reference
The responsibilities of the Committee are
delegated by the Board and are set out
in its written Terms of Reference, which
are reviewed, updated as necessary and
approved each year. A copy of the Terms
of Reference is available on our corporate
website ao-world.com, Board Committees,
or upon request from the Company
Secretary.
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 99.
The review for the year to 31 March 2021
concluded that the Committee continued
to operate effectively during the year.
On behalf of the Committee, I am pleased
to present this year’s Audit Committee
report for the year ended 31 March
2021. The report provides an overview
of the Committee’s role and how it has
discharged its responsibilities in monitoring
and reviewing the integrity of financial
information and in ensuring appropriate
challenge and oversight across the
Company’s internal control environment
and financial reporting, setting out the
significant issues we have reviewed and
concluded on during the year.
Overview
COMMITTEE MEMBERS AND MEETINGS
ATTENDED
Marisa Cassoni
Shaun McCabe
Luisa D. Delgado
Meetings attended
8/8
8/8
8/8
Membership
• During the year, the Audit Committee
comprised three Independent Non-
Executive Directors.
• As required by the 2018 Code, both
Shaun McCabe and I have recent and
relevant financial experience and are
Members of the Institute of Chartered
Accounts in England and Wales, and so
can provide appropriate challenge to
management.
• The Committee, as a whole, has
competence relevant to the sector
in which it operates in line with the
2018 Code requirements. Detailed
experience, skills and qualifications of
all Committee members can be found
on pages 92 and 93, and the Board
has confirmed that it is
satisfied that the Committee
members have the appropriate
range of financial, commercial
and sectoral expertise and
that it satisfies the 2018 Code
requirements.
108 AO World Plc Annual Report and Accounts 2021
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Key work during the year
• Focused on financial reporting, to
ensure the Annual Report & Accounts is
fair, balanced and understandable.
• Reviewed interim results statements
and financial results presentations.
• Considered the impact of Covid-19 on
key accounting judgements.
• Reviewed the effectiveness of external
and internal audit processes and the
effectiveness and appropriateness of
our system of internal controls.
• Approved and oversaw the transition to
the new audit partner.
• Reviewed the quarterly internal audit
reports and oversaw continued
improvements in internal reporting to
the Committee.
• Reviewed AO’s business continuity
planning and the response to Covid-19.
• Recommended the reappointment
of the External Auditor, terms of
engagement and reviewed audit and
non-audit fees.
• Reviewed the Group’s risk management
procedures.
• Reviewed updates on the changing
regulatory environment, for example,
the BEIS white paper on audit
reform, and current FRC reporting
expectations.
• Reviewed the Group’s whistleblowing
and anti-bribery and fraud prevention
procedures and controls.
Assessment of the Group’s
internal controls and risk
management
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, notably monitoring the risks
associated with the considerable impact
that Covid-19 has had on the business
and any impact on internal control
mechanisms and risk management.
Internal Audit
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. 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.
Having previously been approved by
the Committee, at the start of the
pandemic, there was a short pause in the
delivery of the FY21 Internal Audit plan
as the business adapted to the logistical
implications of new ways of working. The
plan continued to be adapted during the
year as working restrictions prevented
access to certain of the Group’s sites and
to allow a greater focus on those areas of
the business that experienced a shift in
risk due to the impact of Covid-19 and an
increase in demand.
The Audit Committee receives reports
from the Internal Audit functions on a
quarterly basis. These reports, along
with risk management updates, enable
the Committee to discuss key findings,
recommendations and any plans by
management to address any areas of
weakness, with management action
tracked and reviewed as appropriate.
Progress against the audit plans is also
reviewed.
The information received over the year
highlighted that overall the Group had an
adequate internal control framework for
its circumstances. However, there are some
areas that have required and continue to
require improvement, in particular:
• Mobile: Increases in cashback
redemptions, customer fraudulent
transactions and contract cancellations
has led us to improve the controls and
governance around the commercial
proposition for mobile contracts to limit
financial exposure and to ensure it is
adequately provided for.
• Data Protection and privacy: We are
cognisant of the continually evolving
data protection and privacy legislative
landscape (including placement of
cookies) which contradict generally
accepted e-commerce practices. We
continue to make improvements in this
area alongside data mapping and data
cataloguing.
Germany: Over the period of
decentralisation, some controls in the
logistics and e-commence operations
deviated from Group policy and we
experienced a minor fraud in logistics. All
policies and procedures are being revisited
as part of our One AO platform.
Further, the scale and pace of growth
experienced by the Group, due to the
Covid-19 driven accelerated migration to
online shopping, has led to some areas
of control weakness in the strength of
business resilience practices and policies
with some improvements required in first
and second lines of defence. The Group
is reliant on manual controls, which carry
risk particularly as transactional volumes
increase. This will be improved through
more automated controls, which will be
introduced over the coming years through
our systems improvement project.
The Committee recognises that there
has been a strengthening in certain
centralised functions during the year,
for example, in IT, HR, Legal, Finance and
Group Insurance, which will support the
Group during its next phase of growth.
Internal Audit effectiveness review
We monitor and assess the role,
effectiveness and independence of the
Internal Audit function in the overall
context of the Group’s risk management
systems annually. Following its annual
assessment and when taken with its
review of the annual plan and Internal
Audit reports outlined above, the
Committee confirms that it is satisfied
that, throughout the reporting period,
the Internal Audit function provided the
level of assurance required and had an
appropriate level of resources in order to
carry out its responsibilities effectively and
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AO World Plc Annual Report and Accounts 2021Our Governance Following the Committee’s review, we were
pleased to provide assurance to the Board
that the Annual Report and Accounts for
the year ending 31 March 2021 are fair,
balanced and understandable and that
the Directors have provided the necessary
information for our shareholders to assess
the Company’s position, prospects,
business model and strategy. This was
confirmed to the Board, whose statement
in this regard, is set out on page 145 of the
Directors’ report.
Significant financial statement
reporting issues
In reviewing the financial statements
with management and the Auditor, the
Audit Committee reviewed and discussed
reports from management on accounting
policies, current accounting issues and the
key judgements and estimates in relation
to this Annual Report. It assessed whether
suitable accounting policies had been
adopted and the reasonableness of the
judgements and estimates that had been
made by management. The following
table highlights the most significant
issues, judgements, estimates and policies
for the Period in the opinion of the
Audit Committee.
Audit Committee report continued
allow appropriate follow-up action to
take place. The Committee also reviewed
the Group’s Anti-Bribery & Corruption
and Fraud Prevention procedures and
controls, and were satisfied that these
were effective.
The Board has confirmed that, through
the Audit Committee’s review of the key
financial and internal control matters for
2021 as detailed above, it has reviewed the
effectiveness of the system of internal,
financial, operational and compliance
controls and risk management.
Review of financial statements
and reporting
The Audit Committee is responsible
for reviewing the appropriateness of
and monitoring the financial reporting
processes for the Group. This includes
reviewing reports from the External
Auditor, reports on internal controls,
accounting and report matters, and
management representation letters
concerning accounting and reporting
matters. The Committee reviews
management’s report on areas of
significant amounts of judgement and
estimation and considers if these correlate
with the key audit risks identified by the
External Auditor and the comments of the
External Auditor on management’s chosen
approach. The Committee also considers
the accounting policies and practices
adopted by the Group, the application
of the applicable reporting standards,
compliance with governance frameworks
and the presentation and disclosure of
financial information.
Fair, balanced and
understandable
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 2021 when taken as a whole, are
fair, balanced and understandable and
whether they provided the information
necessary for members to assess the
Group’s position, performance, business
model and strategy.
that it continues to do so. The necessary
procedures are also in place to ensure the
appropriate independence of the Internal
Audit function.
Other key elements of the Group’s risk
management and internal controls
systems, which have been reviewed by the
Committee during the year include: the
Group’s management and organisational
structure; its financial reporting and
information systems; policies and
process surrounding the entering into
of contractual commitments and risk
management. Our Risk Management
Committee operates separately (meeting
quarterly and attended by Executive
Directors) sitting alongside the Audit
Committee, and issues regular reports to
the Audit Committee. In line with the 2018
Code, this year the Risk Management
Committee has reviewed the Group’s risk
management processes and procedures
including those in place to identify
emerging risks. A separate report of the
work of the Risk Management Committee,
including the Group’s risk management
practices, its principal risks and its long-
term viability, can be found in the risk
section on pages 54 to 65.
Whistleblowing
The Group has established formal
whistleblowing procedures by which all
employees may, in confidence, raise
concerns about possible improprieties
in finance and other matters. Our
Whistleblowing policy sets out the ethical
standards expected of everyone that
works for and with us, and includes the
procedures for raising concerns in strict
confidence through two channels – email
or voicemail. Both channels are manned
by the Company Secretary and Head of
Internal Audit to ensure independence.
All investigations are carried out
independently with findings reported to
the Audit Committee and all significant
matters reported directly to the Board.
The Audit Committee monitors and
reviews the effectiveness of the Group’s
whistleblowing arrangements. Following
its annual review of whistleblowing
arrangements, the Committee is
satisfied that they are effective, facilitate
the proportionate and independent
investigation of reported matters and
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AO World Plc Annual Report and Accounts 2021 SIGNIFICANT FINANCIAL MATTERS
Revenue recognition
and contract asset
recoverability in respect of
product protection plans
Revenue recognition,
contract asset
recoverability and
cashback provisioning in
our Mobile business
AO Mobile –
carrying value of goodwill
and intangible assets
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 at the point of sale 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, the historical rate of customer attrition and any other matters which
could affect future 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.
As noted in Note 35 to the Report and Accounts, the erroneous inclusion of a number of plans which had
been cancelled in prior years has resulted in a restatement of the comparatives. This has also resulted
in a significant reassessment of the estimates and judgements used in recognising revenue which are
detailed in Note 22.
As a consequence of the above, the management team has prepared detailed updates to its policies
setting out the key assumptions in the model in addition to the impact on the current year accounts
of the restatement and changes in estimates. The Committee has reviewed these changes and the
judgements and estimates used in this area by management and, following appropriate challenge, we
consider the policy and practice appropriate.
The Group’s Mobile business receives commission from the Mobile Network Operators. The network
commission revenue is 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.
During the current year, management have seen a significant change in customer behaviour in relation
to cashback redemptions and the early cancellation of contracts. As a consequence, they have
reassessed the estimates and judgements used in quantifying revenue and in particular the amount of
variable consideration which should be constrained. The impact of this exercise is seen in Notes 22 and
23 to the Report and Accounts.
As a result of the changes made, the management team has prepared updated detailed policies setting
out the key assumptions used in recognising revenue. The Committee has reviewed the judgements
and estimates made in this area by management and, following appropriate challenge, we consider the
policy and practice appropriate.
On the acquisition of Mobile Phones Direct Limited (since renamed AO Mobile Limited) in December
2018 the Group recognised goodwill and intangible assets which at 31 March 2021 had a carrying value
of £26.8m. The carrying value is assessed by performing a value in use calculation at each balance
sheet date 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 revenue and
EBITDA growth. 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.
At 31 March 2021, the amount of headroom above the carrying value was £1.2m. Note 16 to the Report
and Accounts sets out the key assumptions used in the value in use calculation in addition to the impact
of a change in these assumptions on the amount of headroom.
The management team has prepared detailed paper setting out the key assumptions, estimates and
judgements in this area and the sensitivities applied to the base case. 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.
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AO World Plc Annual Report and Accounts 2021Our Governance Audit Committee report continued
Going concern and viability
assessments
The Committee reviewed the Group’s going
concern and viability statements as set
out on page 65. It considered the reports
prepared by management in support of
such statements and obtained the external
Auditor’s views on the work undertaken
by management to assess the Group’s
resilience to its principal risks under various
scenarios. The Committee was satisfied
that the viability statement set out in the
Strategic report presented a reasonable
outlook for the Group to March 2024 and
recommended to the Board the adoption
of both the going concern and viability
statements for inclusion in this report.
External audit
The Audit Committee has primary
responsibility for leading the process
for selecting the External Auditor
and overseeing the relationship and
performance. It is required to make
appropriate recommendations on the
appointment, reappointment and removal
of the External Auditor, through the Board,
to the shareholders to consider at the
Company’s AGM. It is also required to
assess the independence of the External
Auditor on an ongoing basis and to
negotiate the terms of engagement,
audit fee and to ensure that they have an
appropriate audit plan in place. Following
approval by shareholders at the AGM
held on 20 August 2020, KPMG LLP was
reappointed as AO’s External Auditor
for the financial year ending 31 March
2021 and, during the year the Committee
approved and oversaw the transition to
the new audit partner, David Neale, who
has led the audit for 2021. The External
Auditor was not asked to look at any
specific areas by the Audit Committee
during the review period.
Review of effectiveness of
external audit process
A key responsibility of the Committee is
to review and monitor the effectiveness of
external audit process and independence
of the External Auditor. The assessment of
the audit effectiveness for the year ended
31 March 2020 was undertaken at the
completion of that audit as part of
an ongoing process of review throughout
the year.
In conducting its review, the Committee
had regard to:
• 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
through its meetings with management;
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.
The assessment process is based on open
and honest dialogue with the External
Auditor. The Committee sought assurance
from KPMG at the half-year review and
year-end audit planning meetings on the
approach to the audit, an explanation
of their understanding of the Group’s
significant risks to audit quality and the
level of their understanding of the business,
its industry and related risk. Further, the
Committee held discussions with the
External Auditor at various stages during
the year to discuss their remit and any
issues arising from their work that helped to
ensure, particularly given the challenges of
conducting an audit in restricted working
conditions presented by Covid-19, that
the audit remained on track and that the
deliverables would be achieved.
Based on the above, the Committee was
satisfied that KPMG delivered a robust
and quality audit with the appropriate
resources available to the Company,
suitable focus placed on the significant
risk areas and key areas of accounting
judgement and that they provided
effective challenge to management. We
therefore concluded that the relationship
with the External Auditor continued to
work well and we are satisfied with their
effectiveness and independence.
External audit partner rotation
On behalf of the Board, the Committee
oversees the relationship with the External
Auditor. KPMG were appointed as Auditor
to the Company in July 2016 for the
financial year ended 31 March 2017, and
were reappointed at the 2020 AGM. Mick
Davies, who held the role of lead audit
partner since the audit engagement
began five years ago, stepped down from
his role in September 2020 and is replaced
by David Neale, who has led the audit for
the year ending 31 March 2021.
External audit tenure
In accordance with requirements set
out within the Competition and Markets
Authority’s regulations (the Statutory
Audit Services for Large Companies
Market Investigation (Mandatory Use of
Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014)
(the “CMA Order”) and the UK Corporate
Governance Code, published in July 2018,
the Committee is required to retender
the external audit contract by no later
than the 2027 year-end audit, this being
ten years since appointment. Under the
CMA Order, when an incumbent Auditor
has been in office for five consecutive
years, the Company is required to explain
when it plans to conduct a new tender
process and the reasons why completing
it in that year is in the best interests of the
Company’s members.
The Committee has assessed the
quality, effectiveness and continuity
of the relationship with KPMG as the
Group’s current External Auditor, and
has recommended to the Board that it
is in the best interests of the Group and
shareholders to tender the audit contract
by a date no later than that stipulated
by the current regulations, being for the
2027 year-end audit, subject to the annual
assessment of the effectiveness and
independence of the External Auditor
carried out by the Committee.
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AO World Plc Annual Report and Accounts 2021 not compromised. The Committee also
considered the tenure of the External
Auditor, the Auditor’s own processes for
maintaining independence and the nature
and amount of non-audit work undertaken
by the Auditor. The Audit Committee took
these factors into account in considering
the External Auditor’s independence
and concluded that KPMG remained
independent and objective in relation to
the audit.
Priorities for year ending
31 March 2022
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.
In line with guidance from the Professional
Practice of Internal Auditing, an External
Quality Assessment of AO’s Internal Audit
activities will be conducted during FY22.
The Committee will review the outcome of
the assessment and will determine and
assign any actions as appropriate. The
results of the External Quality Assessment
will be communicated in the Audit
Committee’s report next year.
The work of the Committee will also
focus on overseeing management’s
preparations and responses to the
changing control landscape, including
the outcome of the BEIS consultation
paper on audit reform. The Committee
will also seek to undertake a full appraisal
of the effectiveness of the Group’s risk
management process and procedures.
Marisa Cassoni
Chair, Audit Committee
AO World Plc
30 June 2021
Reappointment of
External Auditor for the 2022
financial year
Through open and honest dialogue with
the External Auditor, as well as feedback
received from the CFO and senior
management, the Committee is satisfied
with the objectivity and independence
of the External Auditor. The Committee
is also satisfied that KPMG continues to
perform its audit work to a high standard
and with robust challenge. On this basis,
the Committee has recommended to the
Board that KPMG be reappointed at the
2021 AGM.
Statement of compliance with
the Competition and Markets
Authority (“CMA”) Order
The Company confirms that it has
complied with The Statutory Audit
Services for Large Companies Market
Investigation (Mandatory Use of
Competitive Processes and Audit
Committee Responsibilities) Order 2014
(Article 7.1), including with respect to the
Audit Committee’s responsibilities for
agreeing the audit scope and fees and
authorising non-audit services.
Non-audit services
There are policies and procedures in
place in relation to the provision of non-
audit services by the External Auditor.
The Company’s general policy is not to
use the appointed External Auditor for
any non-audit services. However, the
Committee recognises that it may be
appropriate to use the External Auditor
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 as a result of their
position, subject always to EU audit rules
surrounding prohibited non-audit services.
In such ad hoc occurrences, the Group’s
policy ensures that: there is adequate
protection of their independence and
objectivity, any such use requires approval
by the Audit Committee; any non-audit
services must fall within the limits specified
by EU legislation of not more than 70% of
the average audit fee over a consecutive
three-year period, and various services
are wholly prohibited, including tax, legal,
valuation and payroll service. Further,
the External Auditor is not permitted to
perform any work, which they may later
be required to audit, or which might affect
their objectivity and independence or
create a conflict of interest.
During the year, KPMG undertook non-
audit related assignments relating to
the review of the Group’s half-year report
amounting to £45,000 (2020: £45,000),
and representing 7% of the value of the
Group Audit (2020: 8%). This assignment
was conducted in accordance with the
Group’s policy and was consistent with
the professional and ethical standards
expected of the External Auditor, and the
Committee considers that the assurance
provided by the Auditor on this item is
considered necessary in the interests
of the Group. The Audit Committee
were satisfied with work performed and
considered the level of these fees against
the fees paid to KPMG for audit services
determining that they are not material
relative to the income of the external audit
as a whole, and therefore did not conflict
with KPMG’s objectivity and independence.
The Group has also continued with the
appointment of other accountancy firms
to provide certain non-audit services to
the Group, for example, in connection with
tax advisory services, remuneration advice
and debt advice, and anticipates that
this will continue during the year ending
31 March 2022.
External Auditor fees
During the financial year, the Group
External Auditor’s fees were £0.8m
(2020: £0.6m). The Audit Committee
was satisfied that the level of audit fees
payable in respect of the audit services
provided were appropriate and that an
effective audit could be conducted for
such a fee.
Details of the fees paid to the External
Auditor for audit and non-audit are set
out in Note 9 to the consolidated financial
statements.
Independence and objectivity
The Audit Committee monitors and
assesses the independence and
objectivity of the External Auditor,
including the evaluation of potential
threats to independence and the
safeguards in place to mitigate these.
The Committee considered there were
no relationships between the external
Auditor and the Group that could
adversely affect its independence and
objectivity. The External Auditor reported
to the Committee that it had considered
its independence in relation to the
audit and confirmed that it complies
with UK regulatory and professional
requirements and that its objectivity is
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AO World Plc Annual Report and Accounts 2021Our Governance Directors’ remuneration report
“ Ensuring a reward strategy that
supports short and long-term
sustainable performance.”
Luisa D. Delgado
Chair, Remuneration Committee
This section sets out the Company’s Directors’
remuneration report. The report is structured
as follows:
• The annual statement from the Chair of the Remuneration Committee
• The proposed Directors’ remuneration policy (which will be put to the
shareholder vote at the 2021 AGM)
• The Annual Report on Remuneration for FY21 (which will be subject to
an advisory vote at the 2021 AGM)
FY21 highlights:
Highlights of the work of the
Remuneration Committee in FY21 and to
the date of this report:
• Design and implementation of the
Company’s All-Employee Value
Creation Plan including extensive
shareholder consultation, employee
consultation and consideration
of the impact of this incentive
structure on broader remuneration
arrangements.
• Attending training and updates on
market developments on Executive
remuneration landscape.
• Design of the proposed Directors’
remuneration policy including
consideration of the requirements of
the 2018 UK Corporate Governance
Code and various investor and proxy
adviser guidance on remuneration.
• Determined the levels of vesting for
the AO Incentive Plan FY21 Award,
which is due to vest this summer on
approval of the Accounts.
• Considered the remuneration for
FY22 for our Executive Directors, the
Executive Committee and certain
senior management liaising with
the People team on a Group-wide
reward strategy and principles of
remuneration.
• Set the performance conditions for
the AO Incentive Plan FY22 Award,
with robust target setting and
evolving the design of
performance conditions.
• Review of the Company’s
Gender Pay Gap report and
recommended actions.
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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 2021
(FY21).
Pay for sustainable performance;
our remuneration policy
During the year, the Committee undertook
a full review of our policy and approach
to Executive remuneration, considering
the evolving best approaches to support
sustained value creation and performance
steering along our goals and stretching
targets. The Committee considered a
range of potential options (including
restricted stock units and reverting to a
separate annual bonus and traditional
LTIP) and listened to participants of
the AO Incentive Plan (“AOIP”) that
was implemented three years ago to
understand its strengths and weaknesses
and what impact it was having.
After careful consideration, we decided
that continuing to operate our current
remuneration framework – base salary
and benefits plus the AOIP, the single
incentive scheme, supports our business
agenda in the optimal way. Under the
AOIP, awards are determined based on
performance against stretching annual
financial and strategic targets. Any
amount earned is paid out one-third in
cash and two-thirds deferred for three
years as conditional deferred share
awards (conditional on performance
underpins and continued employment).
The share portion of Executives’ awards
are subject to a further one year holding
period such that the total performance,
vesting and holding period for this element
of the award is five years, in- line with the
UK Corporate Governance Code.
AO is a fast-paced dynamic high-growth
business, with an entrepreneurial culture
at its heart to evolve and innovate
rapidly and in agile ways to meet and
anticipate market needs, leverage
technology developments shaping their
use in innovative customer journeys
and to drive shareholder value creation.
The Committee believes that the AOIP,
which allows the Committee to refresh
targets each year, aligns effectively
with AO’s strategy of working towards
annual milestones to deliver long-term
performance, allowing the Company to
remain agile and respond to a rapidly
changing market, whilst ensuring that
both performance measures and targets
align with our evolving business strategy.
Multi-year targets that would need to
be set, for example, under an LTIP would
reduce the business’ agility in reacting
to market circumstances. Further, AO
is performance driven, and the AOIP is
a fully performance-based plan. The
performance targets set under the AOIP
provide a strong steering around what is
important to the Company and emphasise
what needs to be delivered each year to
build success for the long- term.
We are clear that a robust process for
setting meaningful targets is at the heart
of the effective operation of the AOIP.
There is strong Remuneration Committee
oversight of the target setting process, as
well as discretion on vesting outcomes to
ensure those are balanced in the context
of the underlying business performance,
the managerial impact, and the experience
of shareholders and other stakeholders.
Combined with overall Board oversight, we
are committed to continuing to strengthen
the plan with appropriate governance
around business planning, decision making
and monitoring processes.
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 stakeholder
experience. 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 and overall
compensation trends throughout the
Company, as this provides important
context when determining pay for our
Executives (see later in our Approach to
Remuneration for FY22). 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.
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 policy.
Under the new policy, we have formalised
our post-termination shareholding
requirements – at 200% of salary for two
years post-termination. In the prior year, we
reduced the pension contribution levels for
our incumbent Executive Directors to 9% of
salary, in line with the wider management
of the Company, and are committing to
identify a plan to align pension for the
Executive Directors with the rate available
to the majority of the wider workforce in the
UK by 1 January 2023.
Value Creation Plan
During the year, we introduced our all-
employee AO Value Creation Plan (“VCP”)
to support the implementation of our
ambitious high-growth business strategy,
leveraging our business momentum and
involving all our employees in a way that
is reflective of our unique, people-centred
culture. The plan targets sustained
profitable high growth measured by
the resulting creation of sustained
shareholder value. It was designed with
highly ambitious, deeply transformational
growth targets in mind; any value delivered
beyond those high targets will be shared
by each and every one of our employees
in a meaningful way, with the intention
that all current employees would have
the possibility to earn approximately one
year’s salary at the end of March 2025.
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AO World Plc Annual Report and Accounts 2021Our Governance Directors’ remuneration report continued
AO INCENTIVE PLAN FY21 AWARD – FINANCIAL PERFORMANCE CONDITIONS
Revenue
30%
EBITDA
30%*
Cash inflow
20%
£1,661m
£47.6m
£60m
£1,099m
Threshold
£1,157m
Target
£1,215m
Stretch
£15m
Threshold
£19.4m
Target
£23.7m
Stretch
£1.4m
Threshold
£4.8m
Target
£8.2m
Stretch
* On a pre IFRS 16 basis
pandemic. We have seen significant
increases in revenue, a step change in
profitability at both Group and divisional
levels, strong cash generation, improved
financial resources, and substantial progress
in operational capability. For further details
of our performance and investments over
the year, please see pages 46 to 53.
Group revenues increased by 62% to
£1.66bn, with the UK generating substantial
trading profits and the German business
achieving run-rate profitability in Q3. Group
Adjusted EBITDA, despite Covid-related
costs, was £64.4m (on a post IFRS-16 basis)
(an increase of 191% compared to FY20)
excluding a one-off non-cash reduction
of £19.6m in the value of the warranty
contract asset relating to the period 2008
to 2020. Cash inflow was over c.£60m.
Importantly, the Government support
initially requested was repaid early- on in
the year and none was claimed again, thus
had no impact on profitability.
The targets for the FY21 AOIP Award
consisted mainly of financial targets,
addressing both top-line growth and profit,
but also cash flow and two stakeholder
metrics centred on customer satisfaction
and employee satisfaction (measured by
NPS scores).
For the financial metrics, all stretch
targets were achieved. 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 average of 85. This market-leading
score was achieved notwithstanding
significant operational challenges and
huge increase in order volumes caused
by the pandemic. At the same time, our
Employee NPS result was +30 (which was
ahead of a target of +25 but behind the
maximum target of +40) and where +10
would be considered “good”.
The Committee considered whether there
should be any adjustment to financial
targets in light of Covid-19 tailwinds,
both at several intervals during the year
and then also following year-end, to
assess whether strict application of the
performance conditions and targets
reflected correctly the performance and
impact of management on the results.
Our conclusion, after weighing carefully all
aspects of the market, the operations, and
the performance over the year, including
the interventions management made
to sustain that performance and drive
it forward, we determined that it is right
to maintain the targets, and to maintain
the resulting rewards. A summary of our
assessment is as follows:
• Whilst Covid-19 has clearly increased
online shopping, the business has
been able to both successfully service
the significantly increased demand
in the immediate, and to prepare our
capacity and capability to service
effectively a sustained change in
shopping behaviour going forward.
It has done so through investing in
additional infrastructure for the mid
to long- term (in terms of warehousing,
outbases and delivery vehicles),
leveraging its pre-existing relationships
with manufacturers cemented
over many years to secure product
availability, and added to its headcount
by c.50%, all whilst ensuring that its
people and customers were safe. In
particular, the Committee noted the
fact that the business has thrived
through the pandemic was testament
to a well-invested culture, strong
management team and having the
right building blocks in place to
cope with increased demand and to
execute exceptionally.
In designing the VCP, the Committee was
mindful of potential inherent risks, and
incorporated a number of safeguards
within the plan design. Those included
a phased vesting schedule over three
years to drive long-term sustainable
performance, a dilution cap, a cap
on individual awards of £20m for the
Executive Directors, a robust recovery
mechanism (malus and clawback), and
broad discretionary Committee authority
for overriding the formulaic outcome if the
Committee considers that would not be
reflective of the overall performance of the
business over the period.
The Committee undertook extensive
consultation with shareholders and
adjusted the design of the plan accordingly
before its finalisation. We were pleased that
the VCP was approved by shareholders
at the 2020 AGM with a favourable vote
of 91%. We are also pleased the VCP was
received with excitement by our employees
at its launch; it has started to prove
powerful in engaging the broad employee
population effectively on a common
stretching path, creating understanding of
value creation drivers, market mechanics,
clarity in understanding and steering
progress and immense pride of being one
team. We would like to thank shareholders
for their engagement and support.
Performance and reward for FY21
The Annual Report on Remuneration (set
out on pages 127 to 139) 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.
The Group delivered a very strong
performance across all aspects of the
business in FY21, stepping up to the
challenges, and capitalising on the
opportunities presented by the Covid
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AO World Plc Annual Report and Accounts 2021 • We believe that the shift to online over
the past year will be permanent and,
due to our investment in our people
and infrastructure, the business will
be capable of continuing to deliver
sustainable growth.
• The share price had seen a significant
increase over the year and thus
considerable value had been created
for shareholders.
• Covid-related Government support
initially claimed was repaid and
no further support was claimed
and therefore had no impact on
profitability, as noted above. At the
same time, we created an additional
c.1,200 roles, mainly in our customer
service teams and operational areas, to
service increased demand.
In total, we have, in principle, as a
consequence, awarded 97.5% of the
maximum AO Incentive Plan Award, which
we feel is a fair reflection of the strong
performance over the year. The award will
be settled as one-third in cash and two-
thirds in deferred shares.
Full details of the cash amount to be paid
and share awards to be issued to our
Executive Directors under the AO Incentive
FY21 Award are disclosed on page 127.
The Committee deems that the payout
levels over the past years show the AOIP
functioning as intended, with a payout
close to the maximum this year for very
strong performance and payouts of 47.8%
and 51.2% for the years ended 31 March
2020 and 2019 being awarded, respectively.
Approach to Remuneration
for FY22
Executives
The Remuneration Committee is working
with the AO reward team to define a
Group-wide pay philosophy and principles,
which will ensure that all our people
earn a fair and attractive salary, and
benefits reward package aligned around
common pay principles that support
the culture and values that mark AO as
a unique and thriving business. These
will reflect our customer orientated,
agile, merit-based and inclusive culture
that represents a competitive strength
for the Company’s business model and
competitive in attracting and retaining
top, high-performing talent required for
the achievement of our profitable business
growth aspirations.
Further work will be required for a
detailed review of the broad employee
population and the Executives within
that. We recognise that the business
and organisation has evolved over the
past years, and very significantly so
in the past 12-18 months, in scope and
complexity, and so have many roles in their
responsibility and impact. The market
has also evolved equally significantly,
particularly in key talent clusters. Our
market competitiveness is therefore being
assessed in that combined context. Early
indications, on a total compensation level,
are that certain individual roles and clusters
of high market demand roles in AO are
no longer compensated competitively,
and turnover of people in some functions
is higher than we would like it to be. In
addition, we have been made aware
that some of our top talent have been
approached to move elsewhere - to date,
their prospects, boosted considerably by
the potential of the VCP, have led them
to conclude they should stay with AO.
Accordingly, upon validation of these
early indications, we may increase the
compensation for the roles affected across
the organisation and levels, including at
Executive level, if required. The Committee
intends to engage with major shareholders
in advance of making any changes.
In terms of variable pay, the Executives
will be entitled to participate in the AOIP,
where we have evolved the performance
conditions along three sets of deliverables:
(1) Revenue, EBITDA and cash targets,
as ultimate (short-term) “output”
measures.
(2) Strategic transformation measures,
specifically addressing the progress
along the key value creation drivers
of our strategic business plan, thus
representing the “input” measures
(targets that will drive the business
forward for the medium to longer term);
(3) ESG/stakeholder impact measures,
as we are sharpening our related
Group strategy and focusing our ESG
measurement system (targets for the
longer term).
Please see page 136 for further details.
We will continue to challenge ourselves and
set robust target levels with a stretching
and ambitious mindset, reflective of the
winning culture that is special to our high-
growth business model. Together with
an appropriate exercise of discretion by
the Remuneration Committee, we believe
that it is therefore right to maintain the
current vesting profile. The maximum
opportunity remains at 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 with a subsequent one-year
holding period. This therefore means the
total performance, vesting and holding
period is five years, in line with
the revised requirements in the Code
and, importantly, ensuring close
alignment between shareholders and
management interests.
Non-Executives
Fees for the Non-Executive Directors
(including the Chairman) were reviewed
during the year and increases were
awarded to the chairs of both the Audit and
Remuneration Committees in view of the
increasing scope and complexity of their
roles, as well as time commitments required.
Further details regarding the
implementation of our policy in the year
ahead are provided on pages 134 to 139.
Employees
As set out in the Corporate Governance
report on page 95, Chris Hopkinson, our
designated People Champion, has headed
up engagement with the workforce
generally and looked at areas of pay
through survey feedback and “voice to
the Board” sessions. When considering
the AOIP, we consulted with a number of
participants to understand their views as
leaders and participants on the merits of
the plan.
We plan to continue engaging with
employees to ensure both transparency
of remuneration, and that employee views
are taken into account when setting and
determining Executive remuneration
in the year ahead. As said above, it is
our particular intent to ensure that the
Company has a clear overall pay and
benefits philosophy, and that Executive
packages move within that context in an
equitable and cohesive way.
I hope this sets out clearly how the
Committee has implemented the existing
policy during FY21, the key features of the
proposed policy and how we propose to
implement the policy in FY22.
I look forward to engaging with
shareholders in the year ahead on
Executive remuneration. If shareholders
wish to discuss any aspects of this report,
please contact me through the Company
Secretarial team at cosec@ao.com.
Luisa D. Delgado
Chair, Remuneration Committee
AO World Plc
30 June 2021
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AO World Plc Annual Report and Accounts 2021Our Governance Directors’ remuneration report continued
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.
The Policy will be put to a binding
shareholder vote at the 2021 AGM and,
subject to approval, will take formal
effect from that date. We do not propose
any fundamental changes our Policy
(in particular surrounding variable
remuneration) as following careful
consideration of the remuneration
landscape, taking into account our evolving
strategy and stakeholder views and, looking
at its implementation over recent years,
we believe that it is operating effectively
and closely aligns to our business strategy.
However, the Policy will formalise certain
features that we had already introduced
and amend other aspects to more closely
align with the Code.
Whilst it is intended that the Policy will
apply for three years following approval,
the Policy will be kept under review on an
annual basis.
The Policy was developed over the
course of 2020 and early 2021. The
Committee undertook a thorough
review of arrangements with a particular
focus on alignment to AO’s forward
strategy and aspirations, general
market developments and stakeholder
expectations. Input was received from
the Chairman and management whilst
ensuring that conflicts of interest were
suitably mitigated. Input was provided by
the Committee’s appointed independent
advisers throughout the process.
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
118
management for sustained contribution
and to focus them on the delivery of
the Group’s strategic and business
objectives, to promote a strong winning
and customer orientated culture that
builds on accountability of results, to
incentivise high growth and innovation,
to align the interests of Executive
Directors with those of shareholders
and stakeholders. In promoting these
objectives, the Committee aims to ensure
that Executives are paid fairly. It 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”; this is reflected
in the approach to setting pay across the
whole senior management population
as a team, and to overall principles for
remuneration and benefits for the overall
employee population of AO.
The Committee’s Terms of Reference are
available on the Company’s website at
ao-world.com.
How the views of shareholders
are taken into account
The Committee understands that
constructive dialogue with shareholders
plays a key role in informing the
development of a successful remuneration
policy, values this dialogue as a source of
exchange and learning, and we regularly
seek to actively engage with shareholders
in these matters. The Committee
will continue to consider any further
shareholder feedback throughout the
year and further 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 Chair will
consult with major shareholders of these
in advance and will ensure that there is
opportunity for discussion, in order that
any views can be properly reflected in the
Policy formulation process.
While deliberating on the proposed
incentive structure, we actively sought
shareholders’ views 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
When designing the Policy for Executive
Directors, the Committee takes into
account the overall approach to reward
for, and the pay, benefits 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, ensuring our reward
philosophy is consistently and fairly
applied. The Committee is also provided
with periodic updates on employee
remuneration practices and trends across
the Group.
As part of our Policy design consideration
we sought feedback from a cross
section of the AOIP participants. We
have also discussed pay and benefits
with our Employee Champions through
our Voice to the Board sessions, which
Chris Hopkinson (our NED Engagement
Champion) has attended.
The Remuneration Committee is,
in particular, mindful of the Code
requirements to align Executive pension
contributions with the wider workforce.
During FY21, we aligned the Executive
pension contributions with the rate
received by other managers at AO
and are working to identify a plan, by 1
January 2023, to then align Executive
Directors’ pension contributions with the
rate received for the majority of the wider
workforce in the UK and to develop a
Company-wide strategy for compensation
and benefits.
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 had conducted
this assessment and remains satisfied
that the proposed Policy is appropriately
aligned with the risk profile of the
Company and that the remuneration
arrangements whilst rewarding
entrepreneurial spirit and innovation do
not encourage excessive risk taking.
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AO World Plc Annual Report and Accounts 2021
119
Our Governance 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
Purpose and
link to strategy
Operation
• To aid the recruitment and retention of high-calibre Executive
Directors with the expertise and experience to deliver the
Company’s strategy
• To reflect individual experience and expertise
• To provide a fair and appropriate level of fixed basic income
• Normally reviewed annually, with any increase normally effective
on 1 April (increases may be awarded at different times if
considered appropriate by the Committee)
• Set initially at a level required to recruit suitable Executive
Directors, reflecting their experience and expertise and in context
of other comparable positions
• 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; (e) any changes in the
size and complexity of the organisation; (f) any changes market
practice; and (g) 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 provide an externally competitive
benefit whilst remaining internally
consistent with percentages of
contributions
• To provide an appropriate level of
percentage of in service fixed income
in retirement
• Executive Directors may receive
an employer’s pension contribution
and/or a cash payment in lieu
of pension
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 and where this has also
been applied to other employees in similar circumstances
• 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 9%
of salary (which is the rate received
by other managers in the business).
We are committing to identify a plan
to align pension for the Executive
Directors with the rate available to the
majority of the wider workforce in the
UK by 1 January 2023
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
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• To provide a competitive benefits package to
aid recruitment and retention of high-calibre
Executive Directors with the expertise and
experience to deliver the Company’s strategy
• 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
• Directors are entitled to benefits, including a
car allowance or company car, private family
medical cover, death in service, life assurance
• The vesting of awards will be subject to the satisfaction of performance conditions set by
the Committee 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 normally be subject to additional performance underpin
conditions measured over a period of at least three years running from the end of the
performance period
• Normally 62.5% of maximum is payable for target levels of performance with 25% normally
paying for threshold levels of performance.
• Following the vesting of deferred shares awards, Executives will normally be required to hold
the awards for one further year, bringing the overall period to five years. The shares held
may be net of tax if determined by the Committee
• 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 material
misstatement of accounts, an error in assessing any applicable performance condition
or employee misconduct, a material failure of risk management, serious reputational
damage; a material corporate failure or any other circumstances that the Board in its
discretion considers to be similar in their nature or effect
• Up to 300% of salary for each Executive Director in respect of any financial year
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 (including tax
thereon) 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 may, in its discretion, adjust AOIP payouts if it considers that the formulaic
outcome is not reflective of the underlying financial or non-financial performance of the
Group or the individual performance of the participant over the relevant period, or that
such payout level is not appropriate in the context of circumstances that were unexpected
or unforeseen when the targets were set. When making this judgement the Committee may
take into account such factors as it considers relevant. Any use of discretion will be detailed
in the following year’s Annual Report on Remuneration
• No vesting will occur below a threshold level of performance as set by the Committee on a
year-by-year basis
AO World Plc Annual Report and Accounts 2021 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 with the expertise and experience to deliver the
Company’s strategy
• To reflect individual experience and expertise
• To provide a fair and appropriate level of fixed basic income
Operation
• Normally reviewed annually, with any increase normally effective
on 1 April (increases may be awarded at different times if
• Executive Directors may receive
an employer’s pension contribution
• To provide an externally competitive
benefit whilst remaining internally
consistent with percentages of
contributions
• To provide an appropriate level of
percentage of in service fixed income
in retirement
and/or a cash payment in lieu
of pension
considered appropriate by the Committee)
• Set initially at a level required to recruit suitable Executive
Directors, reflecting their experience and expertise and in context
of other comparable positions
• 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; (e) any changes in the
size and complexity of the organisation; (f) any changes market
practice; and (g) 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 9%
• 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 and where this has also
been applied to other employees in similar circumstances
• 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
of salary (which is the rate received
by other managers in the business).
We are committing to identify a plan
to align pension for the Executive
Directors with the rate available to the
majority of the wider workforce in the
UK by 1 January 2023
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
OTHER BENEFITS
“AO INCENTIVE PLAN”
• To provide a competitive benefits package to
aid recruitment and retention of high-calibre
Executive Directors with the expertise and
experience to deliver the Company’s strategy
• 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
• 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 (including tax
thereon) 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
• The vesting of awards will be subject to the satisfaction of performance conditions set by
the Committee 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 normally be subject to additional performance underpin
conditions measured over a period of at least three years running from the end of the
performance period
• Normally 62.5% of maximum is payable for target levels of performance with 25% normally
paying for threshold levels of performance.
• Following the vesting of deferred shares awards, Executives will normally be required to hold
the awards for one further year, bringing the overall period to five years. The shares held
may be net of tax if determined by the Committee
• 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 material
misstatement of accounts, an error in assessing any applicable performance condition
or employee misconduct, a material failure of risk management, serious reputational
damage; a material corporate failure or any other circumstances that the Board in its
discretion considers to be similar in their nature or effect
• 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 may, in its discretion, adjust AOIP payouts if it considers that the formulaic
outcome is not reflective of the underlying financial or non-financial performance of the
Group or the individual performance of the participant over the relevant period, or that
such payout level is not appropriate in the context of circumstances that were unexpected
or unforeseen when the targets were set. When making this judgement the Committee may
take into account such factors as it considers relevant. Any use of discretion will be detailed
in the following year’s Annual Report on Remuneration
• No vesting will occur below a threshold level of performance as set by the Committee on a
year-by-year basis
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AO World Plc Annual Report and Accounts 2021Our Governance Directors’ remuneration report continued
Value Creation Plan
In addition, Executive Directors also
participate in the all-employee AO Value
Creation Plan (“VCP”), which was approved
by shareholders as a separate resolution
at the 2020 AGM. The VCP supports the
implementation of our ambitious AO’s
high-growth business strategy, leveraging
our business momentum and involving all
our employees in a way that is reflective of
our unique people-centred culture.
The Plan will continue to operate on the
terms set out in the 2020 Notice of AGM.
Implementation of the policy for the FY21
can be found in the Annual Report on
Remuneration.
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; (iii) where otherwise approved
by shareholders; or (iv) 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.
Terms of the AO Incentive Plan
Awards under the AO Incentive Plan, 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 that 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. in respect of the portion of the award
granted in shares, be settled in cash
at the Committee’s discretion (it is
intended that this provision would only
be used for Executive Directors where it
is not possible to settle share portion of
the award in shares due to regulatory or
legal reasons); and
e. be adjusted in the event of any variation
of the Company’s share capital or any
demerger, delisting, special dividend or
other event that may materially affect
the Company’s share price.
The Committee also retains the discretion
within the Policy to adjust performance
targets and/or set different performance
measures and alter weightings if events
happen that cause it to determine that
the conditions are unable to fulfil their
original intended purpose.
Choice of performance
measures and approach to
target setting
The performance metrics and targets
that are set for the Executive Directors
via the AO Incentive Plan are carefully
selected to align closely with the
Company’s strategic plan.
The AO Incentive Plan is determined
on the basis of performance against
specific performance indicators and
strategic objectives set annually. The
precise metrics chosen, along with the
weightings of each, may vary in line with
the Company’s evolving strategy from
year to year. The Committee will review the
performance measures and targets each
year and vary them as appropriate to
reflect the priorities for the business in the
year ahead.
Where possible, the Committee will disclose
the targets for each of the Executive
Directors’ awards in advance in the Annual
Report on Remuneration, but targets will
generally be disclosed retrospectively
where they are considered to be
commercially sensitive. The Committee
will review the choice of performance
measures and the appropriateness of
the performance targets prior to each
performance year and will consult with
major shareholders in the event of any
significant proposed change.
Challenging targets are set whereby
modest rewards are payable for the
delivery of threshold levels of performance,
rising to maximum rewards for the delivery
of substantial out-performance of our
financial and operating plans.
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AO World Plc Annual Report and Accounts 2021 Reward scenarios
Under the Policy, a significant proportion
of remuneration received by Executive
Directors is variable and dependent on
the performance of the Company. The
following charts illustrate how the total pay
opportunities for the Executive Directors
vary under three different performance
scenarios: below target, on- target and
maximum, based on implementation of
the AO Incentive Plan for the year ahead.
Share ownership guidelines
The Committee’s Policy is to have formal
shareholding guidelines for the Executive
Directors, which create alignment between
their interests and those of shareholders.
Executive Directors are expected to build a
minimum shareholding of 200% of salary.
Where the holding is not already attained
it is expected 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.
Post-cessation of office
ownership guidelines
Post-employment guidelines were
introduced from 1 April 2020, with
Executive Directors expected to retain
200% of salary (or actual shareholding if
lower) for one year following stepping down
from the Board, reducing to 100% of salary
(or actual shareholding if lower) between
one and two years following stepping down
from the Board. Following consultation
with shareholders, our guideline has been
extended such that following stepping
down from the Board, Executive Directors
will normally be expected to maintain a
minimum shareholding of 200% of salary
(or actual shareholding if lower) for two
years following departure from the Board.
The Committee retains discretion to waive
this guideline it is not considered to be
appropriate in the specific circumstance.
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. 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. Further, as
noted above, the VCP implemented during
FY21 extends to all current employees.
The level of performance-related pay
varies within the Group by grade of
employee, but in general the Policy is
applied consistently across each grade of
the senior management population.
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AO World Plc Annual Report and Accounts 2021Our Governance Directors’ remuneration report continued
CEO TOTAL REMUNERATION OPPORTUNITY AT DIFFERENT
LEVELS OF PERFORMANCE*
£3,000k
CFO TOTAL REMUNERATION OPPORTUNITY AT DIFFERENT
LEVELS OF PERFORMANCE*
£3,000k
£2,500k
£2,500k
£2,000k
£2,000k
£1,500k
£1,500k
£1,000k
£1,000k
£500k
£500k
£0k
£0k
£1,917k
£1,917k
48%
48%
24%
24%
27%
27%
£1,395k
£1,395k
42%
42%
21%
21%
38%
38%
£525k
£525k
100%
100%
£2,381k
£2,381k
19%
19%
39%
39%
19%
19%
22%
22%
Below threshold
Target
Maximum
Below threshold
Target
Maximum
Maximum + 50%
share price growth
Maximum + 50%
share price growth
£3,000k
£2,500k
£2,000k
£1,500k
£1,000k
£500k
£0k
£1,796k
19%
£1,446k
£1,058k
48%
39%
£396k
100%
42%
21%
38%
24%
27%
19%
22%
Below threshold
Target
Maximum
Maximum + 50%
share price growth
Fixed pay
AOIP – cash
AOIP – deferred shares
Share price growth
* Total may not sum to 100% due to rounding
Assumptions:
• Below threshold = fixed pay only (i.e.
basic salary, benefits and pension).
• Target = fixed pay plus 62.5% of
maximum AOIP payout.
• Maximum = fixed pay plus 100% of
maximum AOIP payout.
• Maximum + 50% share price growth
= fixed pay plus 100% of maximum
AOIP payout, with 50% share price
appreciation applied to the deferred
shares delivered through the AOIP.
• Fixed pay includes the base salaries
for each Executive Director applying
on 1 April 2021, together with pension
(at 9% of base salary), a car allowance
of £12,000 for each Executive Director
and the value of other taxable benefits
(such as gym membership and medical
cover) based on the cost of supplying
those benefits in FY21.
• Maximum AOIP Award is equivalent to
300% of salary.
In addition, the Executive Directors
also participate in the VCP, which gives
PROVISION
DETAILED TERMS
participants the opportunity to share in
the value created above a pre-determined
share price hurdle. The value of any vested
award will be dependent on the Company’s
share price and performance relative
to the targets set. Awards for Executive
Directors vest in three equal tranches
(with five, six and seven-year performance
periods, ending in 2025, 2026 and 2027
respectively), with the total maximum
payable capped at £20m for each
Executive Director. The VCP is not included
in the scenario charts above.
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 six
months’ notice to terminate employment
(by either party) must be given. However,
incumbent Executive Directors’ service
contracts are subject to 12 months’ notice
to terminate in line with the historic policy.
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:
Notice period
12 months from both the Company and incumbent Executive Directors. Six months for newly appointed
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
There will be no enhanced provisions on a change of control
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.
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AO World Plc Annual Report and Accounts 2021 • Any new Executive Director may
participate in the all-employee AO
Value Creation Plan on the terms
approved by shareholders at the 2020
AGM (or as subsequently amended at
any future AGM).
• 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 Chair
or Non-Executive Director, the fee
arrangement would be set in accordance
with the approved fee structure policy in
force at that time.
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. During the vesting period, 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. Where an Executive
Director ceases employment during the
holding period they shall not normally
forfeit their award.
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 that
has elapsed on the individual’s cessation
of office or employment.
However, the Committee retains
discretion to allow awards to be satisfied
and deferred share awards to vest as
soon as reasonably practicable after
the individual’s cessation of office or
employment. If the participant ceases
to hold office or employment prior to the
satisfaction of an award, the Committee
may also decide to satisfy awards entirely
in cash, rather than delivering a deferred
share award to the Executive Director.
If a participant dies, unless the Board
decides otherwise, their outstanding
awards will be satisfied and deferred share
awards will vest as soon as reasonably
practicable after the date of their death
on the basis set out for other “good
leavers” above.
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. The opportunity would
normally be pro-rated for the period
of employment unless the Committee
determined otherwise. 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 normally 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 Performance Share Plan 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.
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AO World Plc Annual Report and Accounts 2021Our Governance 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.
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
• Additional fees may be paid to reflect additional Board or Committee
responsibilities as appropriate
• 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. The Company may meet any tax
liabilities that may arise on any such expenses
• Additional non-significant benefits may be introduced if considered
appropriate
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AO World Plc Annual Report and Accounts 2021 Annual Report on Remuneration
The Annual Remuneration for FY21 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 in September.
Single figure of total remuneration for FY21 (Audited)
The audited table below shows the aggregate emoluments earned by the Directors of the Company during the period 1 April 2020 to
31 March 2021 (or relating to that period in the case of the AO Incentive Plan) (FY21) and, for comparison, the amounts earned during the
period 1 April 2019 to 31 March 2020 (or relating to that period in the case of variable remuneration) (FY20).
Executive Directors
John Roberts1
Mark Higgins2
Chairman
Geoff Cooper
Non-Executive Directors6
Chris
Hopkinson
Marisa Cassoni7
Shaun McCabe
Luisa D. Delgado
Total
Total8
FY21
FY20
FY21
FY20
FY21
FY20
FY21
FY20
FY21
FY20
FY21
FY20
FY21
FY20
FY21
FY20
Salaries
and fees
£
464,000
450,000
350,000
340,000
200,000
200,000
55,000
55,000
75,000
72,051
55,000
55,000
65,000
Benefits/
taxable
expenses
£1
19,055
22,927
14,536
16,716
Pension3
£
41,200
44,640
33,921
39,081
–
–
–
–
-
761
–
–
–
–
–
–
–
–
–
–
–
–
Total
fixed
£
Value of
PSP4
£
AOIP
cash5
£
Total
variable
£
524,255
517,567
398,457
395,797
200,000
200,000
55,000
55,000
75,000
72,812
55,000
55,000
65,000
–
–
–
413,280
452,400
215,100
341,250
162,520
452,400
215,100
341,250
575,800
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£
976,655
732,667
739,707
971,597
200,000
200,000
55,000
55,000
75,000
72,812
55,000
55,000
65,000
65,000
1,264,000
1,237,051
1,373
33,591
41,777
–
75,121
83,721
66,373
1,372,712
1,362,549
–
0
413,280
–
793,650
377,620
–
793,650
790,900
66,373
2,166,362
2,153,449
1. For John Roberts, benefits include medical and life assurance and a car allowance of £12,000 paid in cash and private fuel, and £200 attendance bonus available
on the same basis to all employees. The FY20 figure has been restated to reflect £6,000 of private fuel costs not disclosed last year.
2. For Mark Higgins, benefits include car allowance of £12,000 paid in cash and private fuel and, £200 attendance bonus available on the same basis to all
employees.
3. Executive Directors were entitled to Company pension contributions of 12.75% of gross basic salary for FY20 and for the first six months of FY21 with £10,000
being paid into a pension and the balance paid in cash (after deducting employer National Insurance contributions at 13.8%). From 1 October 2020, the pension
contribution rate was reduced to 9% in line with the wider management contribution rate. The cash portion is no longer reduced to reflect employers NIC.
4. FY20 was the final year for vesting of PSP schemes, therefore there is no PSP linked remuneration for FY21. The FY20 figure has been restated to reflect the actual
value of the award upon vesting. This is based on a share price of £1.64 with options over 252,000 shares vested.
5. Both John Roberts and Mark Higgins were granted an award under the AO Incentive Plan of 300% of salary for the performance period of FY21. Following near
maximum attainment of the performance conditions, 97.5% 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 being awarded in the form of a deferred share award. The deferred share award will be released in July 2024 subject to continued employment and
attainment of the performance underpin, following which Executives will be required to hold awarded shares for a further year. Given that the deferred shares
remain subject to a performance underpin they have not been included in the FY21 single figure. The value of the deferred shares will be disclosed in the single
figure in the FY24 Annual Report. As the portion of the AOIP disclosed is in cash, no portion of the value of the award relates to share price appreciation. No
discretion has been exercised in respect of the award.
6. 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.
7. 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). FY21 fees comprise the basic NED fee, the Audit Chair fee and the SID fee for the full
year. Please refer to note 6 above for information regarding taxable expenses.
8. FY20 total figures have been restated to exclude Jacqueline de Rojas and Brian McBride, who have not served in office during FY21. Total remuneration paid to
Jacqueline de Rojas and Brian McBride for FY20 amounted to £37,500 and £20,109 respectively.
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AO World Plc Annual Report and Accounts 2021Our Governance Directors’ remuneration report continued
Details of variable pay earned in FY21 (Audited)
AO Incentive Plan Award
John Roberts and Mark Higgins both participated in the AO Incentive Plan (which combines a cash award and conditional deferred share
award) under which they could receive an award of up to 300% of salary, for the year ended 31 March 2021.
The targets for the AO Incentive Plan Award were weighted towards financial metrics, with 30% of maximum award subject to Group
Revenue performance conditions, 30% of maximum award subject to Group Adjusted EBITDA performance conditions, 20% 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 net promoter score and employee net promoter score.
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 strategy as can be seen
on pages 42 and 43. 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. Similarly, employee satisfaction is central to creating long-term
sustainable growth and there is empirical evidence of high employee engagement with increased levels of customer satisfaction,
whether expressed through NPS or other measures, which, in turn, has positive impacts on financial performance.
The following table sets out the targets, actual performance against these targets and accordingly, the applicable payout for the FY21
AO Incentive Plan Award.
Measure (weighting)
Group revenue (40%)
Group Adjusted EBITDA (30%)*
Cash inflow (10%)
Customer NPS (10%)**
Employee NPS (10%)
Targets
Threshold
On target
Stretch
Threshold
On target
Stretch
Threshold
On target
Stretch
Threshold
On target
Stretch
Threshold
On target
Stretch
% payout
(for this element)
25%
62.5%
100%
25%
62.5%
100%
25%
62.5%
100%
25%
62.5%
100%
25%
62.5%
100%
£1,099m
£1,157m
£1,215m
£15m
£19.4m
£23.7m
£1.4m
£4.8m
£8.2m
70
75
80
10
25
40
Performance
achieved
Award
£1,661m
30%
£47.6m
30%
£60m
20%
85
10%
30
7.5%
Total
97.5%
* Calculated on a pre-IFRS 16 basis and is Adjusted EBITDA of £64.4m as per Note 3 to the financial statements on page 168, less the impact of IFRS 16 of £16.9m.
** This is the average NPS figure across ao.com, mpd.co.uk and ao.de, weighted by revenue.
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AO World Plc Annual Report and Accounts 2021Our Governance Directors’ remuneration report continued
Performance against
financial targets
As previously reported, the Group
delivered a strong performance across all
aspects of the business in FY21, stepping
up to, and capitalising on, the challenges
and opportunities presented by the
Covid pandemic. This included significant
increases in revenue, a step change in
profitability at both Group and divisional
levels, strong cash generation, improved
financial resources, and substantial
progress in operational capability.
Group revenues increased by 62%
to £1.66bn, with the UK generating
substantial trading profits and the
German business achieving rate
profitability in Q3. Group Adjusted EBITDA,
despite Covid-related costs, was £64.4m,
excluding a one-off non-cash reduction
of £19.6m in the value of the warranty
contract asset relating to the period
2008 to 2020. Further, over the period,
Government support initially requested
was repaid early- on in the year and then
not claimed again, therefore having no
impact on profitability. Cash inflow was
over £60m.
The Committee has considered whether
there should be any adjustment to
financial targets in light of the Covid-19
tailwinds, but has determined that it would
not be right or fair to reduce awards (or
adjust targets) for the following reasons:
• Whilst Covid-19 has increased online
shopping, the business has had to be
able to service that demand. It has
done so through investing in additional
infrastructure for the mid to long- term
(in terms of warehousing, outbases
and delivery vehicles), leveraging
its pre-existing relationships with
manufacturers cemented over many
years, to secure product availability,
and adding to its headcount by c.50%,
all whilst ensuring that its people and
customers were safe. The fact that
we have managed to capitalise on
the pandemic is testament to a well-
invested culture, Management team
and having the right building blocks in
place to cope with increased demand
and to execute exceptionally.
• We believe that the shift to online over
the year will stick in the main and, due
to our investment in our people and
infrastructure, the business will continue
to deliver sustainable growth.
• The share price has seen a significant
increase over the year, and thus
considerable value has been created
for shareholders.
• Accordingly, the Committee has
determined that the financial
performance conditions have been
met in full.
Performance against
strategic targets
The Committee is delighted that
customer satisfaction, measured via
NPS, has remained strong over the year.
For ao.com and ao.de respectively we
have achieved average NPS scores of
86 and 88. Our Mobile Phones Direct
business achieved an average NPS of 75
which, whilst lower than the AO branded
platforms, is still considered “Excellent”.
These scores are market leading and
an excellent achievement by the team
during a rather turbulent year and as
the business has serviced unforeseen
and exceptional demand, adding an
additional 2m customers to its customer
base. Accordingly, the Committee has
determined that this performance
condition has been met in full.
On an average basis over the year the
employee NPS score has been above
target at +30 (where a score of +10 would
be considered good). Accordingly, the
Committee has determined that 7.5%
of the 10% pertaining to this metric, be
awarded.
In total, therefore, we have awarded
97.5% of the maximum award to our
Executive Directors.
CEO
CFO
Max opportunity
(% salary) Outcome % max
97.5%
97.5%
300%
300%
Cash award
(1/3rd)1
£452,400
£341,250
Share award
(2/3rd)2
£904,800
£682,500
1. The cash element will vest and will be paid in July following approval of the accounts by the Board.
2. The share award will be granted in July 2021 and these shares will be deferred for a period of three years. The vesting of these shares is subject to the performance
of the business until the completion of our financial year ending 31 March 2024 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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AO World Plc Annual Report and Accounts 2021 Percentage change in remuneration levels (Unaudited)
The table below shows the movement in the salary, benefits and cash element of the AO Incentive Plan Award for each Director between
the financial year ended 31 March 2021 and the previous financial year compared to that for the average employee of the Company – AO
World plc - (but not the wider Group). For the benefits and bonus/Incentive Award (cash element) per employee, this is based on those
employees eligible to participate in such schemes.
John Roberts
Mark Higgins
Geoff Cooper
Chris Hopkinson
Marisa Cassoni4
Shaun McCabe
Luisa Delgado
Other employees (AO World Plc)
Salary1
3%
3%
0%
0%
0%
0%
0%
4.0%
Taxable
benefits2
-10.8%
-14.3%
0%
0%
0%
0%
0%
-29.9%
AOIP cash
element3
110%
110%
0%
0%
0%
0%
0%
102%
1. Reflects the average change in pay for employees, calculated by reference to the aggregate remuneration for all employees of AO World Plc in each year divided
by the number of employees.
2. There are no changes to benefit entitlements for employees – the reduction in cost primarily reflects lower private fuel reimbursement and gym membership
claims due to lockdown and a reduction in medical insurance premiums. There were no changes in benefits for Executives for FY21 against the prior year, save
that we reduced their pension contributions to that received by the wider management workforce from 1 October 2020 and in line with the broader employee
population; there was also lower private fuel reimbursement.
3. The percentage change in remuneration AO Incentive Plan Award cash element for “other employees” is calculated by looking at the average amount
participants in the scheme for FY20 received in cash, compared to the cash element participants in the AO Incentive Plan are expected to receive relating to FY21,
in each case excluding Executive Directors.
4. Marisa Cassoni was appointed as Senior Independent Director part way through FY20 and received pro-rata fees for the additional responsibilities in that year.
For the purpose of the comparison we have assumed that the full fees were paid in FY20.
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 2021. This index was chosen as it represents a broad
equity market index, of which AO is a constituent, which includes companies of a broadly comparable size and complexity.
180
160
140
120
100
80
60
40
20
0
01/02/2014
01/02/2015
01/02/2016
01/02/2017
01/02/2018
01/02/2019
01/02/2020
01/02/2021
AO World Plc
FTSE 250
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AO World Plc Annual Report and Accounts 2021Our Governance Directors’ remuneration report continued
Table 2, below, shows the total remuneration figure for the Chief Executive during the financial years ended 31 March 2011 to 31 March
2021. The total remuneration figure includes the annual bonus payable for performance in each of those years up to FY19 and from FY19
the cash element of the AOIP. The annual bonus percentage shows the payout for each year as a percentage of the maximum.
2 TOTAL REMUNERATION OF CEO
Total remuneration (£’000)1
Annual bonus (% of maximum)
AO Incentive Plan Award
(% of maximum)
PSP vesting (% of maximum)
FY12
243†
0%
–
FY13
227†
0%
–
FY14
537†
0%
–
FY15
537†
0%
–
FY16
588†
10%
–
FY18
FY17
575*‡
781*
10% 37.5%
–
–
FY19
551†‡
–
FY21
977†
–
50.5% 47.8% 97.5%
FY20
733†
–
–
–
–
–
–
–
–
8.59%
–
–
† John Roberts
* Steve Caunce
‡ Figures calculated for full year pro-rata
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
FY20
£112.1m
FY21
£140.1m
% change
25.0%
No distributions were made to shareholders in the year
1.
Includes base salaries, social security and pension, and share based payment charges.
CEO pay ratio
The table below shows the ratio of the single total figure of remuneration (“STFR”) of the CEO to the equivalent pay for the 25th, 50th and
75th percentile employees (on a full-time equivalent basis).
Year
FY21
FY20
Notes:
Method
Option A
Option A
P25
25th percentile pay
ratio
46:1
P50
50th percentile pay
ratio
37:1
P75
75th percentile pay
ratio
26:1
35:1
28:1
20:1
1. 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
means of identifying the median, lower and upper quartile employees.
2. The single total figure of remuneration of all AOers employed by the Group for FY21 was calculated and ranked using 2020/21 P60 and P11D data, employer pension
contributions and payments under the Company share schemes, in line with the reporting regulations. The remuneration for FY21 for the employees identified at
P25, P50 and P75 is £21,114, £26,218, and £37,533 respectively. The base salary in respect of FY21 for the employees identified at P25, P50 and P75 is £19,190, £22,000
and £29,808 respectively.
3. FY21 payments to the wider employee base referred to above include the FY20 cash element of the FY20 AOIP payment, which was paid in FY21, but for the CEO,
we have uses the single total figure value, which include the FY21 AOIP cash payment payable in June but which relates to the FY21 performance).
4. 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.
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. As noted on pages 118 and 134, the Company’s principles for making pay
decisions for our Executives are the same as for the wider workforce, reflecting our One AO Pay Philosophy; a fair and attractive reward
package, market competitive in the context of the relevant talent market and differentiated by the level of value creation.
The ratios therefore reflect the different remuneration arrangements between our warehouse and call centre employees at one end, and
our senior Executives whose roles require them to focus on long-term value and alignment with shareholder interest.
Given a significant proportion of the CEO’s total remuneration is variable and linked to the AOIP, the increase in the pay ratio this year
compared to last is influenced by the AOIP outcome (which has vested at 97.5% for FY21 vs 47.8% in the prior year for the CEO).
The Company believes that the ratio is consistent with the pay, reward and progression policies across the Group.
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AO World Plc Annual Report and Accounts 2021 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 2021.
External appointments
No fees were received by Executive Directors for external appointments during the year ended 31 March 2021.
Directors’ shareholdings and share interests (Audited)
Directors’ shareholdings as at 31 March 2021 are set out below in Table 3.
During the year under review, the following options were exercised:
• Each of the CEO and CFO exercised SAYE options over 20,224 shares.
• Mark Higgins, CFO, exercised his 2017 PSP options over 252,000 shares. He also exercised his 2016 PSP options over 57,537 shares. A
portion of the resulting shares was sold to cover the applicable tax. Of the balance, half were retained in line with policy to build up to
shareholding guidelines.
There have been no changes to Directors’ shareholdings during the period from 1 April 2021 to the date of this report.
3 DIRECTORS’ SHAREHOLDINGS
Shares held
beneficially
at 31 March 20201
Target
shareholding
guidelines
(% of salary)2
Target
shareholding
achieved
128,573
108,832,829
95,448
22,956,306
52,628
NIL
NIL
N/A
200%
200%
N/A
N/A
N/A
N/A
N/A
Yes
No
N/A
N/A
N/A
N/A
PSP
options3
N/A
43,153
NIL
N/A
N/A
N/A
N/A
AOIP
options4
N/A
284,900
586,742
N/A
N/A
N/A
N/A
SAYE
options5
N/A
5,421
NIL
N/A
N/A
N/A
N/A
Geoff Cooper
John Roberts
Mark Higgins
Chris Hopkinson
Marisa Cassoni
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. Mark Higgins had vested options
under the 2016 PSP and 2017 PSP over 57,537 and 252,000 respectively. These options were exercised during the year under review and a portion was sold to cover
the applicable tax. Of the balance, half were retained in line with policy to build up to shareholding guidelines.
4. For John Roberts, conditional awards over 284,900 shares were awarded in July 2020 as part of the AOIP FY20 award (based on a share price of £1.51), which will be
released in July 2023 subject to the attainment of the performance underpin and continued employment.
5. For Mark Higgins, conditional awards over 371,484 were awarded in July 2019 as part of the FY19 AOIP Award, which will be released in July 2022 subject to
the attainment of the performance underpin and continued employment. Further conditional awards over 215,258 shares were awarded in July 2020 as part
of the AOIP FY20 award (based on a share price of £1.51), which will be released in July 2023 subject to the attainment of the performance underpin and
continued employment.
6. Further share awards are expected to be granted to John Roberts and Mark Higgins in July 2021 as part of the AO Incentive Plan Award FY21 grant – with a
value of £904,800 and £682,500 at grant respectively, which will be released in July 2024 subject to the attainment of the performance underpin and
continued employment.
7. During the period, SAYE options over 20,244 shares vested for each of John Roberts and Mark Higgins, and such options were exercised. John entered into a further
SAYE contract during the reporting period, under which options over 5,421 were granted.
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AO World Plc Annual Report and Accounts 2021Our Governance Directors’ remuneration report continued
VCP
As noted in the annual statement from the
Chair of the Remuneration Committee, we
have, during the year, introduced a Value
Creation Plan. The Executive Directors,
along with all employees, will be eligible to
participate in the plan.
A key feature of the plan is that it includes
the whole AOer population, each of whom
will be able to share in any value created
above the set share price hurdle. This
all-employee participation reflects the
unique, entrepreneurial culture that exists
at AO.
The plan will begin funding at a share
price of £5.23 and will then fund at 10%
of the value created above this threshold
(the “Plan Value”). On 30 September 2020,
awards representing 3% of the Plan
Value were allocated to the two current
Executive Directors and COO (1% each),
with the remaining 7% allocated to current
and future employees. The plan will cease
funding on achievement of a £12.55 share
price. The level of funding is subject to a
maximum dilution of 5% of the Company’s
issued share capital.
All awards will normally be delivered in
shares and there is a cap on the aggregate
payments to any individual of £20m.
For Executives (and the COO), awards vest
in three equal 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.
For all other employees, awards will vest
based on the three-month average share
price of the Company at 31 March 2025.
The Remuneration Committee retains
discretion around the treatment of awards
after year five including the ability to
measure performance at a later date.
The Committee will have absolute
discretion on the vesting of the awards to
override the formulaic outcomes.
On 30 September 2020, awards were made
to the Executive Directors under the VCP.
Depending on performance against the
stretching share price targets set under
Individual
John Roberts
Mark Higgins
the VCP, these awards will entitle each
Executive Director to a number of Ordinary
Shares equal to 3.33% of the Plan Value
on each of 31 March 2025, 31 March 2026
and 31 March 2027, up to a maximum value
of £20m. The Plan Value is equal to 10%
of AO’s market capitalisation created
above a share price of £5.23 and will cease
funding at a share price of £12.55.
As previously set out, we see the AOIP as
our driver for sustained short to medium-
term achievement, and the VCP for
extraordinary performance over five to
seven years. After careful assessment,
and combining technical advice and our
judgement, we believe that the two levels
are currently balanced: AOIP levels are
competitive in the light of the market,
and our pay out levels over the past years
show it is functioning as intended, with an
actual pay out of 97.5% for the very strong
performance in the year ended 31 March
2021, and payouts of 47.8% and 51.2% for
the years ended 31 March 2020 and 2019,
respectively. Also, at the time of the VCP
finalisation, we adjusted the originally
proposed Executive VCP quantum
from £25m to £20m taking into account
the AOIP.
Each year, when reviewing overall
compensation packages, we will take into
account the VCP award potential, AOIP
awards and base salary and benefits.
Implementation of
Remuneration Policy for
2021/2022 (“FY22”)
The Policy can be found on pages 114 to
139 of this Annual Report.
Salary
The Remuneration Committee is working
with the AO reward team to define a
Group- wide pay philosophy and principles,
which will ensure that all our people earn
a fair and attractive reward package
aligned around common pay principles.
These will reflect our customer orientated,
agile, merit-based and inclusive culture
that represents a competitive strength
for the Company’s business model and
competitive in attracting and retaining
top high-performing talent required for the
achievement of our profitable business
growth aspirations.
No salary increases have been awarded
yet for FY22 for Executive Directors but
the Committee is working with the AO
reward team to do a detailed review of
the broad employee population including
the Executives. We recognise that the
business and organisation has evolved
over the past years, and very significantly
so in the past 12–18 months, in scope and
complexity, and so have many roles in
their responsibility and impact. Also, the
market has evolved equally significantly,
particularly in key talent clusters. Our
market competitiveness is therefore being
assessed in that combined context. Early
indications, on a total compensation
level, are that certain individual roles and
clusters of high market demand roles in
AO are not compensated competitively,
and turnover of people in some functions
is higher than we would like it to be. In
addition, we have been made aware some
of our top talent have been approached to
move elsewhere – to date, their prospects,
boosted considerably by the potential of
the VCP, have led them to conclude they
should stay with AO. Accordingly, upon
validation of these early indications, we
may increase the compensation for the
roles affected across the organisation
and levels, including at Executive level,
if required. The Committee intends to
engage with shareholders in advance of
making any changes.
The current salaries as at 1 April 2021 (and
those as at 1 April 2020) are as follows:
Base salary
at 1 April
2021
Base salary
at 1 April
2020
£464,000
£464,000
£350,000
£350,000
Role
CEO
CFO
%
increase
0%
0%
For comparison, the average salary increase provided to all UK employees in April 2021 was 2.7%, but additional in year increases from
1 April 2020 to 31 March 2021 increased the average salary by 1.5%.
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AO World Plc Annual Report and Accounts 2021
135
Our Governance 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
9% of salary, aligned to the rate received
by the wider management population
within the business. We are committing to
identify a plan to align pension for the
Executive Directors with the rate available
to the majority of the wider workforce in
the UK by 1 January 2023.
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 private fuel.
AO Incentive Plan
In respect of FY22, the Executive Directors
will have a maximum award opportunity
of 300% of basic salary. Performance
will be measured between 1 April 2021 and
31 March 2022 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 FY22.
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 and, post vesting, are subject to
a one-year holding period. This, therefore,
means the total performance, vesting and
holding period is five years, in line with the
revised requirements in the Code.
AOIP
Annual performance
Year 1
Year 2
Year 3
Deferred into shares for three years
Year 4
Year 5
One year holding period
CEO & CFO
300% of salary
One year
performance
measures
One-third paid
in cash
Subject to additional
performance underpin
conditions
Two-thirds deferred into
shares and subject to
additional holding period
Performance conditions for the
FY22 AO Incentive Plan Award
In terms of variable pay, the Executives
will be entitled to participate in the AOIP,
where we have evolved the performance
conditions along three sets of deliverables:
(1) Revenue, EBITDA and cash targets,
as ultimate (short-term) “output”
measures;
(2) Strategic transformation measures,
specifically addressing the progress
along the key value creation drivers
of our strategic business plan, thus
representing the “input” measures
(targets that will drive the business
forward for the medium to longer term);
and
(3) ESG/stakeholder impact measures,
as we are sharpening our related
group strategy and focusing our ESG
measurement system (targets for the
longer term).
Within this framework, the financial
performance conditions proposed for this
year’s award comprise Group revenue,
Group Adjusted EBITDA and a Group
cash flow target as with prior years but, in
addition, some territory specific targets
being ao.com revenue growth in the
wider electricals category (i.e. excluding
MDA) and Germany revenue growth (with
a profit underpin). We have also set a
target relating to our progress in business
transformation.
The stakeholder focused targets are
maintaining customer NPS scores (across
the Group) at high levels and improving
our employee NPS with an underpin
that the Group must develop a credible
ESG strategy, which has a key focus on
environmental considerations and, in
particular, its recycling business.
The Committee believes these measures
provide the appropriate balance, driving
transformation and delivery in line with our
five-year strategic plan, recognising the
importance of all our stakeholders, and
output measures that should drive the
creation of shareholder value.
For the financial/output metrics and
certain of the transformation metrics,
we have set targets having regard to the
Company’s budget for the year ahead
and, following a robust process with
a stretching and ambitious mindset,
reflective of the winning culture that is
special to our high-growth business model.
We deem the budget numbers to be
commercially sensitive at this juncture but
will disclose these retrospectively in next
year’s Annual Report on Remuneration.
As can be seen on pages 42 and 43,
customer and employee satisfaction are
central to our strategy with both being 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.
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AO World Plc Annual Report and Accounts 2021 Employee NPS (ENPS) remains a key measure and is 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 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.
Group
financial (55%)
Performance condition
Group revenue
Group Adjusted EBITDA
Cash flow
Strategic transformation measures
financial (15%)
non-financial (10%)
Ao.com revenue growth in categories other than MDA in £
Germany Revenue
(with a maximum losses underpin)
Business transformation: design of target operating model
ESG – stakeholder measures
non-financial (20%)
Customer NPS
Employee NPS
With underpin of defining a robust and holistic ESG strategy from which we
aim to set AOIP performance conditions in the future
Weighting
25%
20%
10%
5%
10%
10%
10%
0%
The award pays out in full for achieving maximum levels of performance, 62.5% of maximum pays out for achieving target levels of
performance. The target requirements are set to be significantly stretching and therefore the Committee considers that this level of
payout at target is appropriate. 25% of maximum pays out for threshold performance.
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 in the Policy.
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 FY22 will be 200% of salary.
Mindful of the Code requirements regarding post-termination shareholding guidelines, the Committee has amended its guidelines such
that all Executive will be required to hold shares to the value of 200% of salary for two years following stepping down from the Board.
Additionally, for good leavers, AO Incentive Plan awards deferred into shares will typically only be released at the end of the normal
vesting period, subject to the attainment of performance underpin and then subject to a further holding period of one year.
There are no share ownership requirements for the Non-Executive Directors.
Non-Executive Director fees
There have been increases to the Audit and Remuneration Committee Chairs’ fees, given the increasing complexity and remits of these
committees and the time commitments of the chairs as shown in the table below.
Non-Executive Director fees
Chairman fee covering all Board duties
Non-Executive Director basic fee
Supplementary fees to Non-Executive Directors covering additional Board duties
Audit Committee Chair fee
Remuneration Committee Chair fee
Senior Independent Director fee
2021/2022
£200,000
£55,000
2020/2021
£200,000
£55,000
% change
0%
0%
£10,000
£10,000
£10,000
£15,000
£20,000
£10,000
50%
100%
0%
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AO World Plc Annual Report and Accounts 2021Our Governance Directors’ remuneration report continued
Details of Directors’ service contracts and letters of appointment
Details of the service contracts and letters of appointment in place as at 31 March 2021 for Directors are shown in Table 4, below.
Geoff Cooper, Marisa Cassoni and Chris Hopkinson have agreed to extensions of the term of their appointments following expiry of
the initial three-year terms and subsequent extensions. The extension of such appointment is subject to the terms of the letters of
appointment in force.
4 DIRECTORS’ SERVICE CONTRACTS AND LETTERS OF APPOINTMENT
Director and date of
service contract or
letter of appointment
Unexpired term
Marisa Cassoni
31/01/2014
Initial term of three years expired – renewed for successive one-year
periods subject to termination by either party
Geoff Cooper
01/07/2016
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
Mark Higgins
31/05/2014
Chris Hopkinson
14/02/2014
Shaun McCabe
25/07/2018
John Roberts
14/02/2014
Initial term of three years from date of appointment
Continuous employment until terminated by either party
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 appointment
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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AO World Plc Annual Report and Accounts 2021 Remuneration Committee
membership
The members of the Committee were
for the year in question Luisa D. Delgado
(Chair), Marisa Cassoni, and Shaun
McCabe.
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 FY21, there were 11 formal meetings
of the Remuneration Committee, all of
which achieved full attendance by the
relevant committee members.
The responsibilities of the Committee
are set out in the Corporate Governance
section of the Annual Report on page 90.
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 2021 in relation
to incentive arrangements and the
proposed remuneration policy for
Executive Directors and the wider
senior management population. It 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 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 fees
for remuneration advice were £79,650 plus
VAT, with additional fees of £152,790 plus
VAT in relation to the VCP.
Shareholder feedback
(Unaudited)
At the 2020 AGM ,the Annual
Remuneration Report for the year ended
31 March 2020 was put to shareholders by
way of an advisory vote. We also sought
shareholder approval for the VCP (with
consequential amendments to the AOIP).
At the 2018 AGM, the current Policy was put
to shareholders for a binding vote. Votes
cast are set out in the table below.
2020: To approve the Directors’ remuneration report
2020: To approve the adoption of the AO World Plc Value
Creation Plan and the amendment of the AO 2018 Incentive
Plan
2018: To approve the Directors’ remuneration policy
Votes in
favour
No. of shares
392,698,842
Votes against
No. of shares
1,326,451
%
99.66
Total number
of votes cast
395,876,905
%
0.34
Votes
withheld
No. of shares
1,851,612
358,280,687
90.50
37,596,218
9.5
395,876,905
0
342,654,617
87.01
51,174,812
12.99
393,829,429
4,077,005
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
30 June 2021
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AO World Plc Annual Report and Accounts 2021Our Governance 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 2021.
No new appointments were made to the Board during the Period.
Director
Geoff Cooper
Marisa Cassoni
Luisa D. Delgado
Mark Higgins
Chris Hopkinson
Shaun McCabe
John Roberts
Position as at 31 March 2021
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
Served in the year ended 31 March 2021
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
Their biographical details are set out on
pages 92 and 93. Further details relating
to Board and Committee composition are
disclosed in the Corporate governance
report and Committee reports on pages 94
to 139.
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.
140
Removal of Directors by special resolution:
The Company may, by special resolution,
remove any Director before the expiration
of their period of office.
Termination of a Director’s appointment:
A person ceases to be a Director if:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
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;
that person resigns or retires from
office;
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 92 and 93.
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 2021, the issued share capital
of the Company was £1,198,443.76,
comprising 479,377,505 ordinary shares of
0.25p each.
During the year, the Company issued
602,102 ordinary shares of 0.25p each
to satisfy the exercise of options under
the AO 2014 Employee Reward Plan (2017
grant) and 836,449 ordinary shares of
0.25p each to satisfy the exercise of
options under the AO World Sharesave
scheme (2018 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 185 . All the information detailed in
Note 28 on page 185 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 186 to 189.
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AO World Plc Annual Report and Accounts 2021 At the Annual General Meeting of the
Company, to be held on 29 September
2021, the Directors will seek authority from
shareholders to allot shares in the capital
of the Company up to a maximum nominal
amount of £798,962.51 (319,585,003.33
shares (representing approximately
66.6% of the Company’s issued ordinary
share capital)) of which 159,792,501 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 47,937,750 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.
Shareholders are also 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 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.
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.
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AO World Plc Annual Report and Accounts 2021Our Governance Directors’ report continued
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 (with
UniCredit Bank AG replacing Lloyds Bank
Plc during the reporting period), there are
no significant agreements to which the
Company is a party that take effect, alter
or terminate upon a change of control.
2021 Annual General Meeting
Based on the Government’s current
roadmap to ease the restrictions around
public gatherings in light of Covid-19,
the Board currently plans to hold an
open AGM at 8.00 am on Wednesday
29 September 2021 at the Company’s
Manchester office at Baskerville House,
Browncross Street, West Riverside, Salford
M60 9HP. However, the Board remains
cognisant of the ongoing public health
risk and recognises that the situation
in relation to the pandemic can change
quickly and that social distancing
requirements may make an open meeting
impractical. The Board will, therefore,
continue to monitor developments and
will make changes to the arrangements
for the meeting as necessary. Any such
changes will be advised to shareholders
though the Company’s website and, where
appropriate, by RNS announcement.
The Notice of Meeting setting out
the resolutions to be proposed at the
forthcoming AGM is enclosed with this
Annual Report. The Notice specifies
deadlines for exercising voting rights and
appointing a proxy or proxies to vote in
relation to resolutions to be passed at
the AGM. All proxy votes will be counted
and the numbers for, against or withheld
in relation to each resolution will be
announced at the Annual General Meeting
and published on the Company’s website.
Interests in voting rights
At the date of this report, the Company
had been notified 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 Roberts1
Camelot Capital Partners LLC
Conifer Capital Management LLC
Brook Asset Management
Chris Hopkinson2
Standard Life Aberdeen
Invesco Limited
London & Amsterdam Trust Company Limited
Sir Norman Stoller CBE KStJ DL
Number of ordinary shares/
voting rights notified or
aware of
Percentage of voting rights
over ordinary shares of
0.25p each
108,826,481
60,430,492
32,636,910
25,444,640
22,881,306
21,020,099
20,354,874
17,431,152
16,469,403
22.70%
12.61%
6.81%
5.31%
4.88%
4.38%
4.25%
3.63%
3.44%
1. Holding includes 882,350 ordinary shares held by Sally Roberts, defined under MAR as a person with whom John Roberts is closely associated, but excludes
ordinary shares held by Crystalcraft Limited, a company of which he is a director and shareholder.
2. Holding includes 350,877 ordinary shares held by Gayle Halstead, defined under MAR as a person with whom Chris Hopkinson is closely associated.
Research and development
Innovation, specifically in IT, is a critical
element of AO’s strategy and therefore
of 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.
Results and dividends
The Group’s and Company’s audited
financial statements for the year are set
out on pages 157 to 195.
No dividend was paid by the Company
during the year to 31 March 2021.
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.
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AO World Plc Annual Report and Accounts 2021 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, which it
expects to complete during the year
ended 31 March 2022. 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)
So far as the Director is aware, there is
no relevant audit information of which
the Company’s Auditor is unaware;
and
(ii)
The Director has taken all the steps
that they ought to have taken as a
Director to make themselves 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 s.418 of the Companies Act
2006.
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AO World Plc Annual Report and Accounts 2021Our Governance 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 s.414A-D
Strategic report on pages 8 to 85
DTR4.1.8R – management report – the Directors’ report and
Strategic report comprise the ‘management report’
Directors’ report on pages 140 to 145, and the Strategic report on
pages 8 to 85
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
Directors’ remuneration report on pages 114 to 139
Likely future developments of the business and Group
Strategic report on pages 8 to 85
Board’s assessment of the Group’s internal control systems Corporate governance report on page 99, and the Audit Committee
Board of Directors
Community
Directors’ interests
Diversity policy
Employee engagement
Employee involvement
report on page 109
Corporate governance statement on page 90
Strategic report; Sustainability responsibility report on pages 82
and 83
Directors’ remuneration report on page 133
Sustainability report on page 78, the Corporate governance report on
page 98, and the Nomination Committee report on page 105
Pages 66 and 67 and page 76 of our Sustainability report
Strategic report: engaging with our stakeholders on pages 66 and 67,
and Sustainability report: our people on page 76
Employees with disabilities
Strategic report; Sustainability report: our people on page 78
Going concern
Strategic report page 65
Greenhouse gas emissions and streamlined energy and
carbon reporting
Sustainability report pages 72 to 74
Details of use of financial instruments and specific policies
for managing financial risk
Note 33 to Group financial statements on pages 189 to 193
Significant related party agreements
Note 34 to the consolidated financial statements page 193
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AO World Plc Annual Report and Accounts 2021 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
30 June 2021
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 International
Accounting Standards in conformity with
the requirements of the Companies Act
2006 and applicable law, and have elected
to prepare the parent Company financial
statements under FRS101. In addition, the
Group financial statements are required
under the UK Disclosure Guidance and
Transparency Rules to be prepared in
accordance with International Financial
Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies
in the European Union.
Under company law, the Directors must
not approve the financial statements
unless they are satisfied that they give
a true and fair view of the state of affairs
of the Group and parent Company and
of their profit or loss for that period. In
preparing each of the Group and parent
Company financial statements, the
Directors are required to:
• select suitable accounting policies and
then apply them consistently;
• make judgements and estimates that
are reasonable and prudent;
• state whether they have been prepared
in accordance with International
Accounting Standards in conformity
with the requirements of the Companies
Act 2006 and, as regards the Group
financial statements, International
Financial Reporting Standards
adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the
European Union;
• for the parent Company financial
statements, state whether applicable
UK accounting standards have been
followed, subject to any material
departures 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.
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AO World Plc Annual Report and Accounts 2021Our Governance Our Results
148 Independent Auditors’ Report
157 Consolidated income statement
158 Consolidated statement of
comprehensive income
159 Consolidated statement of
financial position
160 Consolidated statement of
changes in equity
161 Consolidated statement of cash flows
162 Notes to the consolidated
financial statements
196 Company statement of
financial position
197 Company statement of changes
in equity
198 Notes to the Company financial
statements
Shareholder Information
204 Important information
205 Glossary
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“ Easy to order,
easy to pay,
delivery fast,
well informed
and on time...
will shop here
again.”
Janice,
AO Customer
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Independent Auditor’s 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 2021 which comprise the
Consolidated Income Statement, Consolidated 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 in 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
2021 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared
in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006;
• 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 to the extent applicable.
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 first appointed as Auditor by the shareholders on 21 July
2016. The period of total uninterrupted engagement is for the 5
financial years ended 31 March 2021. 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
£2.5m (2020: £2.0m)
0.15% (2020: 0.2%) of Group total revenues
Coverage
Key audit matters
Recurring risks
99% (2020: 99%) of Group total revenues
Product protection plans contract asset
Network commissions contract asset and liability
Recoverability of mobile goodwill
Volume rebates receivable
Recoverability of parent Company’s investment in subsidiaries
and debt due from Group entities
vs 2020
2. Key audit matters: our assessment of risks of
material misstatement
Key audit matters are those matters that, in our professional
judgement, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team.
We summarise below the key audit matters, in decreasing order
of audit significance, in arriving at our audit opinion above,
together with our key audit procedures to address those matters
and, as required for public interest entities, our results from those
procedures. These matters were addressed, and our results are
based on procedures undertaken, in the context of, and solely
for the purpose of, our audit of the financial statements as a
whole, and in forming our opinion thereon, and consequently
are incidental to that opinion, and we do not provide a separate
opinion on these matters.
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AO World Plc Annual Report and Accounts 2021 Recurring risk
The risk
Our response
Product protection
plans contract asset
£80.7m contract asset
(2020 restated : £70.0m)
Refer to page 111
(Audit Committee
Report),
page 163
(Accounting policy),
Page 169
Other areas of
estimation uncertainty);
and
page 181 and 182
(Financial disclosures –
contract asset),
page 194 to 195
(Financial disclosures
– restatement of
comparatives).
Our procedures included:
• Data comparisons: With the assistance of our own data
modelling specialists, we performed reconciliations
between the third party live data at year end and the
database system which stores this data and onwards
into the model. In respect of the missing cancellation
data, we independently obtained the historical reports
from the third party detailing the plans and reconciled
this to the updated analysis to ensure that they have
been appropriately identified and corrected in the
calculation of the prior year adjustment.
• Methodology implementation: With the assistance of
our own data modelling specialists, we assessed the
accuracy of the implementation of the methodology
behind the calculation.
• Expectation vs outcome: We evaluated the accuracy
of the model with reference to alternative data, e.g.
expected cumulative cash received compared to actual
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.
• Assessing transparency: We assessed the adequacy
of the Group’s disclosures on 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. We also assessed the
adequacy of the disclosures in relation to the prior year
adjustment against the requirements of IAS 8.
Our results:
We found the carrying value of the contract asset for
product protection plans, the calculation of the prior year
adjustment and all related disclosures to be acceptable.
The contract asset recognised is 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 could be misstated. The effect of
these matters is that, as part of our risk
assessment, we determined that the
carrying value of £80.7m 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.
In addition, as described in the financial
statements Note 35, the Group identified
during the year that a number of
plans, which were treated as live within
the Group’s model, had actually been
cancelled, as a consequence revenue,
finance income and the associated
contract asset have been overstated in
past periods.
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.
Prior year adjustment
Completeness and accuracy of
data used to calculate the prior year
adjustment as well as accuracy of
adjustment calculation could be
incorrect. Furthermore the disclosures
presented may not adequately address
the requirements of IAS 8 in relation to
the description of the adjustment and
the impact of the correction.
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AO World Plc Annual Report and Accounts 2021Our Financials Independent Auditor’s Report continued
to the members of AO World plc
Recurring risk
The risk
Our response
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
incorporates the accounting standards appropriately;
• 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,
number of customer disconnections, monthly expected
cash receipts and expected cash back redemption
rates based on our knowledge of the business, third
party trends and the Group;
• Sensitivity analysis: We performed sensitivity analysis
on judgemental assumptions as described above; and
• 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 and contract liability .
Our results:
We found the carrying value of the network commission’s
contract asset and liability to be acceptable
(2020: acceptable).
Network
commission
contract asset and
liability
£91.5m contract asset
(2020: £90.9m)
£63.0m contract liability
(2020: £61.5m)
Refer to page 111
(Audit Committee
Report),
page 163
(Accounting policy),
page 169 to 170
(Other areas of
estimation uncertainty);
and page 182 to 183
(Financial disclosures).
Subjective estimate
The network commissions contract asset
is based on the value of commissions
due over the expected life of mobile
phone network contracts. The contract
liability is, in addition to including cash
received upfront, based on the value of
cashback expected to be redeemed in
instalments over the life of the contract.
As this requires subjective estimates to
be made there is a risk that the contract
asset and liability are materially
misstated. The effect of these matters
is that, as part of our risk assessment,
we determined that the contract asset
carrying value of £91.5m and contract
liability carrying value of £63.0m have a
degree of estimation uncertainty, with a
potential range of reasonable outcomes.
The financial statements Notes 22 and
23 disclose the sensitivities 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 manual nature of the calculations
involved in the data transfer from the
third party and subsequently onwards
into the model.
Calculation error
The model used to calculate the fair
value is based on large volume of
data and calculations are manual by
nature so open to the possibility of
arithmetical error.
Subjective estimate
Subjective inputs into the cashback
contract liability calculations, such as
expected redemption rates, and
into network commissions contract
asset calculation, such as number of
customer disconnections and monthly
expected cash receipts are based on
forecast performance expected and
require judgement.
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AO World Plc Annual Report and Accounts 2021 Recurring risk
The risk
Our response
Recoverability of
Mobile goodwill
Mobile Goodwill: £14.7m;
(2020: £14.7m)
Subjective estimate
MobilePhonesDirect goodwill (“Mobile
goodwill”) is significant and at risk of
irrecoverability due to uncertainty of
achieving future forecasts.
Refer to page 111
(Audit Committee
Report),
page 164
(Accounting policy),
page 168 and 169
(Key sources of
estimation uncertainty);
and page 176
(Financial disclosure).
The recoverable amount of Mobile
Goodwill is determined based on value
in use calculation.
Recoverability of Mobile goodwill
is subject to estimation in terms of
the assumptions used and inherent
uncertainty involved in forecasting
the future cash flows that are used in
the discounted cash flow model. The
key assumptions are revenue, gross
margin and discount rate. A downturn in
revenues in recent years has increased
the risk of recoverability of goodwill.
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 evaluated the Group’s
assumptions included within the discounted cash flow
forecasts by comparing key inputs such as projected
revenue, gross margin, discount rate, terminal growth
rate and apportionment of stewardship costs to
internally and externally derived data;
• 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.
Due to the judgemental nature of impairment testing, we
performed the detailed tests above rather than seeking to
rely on any of the Group’s controls.
Our results:
We found the carrying amount of Mobile goodwill to be
acceptable (2020: acceptable).
Recurring risk
The risk
Our response
Volume rebates
receivable
£18.2m volume rebates
receivable; (2020: £11.6m)
Refer to page 163 and
164
(Accounting policy);
and page 183
(Financial disclosures).
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;
• 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
receivables back to post year end confirmatory
evidence, including credit notes and supplier email
confirmation; and
• Assessing transparency: We assessed whether the
Group’s disclosures about the amount of the receivable
agreed and settled post year end was accurate.
Our results:
We found the carrying value of the volume rebates
receivable to be acceptable (2020: acceptable).
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AO World Plc Annual Report and Accounts 2021Our Financials Independent Auditor’s Report continued
to the members of AO World plc
Recurring risk
The risk
Our response
Recoverability of
Parent Company’s
investment in
subsidiaries and
debt due from
Group entities
Investment in
subsidiaries £85.4m;
(2020: £83.1m)
Refer to page 198
(Accounting policy and
financial disclosures)
Debtors due from Group
entities £137.3m
(2020: £115.8m)
Refer to page 196
(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 36% (2020: 39%)
and 57% (2020: 53%) 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 continued to be
considered a risk given the infancy of
AO Deutschland in its achievement of
profitability and cash generation. 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 subsidiary financial results for the
period;
• 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 expected subsidiaries’ profit by
analysing the forecasting accuracy for each in previous
periods; 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
(2020: acceptable).
We continue to perform procedures over Going concern as set
out in section 4 of this report. However, this risk was considered
to be event driven in 2020 and reflecting on a reduction in
economic uncertainty relating to COVID-19, the Group’s financial
performance in the year subject to audit and the Group’s financial
position at year-end, we have not assessed this as one of the most
significant risks in our current year audit and, therefore, it is not
separately identified as a key audit matter in our report this year.
In the prior year, we reported a key audit matter in respect of the
impact of uncertainties due to the UK exiting the European Union.
Following the trade agreement between the UK and the EU, and
the end of the EU-exit implementation period, the nature of these
uncertainties has changed. We continue to perform procedures
over material assumptions in forward looking assessments such
as going concern; however, we no longer consider the effect of the
UK’s departure from the EU to be a separate key audit matter.
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AO World Plc Annual Report and Accounts 2021
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 £2.5m (2020: £2.0m), determined with reference to a
benchmark of Group total revenue of £1,660.9m, of which it
represents 0.15% (2020: 0.2%) of Group total revenue.
We consider total revenue 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 £0.79m (2020: £1m), determined with reference
to a benchmark of gross assets, of which it represents 0.3%
(2020: 0.5%).
In line with our audit methodology, our procedures on
individual account balances and disclosures were performed
to a lower threshold, performance materiality, so as to reduce
to an acceptable level the risk that individually immaterial
misstatements in individual account balances add up to a
material amount across the financial statements as a whole.
Performance materiality was set at 75% (2020: 75%) of materiality
for the financial statements as a whole, which equates to £1.875m
(2020: £1.5m) for the Group and £0.59m (2020: £0.75m) for the
parent Company.
We applied this percentage in our determination of performance
materiality based on the level of identified control deficiencies and
entity level control deficiencies identified during the prior period.
We agreed to report to the Audit Committee any corrected or
uncorrected identified misstatements exceeding £125,000 (2020:
£100,000), in addition to other identified misstatements that
warranted reporting on qualitative grounds.
Of the Group’s 13 (2020: 13) reporting components, we subjected
7 (2020: 7) to full scope audits for Group purposes, all of which,
including the audit of the parent company, were performed by
Group Audit team.
The components within the scope of our work accounted for the
percentages illustrated below.
We conducted reviews of financial information (including
enquiry) at a further 0 (2020: 1) non-significant components.
The component for which we performed review in prior year
discontinued its operation and became dormant in current year.
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.
Revenue
£1,660.9m (2020: £1,046.2m)
Group Materiality
£2.5m (2020: £2.0m)
1
2
£2.5m
Whole financial statements
materiality (2020: £2.0m)
£1.8m
Range of materiality at
7 components (£0.3m to £2.1m)
(2020: £0.3m to £1.8m)
Group total revenues
Group materiality
£0.125m
Misstatements reported to the
Audit Committee (2020: £0.1m)
Group total revenue
Group total assets
99%
(2020: 98%)
98
99
99%
(2020: 100%)
100
99
Group total profits and losses that
made up the Group loss before tax
98%
(2020: 97%)
97
98
Full scope for Group audit
purposes 2021
Full scope for Group audit
purposes 2020
Residual components
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AO World Plc Annual Report and Accounts 2021Our Financials Independent Auditor’s Report continued
to the members of AO World plc
5. Fraud and breaches of laws and
regulations – ability to detect
Identifying and responding to risks of material
misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud
risks”), we assessed events or conditions that could indicate an
incentive or pressure to commit fraud or provide an opportunity
to commit fraud. Our risk assessment procedures included:
• Enquiring of Directors, the Audit Committee and internal audit
as to the Group’s high level policies and procedures to prevent
and detect fraud, as well as whether they have knowledge of
any actual, suspected or alleged fraud.
• Reading Board and Audit Committee minutes.
• Considering remuneration incentive schemes and
performance targets for management and directors.
• Using analytical procedures to identify any unusual or
unexpected relationships.
We communicated identified fraud risks throughout the audit
team and remained alert to any indications of fraud throughout
the audit.
As required by auditing standards, and taking into account
possible pressures to meet profit targets and performance
incentives, we perform procedures to address the risk of
management override of controls and the risk of fraudulent
revenue recognition, in particular the risk that revenue is recorded
in the wrong period and the risk that Group and component
management may be in a position to make inappropriate
accounting entries.
We did not identify any additional fraud risks.
We performed procedures including:
• Identifying journal entries and other adjustments to test for all
full scope components based on a risk criteria and comparing
the identified entries to supporting documentation. These
included those posted to unexpected account combinations,
those posted with unusual descriptions and those posted by
unexpected users.
4. Going concern
The Directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the Group
or the Company or to cease their operations, and as they have
concluded that the Group’s and the Company’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”).
We used our knowledge of the Group, its industry, and the general
economic environment to identify the inherent risks to its business
model and analysed how those risks might affect the Group’s and
Company’s financial resources or ability to continue operations
over the going concern period. The risks that we considered most
likely to adversely affect the Group’s and Company’s available
financial resources and metrics relevant to debt covenants over
this period were:
• The uncertainty of the ongoing impact of Covid-19 on the
Group’s market share.
• The impact of market share on revenue and margin growth.
We considered whether these risks could plausibly affect the
liquidity or covenant compliance in the going concern period by
assessing the degree of downside assumption that, individually
and collectively, could result in a liquidity issue, taking into
account the Group’s current and projected cash and facilities (a
reverse stress test).
We considered whether the going concern disclosure in Note 3
to the financial statements gives a full and accurate description
of the Directors’ assessment of going concern, including the
identified risks, dependencies and related sensitivities.
Our conclusions based on this work:
• we consider that the directors’ use of the going concern basis
of accounting in the preparation of the financial statements
is appropriate;
• we have not identified, and concur with the directors’
assessment that there is not, a material uncertainty related
to events or conditions that, individually or collectively, may
cast significant doubt on the Group or Company’s ability to
continue as a going concern for the going concern period;
• we have nothing material to add or draw attention to in
relation to the Directors’ statement in Note 2 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 the going concern period, and we found the going
concern disclosure in Note 2 to be acceptable; and
• the related statement under the Listing Rules set out on page
65, is materially consistent with the financial statements and
our audit knowledge.
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 above conclusions are not a guarantee that
the Group or the Company will continue in operation.
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AO World Plc Annual Report and Accounts 2021 Identifying and responding to risks of material
misstatement due to non-compliance with laws
and regulations
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 the audit standards), and from inspection of the Group’s
regulatory and legal correspondence and discussed with the
directors and other management the policies and procedures
regarding compliance with laws and regulations.
As the Group is regulated, our assessment of risks involved gaining
an understanding of the control environment including the entity’s
procedures for complying with regulatory requirements.
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.
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.
Whilst the Group is subject to many other laws and regulations,
we did not identify any others where the consequences of non-
compliance alone could have a material effect on amounts or
disclosures in the financial statements.
Context of the ability of the audit to detect
fraud or breaches of law or regulation
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 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 fraud, as these may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to detect non-
compliance with all laws and regulations.
6. 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 emerging and principal risks
and longer-term viability
We are required to perform procedures to identify whether there
is a material inconsistency between the directors’ disclosures
in respect of emerging and principal risks and the viability
statement, and the financial statements and our audit knowledge.
Based on those procedures, we have nothing material to add or
draw attention to in relation to:
• the Directors’ confirmation within the viability assessment on
page 65 that they have carried out a robust assessment of the
emerging and principal risks facing the Group, including those
that would threaten its business model, future performance,
solvency and liquidity;
• the risk management framework disclosures describing these
risks and how emerging risks are identified, and explaining how
they are being managed and mitigated; and
• the directors’ explanation in the 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.
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AO World Plc Annual Report and Accounts 2021Our Financials Independent Auditor’s Report continued
to the members of AO World plc
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 145,
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 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
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 frc.org.uk/auditorsresponsibilities.
9. 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.
David Neale
(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
1 July 2021
We are also required to review the viability assessment, set out on
page 65 under the Listing Rules. Based on the above procedures,
we have concluded that the above disclosures are materially
consistent with the financial statements and our audit knowledge.
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 judgements 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 and Company’s longer-term viability.
Corporate governance disclosures
We are required to perform procedures to identify whether there
is a material inconsistency between the Directors’ corporate
governance disclosures and the financial statements and our
audit knowledge.
Based on those procedures, we have concluded that each of the
following is materially consistent with the financial statements
and our audit knowledge:
• 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;
• the section of the Annual Report describing the work of the
Audit Committee, including the significant issues that the Audit
Committee considered in relation to the financial statements,
and how these issues were addressed; and
• the section of the Annual Report that describes the review of
the effectiveness of the Group’s risk management and internal
control systems.
We are required to review the part of Corporate Governance
Statement relating to the Group’s compliance with the provisions
of the UK Corporate Governance Code specified by the
Listing Rules for our review, and to report to you if a corporate
governance statement has not been prepared by the Company.
We have nothing to report in these respects.
7. 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.
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AO World Plc Annual Report and Accounts 2021
Consolidated income statement
For the year ended 31 March 2021
Continuing operations
Revenue excluding Netherlands
Netherlands revenue
Total revenue
Cost of sales
Gross profit
Administrative expenses
Other operating income
Operating profit excluding Netherlands
Netherlands operating loss
Total operating profit/(loss)
Finance income
Finance costs
Profit before tax
Tax (charge)/credit
Profit after tax excluding Netherlands
Netherlands loss after tax
Profit after tax for the year
Profit/(loss) for the year attributable to:
Owners of the Company
Non-controlling interests
Profit per share (pence per share)
Basic profit per share
Diluted profit per share
2020
£m
Restated
(See Note 35)
2021
£m
1,660.9
–
1,660.9
1,026.4
19.3
1,045.7
Note
5, 6
6
(1,368.4)
(867.9)
292.5
177.8
(263.6)
0.8
(183.3)
1.2
29.7
–
29.7
4.3
(13.8)
20.2
(3.1)
17.1
–
17.1
17.7
(0.6)
17.1
3.73
3.68
0.9
(5.2)
(4.3)
10.5
(5.6)
0.6
0.1
5.9
(5.2)
0.7
1.0
(0.3)
0.7
0.21
0.21
6, 7
8
6,8
11
12
13
29
15
15
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AO World Plc Annual Report and Accounts 2021Our Financials Consolidated statement of comprehensive income
For the year ended 31 March 2021
Profit for the year
Items that may subsequently be recycled to income statement
Exchange differences on translation of foreign operations
Total comprehensive profit/(loss) for the year
Total comprehensive profit/(loss) for the year attributable to:
Owners of the Company
Non-controlling interests
2020
£m
Restated
(See Note 35)
0.7
(5.5)
(4.8)
(4.5)
(0.3)
(4.8)
2021
£m
17.1
5.8
22.9
23.5
(0.6)
22.9
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AO World Plc Annual Report and Accounts 2021 Consolidated statement of financial position
As at 31 March 2021
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right of use assets
Trade and other receivables
Derivative financial asset
Deferred tax
Current assets
Inventories
Trade and other receivables
Corporation tax receivable
Cash and bank equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Lease liabilities
Derivative financial liability
Provisions
Net current liabilities
Non-current liabilities
Trade and other payables
Borrowings
Lease liabilities
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
2020
£m
Restated
(See Note 35)
2019
£m
Restated
(See Note 35)
28.2
15.8
29.3
64.7
79.2
0.6
4.6
222.4
72.7
134.9
1.0
6.9
215.5
437.9
(249.6)
(5.2)
(16.1)
(0.2)
(0.7)
(271.8)
(56.3)
(7.5)
(16.7)
(68.1)
(0.8)
(2.6)
(1.9)
(97.5)
(369.3)
68.6
1.2
–
103.7
21.9
(57.1)
69.7
(1.0)
68.6
28.2
16.9
26.5
63.1
71.4
0.8
4.6
211.5
76.3
112.2
0.6
28.9
218.0
429.5
(229.8)
(9.5)
(14.3)
(0.6)
–
(254.2)
(36.2)
(7.4)
(20.9)
(67.8)
(2.9)
(2.7)
(2.2)
(103.9)
(358.1)
71.5
1.2
–
103.7
29.0
(61.5)
72.4
(0.9)
71.5
2021
£m
28.2
15.6
32.8
74.3
85.3
–
5.6
241.8
139.6
166.2
1.0
67.1
373.9
615.7
(411.4)
–
(21.4)
–
(0.1)
(432.9)
(59.0)
(7.9)
–
(73.9)
–
(2.3)
(2.3)
(86.4)
(519.3)
96.4
1.2
–
104.3
25.3
(33.1)
97.7
(1.3)
96.4
Note
16
17
18
18
22
33
20
21
22
24
23
25
26
33
27
23
25
26
33
20
27
28
28
28
30
29
The financial statements of AO World Plc, registered number 05525751, on pages 157 to 195 were approved by the Board of Directors and
authorised for issue on 30 June 2021. They were signed on its behalf by:
John Roberts
CEO
Mark Higgins
CFO
AO World Plc
AO World Plc
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AO World Plc Annual Report and Accounts 2021Our Financials Consolidated statement of changes in equity
As at 31 March 2021
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
Other reserves
1.2
–
103.7
22.2
0.5
13.1
(4.2)
(2.5)
(51.2)
82.7
(0.9)
81.8
–
1.2
–
–
–
–
–
–
1.2
–
–
–
–
–
–
1.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(10.4)
(10.4)
–
(10.4)
103.7
22.2
0.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
103.7
22.2
0.5
–
–
0.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13.1
–
2.0
–
–
–
(3.4)
11.7
–
4.2
–
–
–
(6.3)
(4.2)
(2.5)
(61.5)
72.4
(0.9)
71.5
1.0
1.0
(0.3)
0.7
–
–
–
–
(0.2)
–
–
–
(5.5)
–
–
–
–
–
–
2.0
–
(5.5)
–
–
–
(0.2)
0.2
2.0
–
(5.5)
–
–
–
3.4
–
–
(9.7)
(2.7)
(57.1)
69.7
(1.0)
68.6
–
–
–
5.8
–
–
–
–
–
–
(0.3)
17.7
17.7
(0.6)
17.1
–
–
–
–
4.2
0.6
5.8
–
–
–
4.2
0.6
5.8
(0.3)
0.4
0.1
–
6.3
–
–
–
104.3
22.2
0.5
9.6
(4.0)
(3.0)
(33.1)
97.7
(1.3)
96.4
Reported
balance
at 1 April 2019
Cumulative
adjustment
to opening
balance (see
Note 35)
Restated
balance
at 1 April 2019
Profit/ (loss) 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
Restated
balance
at 31 March
2020
Profit/ (loss) for
the period
Share-based
payment
charge net of
tax
Issue of shares
net of expenses
Foreign
currency gain
arising on
consolidation
Acquisition
of minority
interest
Movement
between
reserves
Balance at
31 March 2021
160
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AO World Plc Annual Report and Accounts 2021 at 1 April 2019
1.2
103.7
22.2
0.5
13.1
(4.2)
(2.5)
(61.5)
72.4
(0.9)
71.5
Investment
Share
Capital
Share
capital
£m
in own
premium
Merger
redemption
payments
Translation
shares
account
reserve
reserve
reserve
£m
£m
£m
£m
£m
reserve
£m
Other
reserve
£m
Retained
losses
£m
Total
£m
Non-
controlling
interest
£m
Total
£m
Other reserves
Share-
based
at 1 April 2019
1.2
–
103.7
22.2
0.5
13.1
(4.2)
(2.5)
(51.2)
82.7
(0.9)
81.8
Reported
balance
Cumulative
adjustment
to opening
balance (see
Note 35)
Restated
balance
Profit/ (loss) 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
Restated
balance
at 31 March
2020
Profit/ (loss) for
the period
Share-based
payment
charge net of
tax
Issue of shares
net of expenses
Foreign
currency gain
arising on
consolidation
Acquisition
of minority
interest
Movement
between
reserves
Balance at
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.0
(3.4)
11.7
–
4.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5.8
(5.5)
(5.5)
(5.5)
(0.2)
(0.2)
0.2
3.4
–
(10.4)
(10.4)
–
(10.4)
1.0
1.0
(0.3)
0.7
–
–
–
–
–
–
–
2.0
–
–
–
4.2
0.6
5.8
2.0
–
4.2
0.6
5.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.3)
(0.3)
0.4
0.1
(6.3)
6.3
–
–
–
1.2
103.7
22.2
0.5
(9.7)
(2.7)
(57.1)
69.7
(1.0)
68.6
17.7
17.7
(0.6)
17.1
31 March 2021
1.2
104.3
22.2
0.5
9.6
(4.0)
(3.0)
(33.1)
97.7
(1.3)
96.4
Consolidated statement of cash flows
For the year ended 31 March 2021
Cash flows from operating activities
Profit 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
(Increase)/decrease in inventories
Increase in trade and other receivables
Increase in trade and other payables
Total movement in working capital
Taxation (paid)/refunded
Cash generated from operating activities
Cash flows from investing activities
Interest received
Proceeds from sale of property, plant and equipment
Acquisition of property, plant and equipment
Acquisition of intangible assets
Cash used in investing activities
Cash flows from financing activities
Proceeds from issue of ordinary share capital
Acquisition of non-controlling interest
Interest paid on borrowings
Interest paid on lease liabilities
Repayments of borrowings
Repayment of lease liabilities
Net cash used in financing activities
Net increase/(decrease) in cash
Cash and cash equivalents at beginning of year
Exchange gains on cash and cash equivalents
Cash and cash equivalents at end of year
2020
£m
Restated
(See Note 35)
0.7
21.1
(10.5)
5.6
(0.1)
2.0
0.4
19.2
4.0
(29.0)
19.7
(5.3)
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
2021
£m
17.1
24.6
(4.3)
13.8
3.1
3.3
0.9
58.5
(67.6)
(35.9)
162.0
58.5
(2.4)
114.6
–
–
(6.3)
(2.8)
(9.1)
0.6
(0.1)
(2.3)
(4.0)
(21.9)
(17.6)
(45.3)
60.2
6.9
–
67.1
Note
17, 18
11
12
31
27
11
12
12
24
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AO World Plc Annual Report and Accounts 2021Our Financials
Notes to the consolidated financial statements
For the year ended 31 March 2021
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 Accounting Standards in conformity with the
requirements of the Companies Act 2006 and International
Financial Reporting Standards adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union.
The address of the registered office is given on page 204. The
nature of the Group’s operations and its principal activities are set
out in Note 19 and in the Strategic Report on pages 8 to 85.
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.
The following amendments to accounting standards and
interpretations, issued by the International Accounting Standards
Board (“IASB”), have been adopted for the first time by the Group
in the period with no significant impact on the consolidated
results or financial position:
• Amendments to References to the Conceptual Framework in
IFRS Standards.
• Amendments to IFRS 3 Definition of a Business.
• Amendments to IAS 1 and IAS 8 Definition of Material.
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 IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
‘Interest Rate Benchmark Reform’ – phase 2
The Group continues to monitor the potential impact of other
new standards and interpretations which may be endorsed and
require adoption by the Group in future reporting periods. The
Group does not consider that any other standards, amendments
or interpretations issued by the IASB, but not yet applicable, will
have a significant impact on the financial statements.
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
162
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.
Going concern
Further information on our risks are shown pages 54 to 65.
Notwithstanding net current liabilities of £59.0m as at 31 March
2021, 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 which at the date of approval of these financial statements
amount to £67.1m.
The Directors have prepared base and sensitised cash flow
forecasts for the group covering a period of at least 12 months
from the date of approval of these financial statements (“the
going concern period”) which indicate that the Group will remain
compliant with its covenants and will have sufficient funds through
its existing cash balances and availability of funds from Revolving
Credit Facility 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 to sensitise its base
case. These primarily include an assessment of how market share
could be impacted as Covid-19 restrictions continue to ease and
consumers are able to shop in bricks and mortar stores again
without precaution. Whilst the directors are confident that a
majority of new customers attracted during the past year will
continue to enjoy the benefits of shopping online with AO, the
sensitivity analysis has explored reduced market shares and a
severe but plausible downside of a return to online MDA sales levels
experienced in FY20. Under this severe but plausible downside
scenario the Group continues to demonstrate headroom on
its banking facilities of £45.9m and remains compliant with
covenants.
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 Annual Report and Accounts 2021 3. Significant accounting policies continued
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. All websites
are for the sale of electrical products. Revenue from the sale
of goods is recognised when a Group entity delivers a product
to the customer. Payment of the transaction price is due
immediately when the customer purchases the product 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.
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 estimated 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 £122.3m). 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.
Estimating in advance variable elements of revenue, including any
constraints, is based on historical data, 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.
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2021
The recoverable amount of an asset or cash-generating unit is
the greater of its value in use and its fair value less costs to sell.
In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of
money and the risks specific to the asset.
An impairment loss is recognised if the carrying amount of an
asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognised in profit or loss. Impairment
losses recognised in respect of CGUs are allocated first to reduce
the carrying amount of any goodwill allocated to the units, and
then to reduce the carrying amounts of the other assets in the
unit (group of units) on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In
respect of other assets, impairment losses recognised in prior
years are assessed at each reporting date for any indications
that the loss has decreased or no longer exists. An impairment
loss is reversed if there has been a change in the estimates used to
determine the recoverable amount. An impairment loss is reversed
only to the extent that the asset’s carrying amount does not
exceed the carrying amount that would have been determined,
net of depreciation or amortisation, if no impairment loss had
been recognised.
Goodwill impairment review
Goodwill is required to be tested for impairment annually.
Impairment testing on goodwill is carried out in accordance with
the methodology described in Note 16. Such calculations require
judgement relating to the appropriate discount factors and long-
term growth prevalent in a particular market as well as short and
medium-term business plans. The Directors draw upon experience
as well as external resources in making these judgements.
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
Domain names
Computer software
Marketing related assets
Customer lists
Amortisation method and rate
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.
3. Significant accounting policies continued
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; and
• Foreign exchange gains arising on the retranslaton of intra-
Group loans.
Finance costs are recognised in the consolidated income
statement in the period to which they occur.
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, which are recognised in the income statement using
the effective interest method;
• Financing costs of raising debt and ongoing utilisation/non-
utilisation fees; and
• Foreign exchange losses arising on the retranslation of 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.
164
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AO World Plc Annual Report and Accounts 2021 3. Significant accounting policies continued
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
Property alterations
Fixtures, fittings and plant and
machinery
Motor vehicles
Computer equipment
Office equipment
Leasehold property
Depreciation method and rate
10 years straight-line or over
the life of the lease to which the
assets relate
15% reducing balance or 3 to 10
years straight-line
2 to 10 years straight-line
3 to 5 years straight–line
15% reducing balance or 3 to 5
years straight-line
Depreciated on a straight-line
basis over the life of the lease
25 years straight-line
Freehold property
Assets held for rental purposes 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.
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.
Right of use assets and liabilities
The Group has applied IFRS 16 in these financial statements.
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 are recognised in the income statement on a straight-
line basis over the lease term.
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 Company 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 Company’s incremental
borrowing rate. The Company uses its 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
Company 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 Company 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
Company recognises lease payments received under operating
leases as income on a straight-line basis over the lease term as
Other operating income. The Company has classified cash flows
from operating leases as operating activities.
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.
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2021
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.
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 as at the reporting date. 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.
3. Significant accounting policies continued
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.
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AO World Plc Annual Report and Accounts 2021 3. Significant accounting policies continued
Taxation continued
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 31). 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 that 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 that
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. On vesting, amounts held in the share based, payments
reserves are transferred to retained losses.
Employee benefit trust
The Group operates an employee benefit trust (“EBT”). Own shares
held by the EBT are treated as Treasury shares on consolidation
and are shown as a reduction in equity in the statement of
financial position.
Foreign currency translation
The individual financial statements of each Group company are
presented in the currency of the primary economic environment
in which it operates (its functional currency). For the purpose of
the consolidated financial statements, the results and financial
position of each Group company are expressed in pounds
sterling, which is the presentational currency of the Group and its
consolidated financial statements.
The trading results and cash flows of overseas subsidiaries are
translated at the average monthly exchange rates during the
period. The Statement of financial position of each overseas
subsidiary is translated at year-end exchange rates with the
exception of equity balances, which are translated at historic
rates. The resulting exchange differences are recognised in a
separate translation reserve within equity and are reported in
other comprehensive income.
Transactions denominated in foreign currencies are translated
into the functional currency at the exchange rates prevailing
on the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated into
functional currency at the rates of exchange at the reporting
date. Exchange differences on monetary items are recognised
in the income statement. Intra-Group loans are translated at the
year-end exchange rate with the resulting exchange differences
recognised within interest.
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
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2021
3. Significant accounting policies continued
remuneration targets. These alternative performance measures
should be viewed as supplemental to, but not as a substitute for,
measures presented in the consolidated financial statements
relating to the Group, which are prepared in accordance with IFRS.
The Group believes that these alternative performance measures
are useful indicators of its performance.
EBITDA
EBITDA is defined by the Group as profit/(loss) 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 that
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:
• Management have reassessed the impact on future expected
cancellation rates as a result of an increase in cancellations
seen through the second half of the year. As a result, revenue
has been further constrained by £8.1m with a corresponding
reduction in the contract asset. Given the size and nature of
the adjustment and its link to the prior period adjustment, the
amount has been added back in arriving at Adjusted EBITDA.
• 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 has now renegotiated the contract and the new terms
will take effect from April 2021. However, the existing terms
up to 31 March 2021 continue to result in the cost of fulfilling
the contract over its life will exceeding any benefit gained
from it and therefore in line with the treatment in prior years,
management have added back the full cost in the current
period of £2.2m (2020: £1.3m).
The additional Adjusting Items for the prior year were 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 which was completed by 31 March 2020.
Costs incurred between 9 December 2019 and 31 March 2020 of
£2.5m were treated as the cost of closure of these operations
and included the write-off of unsold stock, redundancy
payments for all staff and legal costs.
• 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 Mobile Phones Direct 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 had never been recognised in the Group income
statement.
Adjusted EBITDA (excluding Netherlands)
As a consequence of the closure of the Group’s Dutch business
during the prior 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.
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 Mobile Phones Direct Limited in 2018,
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.
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AO World Plc Annual Report and Accounts 2021 4. Key sources of estimation uncertainty continued
Whilst at 31 March 2021, 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
As noted in Note 22 and Note 35, during the year ended 31
March 2021, management have made significant revisions to
the carrying value of the contract assets in relation to product
protection plans and mobile commissions. These have mainly
arisen due to:
1. A misinterpretation of data supplied by a third party in
relation to product protection plans, which has resulted in a
restatement of prior year financial statements (see Note 35);
2. The consequential effect on assumptions and estimates used
in recognising revenue in past years from the amendment to
the underlying data noted above (see Note 3 and 22); and
3. A significant change in customer behaviour in the Mobile
business resulting in the tenure of contracts reducing as end
customers have cancelled contracts or defaulted, as well as an
increase in redemption rates on relating to cashback schemes.
Management believe that the financial impact of Covid-19 has
contributed significantly to these behaviours.
Having taken account of the above matters, which are all
considered to be non-recurring by management and the effect
of which has been reflected in the current carrying value, the
Directors do not believe there is a significant risk of a material
reversal of revenue in the following 12 months. However, they
believe that disclosure of the assumptions made in relation to the
recognition and assessment of the recoverability of commissions
relating to product protection plans and Mobile Network Operator
contracts is important for an understanding of the financial
statements.
Historical information available to the Group prior to FY21, and
the approach taken in calculating revenue to recognise, provides
management with a degree of confidence that the initial revenue
recognised should be consistent with the subsequent receipt of
cash.
The nature of the estimates made based on the historical
information available reflects a range of reasonable outcomes
based on the facts and circumstances present at the year end,
therefore the revenue recognised is not expected to trigger a
material upward or downward adjustment.
We do, however, continue to believe that the information provided
is useful for a reader of the Annual Report as it gives meaningful
insight into the factors considered when recognising commission
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).
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 after
that date, base assumed commissions will continue to be earned
on pre-determined rates but overall commissions now include a
variable element based on the future overall performance of the
scheme.
Changes in estimates recognised as an increase or decrease
to revenue may be made, where for example, more reliable
information is available, and any such changes are required to be
recognised in the income statement. The commission receivable
balance as at 31 March 2021 was £80.7m (2020 restated: £70.0m).
The discount rate used to unwind the commission receivable is
3.55% (2020: 4.6%).
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).
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2021
4. Key sources of estimation uncertainty continued
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 the Group is entitled;
• The discount rate using external market data (principally
forecasts of inflation – 1.5% (2020: 2.75%);
• The length of contract entered into by the consumer (12 – 24
months); and
• Consumer average tenure which takes account of both the
default rate during the contract period and the expectations
that some customers will continue beyond the initial contract
period and generate out of contract (“OOC”) revenue (4% –
12.5%)
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 2021 was
£91.5m (2020: £90.9m). The discount rate used to unwind the
commission receivable is 0.1% (2020: 2.75%).
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 2021
UK
Europe
1,200.3
54.0
146.0
16.5
17.7
1,434.5
220.9
4.0
0.3
1.2
–
226.4
Total
1,421.2
58.0
146.3
17.7
17.7
1,660.9
31 March 2020
Restated (See Note 35)
UK
692.8
35.0
143.3
16.6
13.5
901.2
Europe
140.7
3.4
0.2
–
0.2
144.5
Total
833.5
38.3
143.5
16.7
13.6
1,045.7
Details of the revenue in each category are set out in the accounting policies note on page 163.
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.
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.
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AO World Plc Annual Report and Accounts 2021 6. Segmental analysis continued
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
Administrative expenses
Other operating income
Operating profit/(loss)
Finance income
Finance costs
Profit/(loss) before tax
Tax (charge)/credit
Profit/(loss) after tax
31 March 2021
31 March 2020
Restated (See Note 35)
UK
Europe
Total
UK
Europe
1,434.5
(1,161.6)
273.0
(235.6)
0.8
38.1
4.3
(6.9)
35.4
(3.1)
32.3
226.4
(206.8)
19.5
(27.9)
–
(8.4)
–
(6.9)
(15.3)
–
(15.3)
1,660.9
(1,368.4)
292.5
(263.6)
0.8
29.7
4.3
(13.8)
20.2
(3.1)
17.1
901.2
(724.3)
176.9
(153.2)
0.8
24.5
6.0
(4.9)
25.6
0.1
25.7
144.5
(143.6)
0.9
(30.1)
0.4
(28.8)
4.5
(0.7)
(25.0)
(0.1)
(25.1)
Total
1,045.7
(867.9)
177.8
(183.3)
1.2
(4.3)
10.5
(5.6)
0.6
0.1
0.7
The Group uses alternative performance measures which are not defined within IFRS, as well as IFRS measures. One of these key
measures is Adjusted EBITDA, which is defined in Note 3.
The reconciliation of statutory operating profit/(loss) to adjusted EBITDA is as follows:
Year ended (£m)
Operating profit/(loss) 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
31 March 2021
Europe
Total
(8.4)
–
(8.4)
3.2
–
–
(5.2)
–
(5.2)
2.2
–
2.2
(3.0)
–
(3.0)
29.7
–
29.7
21.8
2.8
–
54.2
–
54.2
10.3
–
10.3
64.4
–
64.4
UK
38.1
–
38.1
18.6
2.8
–
59.4
–
59.4
8.1
–
8.1
67.5
–
67.5
31 March 2020
Restated (See Note 35)
Europe
Total
UK
24.5
–
24.5
15.8
2.2
(23.5)
(5.2)
(28.8)
3.1
–
(0.1)
0.1
42.3
–
42.3
(2.0)
–
(2.0)
40.3
–
40.3
(20.4)
(5.1)
(25.5)
2.2
2.2
4.4
(18.2)
(3.0)
(21.1)
0.9
(5.2)
(4.3)
18.9
2.2
–
21.9
(5.1)
16.8
0.2
2.2
2.4
22.1
(3.0)
19.1
The table above separates the results of the ongoing Group from those of its Netherlands operation, which closed during the prior year.
The Netherlands operation did 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 year on year.
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).
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2021
6. Segmental analysis continued
c) Other information
2021 (£m)
UK
Europe
2020 (£m)
UK
Europe
Intangible
assets
2.8
–
2.8
Intangible
assets
1.3
–
1.3
Additions
Right of use
PP&E
assets Depreciation Amortisation
11.4
0.2
11.6
26.2
1.5
27.7
18.6
3.2
21.8
2.8
–
2.8
Additions
Right of use
PP&E
assets Depreciation Amortisation
8.3
0.2
8.5
13.0
1.3
14.3
15.8
3.1
18.9
2.2
–
2.2
Profit on
disposal
–
–
–
Profit on
disposal
(0.1)
0.1
–
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
2021
£m
50.4
65.6
15.4
132.2
263.6
2020
£m
29.8
42.5
9.3
101.7
183.3
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AO World Plc Annual Report and Accounts 2021 8. Operating profit/(loss) for the year
Operating profit/(loss) for the year has been arrived at after
charging/(crediting):
9. Auditor’s remuneration
The analysis of the Auditor’s remuneration is as follows:
Depreciation of:
Owned assets
Owned assets financed by lease
Right of use assets
Amortisation
Cost of inventory
Staff costs
Other operating income from short-
term sublets
Adjusting items (see Note 3)
Revisions to estimates in relation to
contract assets
Executive restructuring costs
Netherlands closure costs
Provision release
Onerous contract costs
2021
£m
4.4
3.2
14.2
2.8
1,202.6
144.7
2020
£m
4.0
2.7
12.2
2.2
755.7
114.4
(0.8)
(1.2)
8.1
–
–
–
2.2
–
0.9
2.5
(2.3)
1.3
Adjusting items are included in the income statement as follows:
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit
2021
£m
8.1
2.2
10.3
-
10.3
2020
£m
(2.6)
2.4
(0.2)
2.6
2.4
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
2021
£m
2020
£m
0.1
0.1
0.7
0.8
0.5
0.6
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 113. No services were provided on a contingent fee
basis.
Non-audit fees of £45,000 were incurred in relation to the review
of the interim financial statements (2020: £45,000) and £5,000
in relation to agreed upon procedures in relation to the Group’s
covenant reporting pack (2020: £5,000.)
10. Staff numbers and costs
The average monthly number of employees (including Directors)
was:
Sales, marketing and distribution
Directors (Executive and Non-
Executive)
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Contributions to defined
contribution plans (see Note 32)
Share-based payment charge (see
Note 31)
2021
Number
3,909
7
3,916
2020
Number
3,219
8
3,227
2021
£m
121.4
14.5
5.5
3.3
144.7
2020
£m
97.6
9.4
5.0
2.0
114.1
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AO World Plc Annual Report and Accounts 2021Our Financials
Notes to the consolidated financial statements continued
For the year ended 31 March 2021
11. Finance income
13. Tax
Non-cash 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
12. Finance costs
Interest on lease liabilities
Interest on bank loans
Other finance costs
Non-cash foreign exchange losses on
intra-Group loans
Unwind of discounting on long-term
payables
Movement in valuation of put and
call option
2020
£m
Restated
(See Note 35)
2021
£m
–
0.8
3.4
–
4.3
2021
£m
4.0
0.4
1.9
6.8
0.1
0.6
13.8
6.0
1.9
2.5
0.1
10.5
2020
£m
3.7
0.6
0.9
–
0.3
0.1
5.6
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)
2020
£m
Restated
(See Note 35)
2021
£m
3.4
–
3.4
(0.1)
(0.3)
3.1
0.1
–
0.1
0.9
(1.0)
(0.1)
The expected corporation tax charge for the year is calculated at
the UK corporation tax rate of 19% (2020: 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 charge for the year can be reconciled to the profit in the
statement of comprehensive income as follows:
Year ended 31 March
Profit before tax on continuing
operations
Tax at the UK corporation tax rate of
19% (2020: 19%)
Ineligible expenses
R & D tax credit
Difference in overseas and UK tax
rates
Movement in unrecognised deferred
tax
Impact of difference in current and
deferred tax rates
Income not taxable
Share-based payments
Prior period adjustments
Tax charge/(credit) for the year
2020
£m
Restated
(See Note 35)
0.6
0.1
0.3
–
(0.3)
1.5
(0.2)
(1.5)
1.0
(1.0)
(0.1)
2021
£m
20.2
3.8
1.7
–
–
–
–
(0.1)
(2.0)
(0.3)
3.1
174
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AO World Plc Annual Report and Accounts 2021 13. Tax continued
A reduction in the UK corporation tax rate from 19% to 17%
(effective 1 April 2020) was substantively enacted on
6 September 2016. The March 2020 Budget announced that a rate
of 19% would continue to apply with effect from 1 April 2020, and
this change was substantively enacted on 17 March 2020. The UK
deferred tax asset/(liability) as at 31 March 2021 was calculated at
19% (2020: 19%).
An increase in the UK corporation rate from 19% to 25% (effective
1 April 2023) was substantively enacted on 24 May 2021. As these
changes were not substantively enacted at the balance sheet
date, the Group has continued to recognised deferred tax in
relation to UK companies at 19%. The impact of the rate change
is not believed to have a material impact on the deferred tax
position as at 31 March 2021.
14. Dividends
The Directors do not propose a dividend for the year ended
31 March 2021 (2020: £nil).
15. Earnings/(loss) per share
The calculation of the basic and diluted earnings/(loss) per share is
based on the following data:
2020
£m
Restated
(See Note 35)
2021
£m
17.7
Profit for the purposes of basic and
diluted earnings per share being
profit attributable to owners
of the parent Company
Number of shares
Weighted average shares in issue for
the purposes of basic loss per share 475,626,353 472,462,309
4,857,812
Potentially dilutive shares options
Weighted average number of diluted
ordinary shares
Earnings per share (pence per share)
Basic earnings per share
Diluted earnings per share
481,963,539
477,320,121
3.73
3.68
6,337,186
0.21
0.21
1.0
The basic earnings per share is affected by significant non-
cash foreign exchange movements arising from intra-Group
funding arrangements. Management have therefore presented
an adjusted earnings per share which is based on an adjusted
earnings attributable to the owners of the parent company and
the diluted weighted average number of shares as they 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.
Earnings/(loss)
Profit attributable to owners of the
parent company
Add back/ (reduction) of foreign
exchange movements on intra-
Group loans
Adjusted earnings/(loss) attributable
to owners of the parent Company
Number of shares
Weighted average number of
ordinary shares
Potentially dilutive shares options
Diluted weighted average number
of shares
Earnings/(loss) per share (pence per
share)
Basic earnings per share
Diluted earnings per share
Adjusted earnings/(loss) per share
2020
£m
Restated
(See Note 35)
2021
£m
17.7
1.0
6.8
24.5
(6.0)
(5.1)
475,626,353 472,462,309
4,857,812
6,337,186
481,963,539
477,320,121
3.73
3.68
5.15
0.21
0.21
(1.08)
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2021
16. Goodwill
Carrying value at 31 March 2019
Carrying value at 31 March 2020
Carrying value at 31 March 2021
£m
28.2
28.2
28.2
Mobile Phones Direct Limited – £14.7m
The Group has assessed the goodwill arising on the acquisition
of Mobile Phones Direct Limited in December 2018. This was
performed based on a value in use calculation in the same way as
for the UK business noted previously, but using a pre- tax weighted
average cost of capital appropriate for MPD as a standalone
business of 14.2% (2020: 14.4%).
The total recoverable amount in respect of goodwill for this CGU
Group is greater than its carrying value by £1.2m in managements
base case.
The main assumptions underlying the value in use calculation
are the volume of mobile connections (and hence revenue) where
growth is forecast between 3%–23%% per year and margin that
is assumed to stay flat at 12%. Management are cognisant of
the unusual trading conditions seen in FY21 and the base case
reflects an underlying profitability closer to that achieved in FY20
and reflects the change in the business strategy adopted in the
second half of the year to reduce the impact of cashback and
customer cancellations/defaults.
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. Management believe that the key
assumptions are revenue and margin. If revenue growth was
10% lower than forecast it would have an impact of £(0.5)m on
the amount of headroom. If margin reduced by 0.1% this would
have an impact of £(1.3)m on the amount of headroom (without
management taking any mitigating action). A change in the
discount rate of 0.5% would have an impact of +/- £0.9m on the
amount of headroom.
However, management believe that based on the range of
possible outcomes noted above, whilst the value in use is broadly
equivalent to the carrying value, there is no current impairment.
Further details of this area of estimation uncertainty are set out
in Note 4.
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), the acquisition of AO
Recycling Limited (formerly The Recycling Group Limited) and
the acquisition of Mobile Phones Direct Limited (now AO Mobile
Limited) by AO Limited.
Impairment of goodwill
UK CGU – £13.5m
At 31 March 2020, goodwill acquired through UK business
combinations (excluding Mobile Phones Direct 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
2021. The recoverable amount of the CGU has been determined
based on the value in use calculations. The Group prepares cash
flow forecasts derived from the most recent financial budget
and financial plan for three years, 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 12.7% (2020: 11.2%).
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.
176
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AO World Plc Annual Report and Accounts 2021 17. Other intangible assets
Cost
At 1 April 2019
Additions
Disposals
At 31 March 2020
Additions
Disposals
At 31 March 2021
Amortisation
At 31 March 2019
Charge for the year
Disposals
At 31 March 2020
Charge for the year
Disposals
At 31 March 2021
Carrying amount At 31 March 2021
At 31 March 2020
Domain
names
£m
Software
£m
Marketing
related
assets
£m
Customer
lists
£m
1.4
0.1
–
1.5
–
–
1.5
1.1
–
–
1.1
–
–
1.1
0.3
0.3
4.0
1.2
(0.3)
4.9
2.8
(0.4)
7.3
2.1
0.7
(0.2)
2.7
1.2
(0.2)
3.7
3.6
2.2
14.8
–
–
14.8
–
–
14.8
0.5
1.4
–
1.9
1.5
–
3.4
11.4
12.9
0.4
–
–
0.4
–
–
0.4
–
0.1
–
0.1
0.1
–
0.2
0.3
0.4
Amortisation is charged to Administrative costs in the consolidated income statement.
18. Property, plant and equipment
Owned assets
Cost
At 1 April 2019
Additions
Reclassification from
Prepayments
Disposals
Exchange differences
At 31 March 2020
Additions
Disposals
Transfer from AICC
Exchange differences
At 31 March 2021
Accumulated depreciation
At 1 April 2019
Charge for the year
Disposals
At 31 March 2020
Charge for the year
Disposals
At 31 March 2021
Carrying amount
At 31 March 2021
At 31 March 2020
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
3.1
0.2
–
–
0.1
3.3
0.7
–
1.7
(0.2)
5.5
0.5
0.4
–
0.9
0.4
–
1.4
4.1
2.4
0.8
3.6
0.8
–
–
5.2
–
–
(5.2)
–
–
–
–
–
–
–
–
–
–
5.2
13.5
0.9
–
–
–
14.4
1.0
–
–
–
15.3
5.2
1.2
–
6.4
1.4
–
7.8
7.5
7.9
13.2
1.5
–
(0.2)
–
14.5
3.3
–
3.6
–
21.3
4.5
1.5
(0.2)
5.9
2.3
–
8.2
13.1
8.7
11.5
0.9
–
(0.3)
–
12.1
4.3
(0.1)
–
–
16.4
6.6
2.1
(0.3)
8.4
2.3
(0.1)
10.6
5.8
3.7
8.7
1.1
–
(0.2)
–
9.6
2.3
(0.2)
(0.1)
–
11.6
7.3
1.3
(0.1)
8.4
1.1
–
9.5
2.1
1.1
–
0.3
–
–
–
0.3
0.1
–
–
–
0.4
–
–
–
–
0.1
–
0.1
0.3
0.3
At 31 March 2021, the net carrying amount of leased plant and machinery included above was £12.3m (2020: £10.1m). The leased
equipment secures lease obligations (see Note 26).
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Total
£m
20.6
1.3
(0.3)
21.6
2.8
(0.4)
24.0
3.7
2.2
(0.2)
5.7
2.8
(0.2)
8.4
15.6
15.8
Total
£m
50.8
8.5
0.8
(0.7)
0.1
59.4
11.6
(0.3)
–
(0.2)
70.5
24.2
6.6
(0.6)
30.1
7.6
(0.1)
37.6
32.8
29.3
177
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2021
18. Property, plant and equipment continued
Right of use assets recognised are reflected in the following asset classes:
Right of use assets
Cost
At 1 April 2019
Additions
Disposals
Exchange differences
At 31 March 2020
Additions
Disposals
Exchange differences
At 31 March 2021
Accumulated depreciation
At 1 April 2019
Charge for the year
Disposals
At 31 March 2020
Charge for the year
Disposals
At 31 March 2021
Carrying amount
At 31 March 2021
At 31 March 2020
Land and
buildings
£m
Motor
vehicles
£m
Computer
equipment
£m
77.4
9.1
(1.0)
0.4
85.8
12.4
(4.2)
(0.4)
93.6
23.7
7.1
(0.2)
30.6
8.7
(1.1)
38.2
55.4
55.3
14.8
5.2
–
–
20.0
15.3
(0.8)
(0.1)
34.5
6.2
4.9
–
11.1
5.3
(0.4)
16.0
18.5
8.9
1.0
–
–
–
1.0
–
–
–
1.0
0.1
0.2
–
0.4
0.2
–
0.6
0.4
0.6
Total
£m
93.2
14.3
(1.0)
0.4
106.8
27.7
(5.0)
(0.5)
129.1
30.0
12.2
(0.2)
42.0
14.2
(1.5)
54.8
74.3
64.7
The expense relating to short term leases and low value assets included within the Income Statement amounted to £0.5m (2020: £0.1m).
At 31 March 2021, the Group was not committed to any leases which had not yet commenced (2020: nil).
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AO World Plc Annual Report and Accounts 2021 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 2021.
Name of subsidiary
AO Retail Limited
Expert Logistics Ltd
Worry Free Limited
Elekdirect Limited
Appliances Online Ltd
AO Deutschland Limited
AO Ltd
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
Mobile Phones Direct Limited
AO Mobile Limited
BERE Limited
AO Business Limited
AO B2B Limited
AO Trade Limited
AO Rental Limited
AO Care Limited
AO Premium Club 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
Proportion of ownership
interests and voting rights
held by AO World Plc
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary and
redeemable preference
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%†
100%†
100%
100%
100%
100%‡
100%
99.99%*
100%
100%
81.6%
100%**
100%**
100%
100%
100%†
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Principal activity
Retail
Logistics and transport
Holding company
Retail
Holding company
Retail
Holding company
Dormant
Dormant
Dormant
WEEE recycling
Dormant
Dormant
Retail
Dormant
Retail
Investment company
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
All companies within the Group are registered at the same address disclosed on page 204 apart from BERE Ltd and AO.BE SA who are
registered at the addresses listed below.
BERE Ltd
44 Esplanade
St Helier
Jersey
JE4 9WG
AO.BE SA
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 Recycling Limited.
† Indirectly owned through AO Limited.
‡ Indirectly owned through Worry Free Limited (50%) and Appliances Online Limited (50%).
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2021
20. Deferred tax
Deferred tax is recognised by the Group as shown in the table below.
At 1 April 2019
(Debit)/credit to income
statement
At 31 March 2020
(Debit)/credit to income
statement
(Debit)/credit to reserves
At 31 March 2021
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
1.2
(0.4)
0.8
0.7
0.9
2.4
0.8
0.7
1.5
(0.1)
–
1.4
0.3
–
0.3
0.1
–
0.4
(2.7)
0.1
(2.6)
0.3
–
(2.3)
1.0
–
0.9
(0.1)
–
0.8
1.4
(0.3)
1.2
(0.5)
–
0.7
The above are disclosed as follows in the statement of financial position:
Deferred tax asset
Deferred tax liabilities
Net deferred tax
The Group has an unrecognised deferred tax asset of £2.0m (2020: £8.1m) in respect of unused losses carried forward.
21. Inventories
Finished goods
Included within inventories are stock provisions of £0.5m (2020: £0.5m).
22. Trade and other receivables
Trade receivables
Contract assets
Prepayments and accrued income
Other receivables
The trade and other receivables are classified as:
Non-current assets
Current assets
All of the amounts classified as Non-current assets relate to contract assets.
2021
£m
139.6
2021
£m
19.8
172.2
46.8
12.7
251.5
2021
£m
85.3
166.2
251.5
Total
£m
2.0
0.1
2.1
0.4
0.9
3.4
5.6
(2.3)
3.4
2020
£m
72.7
2020
£m
Restated
(See Note 35)
20.5
160.9
29.7
3.0
214.1
2020
£m
Restated
(See Note 35)
79.2
134.9
214.1
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AO World Plc Annual Report and Accounts 2021 22. Trade and other receivables continued
Contract assets
Contract assets represent the expected future commissions
receivable in respect of product protection plans and mobile
phone connections. The Group recognises revenue in relation
to these plans and connections when it obtains the right to
consideration as a result of performance of its contractual
obligations (acting as an agent for a third party). Revenue in any
one year therefore represents the estimate of the commission
due on the plans sold or connections made.
The reconciliation of opening and closing balances for contract
assets is shown below:
Balance brought forward as
previously reported
Restatement – see Note 35
Balance brought forward as restated
Revenue recognised *
Cash received
Revisions to estimates – adjusting
items (see Note 3)
Revisions to estimates – other
Unwind of discounting
Balance carried forward
2020
£m
Restated
(See Note 35)
151.1
(10.4)
140.7
153.4
(134.7)
–
(0.7)
2.2
160.9
2021
£m
160.9
–
160.9
174.0
(153.0)
(8.1)
(5.0)
3.4
172.2
* 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.
Commission receivable on product protection plans is estimated
using a number of assumptions including the customer
cancellation rate. As set out in Note 35, the misinterpretation
of data supplied by a third party, which is used in calculating
the expected cancellation rates, has resulted in a prior year
restatement of the financial statements as a result of a number
of cancelled plans being counted as live plans within the contract
asset valuation. As a consequence of these plans now being
excluded, management have reassessed the impact of the plans
on the overall expected recoverability of the contract asset and
the assumptions and estimate used in such valuation.
The consequential effect on assumptions and estimates used
in recognising revenue in past years from the amendment to the
underlying data noted above amounts to £8.1m, and as it does
not relate to the underlying trading in the period has been added
back as an Adjusting Item in arriving at the Group’s Adjusted
EBITDA (see Note 3). This is shown as a separate item in the
table above. Normal revisions to estimates in relation to revenue
recognised in past years amounted to £1.4m.
Commission receivable on mobile phone connections is estimated
based on a number of assumptions. These include the customer
default rate, being the rate at which the customers disconnect
from the mobile network operators. The Directors have historically
considered this not to be an area of significant estimate due to
relatively small fluctuations in the cash received compared to the
revenue recognised. However, during the year, there has been a
significant change in customer behaviour resulting in the tenure of
contracts reducing as end customers have cancelled contracts or
have defaulted with the networks and accordingly the estimated
transaction price has been reconsidered.
Included in the total contract asset balance at 31 March 2020
was an amount of £3.6m in respect of variable consideration
recognised as revenue up to that date that has been reversed
in the year ended 31 March 2021. This has been included in
the revision in estimates – other in the table over. Overall, the
estimated transaction price recognised as revenue and contract
assets up to 31 March 2021 in relation to mobile commission is
constrained by £4.7m (31 March 2020: £11.7m).
Product protection plans
Under our arrangement with Domestic & General (“D&G”), the
Group receives commission in relation to its role as agent for
introducing its customers to D&G and recognises revenue at
the point of sale as it has no future obligations following this
introduction. A discounted cash flow methodology is used to
measure the estimated value of the revenue and contract assets
in the month of sale of the relevant plan, by estimating all future
cash flows that will be received from D&G and discounting these
based on the expected timing of receipt. Subsequently, the
contract asset is measured at the present value of the estimated
future cash flows. The key inputs into the model which forms the
base case for management’s considerations are:
• the contractually agreed margins, which differ for each
individual product covered by the plan as is included in the
agreement with D&G;
• the number of live plans based on information provided by
D&G;
• the discount rate for plans sold in the year using external
market data – 3.55% (2020: 4.6%);
• the estimate of profit share relating to the scheme as a whole
based on information provided by D&G;
• historic rate of customer attrition that uses actual cancellation
data for each month 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); and
• the estimated length of the plan based on historical data plus
external assessments of the potential life of products (5 to 16
years).
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2021
22. Trade and other receivables continued
The last two inputs are estimated based on extensive historical
evidence obtained from our own records and from D&G. The
Group has accumulated historical empirical data over the last 13
years from c.2.5m plans that have been sold. Of these, c.1.0m 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 that could impact the valuation. This primarily considers
the reliance on historical data as this assumes that current and
future experience will follow past trends. There is, therefore, a risk
that changes in consumer behaviour could reduce or increase
the total cash flows ultimately realised over the forecast period.
Management 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.
Sensitivity
25% reduction in terminal drop-off rate after
actual data available
25% increase in terminal drop-off rate after actual
data available
Cancellations increase by 1%
Cancellation rate reduces by 1%
Impact on
contract
asset and
revenue
£m
0.3
(0.3)
(0.8)
0.9
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
been updated during the year to reduce volatility by excluding
expected revenue beyond a backstop date. Over the past year,
actual cancellations have been broadly in line with the expected
terminal drop-off rates. As the amount of data beyond the period
is limited, no adjustment has been made to the assumption in
the model. We would reasonably expect a maximum variance to
the current drop-off rate of 25%. The backstop date reduces the
impact of any variance.
Cancellations
The number of cancellations and therefore the cancellation
rate can fluctuate based on a number of factors. These include
macroeconomic changes e.g. unemployment, but will also
reflect the change in nature of the plan itself (insurance plan
vs service plan). Assumptions were updated during the year to
remove assumed improvements that should reduce the impact
of changes in the cancellation rates. 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 (principally
forecasts of inflation – 1.5% (2020: 2.75%);
• the length of contract entered into by the consumer (12 – 24
months); and
• consumer average tenure that takes account of both the
default rate during the contract period and the expectations
that some customers will continue beyond the initial contract
period and generate out of contract (“OOC”) revenue (4%–12.5%)
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AO World Plc Annual Report and Accounts 2021 22. Trade and other receivables continued
The last two 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.
As noted earlier, management believe that the financial impact of
Covid-19 has contributed significantly to the impact of customer
behaviours, resulting in the tenure of contracts reducing as end
customers have cancelled contracts or defaulted as well as an
increase in redemption rates on relating to cashback schemes.
This has impacted previously recognised revenue in the current
year with revisions to estimates amounting to c.£10.8m. The risk
remains that changes in consumer behaviour may continue
and could reduce or increase the total cash flows ultimately
realised over the forecast period. Management make a regular
assessment of the data and assumptions with a detailed review at
half year and full year to ensure this continues to reflect the best
estimate of expected future trends and appropriate revisions are
made to the estimates. The sensitivity analysis below is disclosed
as we believe it provides useful insight to the users of the financial
statements by giving insight into the factors taken into account
when calculating the revenue to be recognised. The table shows
the sensitivity of the carrying value of the commission receivables
and revenue to a reasonably possible change in inputs to the
discounted cash flow model over the next 12 months, having taken
account of the changes in behaviour experienced in the period.
Sensitivity
1% increase in contractual entitlement
2% increase in the default rate
Impact on
contract asset
and revenue
£m
2.4
(3.7)
Prepayments and accrued income
At 31 March 2021, there is £18.2m (2020: £11.6m) 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 2021, the balance outstanding was £5.0m (2020: £2.7m).
23. Trade and other payables
Trade payables
Accruals
Contract liabilities
Deferred income
Other payables
2021
£m
273.8
36.8
63.0
27.4
18.3
419.3
2020
£m
139.6
23.1
61.5
15.2
17.6
257.1
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases is 62 days (2020: 52 days),
reflecting improved terms with a number of suppliers during the
year.
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
within the mobile business.
Certain mobile phone contracts include variable consideration
resulting from cash-back rights that a customer must claim
periodically. The Group constrains the transaction price in
relation to the cash back based on historical information and has
in past periods not considered that the estimates in arriving at the
provision were significant as historically, many customers have
not fully claimed cash back to which they are entitled. However,
during the current year, the Group saw an unprecedented
increase in the level of cashback redemptions, which was
inconsistent with the previous trend of redemptions reducing year
on year.
Management believe that the financial impact of Covid-19 has
contributed to the increased redemptions and, as a consequence,
the Group has revised its estimate of the transaction price based
on current consumer behaviour. Included in the total contract
liability balance at 31 March 2020 was an amount of £7.2m in
respect of variable consideration recognised as revenue in prior
years that has been reversed in the year ended 31 March 2021.
At 31 March 2021, a liability of £8.2m (31 March 2020: £12.9m) has
been recognised out of a maximum potential exposure of £16.2m
(31 March 2020: £42.9m). Taking into consideration the revenue
constraints required by IFRS 15, the range of the estimated liability
is between £8.2m and £nil (31 March 2020: £12.9m and £nil).
The trade and other payables are classified as:
Current liabilities
Long-term liabilities
2021
£m
411.4
7.9
419.3
2020
£m
249.6
7.5
257.1
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2021
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
2021
£m
67.1
–
–
(21.4)
(73.9)
(28.2)
2020
£m
6.9
(5.2)
(16.7)
(16.1)
(68.1)
(99.1)
Movement in financial liabilities in the year was as follows:
Balance at 1 April 2020
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
Reassessment of lease term
Interest expense
Exchange difference
Total other changes
Balance at 31 March 2021
Borrowings
£m
Lease
liabilities
£m
21.9
(21.9)
(0.4)
–
84.1
–
(4.0)
(17.6)
(22.3)
(21.6)
–
–
0.4
–
0.4
–
32.8
(3.5)
4.0
(0.5)
32.8
95.3
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
25. Borrowings
Secured borrowing at amortised cost
Bank loans
Amount due for settlement
within 12 months
Amount due for settlement
after 12 months
Borrowings
£m
Lease
liabilities
£m
30.4
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
2021
£m
2020
£m
–
–
–
–
21.9
5.2
16.7
21.9
On 6 April 2020, AO Limited, a direct subsidiary of AO World
plc, entered into a new Revolving Credit Facility of £80m which
replaced the existing revolving credit facility and term loan. This
did not constitute a loan modification but rather the settling of
an old facility and replacement with a new one. 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. At 31
March 2021, AO Limited had undrawn amounts on its Revolving
Credit Facility of £76.1m (2020: £56.7m). The amount drawn at the
year end was in relation to letters of credit (£3.9m).
During the year ended 31 March 2019, AO Limited entered into
a term loan agreement under which it borrowed £24m to partly
fund the acquisition of Mobile Phones Direct Limited. This was
repayable in quarterly instalments starting on 1 April 2019 with
a final repayment date in June 2021. At 31 March 2020, £20m
was outstanding and was repaid out of the new Revolving Credit
Facility on 6 April 2020.
In the same year, AO Recycling Limited entered into £3m term loan
to part fund the capital expenditure required for the development
of its Plastics Plant. During the prior year, £2.0m of the loan
had been converted into finance leases resulting in £1m being
outstanding at 31 March 2020. This was repaid in full in April 2020.
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AO World Plc Annual Report and Accounts 2021 26. Lease liabilities
Minimum lease payments
28. Share capital, investment in own
shares and share premium
Amounts payable under lease
liabilities:
Within one year
Greater than one 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 one year but less
than five years
Greater than five years but less
than ten years
Beyond ten years
27. Provisions
Provisions
Provisions are classified as:
Current liabilities
Non-current liabilities
At 31 March 2020
Utilised in the year
Provisions created in the year
At 31 March 2021
2021
£m
25.3
64.8
17.1
0.6
107.8
2020
£m
19.8
53.2
22.6
1.2
96.8
Present value of minimum
lease payments
2021
£m
21.4
58.3
15.0
0.6
95.3
2021
£m
2.4
2021
£m
0.1
2.3
2.4
2020
£m
16.1
45.7
21.5
0.8
84.1
2020
£m
2.6
2020
£m
0.7
1.9
2.6
Dilapidations
provision
£m
2.6
(0.7)
0.5
2.4
Number
of shares
m
477.9
1.4
479.4
Share
capital
£m
Share
premium
£m
1.2
–
1.2
103.7
0.6
104.3
At 1 April 2020
Share issue
At 31 March 2021
On 21 July 2020, the Company issued 0.6m shares to satisfy
awards under the vested ERP and 2017 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.
As at 31 March 2021 the number of shares held by the EBT was
1,597,868.
On 1 March 2021, the Company issued 0.8m shares under the
vested SAYE scheme 2018 (see Note 31), resulting in an increase in
Share premium of £0.6m.
29. Non-controlling interest
Balance at 1 April 2020
Share of loss for the year
Acquisition of minority interest
Balance at 31 March 2021
2021
£m
1.0
0.6
(0.4)
1.3
2020
£m
0.9
0.3
(0.2)
1.0
During the year, AO World Plc exercised its third 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 18.4% (2020: 25.6%) 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 2021, AO Recycling Limited had non-current assets
of £17.0m (2020: £17.0m), net current liabilities of £18.4m (2020:
£14.2m) and non-current liabilities of £6.2m (2020: £7.0m). During
the year, AO Recycling Limited contributed £14.8m (2020: £12.6m)
and £0.5m loss (2020: £0.8m earnings) to the Group’s revenue
and Adjusted EBITDA respectively. Its retained loss for the year
was £3.5m (2020: £1.5m loss). Net cash outflow was £3.5m
(2020: £2.6m inflow).
If the stake in AO Recycling Limited had remained at 74.4%,
the share of losses attributable to the Group would have reduced
by £0.1m.
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.
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2021
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.
Based on the performance criteria achieved, and subject to
continued employment, the number of conditional shares relating
to the scheme is 6,766,831.
Single Incentive Plan 2020
On 20 August 2020, the Company adopted the AO 2020 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 2021. The
vesting date for the conditional shares is July 2024.
The fair value was determined to be the share price at grant date
of £1.998.
Thirty per cent of the awards are subject to a Group Revenue
performance condition for the year ended 31 March 2021 as shown
below:
Group Revenue for the
performance period
Below £1,099m
£1,099m (Threshold)
£1,157m (Target)
£1,215m or higher (Stretch)
Extent to which performance
condition satisfied
0%
25%
62.50%
100%
Thirty per cent of the awards are subject to a Group EBITDA
performance condition for the year ended 31 March 2021 as shown
below:
Group Adjusted EBITDA for the
performance period
Below £15m
£15m (Threshold)
£19.4m (Target)
£23.7m or higher (Stretch)
Extent to which performance
condition satisfied
0%
25%
62.50%
100%
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 arose on the purchase of DRL Limited (now AO
Retail Limited) in the year ended 31 March 2008 and Mobile Phones
Direct Limited in the year ended 31 March 2019.
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 third 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.
2017 LTIP
2018 SIP
2019 SIP
2020 SIP
Value Creation Plan (“VCP”)
Sharesave scheme
Total share scheme charge
2021
£m
–
0.5
0.7
0.9
0.9
0.3
3.3
2020
£m
0.4
0.1
0.5
–
–
1.0
2.0
The details regarding each of the schemes is as follows:
Schemes vesting in the current year
The performance period for the 2017 LTIP concluded 31 March 2020
and, following approval at the Board meeting in August 2020, the
share awards under this schemes vested. The number of shares
vesting under the 2017 LTIP scheme was 602,102.
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 £1.44.
Based on the performance criteria achieved, and subject to
continued employment, the number of conditional shares relating
to the scheme is 1,972,164.
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AO World Plc Annual Report and Accounts 2021 31. Share-based payments continued
Twenty per cent of the awards are subject to a Group cash outflow performance condition for the year ended 31 March 2021
as shown below:
Group cash flow for the performance period
Above £1.4m
£1.4m (Threshold)
£4.8m (Target)
£8.2m 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 2021 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%
Ten per cent of the awards are subject to a Group weighted average ENPS performance condition for the year ended 31 March 2021 as
shown below:
Net promoter score for the performance period
Below 10
+ 10 (Threshold)
+ 25 (Target)
+ 40 or higher (Stretch)
Extent to which performance
condition satisfied
0%
25%
62.50%
100%
The following table illustrates the number and weighted average exercise price (“WAEP”) of, and movements in, share options granted
under the SIP 2020 awards.
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Outstanding at the end of the year
* Weighted average exercise price.
2021
No. of
options
–
2,917,334
(44,896)
2,872,438
2021
WAEP (£)*
2020
No. of
options
2020
WAEP (£)*
–
–
–
–
–
–
–
–
–
–
–
–
Based on the performance criteria achieved, and subject to continued employment, the number of conditional shares relating to the
scheme is expected to be 2,872,438.
Value Creation Plan
The Awards
On 30 September 2020, the Company granted Awards to both Executives and employees in the form of conditional awards over AO
shares that will vest at the end of the measurement periods subject to the participant remaining in employment and meeting certain
performance conditions. There is no exercise price associated with the Awards.
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2021
31. Share-based payments continued
Executive Awards
On 30 September, three conditional awards were granted.
The executive Awards have been granted in three separate equal tranches with the first tranche vesting at a measurement date of
31 March 2025, the second tranche at a measurement date of 31 March 2026, and the third tranche at the measurement date of
31 March 2027, all subject to the meeting the performance conditions:
Percentage of value above the hurdle attributable to the Awards
AO Total market cap < £2.5 billion (£5.23 per share) at measurement date
AO Total market cap between £2.5 billion and £4.5 billion at measurement date
0%
3% of the excess between £2.5bn and £4.5bn
The maximum payment on vesting of the Executive Awards is £60m (£20m per executive), equivalent to a cap of £4.5bn as noted in the
above table. Note that the maximum amount payable under any tranche is one third of the cap (e.g. £6.67m).
The fair value of each award was £287,700, £329,700 and £359,700 for 31 March 2025, 2026 and 2027 respectively.
Employee Awards
On 30 September 2020, 138,866 conditional awards were granted.
The employee Awards will vest in a single tranche at a measurement date of 31 March 2025. However, to the extent that the Company’s
share price increases between 31 March 2025 and the second and third measurements dates (of 31 March 2026 and 31 March 2027
respectively), at the Board’s discretion, the further incremental value will be delivered on the Awards in line with the following table. The
value of the employee Awards may therefore increase at each measurement date.
Percentage of value above the hurdle attributable to the Awards
AO Total market cap < £2.5 billion (£5.23 per share)
at measurement date
AO Total market cap between £2.5 billion and £4.5 billion
at measurement date
AO Total market cap between £4.5 billion and £5.0 billion
at measurement date
AO Total market cap between £5.0 billion and £6.0 billion
(£12.55 per share) at measurement date
0%
7% of the excess between £2.5bn and £4.5bn
As above plus 10% of the excess between £4.5bn and £5.0bn
As above plus 5% of the excess between £5.0bn and £6.0bn
Under both the Executive and employee Awards, the number of shares issued to satisfy the Awards cannot exceed 5.0% of the
Company’s share capital. For the employee Awards, this means that above a market cap of £5.0 billion the percentage of value
attributable to the Awards cannot exceed 5% of the market capitalisation.
In arriving at the fair value of each award, the following assumptions have been used:
Assumptions
Market capitalisation at grant
Hurdle
Cap
Dividend yield
Expected term
Risk free rate
Volatility
Discount for post vesting restrictions
£1.032bn
£2.5bn
£4.5bn/£6.0bn
0.0%
4.5 years
0.0%
45.0%
£1.032bn
£2.5bn
£4.5bn/£6.0bn
0.0%
5.5 years
0.0%
45.0%
£1.032bn
£2.5bn
£4.5bn/£6.0bn
0.0%
6.5 years
0.0%
45.0%
nil
nil
nil
The fair value of each award was £42.57, £21.90 and £18.14 for 31 March 2025, 2026 and 2027 respectively.
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AO World Plc Annual Report and Accounts 2021 31. Share-based payments continued
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.
2021
No. of
options
3,437,415
1,285,091
(199,907)
(30,317)
4,492,282
2021
WAEP (£)*
0.83
3.32
1.03
1.49
1.53
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
During the year ended 31 March 2021, options were granted on 25 January 2021. For the shares outstanding at 31 March 2021, the
remaining weighted average contractual life is 1.78 years (2020: 2.28 years). The weighted average fair value of options granted during
the year was £3.32 per share.
The following table gives the assumptions made during the year ended 31 March 2021:
For options granted on
Risk-free rate
Expected volatility
Expected dividend yield
Option life
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
25 Jan
2021
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 £5.5m (2020: £5.0m).
Contributions totalling £0.7m (2020: £0.5m) were payable at the end of the year and are included in accruals.
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.
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2021
33. Financial instruments continued
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.
2021
Carrying
amount
£m
2021
Fair value
£m
2020
Carrying
amount
£m
2020
Fair value
£m
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
–
–
67.1
19.8
59.5
146.4
(273.8)
(118.1)
–
(95.3)
–
(487.2)
(340.8)
67.1
19.8
59.5
146.4
(273.8)
(118.1)
–
(95.3)
–
(487.2)
(340.8)
0.6
6.9
20.5
32.7
60.8
(139.6)
(102.3)
(22.0)
(84.1)
(1.0)
(349.0)
(288.2)
The table below shows the movement in valuation for both the call and put option during the year.
Call option
At 1 April 2019
Change in valuation
At 31 March 2020
Change in valuation
At 31 March 2021
Put option
At 1 April 2019
Exercised in the year
Unwind of discount
Change in valuation
At 31 March 2020
Exercised in the year
Unwind of discount
Change in valuation
At 31 March 2021
0.6
6.9
20.5
32.7
60.8
(139.6)
(102.3)
(22.0)
(84.1)
(0.3)
(348.3)
(287.5)
£m
0.8
(0.1)
0.6
(0.6)
–
£m
3.6
(0.6)
0.3
(2.2)
1.1
(0.2)
0.1
(0.9)
–
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.
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AO World Plc Annual Report and Accounts 2021 33. Financial instruments continued
As set out in Note 29, AO World Plc exercised its option over the third 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 £0.1m.
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 2021
Call option
At 31 March 2020
Financial liabilities
At 31 March 2021
Put option to acquire non-controlling interest
At 31 March 2020
Put option to acquire non-controlling interest
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
–
–
–
–
–
–
–
–
–
–
0.6
0.6
–
–
0.6
0.6
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
–
–
–
–
–
–
0.3
0.3
The fair value hierarchy for the call and put options is consistent for both the Group and parent Company.
b) Credit risk
Financial risk management
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s receivables from customers, with a maximum exposure equal to the book value of
these assets.
The Group’s 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
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£m
19.8
19.8
2020
£m
20.5
20.5
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2021
33. Financial instruments continued
Credit quality of financial assets and impairment losses
The ageing of trade receivables at the statement of financial position date was:
Not past due
Past due 0–30 days
Past due 31–120 days
More than 120 days
At 31 March 2021
Not past due
Past due 0–30 days
Past due 31–120 days
More than 120 days
At 31 March 2020
Gross
£m
Impairment
£m
16.0
3.1
0.1
0.8
20.0
12.5
3.4
3.2
1.5
20.6
–
–
–
(0.2)
(0.2)
–
–
(0.1)
–
(0.1)
Net
£m
16.0
3.1
0.1
0.6
19.8
12.5
3.4
3.1
1.5
20.5
The current year includes an impairment charge of £0.2m (2020: £0.1m) to trade receivables. Contract assets are also assessed for credit
risk. Total contract assets at 31 March 2021 were £172.2m (2020: £160.9m). Management assess the counter party risk relating to these
assets that 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 expected credit loss provision is required. Expected credit losses on other financial assets held at amortised cost
are not considered to be material.
c) Liquidity risk
Financial risk management
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. It is Group policy to maintain a
balance of funds, borrowings, committed bank and other facilities sufficient to meet anticipated short-term and long-term financial
requirements. In applying this policy, the Group continuously monitors forecast and actual cash flows against the maturity profiles
of financial assets and liabilities. Uncommitted facilities are used if available on advantageous terms. It is Group treasury policy to
ensure that a specific level of committed facilities is always available based on forecast working capital requirements. Cash forecasts
identifying the Group’s liquidity requirements are produced and are stress tested for different scenarios including, but not limited to,
reasonably possible decreases in profit margins and increases in interest rates on the Group’s borrowing facilities and the weakening of
sterling against other functional currencies within the Group.
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the effect of
netting agreements:
Carrying
amount
£m
Contractual
cash flows
£m
383.7
–
95.3
479.0
383.7
–
107.8
491.5
Carrying
amount
£m
Contractual
cash flows
£m
241.9
22.0
84.1
348.0
241.9
22.6
96.8
361.3
Within
1 year
£m
375.8
–
25.3
401.1
Within
1 year
£m
234.4
5.7
19.8
259.9
Between
1 and 5
years
£m
Between
5 and 10
years
£m
In more
than
10 years
£m
7.9
–
64.8
72.7
–
–
17.1
17.1
–
–
0.6
0.6
Between
1 and 5
years
£m
Between
5 and 10
years
£m
In more
than
10 years
£m
7.5
16.9
53.2
77.6
–
–
22.6
22.6
–
–
1.2
1.2
Non-derivative financial liabilities
Trade and other payables
Bank loans
Lease liabilities
At 31 March 2021
Non-derivative financial liabilities
Trade and other payables
Bank loans
Lease liabilities
At 31 March 2020
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AO World Plc Annual Report and Accounts 2021 33. Financial instruments continued
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:
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.
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.
Fixed and variable rate instruments
Fixed rate
Variable rate
2021
£m
9.6
–
9.6
2020
£m
9.4
21.0
30.4
e) Capital management
It is the Group’s policy to maintain an appropriate equity capital
base so as to maintain investor, creditor and market confidence
and to sustain the future development of the business.
The capital structure of the Group consists of net cash,
borrowings (disclosed in Note 23) and equity of the Group.
The Group is not subject to any externally imposed capital
requirements. In addition, as set out in Note 23, AO Limited, a
direct subsidiary of AO World Plc and the holding company of
AO Retail Limited and Expert Logistics Limited, has access to an
£80m Revolving Credit Facility which expires in April 2023.
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
2021
£m
157.5
2020
£m
142.9
2021
£m
41.3
2020
£m
42.3
Euros
Sterling strengthens by 10%
Sterling weakens by 10%
Euro currency impact
2021
£m
(11.6)
10.6
2020
£m
(10.1)
9.2
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 12.
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
below.
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
2021
£m
4.6
3.0
–
7.6
2020
£m
3.5
3.0
0.1
6.6
Further information about the remuneration of individual
Directors is provided in the audited part of the Directors’
Remuneration Report on pages 114 to 139.
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2021
35. Restatement of comparatives
In conducting a reconciliation of the contract base with the Group’s insurance plan partner, the Group discovered that a number of
plans that were treated as live on the Group’s database had actually been cancelled, in addition to a number of live plans that had not
been reported to the Group. These arose due primarily to a misinterpretation of data received from the third party. These plans related
to the period 2008 to 2020.
As a consequence, revenue, finance income and the associated contract asset have been overstated in these past periods. The errors
have been corrected by restating each of the affected financial statement line items for prior periods. The following tables summarise
the impacts on the Group’s consolidated financial statements.
Summarised consolidated income statement and other comprehensive income
£m
Revenue
Operating loss
Finance income
Finance costs
Profit before tax
Tax (charge)/credit
Profit after tax for the year
Total comprehensive loss for the year
Year ended
31 March
2020
as reported
Adjustment
Year ended
31 March
2020
restated
1,046.2
(3.8)
10.9
(5.6)
1.5
(0.1)
1.4
(4.1)
(0.5)
(0.5)
(0.4)
–
(0.9)
0.1
(0.8)
(0.8)
1,045.7
(4.3)
10.5
(5.6)
0.6
0.1
0.7
(4.8)
The restatement of the Income Statement has also resulted in Earnings per Share being restated. The profit attributable to
shareholders in the prior year has decreased from £1.7m to £1.0m. As a consequence this results in basic profit per share being 0.21p
(2020 reported: 0.38p) and diluted profit per share being 0.21p (2020 reported: 0.37p).
Summarised consolidated statement of financial position
£m
Non current assets
Trade and other receivables
Deferred tax asset
Other non current assets
Current assets
Trade and other receivables
Other current assets
Total assets
Total liabilities
Net assets
Retained losses
Other reserves
Total
Non controlling interest
Total equity
At 31 March
2020 as
reported
Adjustment
At 31 March
2020
restated
87.9
4.5
138.6
231.0
137.4
80.6
218.0
449.0
(369.3)
79.7
(46.1)
126.8
80.7
(1.0)
79.7
(8.7)
0.1
–
(8.6)
(2.5)
–
(2.5)
(11.1)
–
(11.1)
(11.1)
–
(11.1)
–
(11.1)
79.2
4.6
138.6
222.4
134.9
80.6
215.5
437.9
(369.3)
68.6
(57.2)
126.8
69.7
(1.0)
68.6
There is no impact on the overall cash balance as at 31 March 2020. Deductions for the related overpayments of taxation have been
reflected in respect of the 2020 financial year. No further deductions relating to periods prior to 2020 have been recognised in these
financial statements due to the uncertainty around the recoverability of overpayments of tax relating to these periods.
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AO World Plc Annual Report and Accounts 2021
35. Restatement of comparatives continued
Summarised consolidated statement of financial position
£m
Non current assets
Trade and other receivables
Other non current assets
Current assets
Trade and other receivables
Other current assets
Total assets
Total liabilities
Net assets
Retained losses
Other reserves
Total
Non controlling interest
Total equity
At 31 March
2019
reported
Adjustment
At 31 March
2019
restated
79.4
140.1
219.5
114.5
105.8
220.3
439.8
(358.1)
81.8
(51.2)
134.0
82.8
(1.0)
81.8
(8.1)
–
(8.1)
(2.3)
–
(2.3)
(10.4)
–
(10.4)
(10.4)
–
(10.4)
–
(10.4)
71.3
140.1
211.5
112.2
105.8
218.0
429.5
(358.1)
71.5
(61.5)
134.0
72.5
(1.0)
71.5
Summarised consolidated statements of changes in equity
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
Other reserves
Reported balance
at 31 March 2020
Cumulative
adjustment
Restated balance
at 1 April 2020
1.2
–
1.2
–
–
–
103.7
22.2
–
–
103.7
22.2
0.5
–
0.5
11.7
–
11.7
Other reserves
(9.7)
(2.7)
(46.1) 80.7
(1.0)
79.7
–
–
(11.1)
(11.1)
–
(11.1)
(9.7)
(2.7)
(57.1) 69.7
(1.0) 68.6
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 31 March 2019
Cumulative
adjustment
Restated balance
at 1 April 2019
1.2
–
1.2
–
–
–
103.7
22.2
–
–
103.7
22.2
0.5
–
0.5
13.1
–
13.1
(4.2)
(2.5)
(51.2) 82.7
(0.9) 81.8
–
–
(10.4)
(10.4)
–
(10.4)
(4.2)
(2.5)
(61.5) 72.4
(0.9)
71.5
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AO World Plc Annual Report and Accounts 2021Our Financials
Company statement of financial position
As at 31 March 2021
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
Trade and other receivables
Cash at bank and in hand
Total assets
Current liabilities
Derivative financial liability
Trade and other payables
Borrowings
Lease liability
Net current liabilities
Non-current liabilities
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
8
11
9
10
10
10
11
12
12
2021
£m
1.9
2.2
6.4
85.4
137.3
2.0
–
235.2
0.8
3.8
0.7
5.3
240.5
–
(105.8)
–
(1.1)
(106.9)
(101.6)
(6.4)
(0.1)
(6.5)
(113.4)
127.1
1.2
104.3
22.2
0.5
9.3
0.4
(10.8)
127.1
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
The financial statements of AO World Plc, registered number 05525751, were approved by the Board of Directors and authorised for issue
on 30 June 2021. They were signed on its behalf by:
John Roberts
CEO
Mark Higgins
CFO
AO World Plc
AO World Plc
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AO World Plc Annual Report and Accounts 2021 Company statement of changes in equity
As at 31 March 2021
Share
capital
£m
1.2
–
–
–
–
–
1.2
–
–
–
–
–
1.2
Share
premium
account
£m
103.7
–
Merger
reserve
£m
22.2
–
–
–
–
–
103.7
–
–
0.6
–
–
104.3
–
–
–
–
22.2
–
–
–
–
–
22.2
Capital
redemption
reserve
£m
Share-
based
payments
reserve
£m
0.5
–
–
–
–
–
0.5
–
–
–
–
–
0.5
13.1
–
2.0
–
–
(3.4)
11.7
–
3.9
–
–
(6.3)
9.3
Other
reserve
£m
Retained
losses
£m
(0.2)
–
(32.8)
7.8
–
–
0.3
–
0.1
–
–
–
0.3
–
0.4
–
–
–
3.4
(21.6)
4.5
–
–
–
6.3
(10.8)
Total
£m
107.7
7.8
2.0
–
0.3
–
117.8
4.5
3.9
0.6
0.3
–
127.1
Balance at 1 April 2019
Profit for the year
Share-based payments
charge net of tax
Issue of shares (net of
expenses)
Acquisition of non-controlling
entity
Movement between reserves
Balance at 31 March 2020
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 2021
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the Company financial statements
For the year ended 31 March 2021
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 accounting standards in conformity with the requirements of the Companies Act 2006 (“Adopted IFRSs”), but makes
amendments where necessary in order to comply with Companies Act 2006, and has set out below where advantage of the FRS 101
disclosure exemptions has been taken.
In the transition to FRS 101 from Adopted IFRS, the Company has made no measurement and recognition adjustments.
Under s408 of the Companies Act 2006, the Company is exempt from the requirement to present its own profit and loss account.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures:
• a Cash flow statement and related notes;
• comparative period reconciliations for share capital, tangible fixed assets, intangible assets;
• disclosures in respect of transactions with wholly owned subsidiaries;
• disclosures in respect of capital management;
• the effects of new but not yet effective IFRSs;
• disclosures in respect of the compensation of key management personnel; and
• disclosures of transactions with a management entity that provides key management personnel services to the Company.
As the consolidated financial statements include the equivalent disclosures, the Company has also taken the exemptions under FRS 101
available in respect of the following disclosures:
• IFRS 2 Share-based Payments in respect of Group-settled share-based payments;
• certain disclosures required by IAS 36 Impairment of assets in respect of the impairment of goodwill and indefinite life intangible
assets; and
• certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial Instrument
Disclosures.
Investments
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
Other accounting policies
For other accounting policies, please refer to the Group accounting policies on page 162.
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 2020
Additions
Transfer to subsidiary undertakings
Amounts written off
Group share-based payments
Cost at 31 March 2021
The additions in the current year relate to:
2021
£m
83.1
0.1
–
–
2.2
85.4
2020
£m
82.3
27.0
(0.6)
(26.5)
0.9
83.1
i. The acquisition of further shares in AO Recycling Limited for £0.1m following the exercise of the third tranche of options put in place on
the original acquisition in 2015.
In addition, the Company has made capital contributions to its subsidiaries of £2.2m (2020: £0.9m) in relation to the allocation of share-
based payment charges.
Management note that the parent company net assets of £127.1m exceed the consolidated net assets (£96.4m) by £30.7m. Despite this
difference, management have not performed impairment tests on the carrying value of the investments held in the parent company
balance sheet as, at the 31 March 2021, the overall market capitalisation of the Group was approximately £1.4bn and hence no indication
of impairment is noted.
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AO World Plc Annual Report and Accounts 2021 4. Intangible assets
Cost
At 31 March 2020
Additions
At 31 March 2021
Amortisation
At 31 March 2020
Charge for the year
At 31 March 2021
Carrying amount
At 31 March 2021
At 31 March 2020
Amortisation is charged to administrative costs in the income statement.
5. Property, plant and equipment and Right of use assets
Cost
At 31 March 2020
Additions
Disposals
At 31 March 2021
Accumulated depreciation
At 31 March 2020
Charge for the year
Disposals
At 31 March 2021
Carrying amount
At 31 March 2021
At 31 March 2020
The carrying value of Right of use assets is analysed as follows:
Right of use assets
Land and buildings
Motor vehicles
Domain
names
£m
Software
£m
Total
£m
1.2
–
1.2
0.9
–
0.9
0.3
0.3
1.6
1.4
3.0
0.9
0.5
1.4
1.6
0.7
2.8
1.4
4.2
1.8
0.5
2.3
1.9
1.0
Computer
and
office
equipment
£m
Leasehold
improvements
£m
Total
£m
Right of use
assets
£m
2.4
0.6
–
3.0
1.4
0.5
–
1.9
1.2
1.0
2.7
–
–
2.7
1.1
0.5
–
1.6
1.1
1.6
5.1
0.6
–
5.7
2.5
1.0
–
3.5
2.2
2.6
2021
£m
6.1
0.3
6.4
9.6
0.1
(0.2)
9.5
2.3
1.0
(0.2)
3.1
6.4
7.3
2020
£m
6.9
0.3
7.3
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the Company financial statements continued
For the year ended 31 March 2021
6. Subsidiaries
Details of the Company’s subsidiaries at 31 March 2021 are as follows:
Name of subsidiary
Principal place of
business
Class of shares held
Proportion of ownership
interests and voting
rights held by AO World
Plc
United Kingdom Ordinary
AO Retail Limited
United Kingdom Ordinary
Expert Logistics Ltd
United Kingdom Ordinary
Worry Free Limited
United Kingdom Ordinary
Elekdirect Limited
United Kingdom Ordinary
Appliances Online Ltd
Germany
Ordinary
AO Deutschland Limited
United Kingdom Ordinary
AO Ltd
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
BERE Limited
AO Business Limited
AO B2B Limited
AO Trade Limited
AO Rental Limited
AO Care Limited
AO Premium Club Limited
AO Club Limited
AO Distribution Limited
AO Logistics Limited
Ordinary and redeemable
preference share
Jersey
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 Recycling Limited.
† Indirectly owned by AO Limited.
‡ Indirectly owned through Worry Free Limited (50%) and Appliances Online Limited (50%).
100%†
100%†
100%
100%
100%
100%‡
100%
99.99%*
100%
100%
81.6%
100% **
100% **
100%
100%
100%†
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Principal activity
Retail
Logistics and transport
Holding company
Retail
Holding company
Retail
Holding company
Dormant
Dormant
Dormant
WEEE recycling
Dormant
Dormant
Retail
Dormant
Retail
Investment company
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
All companies within the Group are registered at the same address disclosed on page 204 apart from BERE Ltd and AO.BE SA who are
registered at the addresses listed below.
BERE Ltd
44 Esplanade
St Helier
Jersey
JE4 9WG
AO.BE SA
Naamloze Vennootschap
Esplanade
Heysel 1
Bus 94
1020 Brussels
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AO World Plc Annual Report and Accounts 2021 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 31 March 2019
(Debit)/credit to income statement
Deferred tax asset at 31 March 2020
(Debit)/credit to income statement
(Debit)/credit to reserves
Deferred tax asset at 31 March 2021
Other timing
difference
£m
Share
options
£m
Losses and
unused tax
£m
Transitional
relief
£m
0.2
(0.1)
0.1
0.1
–
0.2
1.0
(0.3)
0.7
0.4
0.4
1.5
0.2
0.1
0.3
(0.3)
–
–
0.2
–
0.2
–
–
0.2
Total
£m
1.5
(0.3)
1.3
0.2
0.4
2.0
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 (2020: £nil) in respect of share options.
8. Trade and other receivables
Prepayments
Other receivables
Expected credit losses on assets held at amortised cost are not considered to be material.
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.
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
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2021
£m
2.7
1.1
3.8
2021
£m
0.9
9.2
0.8
94.9
105.8
2020
£m
1.0
0.5
1.5
2020
£m
1.2
5.0
0.7
83.0
89.9
2021
£m
2020
£m
–
–
–
–
0.2
0.2
–
0.2
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AO World Plc Annual Report and Accounts 2021Our Financials Notes to the Company financial statements continued
For the year ended 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
Movements in the year were as follows:
At 1 April 2020
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 2021
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 31 March 2019
Change in valuation
At 31 March 2020
Change in valuation
At 31 March 2021
Put option
At 31 March 2019
Change in valuation
Exercised in the year
At 31 March 2020
Change in valuation
Exercised in the year
At 31 March 2021
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2021
£m
7.5
1.1
6.4
7.5
2020
£m
8.5
1.1
7.4
8.5
Borrowings
£m
Lease leases
£m
0.2
8.5
(0.2)
–
–
(0.2)
–
–
–
–
–
(1.1)
(0.5)
(1.6)
0.1
0.5
0.6
7.5
£m
0.8
(0.1)
0.6
(0.6)
–
£m
(0.9)
0.3
0.2
(0.3)
(0.1)
0.3
(0.1)
AO World Plc Annual Report and Accounts 2021 12. Share capital and share premium
At 1 April 2020
Share issue
At 31 March 2021
Number
of shares
m
477.9
1.4
479.4
Share
capital
£m
Share
premium
£m
1.2
–
1.2
103.7
0.6
104.3
Merger
reserve
£m
22.2
–
22.2
On 21 July 2020, the Company issued 0.6m shares to satisfy awards under the vested ERP and 2017 LTIP share scheme (see Note 31).
On 1 March 2021, the Company issued 0.8m shares under the vested SAYE scheme 2018.
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.
14. Share-based payments
The Company recognised total expenses of £1.1m (2020: £1.0m) in the year in relation to both the Performance Share Plan (referred to as
LTIP or SIP), Value Creation Plan (“VCP”) and the AO Sharesave scheme (referred to as SAYE). Details of these 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 2021, the balance outstanding with AO Recycling Limited was £6.3m (2020: £2.3m).
2021
£m
0.1
2020
£m
0.1
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AO World Plc Annual Report and Accounts 2021Our Financials Important information
Registered office and
headquarters
AO
5A The Parklands
Lostock
Bolton BL6 4SD
Registered number: 5525751
Tel: 01204 672 400
Web: ao-world.com
Company Secretary
Julie Finnemore
Email: cosec@ao.com
Joint Stockbrokers
Goldman Sachs International
Plumtree Court
25 Shoe Lane
London EC4A 4AU
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
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
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.
Bankers
Barclays Bank plc
51 Mosley Street
Manchester M60 2AU
HSBC Bank plc
4 Hardman Square
Spinningfields
Manchester M3 3EB
UniCredit Bank AG
Moor House
20 London Wall
London EC2Y 5ET
Registrar
Link Group
Unit 10, Central Square
29 Wellington Street
Leeds
LS1 4DL
204
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.
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AO World Plc Annual Report and Accounts 2021
Glossary
Adjusted EBITDA means Profit/(loss) before tax, depreciation,
amortisation, net finance costs, profit/loss on the disposal of fixed
assets and Adjusting items.
Adjusting items means the items as set out on page 168
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
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
AO World, AO or the Group means AO World Plc and its subsidiary
undertakings
SID means Senior Independent Director
SKUs means stock keeping units
AV means audio visual products
B2B means business to business
B2C means business to consumer
Board means the Board of Directors of the Company or its
subsidiaries from time to time as the context may require
Code means the UK Corporate Governance code published by
the FRC in 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
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
IPO means the Group’s Initial Public Offering in March 2014
KPMG means KPMG LLP
LSE means London Stock Exchange
LTIP means Long-term Incentive Plan
MDA means major domestic appliances
NPS means Net Promoter Score, which is an industry measure of
customer loyalty and satisfaction
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-recycling.com
ao-business.com
ao-drivers.com
ao-outlet.co.uk
mobilephonesdirect.co.uk
elekdirect.co.uk
Corporate
ao-world.com
German site:
Customer
ao.de
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AO World Plc Annual Report and Accounts 2021Our Financials Shareholder notes
206
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AO World Plc Annual Report and Accounts 2021 The paper is Carbon Balanced with World Land Trust, an international conservation charity, who
offset carbon emissions through the purchase and preservation of high conservation value land.
Through protecting standing forests, under threat of clearance, carbon is locked in that would
otherwise be released. These protected forests are then able to continue absorbing carbon
from the atmosphere,referred to as REDD (Reduced Emissions from Deforestation and forest
Degradation). This is now recognised as one of the most cost-effective and swiftest ways to arrest
the rise in atmospheric CO2 and global warming effects. Additional to the carbon benefits is the
flora and fauna this land preserves, including a number of species identified at risk of extinction on
the IUCN Red List of Threatened Species.
This document is printed on Revive Silk 100, which is made from 100% FSC® Recycled pulp and post-
consumer waste paper. This reduces waste sent to landfill, greenhouse gas emissions, as well as the
amount of water and energy consumed.
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AO World Plc
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