The destination
for electricals
AO World PLC
Annual Report and Accounts 2022
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We make
customers’ lives
easier by helping
them brilliantly
We are a leading online electricals retailer
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 sell over 6,000 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
Year in review
Performance
Investment case
02
03
04
Strategic Report
How we create value
Our markets
Our brand
08 Chair’s statement
12
14
18
22 Our culture
24 Our values
26 Our customers
28 Our technology
UK retail
30
33 Germany
34 Our suppliers
Logistics
36
Recycling
38
44 Our strategy
46 Chief Executive Officer’s strategic review
48 Chief Financial Officer’s review
54 Our risks
66
68
69 Material sustainability issues
ESG strategy and pillars
70
Sustainable living
71
Fair, Equal and Responsible
79
Fit for the Future
84
Engaging with our stakeholders
Sustainability
Our Governance
Board of Directors
88 Chair’s letter and introduction
92
94 Corporate governance report
104 Nominations Committee report
108 Audit Committee report
116 Directors’ remuneration report
142 Directors’ report
Our Results
160
150 Independent Auditor’s Report
159 Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement
of financial position
Consolidated statement
of changes in equity
161
162
163 Consolidated statement of cash flows
Notes to the consolidated
financial statements
Company statement
of financial position
Company statement
of changes in equity
Notes to the company
financial statements
164
195
196
197
Shareholder information
203 Important information
204 Glossary
Our mission is to become the
destination for electricals
Read more about our strategy on page 44 and 45
crucial pillars
1. A strategy focused on five
2. Lead by our purpose:
3. Ensuring we don’t only make
making customers’ lives easier
by helping them brilliantly
Read more about our customers on pages 26 and 27
our mums proud, but make
our grandchildren and future
generations proud too – being
a responsible retailer
Read more about how we are sustainable on pages 68 and 83
AO World PLC Annual Report and Accounts 2022
01
Overview Year in review
AO was founded on the belief that online was a better
way to buy and sell electricals. That belief is as strong
as ever, even – and especially – as we go through
one of the most challenging environments we’ve
weathered as a Group. Our purpose is as important
now as ever, to make customers' lives easier by
helping them brilliantly.
The past 12 months have been a turbulent time for
retail and AO - of course - hasn’t been immune to
those effects. The initial view, both in AO and beyond,
was that the Covid-enforced consumer behavioural
change would meaningfully stick in both the UK and
Germany, and with it would create lots of opportunity
to accelerate growth and expansion. It was seen
as a once-in-a-generation opportunity to leverage
our scale and market position, and to really take
advantage of the opportunity while it existed, and we
invested accordingly.
When Covid restrictions eased, the picture was very
different to that planned. It became clear as we
progressed through the new financial year, that there
was a whole raft of new challenges to navigate.
Our markets and our business have all undergone
extraordinary change over the past year. Our focus
now is on responding to those changes with AO’s usual
agility, determination and innovation.
The qualities that have made our business a
success - brilliant customer service, strong supplier
relationships and innovation – still underpin our
strategy and are an integral part of our corporate
culture. Our business remains resilient, and the actions
we have taken over the past year have increased our
ability to respond to changing market dynamics with
strengthened financial foundations. We therefore look
forward to the year ahead with cautious optimism.
02
AO World PLC Annual Report and Accounts 2022 Performance
Key Performance Indicators
Group revenue
(£m)
Group Adjusted
EBITDA1 (£m)
Cash flow2
(£m)
797
903
1,046 1,661
1,557
2.5
19.1
64.4 8.5
60.2
FY18 FY19 FY20 FY21
FY22
FY19 FY20 FY21
FY22
FY18 FY19 FY20 FY21
FY22
(21.5)
(22.1)
(32.2)
(47.6)
Loss before tax:
£37m
(FY21: £20m profit)
Net debt5 :
£33m
(FY21: £58m net funds)
UK customers3
(‘000)
12,000
10,000
8,000
6,000
4,000
2,000
0
1 For consistency, only FY19–
FY22 figures are shown as
these have been restated
for IFRS 16 Lease liabilities.
Adjusted EBITDA is defined
on page 204.
2 Net (decrease) / increase
in cash.
3 A customer is defined as an
individual customer who has
purchased through us via
ao.com in the UK
4 NPS is an industry measure
of customer loyalty and
satisfaction; UK NPS is based
on a turnover weighted
average of ao.com and MPD,
adjusted for responses.
5 Net debt is defined as cash
less borrowings less owned
asset lease Liabilities but
excluding right of use asset
lease liabilities.
FY14 FY15
FY16 FY17
FY18 FY19 FY20 FY21
FY22
UK NPS
864
(FY21:85)
UK Trustpilot average rating
4.6/5
(FY21:4.7/5)
Operational highlights
y AO remains a UK market leader in
y New agreement with Homebase
MDA with an 18% market share and
32% overall online share
y Over 4 million new customers3
experienced AO's brilliant
customer service (FY20-FY22), with
notable step changes in post Covid
repeat purchase rates
y c.350,000 Trustpilot ratings,
averaging an excellent 4.6 out of 5
stars and UK Net Promoter Score
averaging 864
to supply appliances and
installation and recycling services
to its customers over an initial five
year term
y Over two million fridges have now
been recycled at our AO Recycling
facility and we are now working with
manufacturers to use our recycled
plastic in new products
y Decision taken to close German
business; orderly closure of the
business in progress
03
OverviewAO World PLC Annual Report and Accounts 2022
Investment case
The destination
for electricals
The electricals market has grown
20% over the last nine years, and
moved increasingly online over this
period. Despite extraordinary market
conditions caused by Covid we expect
this to continue. 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 across all
our businesses to deliver a seamless
and compelling customer offer. Our
scale, supplier relationships, customer
focus and market expertise have
resulted in consistently high customer
satisfaction ratings.
Our strong and sustainable cash flow
and solid UK market positions underpin
our long-term investment case.
2. A compelling customer offering 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.
1.
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 mindset,
underpinned by strong partner relations
and efficient logistics operations.
3.
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 experts in our
disciplines create best practice solutions and drive innovation efficiently and
consistently across our businesses. This operating model enables 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 12 and 13
04
AO World PLC Annual Report and Accounts 2022 4. 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 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 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 business model on pages 12 and 13
5.
Supporting sustainability
to create a better world
Our culture to always do the right thing, our customers’
concerns about sustainability and changing government
regulation, 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, waste electricals ("WEEE") plastics and metals. We
are a signatory to the British Retail Consortium’s Climate
Action Roadmap goal of Net Zero 2040 and look forward
to defining our carbon reduction strategy as technology
improves.
Read how we have had a positive impact this year on pages
68 and 85
6.
Our amazing culture
Our excellent 4.6 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
spirit of developing new opportunities and relentlessly
striving to do better is at the heart of our corporate
culture and helps us keep growing and adapting
to changes in our fast-moving markets. 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 culture supporting
our continued growth.
Read how we have had a positive impact this year on pages
22 and 23
05
OverviewAO World PLC Annual Report and Accounts 2022 Strategic
Report
08 Chair’s statement
12 How we create value
14 Our markets
18 Our brand
22 Our culture
24 Our values
26 Our customers
28 Our technology
30 UK retail
33 Germany
34 Our suppliers
36 Logistics
38 Recycling
44 Our strategy
46 Chief Executive Officer’s strategic review
48 Chief Financial Officer’s review
54 Our risks
66 Engaging with our stakeholders
68 Sustainability
69 Material sustainability issues
70 ESG strategy and pillars
71 Sustainable living
79 Fair, Equal and Responsible
84 Fit for the Future
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
AO World PLC Annual Report and Accounts 2022 Chair’s statement
A challenging year in the face of
unprecedented volatility
This has been a tumultuous year for business, and for
the retail sector in general. The Covid restrictions during
2020 and most of 2021 curtailed consumer spending
in traditional shops and accelerated the longer-term
trend to online shopping. We invested significantly
and boldly to meet consumer demand and capture
new customers, which brought new pressures for our
business in logistics, warehousing, staffing levels,
inventory and delivery but enabled us to expand
our category reach and to introduce over 4 million
new customers to the brilliant AO service since the
pandemic started in 2019.
We entered the year with optimism but as the
year progressed, our business faced increasing
macroeconomic headwinds including global supply
chain disruption, labour shortages and a well-
documented growing cost of living crisis for consumers.
As a result of this combination of global factors,
our markets weakened considerably as the year
progressed.
Our UK business
Despite the market challenges, our UK business showed
resilience, with reported revenues of £1,37 billion, which
decreased by 4.6% from FY21 at the height of the Covid
pandemic, but increasing 52% on a two year like-for-like
basis. We have an exceptionally strong customer base
that surpassed the 10 million customers mark, adding 4
million customers in the past two years alone, achieving
market-leading customer satisfaction scores on NPS
and Trustpilot. We also retained our market share,
both online and of the total market, and remain one of
the leaders in the retail of major domestic appliances
(“MDA”) with a 32% online market share in the UK,
even as customers returned to traditional bricks and
mortar stores to a greater degree than was originally
anticipated. Opportunities to leverage this customer
base underpin our business and our future strategy.
Like many businesses, we faced a number of challenges
as we emerged from the Covid lockdown. Global
supply chains have struggled to cope as the global
economy emerged from Covid restrictions, which
led to component shortages and hugely increased
container shipping rates. As a result, product and range
availability was constrained for certain lines although
as one of the market leaders, we were still able to offer
a wider range than many others electrical retailers.
The qualities that have
made our business
a success - brilliant
customer service,
strong supplier
relationships and
constant innovation –
are still at the heart of
our strategy and are
an integral part of our
corporate culture.”
Geoff Cooper
Chair
08
Read more about
UK retail business
on pages 30 and 32
Read more about
our suppliers on
pages 34 and 35
AO World PLC Annual Report and Accounts 2022 This was compounded by inflationary pressures in
other costs right across the business, from staffing, to
vehicles, energy, and fuel.
Our flexible and agile operating model meant that we
could respond rapidly to the shortage of drivers in the
second quarter of FY22 which temporarily impacted
service levels. Through a mixture of flexing our model of
self-employed drivers, introducing a limited employed
model and leveraging our apprenticeship programmes,
we successfully met these challenges, although at
a higher ongoing operating cost. Crucially, despite
these challenges the quality of our customer service
throughout the never wavered.
We anticipate that the UK consumer will continue to
be challenged by cost-of-living pressures in the near
term, but that our strong market position and customer
proposition will continue to underpin our resilience and
our market position.
Germany closure
Following a significant migration to online shopping
during the pandemic, German customers returned to
traditional channels as Covid restrictions lifted to a
much greater extent than we expected. However, the
strong performance of the online channel through
this period prompted traditional retailers to create
and promote online customer acquisition models. This
resulted in a huge increase in the cost of customer
acquisition, as competition for online sales intensified,
with the extra capacity of the online channel created
through the pandemic competing for pre-pandemic
levels of sales.
These factors, unfortunately, outweighed the
economies of scale that we had achieved. After
six months of intense competition, we undertook a
strategic review of the business which resulted in the
eventual decision to close our German business. We
sincerely thank all our employees in Germany who
worked so hard to build the business. We are continuing
to carry out an orderly closure of the business and
expect the total cash costs to be between £nil and
£5m in FY23.
Employees are at the heart
of our success
Our dedicated and talented employees are the face
of AO to our customers, and they are the reason
that we consistently win market leading customer
satisfaction ratings. Our AO culture is how we deliver for
our customers which is what sets us apart as a business.
Behind every happy customer are around 3,600 AOers,
making our customers’ lives easier by helping them
brilliantly. Our AOers have lived our values to make their
mums proud, and we thank each and every one of them
for their hard work, this year and every year.
We are acutely aware that our people have continued
to deliver brilliant service whilst dealing with enormous
change and uncertainty. We are determined to repay
their professionalism, dedication and resilience, and we
look forward to further engagement.
09
AO World PLC Annual Report and Accounts 2022Strategic Report Chair’s statement continued
Value Creation Plan (“VCP”)
Over recent months the Board and the Remuneration
Committee has spent substantial time considering the
current VCP, its terms and the rationale for introducing
such a plan. The VCP was aimed at incentivising and
rewarding exceptional performance and retaining the
talented team whilst driving exceptional value creation
for shareholders. The scheme is currently significantly
underwater; it is therefore neither incentivising nor
retaining our people. Since the introduction of the
VCP, our strategy is much changed following our
decision to exit Germany and to focus on generating
profitable growth in our UK markets together with cash
generation. We believe that this revised strategy will
deliver significant value to shareholders in the medium
to long term; we still want to reward exceptional value
creation and believe an all employee VCP scheme will
galvanise our people in delivering that value. Having
consulted our major shareholders, all of whom have
indicated their support, we will be putting forward a new
VCP for shareholder approval at the 2022 AGM which will
replace the current VCP.
We have retained many features of the original VCP –
with a maximum plan value of £300m – capable of being
achieved at a £6bn market cap (as before). However, in
order to fully incentivise and reward employees from
the current share price, we are proposing the plan will
begin funding at a share price of £1. In recognition of
the reduced threshold target, the funding rate of the
scheme has been reduced significantly from 10% of
value created above the threshold to 5.5%. As before,
John our CEO has committed to gift any shares received
under the scheme to charity. Further details of the
proposal are set out in the Directors Remuneration
Report on page 116.
ESG and sustainability
During the year the Board reviewed the development of
the Group’s ESG strategy, commissioning an externally
led materiality assessment. We approved six long-term
commitments set out on page 70 and look forward to
making progress against these initiatives. In relation
to our climate pledge, we support the British Retail
Consortium’s Net Zero Targets and will work with third
party experts to define our path to net zero in the
coming years.
Board changes
In January 2022, Luisa Delgado stepped down from
the Board at the end of her three-year term to pursue
other personal interests. We are extremely grateful
for her service to AO and wish her well in her future
projects. Shaun McCabe replaced Luisa as interim chair
of the Remuneration Committee, and we are currently
looking to recruit two to three new Board members to
complement the experience and skill-set of the existing
Board. A fuller discussion of the Board’s work over the
year is included in the Corporate Governance section
starting on page 88.
Outlook
The new financial year marks a period of realignment
for the business as we undertake a strategic pivot to
focus on cash and profit.
In June, following a strategic review of our Germany, we
announced the decision to close that operation, with
estimated cash costs in FY23 of nil to £5m, a significant
improvement on our original estimate of nil to £15m.
In July, to strengthen the balance sheet and increase
liquidity back to historical levels relative to revenue, we
conducted a placing of new ordinary shares, raising
c.£40m of capital. This also provides the flexibility to
capitalise on significant long term growth opportunities
in the UK. Our addressable market in the UK has grown
to £23.4bn as our proposition has extended into new
categories. The online segment of the market in those
categories remains AO's key opportunity as the overall
migration to online retailing continues. We are also
successfully leveraging our logistics expertise and
have signed an extendable five-year contract with
Homebase to supply appliances and installation and
recycling service to Homebase’s customers, where
Homebase agrees to purchase from AO exclusively,
MDA and audio-visual appliances. We are discussing
similar partnerships with other kitchen retailers.
As the business focusses on the significant opportunity
we see in the UK, the process of simplifying operations
and optimising our cost base is already underway.
The focus of this is to rationalise, simplify and refocus
our UK operations, which entails exiting some lines of
business that do not fit our model. This, combined with
driving operational efficiencies and overhead reduction,
is estimated to generate significant benefits by FY25.
In the short term, we expect our strategic pivot and
business realignment will reduce both sales and costs,
but in the medium term it is our ambition to deliver
average revenue growth of 10+% per annum with an
EBITDA margin of 5+% and improved cash generation.
This is an unprecedented volatile environment for
business planning as the post-pandemic retail
environment is substantially shifting, which presents
both challenges and opportunities for AO as a leading
online electricals retailer. Trading through the first
quarter of FY23 has remained broadly in-line with
the Board’s expectations for FY23 revenues in the
approximate range of £1bn to £1.25bn and Group
adjusted EBITDA for the full year in the range of £20m -
£30m with the usual weighting towards the second half
of the year.
Geoff Cooper
Chair
17 August 2022
10
AO World PLC Annual Report and Accounts 2022 11
AO World PLC Annual Report and Accounts 2022Strategic Report 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 destination for electricals.
Key resources
Our competitive advantage
How we create value
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.
y Our amazing culture: Our Trustpilot
ratings (4.6 out of 5 on over 339,000
ratings) don’t just happen by
accident. We live the service pledge
every day and truly care about
being better.
y 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 for
maximum operational gearing.
y Our compelling customer
proposition: We keep investing to
ensure our proposition is better,
faster and more convenient.
y Our technology and infrastructure:
We invest in platforms that are
scalable across categories and
different markets, leveraging our
logistics infrastructure to become
a low cost operator and create
structural advantage.
Culture
We succeed when operating
as One AO, united behind our
mission to be the destination for
electricals. We treat customers
as if they were our gran and we
make decisions that 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
destination for electricals 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. Through our customer-
centric service, competitive
pricing and full cradle to
cradle service, we provide our
customers with the best possible
service. That encourages them
to come back to buy from us,
time after time.
Technology and
infrastructure
Technology is and always has
been at the heart of our focus on
delivering a brilliant customer
experience. From our website
to our logistics infrastructure,
our technology underpins our
business.
12
5
Pivot to
profitable growth
Operational gearing
Focus
Repeat
Invest & innovate
Grow profitable sales and
"Total Addressable Market"
Leverage AO platform
New categories
and channels
4
Our flywheel creates
a virtuous model that
serves all our key
stakeholders.
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.
AO World PLC Annual Report and Accounts 2022
1
The destination
for electricals
Product information
Choice
Price
Service
2
Amazing service
Market leading customer
satisfaction NPS scores
AO Culture & Values
Customer loyalty
55% repeat purchase rate
Cross category purchase
Increasing share of wallet
3
Obsessing about customers,
behaving as One AO, united behind
the same mission are the foundations
of value creation.
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.
Technology and innovation continually
refresh and enhance our customer
experience, operational efficiencies and
competitive positioning. Rising profits will
give us choices and create a virtuous circle
of investment, innovation and customer
satisfaction.
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.
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 markets and applying continuous
innovation to our digital experience. This is
what makes our flywheel fly.
Who The AO Way benefits
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
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.
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.
The environment
Through our vertically integrated supply chain we
can ensure both disposal and recycling of electricals
and packaging and by collecting these as part of
our delivery process we reduce carbon emissions on
transportation.
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 through 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 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 markets.
We have the ability to scale through our vertically
integrated model creating value through operating
leverage .
13
AO World PLC Annual Report and Accounts 2022Strategic Report
Our markets
High fuel and energy prices are driving UK inflation,
which hit a new 40-year high4. Inflationary pressures
on fuel, food and electricity prices are expected to
continue during 2022 and the Bank of England suggests
inflation to peak above 10% for 2022 Q4.5
It is predicted that these macro pressures will result in a
2.2% fall in real wages for 2022 as pay rises are unable
to keep up with surging inflation rates6 and real livings
standards are not expected to recover to their
pre-pandemic level until 2024–257.
Taxes on workers and businesses have increased and
are set to do so further over the next 12 months. A
1.25ppt increase in National Insurance Contributions
from April 2022 has weakened consumer spending
power even further.
The GfK Consumer Confidence index fell to a historic
low of -41 in June 2022, down by nine points from June
20218 due to concerns over surging inflation, higher
interest rates, soaring living costs, record-high fuel and
food prices and continued uncertainty over the Ukraine
conflict.
The majority of MDA sales are driven by distressed
purchases9,, thus providing AO with some resilience
in an economic downturn. We expect this trend to
continue throughout the year. Given the macro-
economic uncertainty, we expect consumers to
reduce discretionary spending and instead reprioritise
essential purchases.
The British Chambers of Commerce predict that
Interest Rates will rise to 2% by Q4 2022 and then
to 3% in Q4 202310. With borrowing more expensive,
homeowners outside of fixed rate mortgages will see
monthly costs increasing and purchasing products on
finance will become more expensive, which may impact
spend on big ticket items. Given this trend, we expect to
see an increase in customers using "Buy Now Pay Later"
providers where available.
The above factors are reflected in the Major Purchase
Index ("MPI"), which decreased by five points year-
on-year to -35 in June 202211. The MPI is based on the
following question to consumers: “In view of the general
economic situation, do you think now is the right time
for people to make major purchases such as furniture
or electrical goods?”. The June 2022 figure has been
stable over the previous two months demonstrating
that consumers are not expecting to spend on big-
ticket electrical items unless needed. We expect less of
an impact to distressed purchasers given the need for
essential white goods in the home.
Macroeconomic factors
The Russia/Ukraine conflict has created significant
uncertainty in the world economy and its impact is
expected to continue throughout 2022. The conflict,
when compounded with lagging Covid impacts,
continues to cause disruption to global supply chains
and increasing raw material prices are driving up
manufacturing and delivery costs. This has affected
commodity prices, with significant price rises
experienced and forecasting uncertain. In addition to
oil and gas, nearly all other essential manufacturing
materials for electricals have seen significant price
increases in the last 12 months, notably aluminium, tin
and nickel1. Further, the energy price cap increase in
April 2022 resulted in a 54% rise in energy prices2, with
additional increases of more 50% expected in October
20223. The fixed price electricity and fuel contracts
which the Group has secured for the majority of FY22
will however provide AO with some short-term stability.
Macro-economic section sources:
1
indexmundi.com/commodities.
7 obr.uk/overview-of-the-march-2022-economic-and-fiscal-outlook/.
2 https://commonslibrary.parliament.uk/research-briefings/cbp-9491/
8 UK Confidence sinks to -41 in June to set new record low (gfk.com).
3
themoneyedit.com/household-bills/energy/october-energy-price-cap.
9 Mintel, Major Domestic Apppliances, UK report 2022, 62%.
4 Bank of England; cnbc.com/2022/06/22/uk-inflation-hits-new-40-year-high-
of-9point1percent-as-food-and-energy-price-surge-persists.html.
5
theguardian.com/business/2022/may/05/bank-england-raises-interest-
rates-inflation-cost-of-living.
6 personneltoday.com/hr/cost-of-living-2022-real-wages-
fall/#:~:text=Cost%20of%20living%202022%3A%20real%20wages%20
fall%202.2%25.
10 britishchambers.org.uk/news/2022/06/bcc-economic-forecast-testing-
times-as-quarterly-growth-dries-up#:~:text=UK%20Economic%20
Outlook%20%E2%80%93%202022,comfortably%20outpacing%20
average%20earnings%20growth.
11 UK Confidence sinks to -41 in June to set new record low (gfk.com
14
AO World PLC Annual Report and Accounts 2022 Our markets
In June 2022, against the backdrop of a challenging
local trading environment, we took the decision to close
our German business (see page 33 for further details).
Our short term strategy is to now focus solely on the UK
electricals market.
As at 31 March 2022, the UK B2C electricals1 market was
worth £30.5bn2, an increase of 47%2 over the previous
two years, with all categories experiencing growth.
Although the market declined by 4%2 year-on-year,
MDA and mobile categories continued to see growth at
3%2 and 2%2 respectively.
AO’s current UK addressable market (which comprises
MDA, SDA, AV, consumer electronics, gaming, mobile,
garden and DIY, smart home and personal care) is
£28bn,2 and has increased 552% since our IPO in
2014 given our expansion into new categories (and
growth in MDA), representing a 26% compound annual
growth rate.
Although AO’s UK total addressable market declined
by 5%2 year-on-year, the market growth gains driven
by Covid were largely retained, with growth of 13%2
between FY20 and FY222.
AO remains a UK market leader in MDA, with an 18%4
market share, and a 32%4 overall online share.
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. During FY22, we launched personal
care products in the UK adding £909m2 to our UK
total addressable market. In addition to new category
launches, we continued to build out ranges in existing
categories ensuring our customers have access to a
broad assortment of electrical products. One of our
primary strategic objectives is to have comprehensive
category coverage and we will achieve this by
continuing to review and develop our ranges, improving
availability and expanding into new subcategories to
ensure we keep up to date with the latest products and
trends.
Our markets sources:
1 Electricals is defined by GfK as MDA, SDA, AV, Computing, mobile, smart
home, photography equipment, office equipment and personal care.
2 GfK, gross value, for the 12 months to 2 April 2022. Company data,
gross value.
3 Company data, gross value.
4 GfK to2 April 2022.
AO Addressable market growth by year2
29
28
23
24
25
£m
35
30
25
15
10
5
0
14
9
9
4
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
MDA
SDA
AV
CE
Gaming
Mobile
Garden & DIY
Smart Home
Personal Care
l e c t r i cals market £
K a d d r essable m
a
r
k
3
0
.
5
b
n
2
U K T o t a l e
rrent U
u
c
O
A
e
t
£
2
8
.
0
b
n
2
AO FY22 UK
product sales
(gross) £1.1bn3
15
AO World PLC Annual Report and Accounts 2022Strategic Report
Our markets continued
Key market trends for AO
Key market trend sources:
1 Verizon Look Forward study reported by Retail Customer Experience
influencermarketinghub.com/retail-trends/.
2 GfK.
3 ticketyboocreative.co.uk/blog/our-2022-retail-trend-predictions-2-back-to-
basics-nbsployalty.
2.
Buy now, pay later (“BNPL”)
is likely to grow in popularity
BNPL has radically altered consumers’ behaviour by
allowing them to buy goods and pay the cost back in a
series of interest-free instalments. 45% of UK based 18
to 34 year olds used BNPL in 20214. Given that Millennials
and Gen Z (those currently aged 9 to 24) will soon be
the largest demographics (both numerically as well
as in terms of purchasing power), market sources
expect BNPL to continue to rise in importance. The top
three categories UK consumers used BNPL to buy are:
electronics (33%), clothes (29%) and white goods (24%)4.
What do people use BNPL to buy?
33% used
it to buy
electronics
29% used
it to buy
clothes
24% used
it to buy
white goods
How is AO responding to this trend
During the last financial year, various BNPL promotions
were trialled across different categories, price points, and
payment terms (six and 12 months), alongside various
interest-free credit promotions. Since November we
increased our promotional offering, so now all customers
are eligible for promotions which has been improving our
conversion. Promotional mix has shifted as an increasing
number of customers look for finance promotions. With
the upcoming increase in the cost of living, we expect
more customers will look to spread the cost in order to
make purchases more affordable and we have created
various plans and initiatives to improve the customer
journey. We continue to work with our finance provider,
NewDay, to ensure the best customer experience.
1.
Online shopping is
here to stay
Covid lockdowns transformed the online market
overnight and retailers saw an unprecedented shift to
online shopping. This trend continued as employees
worked from home and as lockdown restrictions were
lifted. Over the coming year, ecommerce spending is
expected to marginally slow as consumers migrate
back to bricks and mortar stores, however a notable
step change in online penetration levels has stuck. A
recent UK study showed that 60% of adults shopped
mainly in person pre-pandemic, but post-pandemic this
figure has fallen to 37%1.
Online Market Penetrations across all our categories
have seen minimal fluctuation during the calendar
year 2022 to date and penetration rates are expected
to remain broadly flat for the remainder of the year.
Marginal increases in online penetration levels of around
0.5% are expected during 2023.
UK Online Penetration, pre vs post Covid, by category2
100%
80%
60%
40%
20%
0%
MDA
SDA
AV
CE
Gaming
Mobile
Garden & DIY
FY20
FY21
FY22
How is AO responding to this trend
We understand how important it is for our customers to
have a better digital shopping experience, therefore one
of our priorities in FY23 is to invest in improving product
visualisation and interactive product information
as we invest in continually improving and enhancing
our brilliant customer experience. Digitalisation will
transform how customers buy their electricals, and
we are at the forefront of leveraging our position as a
leading online retailer.
16
AO World PLC Annual Report and Accounts 2022 4 citizensadvice.org.uk/Global/CitizensAdvice/Debt%20and%20Money%20
7
insiderintelligence.com/insights/future-retail-trends-industry-forecast/.
Publications/BNPL%20report%20(FINAL).pdf.
8 afterpay-corporate.yourcreative.com.au/wp-content/uploads/2021/08/
5 time.com/6138147/augmented-reality-shopping/.
Clearpay_NextGen_UK.pdf.
6 hfashiondiscounts.uk/ecommerce-statistics/.
4.
Responsible retailing
is gaining traction
A growing population of younger shoppers are
wielding influence on consumer spending and pushing
the agenda on responsible retailing. This consumer
segment prioritises brands that embed social and
environmental responsibility to their everyday business
model7. In 2021, Gen Z and Millennials accounted for
25% of the total retail spend in the UK. Their share of
spend is forecast to grow to 39% by 2030, as more of
Gen Z enter the workforce8.Building and communicating
a clear sustainability strategy around product sourcing,
packaging, delivery, and recycling is critical for retailers
as consumer expectations change in this space.
How is AO responding to this trend
As a responsible retailer, AO continues to invest in
developing its ESG strategy to cover the following three
key pillars: sustainable living, fair, equal and responsible,
and fit for the future. Please see our ESG strategy on
page 70. We already have well established WEEE and
plastics recycling plants and are looking to establish
cradle-to-cradle product cycles in partnerships with
manufacturers and are looking at ways to best promote
“Green” and energy efficient products.
3.
Technology and automation
continue to be crucial to the online
shopper experience
Emerging retail technology trends are shifting the
landscape of online shopping. From easy automation to
artificial intelligence (“AI”) customer service, technology
has already been paving the way for a more seamless
customer experience. Integrated augmented reality
(“AR”) experiences mean that consumers can try
a product digitally before buying it by using their
smartphones. Social media platforms have recently
expanded their in-app shopping offerings (such as
Snapchat and catalogue-powered shopping lenses,
TikTok and Shopify, YouTube & livestreaming live feature
and Instagram and AR-powered makeup try-ons)5.
AI is already making a massive impact on ecommerce
with personalised suggestions, chatbots and virtual
shopping assistants. Its importance will continue to grow,
and the revenue made by AI shopping is forecast to grow
by around 43% by 20256. By capitalising on the ubiquity
of smartphones, retailers can offer 24/7 shopping with
both ecommerce and social media selling.
How is AO responding to this trend
We run automated advertising across Google and
Meta (Facebook and Instagram) using a digital product
catalogue to serve users with relevant products
based on their browsing behaviour. We have made
improvements to this over the last 12 months by
partnering with third parties to improve the data feed
and implement custom creative designs. This has
increased click through rate meaning more people are
visiting the AO site in response to seeing our automated
product adverts.
During the year we launched a TikTok channel, which
now has over 27k followers. This is a great platform for
showcasing AO’s expertise in all things electrical and
appliance related keeping AO front of mind for viewers’
next purchase.
Engagement in AO’s social content has never been
higher with growth of over 150% in the last 12 months
based on responding to consumer trends allowing us to
reach more people than ever with product and brand
content, while users are browsing social channels.
17
AO World PLC Annual Report and Accounts 2022Strategic Report Our brand
Brand
Our strong brand, focused on customer service, is what differentiates
AO and this is proven through our market leading Net Promoter Scores.
Customer first is in our DNA. Or what we like to call – the AO way.
Our brand is one of our biggest growth opportunities, and this is reflected in
our key approach to grow trust, fame and love. These metrics guide every
decision across our brand and marketing departments, and allow us to
remain focused.
To build customer love for the AO brand we have focused on improving
brand salience and positive brand association through:
Driving engagement: inviting more people to understand our brand
better. By creating key moments through our sponsorship, marketing and
communications, we are able to attract new customers and ensure existing
ones come back; and
Creating positive brand association: after a positive and consistent
experience, customers are more likely to be able to recall AO and consider
us when they shop again.
Two delivery men were brilliant. Quick and efficient and even
gave the kids a cuddly toy :) would always recommend AO.”
18
AO World PLC Annual Report and Accounts 2022 Making AO locally famous!
Over recent years we have deployed a “locally famous”
strategy to understand how we can build brand love. We
intend to learn and build on this strategy.
As part of this approach, we put AO in front of the eyes
and ears of potential customers in an iconic space, by
gaining the naming rights of Manchester Arena – or as
it’s now known, the AO Arena.
Building our customer loyalty requires customers to
connect with us. This year our brand initiatives have
included local sponsorships as, for example we became
the principal, front-of-shirt sponsor for Sale Sharks
Rugby Club. As part of the partnership we also unveiled
our “Are you AO-K?”, programme – a mental health
programme devised for schools across the North West.
This programme was created in collaboration with Sale
Sharks to teach children how to look after their mental
health and well-being and will be rolled out across 125
schools in the region over the forthcoming year.
We have already started to see small, but positive,
impacts of these changes in our heartland, with a
higher awareness of the AO Arena and Sale Sharks
sponsorships in the North West vs the rest of the UK.
We continue to maintain our long-term relationship
with Lancashire Country Cricket Club, furthering our
support to include the Club’s age group sides and
medical department. Alongside that, we have renewed
our sponsorship of the Bolton Lads and Girls club Multi
Sports facility, providing young people in Bolton the
opportunity to take part in a range of sporting activities.
We have also released 400 AO-branded taxis on to the
streets of Manchester and London.
How do you feel about AO?
Number of customers
who "Like" us
All of this activity has allowed us to increase
engagement with our customers. While logo
placement goes some way to building brand
fame, brand love is all about the experiences we
create. That’s why we’ve hosted lots of AO events
to delight customers and show off our unique
personality in a positive and inclusive way, and
as a result, we’ve been able to connect greater
consideration and love for the brand amongst
those aware of our sponsorships in the North
West. Our brand activations really sing true to
our AO personality.
We believe that by replicating this model across
different regions we can drive engagement
and positive brand association, as we have
experienced over the past two years in the
North West.
19
AO World PLC Annual Report and Accounts 2022Strategic Report Our brand continued
Bear
Bear, the AO Teddy, continues to drive positive sentiment for our Brand.
Since we launched our little green mascot back in May 2021, we’ve seen
an upward trend in brand impact and love for the idea. Bear helps us to
engage with customers, making sure we spread smiles and positivity. We
chose to introduce Bear to our customers during moments that matter,
which could be at the point of delivery through driver giveaways or via
our brand activations at Sale Sharks and the AO Arena. We continue to
increase the reach for Bear through our social channel – he’s making regular
appearances on TikTok and Instagram, with positive engagement.
The delivery team were
polite, friendly and
courteous. They are
both a credit to your
company. Please give
them a personal thanks
from me even though I
did thank them in person.
Not once did they moan
about the amount of
stairs or grumble about
how heavy the fridge
freezer was. They also
gave me an AO teddy
bear as a gift. I’m
really impressed, and
I will definitely use this
company again. I’m a
very satisfied customer!”
20
AO World PLC Annual Report and Accounts 2022 Marketing
We continued to invest in
marketing channels during the
year, and we saw a significant uplift
in orders from existing customers.
Upgrading our MarTech1 capability
remained a priority in FY22
following on from large-scale
migrations in FY21. As a result of
these upgrades, we expect to see improved efficiency,
driven by an ever-increasing adoption of machine
learning and automation. Our bespoke data-driven
attribution model launched earlier this year, and this
has delivered a step change in how we measure and
optimise marketing performance.
This year we will launch our new state of the art studio
space in central London. The studio is a 15,000 sq ft.
space and includes a full film studio, a green room,
an innovation hub and three edit suites enabling us to
create world-class content.
This innovation space, along with our Manchester office,
will focus on explaining stories brilliantly both for our
customers and manufacturer partnerships.
1 Also known as Marketing Technology, this describes a range
of software and tools that assist in achieving marketing goals
or objectives.
Social
Social remains an important channel for AO, with our objective being to
create an engaged audience of followers who love us for our fun, smile
inducing content. This year a specific focus has been TikTok, with the
audience reaching over 20,000 followers in just a few months. The top
performing TikTok video received over 1.2 million views and was picked up by
The Sun newspaper.
This year AO also featured in McDonalds Monopoly, offering customers
exclusive discounts to use online. The AO logo featured throughout the
marketing collateral, being seen daily by three million customers.
I've just had a delivery by two
lovely delivery personnel who
weren't only accommodating
and very helpful but also gave my
3-year-old daughter a teddy bear.
It absolutely made her day! We've
just had another daughter, so she’s
been feeling overwhelmed with the
attention the baby gets. This little
gesture gave her something that
was hers and made her very happy!
A big thank you to the delivery guys
for being so helpful and a lovely
generous gesture.”
21
AO World PLC Annual Report and Accounts 2022Strategic Report Our culture
We are so lucky to be
surrounded by
like-minded people
who generally want to
do whatever it takes.
The people make all
the difference and are
the main reason I love
what I do.”
AOer
Read more about
our values on
pages 24 and 25
22
One AO - where brilliant people deliver
incredible things. Our AO culture is
how we deliver for our customers and
make AO a great place to work. Our
exceptional 4.6 star Trustpilot rating
and market-leading NPS results don’t
just happen by accident, nor do our
expanding competencies. Behind every
happy customer are around 3,600
AOers, making our customers’ lives
easier by helping them brilliantly.
Our ambition is to be a business that:
y
inspires its people through great leadership,
creating trust and accountability, to deliver
exceptional results as One AO;
y enables its people to collaborate and innovate,
supported by the right information and tools to do
their job; and
y 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 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 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.
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 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.
AO World PLC Annual Report and Accounts 2022 Operations teams are responsible for the on-the-ground
execution, tasked with delivering amazing efficient
service.
Enabling Functions are responsible for servicing
the Group, setting and driving best practices and
standardisation to create leverage and drive cost
efficiencies.
How we 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 and we
achieve this by: Bringing AO to life – all AOers connect
with and understand our culture by sharing practical
experiences of our culture and values in action.
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.
Living our values – we bring the values to life by using
role models to show how our values are lived each
day, helping AOers build trust in them, create shared
understanding and provide guidance.
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.
y Changing behaviours – our leaders are empowered
to manage our business and guide their teams by
using the values in a practical way every day.
y We’re always AO – our customers, suppliers and
partners’ experience of interacting with AO should
be consistent with our culture and values.
y Measuring our progress – we 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.
23
AO World PLC Annual Report and Accounts 2022Strategic Report Our values
24
AO World PLC Annual Report and Accounts 2022 25
AO World PLC Annual Report and Accounts 2022Strategic Report Our customers
Our AO Smile is more than just a logo because being magical in the
moments that matter comes naturally for every AOer
The person I spoke to when ordering,
the two delivery drivers and the customer
service team I spoke to subsequently have
all been friendly, professional and customer
obsessed. Please pass on our thanks to the whole
team as I know this kind of company
culture doesn’t happen by accident.”
Darren
AO customer
The team who delivered my washing
machine today delivered excellent
customer service, Chris and Dave. They are
probably the best delivery team I have had
from AO.com. I love your brand purely
because the customer service is fantastic.
Once again, I would like to thank you for
delivering what you promise!”
Shekila
AO customer
26
AO World PLC Annual Report and Accounts 2022 AO.com followers on
Social Media
Total Followers† FY22
Facebook
1.88m
FY21: 1.87m
Twitter
85k
FY21: 76k
Instagram
82k
FY21: 77k
YouTube
26k
FY21: 24k
TikTok
24k
FY21: -k
Pinterest
9k
Total 2.1m
FY21: -k
UK Trustpilot FY22
Trustpilot
Total reviews
339k
FY21: 260k
Average FY22 Rating 4.6/5
FY21: 4.7/5
†Data during week ending 28 March 22.
UK new customers vs repeat customers* %
First order time
New
Repeat
Repeat %
r
e
b
m
u
n
r
e
m
o
t
s
u
C
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
DE new customers vs repeat customers* %
First order time
New
Repeat
Repeat %
r
e
b
m
u
n
r
e
m
o
t
s
u
C
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
Q1
0
2
Y
F
Q3 Q1 Q3
0
1
1
2
2
2
Y
Y
Y
F
F
F
Q1 Q3
2
2
2
2
Y
Y
F
F
60%
50%
40%
30%
20%
10%
0%
35%
30%
25%
20%
15%
10%
5%
0%
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
Q1 Q2 Q3 Q4
2
2
2
2
Y
Y
F
F
2
2
Y
F
2
2
Y
F
UK Customers* (’000s)
Germany Customers* (’000s)
12,000
10,000
8,000
6,000
4,000
2,000
0
1,600
1,400
1,200
1,000
800
600
400
200
0
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
FY16
FY17
FY18 FY19 FY20 FY21
FY22
* A customer is defined as an individual customer who has purchased through us via ao.com in
the UK and ao.de in Germany.
Net promoter score1 FY22
86
UK2 average
(FY21: 85)
88
Germany average
(FY21: 89)
1 NPS is a measure of customer loyalty and satisfaction.
2 UK is based on a weighted average of ao.com and MPD responses.
27
AO World PLC Annual Report and Accounts 2022Strategic Report
Our technology
Technology is, and
always has been, at
the heart of our focus
on delivering a brilliant
customer experience.
28
From our website navigation structure to our customer
insights that inform customer choice, to our logistics
network and follow up, our technology infrastructure
underpins our business. It ensures that our logistics
network performs seamlessly between our suppliers
and our customers.
Our technology architecture continues to develop as
more of the market moves online and our customer
offering expands. Technology knits together the various
stages of the customer journey and our supply chain
to ensure we can deliver the best possible experience
to our customers as well as providing a high-quality
environment that showcases our partners’ offering.
Manufacturers increasingly consider digital the
preferred brand environment for new and popular
products and providing a quality online environment for
their products is one of our objectives.
We regularly collaborate with our partners and
suppliers to ensure that our stock levels and
customer demand are matched to ensure we meet
our commitment for next day delivery. We sweep the
market multiple times per day to ensure that our prices
are competitive and continually improve our customer
proposition through additional delivery capacity,
payment options and more services such as customer
financing, warranties and proprietary recycling.
AO World PLC Annual Report and Accounts 2022 An efficient technology architecture also allows us
to serve both our retail and corporate customers,
supporting our B2B and Third-Party Logistics (“3PL”)
operations, which continue to expand, delivering cost
efficiencies. Our current core technology systems
are a blend of commercial off-the-shelf and custom-
built components. This affords us an agile, highly
configurable enterprise technology estate that is
also integrated with our key suppliers, with a shared
ownership model for integrations. We continue to build
and enhance our model.
Year in review
This year we announced a multi-year strategy to
invest and develop further our architecture, focusing
on further developing our customer model, logistics
infrastructure and leveraging data and automation
for faster decision making and increased efficiencies.
We developed a long-term roadmap for investment
decisions, prioritising development of customer-facing
modules that encourage retention, repeat purchase
and increased share of wallet.
During the year we began our Enterprise Resource
Platform transformation, that would improve our
systems to enable us to operate optimally and
efficiently on a global scale. Given the changes to our
strategy this transformation, which would have also
benefitted the UK business, has been postponed for the
short to medium term.
Our strategy in the medium term is to migrate
undifferentiated and generic applications onto
established enterprise platforms to create a stable and
efficient foundation for future growth, whilst maintaining
the flexibility of our custom-built components to
continue to push the boundaries.
Priorities for 2023
Information is vital to the effective and efficient
operation of our business and as such this year we will
continue to transform the way information is captured,
stored, transmitted and surfaced around our business
– increasing accuracy and timeliness and affording
better business decisions.
Automation of routine tasks will give our colleagues
more time to create the next level of value for customers
and partners, and increasingly we will augment our
decisions with sophisticated data analysis.
Technology will also play a key role in enhancing
customer experience, through increased
personalisation of experience and creation of value-add
experiences and propositions.
AO World PLC Annual Report and Accounts 2022
29
AO World PLC Annual Report and Accounts 2022Strategic Report UK retail
Please pass on my
thanks to all in team
AO for their role in
the supply chain and
my special thanks for
creating and managing
a company where magic
can and does happen.”
Roger
AO Customer
Read more about
Our markets on
page 14
30
Our UK Retail business in one of the market leaders
in MDA electrical retailing. Established over 20 years
ago, we offer customers a full range of MDA products,
complemented by a growing range of smaller domestic
appliances (“SDA”), computing, AV, mobile phones,
consumer electronics, gaming, and smart home
products. Our UK business benefits from significant
economies of scale as a market leader and generates
strong and sustainable cash flows.
AO.com, our UK website, is the main business in UK Retail
and is usually the first introduction customers have to
our brilliant customer service, range of products and
competitive pricing. We continually seek to improve
our customer experience through enhanced product
information, payment options, flexible delivery and
installation options and recycling services. By sweeping
the market several times a day, we keep our prices
competitive.
UK Retail also comprises Mobile (MobilePhonesDirect),
B2B trade sales, consumer financing, warranties and
services such as installation.
Review of the year
UK Retail
Our UK Retail business reported a disappointing
performance for the year against an exceptionally
strong comparative performance in the prior year,
which included the surge in customer demand during
Covid restrictions on store openings. Over 1.3m new
customers experienced the AO Way this year, bringing
our total historical ao.com customer base in the UK
to 10.5 million. Of the customers who shopped with us
during FY22, over 55% were repeat. Over a two year
period, we broadly maintained our share of the MDA
online market, with a 32% share for FY22. As traditional
retailers reopened their stores this year following the
lifting of the Covid-related restrictions, our overall
market share was 18% which increased on a two-
year basis from our pre-Covid market share of 14%.
We continued to invest in broadening our customer
proposition building market share in newer products
such as televisions and laptops. We also once again
reported market-leading, outstanding customer
satisfaction scores averaging 86 on NPS and 4.6/5
stars on Trustpilot, based on nearly 350,000 reviews,
demonstrating our laser focus on service and
customer satisfaction.
The global economy experienced a number of
macro-economic shocks over the year, which impacted
on the growth of our UK business. Treating our customers
like our gran and making our mums proud are our
corporate values, and we always put our customers first.
In some cases, that meant we had to restrict promotional
activity to ensure that we did not compromise our
outstanding customer service. Supply chain disruptions,
component shortages and increased container pricing
all reduced the product range in electricals across the
industry, which limited upgrades and customer choice
as manufacturers focused manufacturing capacity on
their most popular products. Reliable next day delivery
is a service our customers particularly value, and the
national shortage of delivery drivers in the first half of the
year forced us to scale back our delivery options, which
further impacted sales growth.
AO World PLC Annual Report and Accounts 2022
Strategic Report
Read more about
our customers on
page 26
31
During the second half of the year, while driver issues
had eased, albeit at significantly higher cost, customer
demand progressively weakened across the sector, as
consumer spending shifted to travel and leisure activities,
which had been restricted during the Covid pandemic.
The war in Ukraine, rising inflation and the increasing cost
of living pressures on UK consumers further weakened
consumer confidence and spending on consumer
discretionary products. Overall, the total electricals
market in the UK contracted 4% in FY22 from FY21 highs
during Covid. We are pleased that in these challenging
market conditions, we maintained both our outstanding
customer satisfaction ratings and increased our overall
market share in a contracting market.
We continued to explore new initiatives to introduce new
customers who prefer viewing products by shopping in
stores to the AO Way. Whilst customer feedback was
good, the economic output has caused us to terminate
our in-store trial with Tesco just after the end of the
financial period.
Our Financial Services business performed resiliently
over the year as customers recognised the value and
peace of mind our warranties offer. Our
long-term successful partnership with Domestic &
General (AO Care) and NewDay (AO Finance) helped us
ensure high customer service levels, and we continue
to work closely with both partners to enhance our
customer proposition. We continue to expand and
service our customer bases and have developed,
with Domestic & General, an in-life service Customer
Relationship Management (“CRM”) tool. We expect
this to be increasingly important given the expected
upcoming consumer environment.
During the last two months of the period (which
coincided with the macro effects of inflation,
particularly with energy and the onset of the Ukraine
conflict) we saw a significant increase in warranty
customer cancellations. This effect, which has been
seen historically at times of macroeconomic events,
seems to have settled back to more normalised levels
following the end of the year.
Mobile
AO Mobile (MobilePhonesDirect) refocused its
customer proposition on traditional network contract
connections through our network partners, O2,
Vodafone and Three. Our focus is on being affordable,
providing value for money offers, connecting through
robust eligibility gateways, and appealing to a genuine
customer grouping/base. Despite rising inflation
costs, Mobile performed well, gaining market share in
a highly competitive market. The global shortage of
components led to restricted allocations of the new
Apple iPhone during the year, which impacted sales to
some degree, but the successful launch of Samsung’s
flagship handset, together with an adaptive purchasing
model, underpinned good growth and allowed us to
increase our overall market share.
AO World PLC Annual Report and Accounts 2022
UK retail continued
Read more about
our logistics on
page 36
Our customer quality is reflected through our Net
Promoter Scores and network tenures, and we were
delighted to win two independent industry recognition
awards this year: What Mobile – “Best Online Retailer”
and uSwitch – “Mobile Reseller of the Year”.
B2B
Our B2B division recorded another year of revenue
growth and remains a significant opportunity for us.
We also launched a partnership with Homebase during
the year to support their kitchen-fitting service through
our logistics network and the supply and delivery of AO
products. There are further opportunities to develop
our B2B services with new partners such as insurers
and other kitchen furniture retailers, which are under
discussion. Whilst we have had some success in winning
sites and plots from housebuilders, it has not best suited
our trading or delivery model. Shortly after the year end
we made the decision to exit the housebuilder sector,
and to focus on the B2B channels that work with our
core flywheel.
Priorities for FY23
As we transition from the Covid high growth environment
to a more challenging macro-economic context, we
are ensuring that our business is fit for purpose going
forward. We are simplifying our business to become
leaner with a laser focus on profitable growth in view of
continuing uncertainty and the worst cost of living crisis
UK have experienced in 30 years.
Our strategy will focus on leveraging our market-leading
position in MDA to broaden our customer proposition
for other growing categories such as SDA, Mobile and
B2B where our strong customer satisfaction ratings set
us apart.The categories in which we currently operate
have a net total addressable market of £23.4bn*,
which underpins our future growth along with our long-
term relationships with manufacturers, suppliers and
partners. The consistent growth in our customer base,
now totalling 10.5m historic ao.com customers, and
our exceptional customer satisfaction ratings further
support our strategic refocus. Customers love what we
do for them.
Mobile is now fully integrated into our culture and
organisation, offering another entry point to our
customers to experience The AO Way. Our customer
proposition is now refocused and attracting
a high-quality customer base as well winning market
share.
B2B also has shown a consistently strong growth profile
and we hope to expand our kitchen furniture retail
partnerships further, alongside the SME and insurance
replacement markets. We anticipate that this will be an
attractive growth area going forward.
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.
* Defined by GfK as MDA, SDA, AV, Computing, mobile, smart
home, photography equipment, office equipment, gaming and
personal care.
FY22 UK Net
Promoter Score
86
ao.com
customers
10.5m
Excellent Trustpilot
score of
4.6/5
32
AO World PLC Annual Report and Accounts 2022
Germany
In 2014, we launched our business in Germany. We
chose Germany as our first step into Europe because
it is the largest consumer electricals market in Europe
and had a significantly underdeveloped e-commerce
offering. From opening in 2014 to FY22, our German
business increased revenues by 62% on a compound
annual growth rate. The Covid pandemic provided a
step-change for that business, as traditional retailers
shut their doors under government restrictions, and we
saw increased demand for electricals online. On a two-
year comparable basis, German revenues grew 54%
from March 2020 to March 2022, as our customers were
delighted in our next day delivery, competitive pricing
and wide product choice. Our market-leading Trusted
Shops scores and a Net Promoter Score of 88 reflected
the quality of our customer proposition.
Over the last three years we had right-sized our cost
base, significantly improved our margins with an
operating model, that with increased sales post Covid,
was expected to improve its profit performance.
At the beginning of FY22, we planned for continued
revenue growth, anticipating that the online proportion
of sales of electricals would continue to be significantly
higher than pre-pandemic levels. To support this growth,
in the first half of the year we continued to improve our
proposition; we opened three new outbases, we invested
in our warehouse and delivery fleets. We also secured
three new third-party logistics clients, bringing our total
third-party contracts to seven, which helped us further
leverage our logistics infrastructure.
Through our One AO approach, Germany benefited
from our category developments growing choice in
both MDA and non-MDA to further strengthen our
customer proposition. The market opportunity in
Germany remains large and our suppliers supported
our growth strategy in this market. At the start of the
year, product margins were materially commensurate
with the UK, delivery costs appropriate for volume levels
and would reduce with scale following the right-sizing of
our overhead base. Given how much younger we are in
Germany, we invested in raising the profile of our brand
and increased marketing investment to build brand
awareness through SEO, PR and our first TV ad for years
during peak trading.
However, at the start of the second half of the year,
our German business became significantly impacted
by a number of material changes to the local trading
environment: customers returned to bricks and
mortar retailers at a higher rate than we had forecast
and competition in the online market intensified as
traditional retailers realised the online opportunity
alongside manufacturers who developed their
direct-to-consumer offerings. As a result, whilst online
penetration began to return to pre-pandemic levels,
digital marketing costs substantially increased against
pre-pandemic levels to unsustainable levels and supply
remained constrained. As we expected these trends
to continue for the foreseeable future in the German
market, and given our relative lack of scale and brand
awareness to compete, in January 2022 we announced
a strategic review of our German business to evaluate a
number of options.
The conclusion of the strategic review was announced
in June 2022. Having evaluated a range of strategic
options during the review process, the Board decided
that closure of the German business was the best
course of action, this decision based on the continuing
deterioration in the outlook for the German business, as
well as the Board's responsibilities to shareholders and
other stakeholders.
The ao.de website remained open until the start of July.
Our priority over the coming months is to wind-down the
business in an orderly manner. We anticipate the cash
costs of closure to be in the range of £nil to £5m in FY23.
We thank all our employees, customers, clients and
suppliers for their support over the past eight years.
AO will now increase its focus on its leading online
position in the UK electricals market and optimising the
Group's profit and cash generation potential.
33
AO World PLC Annual Report and Accounts 2022Strategic Report Our suppliers
Our suppliers are
essential partners
in helping us delight
customers.
34
AO World PLC Annual Report and Accounts 2022
Our suppliers are essential partners in helping us delight
our customers. A consistent, exceptional customer
experience in product choice, delivery and installation,
recycling and additional services is what sets us apart
and results in our outstanding NPS and Trustpilot scores
year after year.
We enjoy a collaborative relationship with our supplier
ecosystem, building trust and long-term relationships.
Through regular meetings with our suppliers, we have
developed a deep understanding of their strategic and
operational context and can establish high-quality
service level agreements to ensure suppliers can meet
our expectations and those of our customers. 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 our suppliers are extremely important
as we seek to develop new opportunities, driving value
as part of a two-way relationship.
We work with a range of suppliers, from globally
recognised manufacturers and international mobile
network operators to national parcel delivery services,
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.
Manufacturer suppliers
Customers begin their journey with us when they search
our websites for product information, pricing and range
of features. 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 to suit all customers. During the Covid
pandemic and subsequent supply chain disruptions,
our close relationships with manufacturers remained
strong and consistent, despite moving to virtual instead
of physical, allowing us to maintain good stock levels
to meet customer demand, although the ongoing
component shortages have reduced the range of
available products across the industry, reducing
customer choice.
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 approach to
recycling and sustainability.
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. Most
of the drivers are employed through smaller companies
that provide a reliable team resource to AO. In return,
they receive competitive market rates and have the
opportunity to grow their own businesses. Our Five Star
driver programme allows the best drivers to share in the
value we create for customers.
In Q2 of 2022, industries across the UK experienced a
severe shortage of drivers. This led to regional increases
in driver costs and some modification of our self-
employed driver model as we sought to secure our
delivery capability for peak period. Later in the year, the
driver shortage eased, although regional driver costs
remained elevated.
Corporate partners
We work 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 have worked with AO Financial Services 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 to help
fund their purchases, which 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 working with Domestic and General since 2004,
as its agent, to provide peace of mind for millions of our
customers by ensuring that their essential electricals
are protected with a plan that goes materially beyond
basic manufacturer guarantees and consumer rights
legislation. Our warranties offer features like accidental
damage cover and access to an accredited network of
expert engineers who provide high-quality repairs with
the right parts and no hidden costs.
AO Care is individually priced to the product, starting
from £1.99 per month, fixed for at least two years, and
its protection features give customers great value for
money. It is an insurance policy, meaning customers
can be confident knowing that their plan is regulated by
the Financial Conduct Authority (“FCA”).
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.
AO World PLC Annual Report and Accounts 2022
35
AO World PLC Annual Report and Accounts 2022Strategic Report Logistics
Our market-leading
in-house logistics
infrastructure enables
the delivery of millions
of products a year.
36
AO World PLC Annual Report and Accounts 2022
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 1.1m sq ft of space, and via
our network of 20 delivery depots (“outbases”) across
the UK. We also have an additional 270,000 sq ft of
storage capacity in Stoke. Our current fleet comprises
around c.100 trucks, c.750 home delivery vans and
c.300 trailers.
We offer a broad range of logistics services to our
customers, from the basics of unpacking and inspecting
customers’ products to complex installations for large
appliances, wall hanging, fitting integrated appliances
and the removal and recycling of old appliances.
Our specialist expertise in the two-person delivery of
large items offers a fast, expert and reliable service to
our customers, as well as to a number of third-party
customers including Hisense, Simba Sleep, Aldi and
several white goods manufacturers. Our end-to-end
logistics platform provides our third-party customers
control over when, how and where their products are
delivered. 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.
Review of the year
Following the significant increase in demand during
FY21, during the first half of FY22 we increased our
warehousing footprint, adding 305,000 sq ft of
warehousing space and outbases, in addition to our
main warehouses in Stafford and Crewe. This allowed
us to manage stock levels and delivery schedules
more efficiently despite holding higher stock levels
to meet demand.
As Covid restrictions lifted and the hospitality and
travel sectors reopened, we experienced serious
shortages of qualified delivery drivers across our
driver classifications as customer demand outpaced
our ability to meet desired delivery dates. We also
experienced shortages of qualified gas and electricity
fitters, together with incurring higher costs in our
warehouse operatives base due to shortages and
increased overtime rates. As a result, we took a number
of actions to cope with the volatile market conditions.
Recruitment efforts in the regions most effected
by driver shortages, primarily the Southeast and
Southwest of the UK, were successful, as was our 5 Star
driver programme which attracted new high-quality
self-employed drivers, albeit at significantly
increased rates.
As a further measure to address shortages, we introduced
a new employed driver model. This operates alongside
our self-employed driver model and allows us to tap into
a different pool of resource from those who run their own
businesses and want flexibility. Within this employed
model we’ve launched a number of apprenticeships
providing the opportunity for people to grow and develop
new skills with the option for some drivers to obtain full
HGV qualifications. Whilst this has allowed us to meet
driver capacity requirements, it has added additional
complexity into the business as we are now running two
very distinct operational driver models with different
requirements and controls.
The apprenticeship programme has been expanded
to gas fitters and over 80 apprentices are now working
through their licence acquisition across three streams for
gas installations, HGV and 7.5t drivers whilst supporting
our home delivery fleet.
In the second half of FY22, as sales growth decreased we
were able to flex our driver resource down and began to
rationalise our warehousing and outbases.
Despite the challenges we were pleased that we retained
our market leading NPS/Trustpilot customer satisfaction
scores. We thank our dedicated self-employed drivers
and employees for delivering excellent service for our
customers.
Priorities for FY23
The shift in consumer demand in the post-Covid
environment now gives us the opportunity to rationalise
our warehousing and outbase footprint to ensure we are
operating at optimal efficiency whilst still offering our
customers a high-quality delivery and installation service.
The reduced warehousing will also lead to anticipated
cost-savings in staffing and operating costs, although
the materially increased driver rates and higher fuel and
utility costs will remain with us for the foreseeable future.
We anticipate that operational efficiencies will offset
these increases to a significant degree.
As discussed above, we are continuing our apprenticeship
programme for drivers and gas fitters, with the
first qualified leavers expected to complete their
apprenticeships in October 2022. This valuable initiative
will help address the national shortage of skilled labour
and also helps to build loyalty and job satisfaction. Our
investment in people and infrastructure provides us with
a strong foundation to continue to provide our customers
with brilliant customer service.
Key
Recycling
operations
Distribution
centres
Outbases
We continue to trial electric vehicles for last mile
delivery as we consider whether continuing to lease
diesel vehicles is appropriate given the adverse
environmental effects these have and the drive towards
net zero (both politically, morally and legislatively).
Given the high payload and range requirements of our
vehicles we do not believe the technology exists yet
for us to move to a full electric fleet. We are in regular
contact with manufacturers and suppliers to keep up to
date with new technology so that we can move quickly
when the proposition meets our requirements. We are
trialling Compressed Natural Gas (“CNG”) vehicles, but
this is at an early stage, and we are keeping a watchful
eye on other initiatives such as hydrogen powered
vehicles. We are looking to develop a net zero road
map for the logistics fleet over the medium term. In
the interim we mitigate some of the harmful effects of
diesel by using AdBlue which reduces the amount of air
pollution created by diesel engines.
20
outbases across
the UK, driving
efficiencies of scale
UK warehousing
capacity
1.4m sq ft
Delivery seven days a week; next
day delivery available for over
90%
of UK postcodes
AO World PLC Annual Report and Accounts 2022
37
AO World PLC Annual Report and Accounts 2022Strategic Report Recycling
We've continued to work
to perfect the recycling
of plastics into new white
goods components to
complete true circularity.
We don't only make our
mums proud, but make
our grandchildren and
future generations proud
of our actions too.
Read more about
how we recycle
fridges on pages
40 and 41
38
Our business model is
vertically integrated, which
allows us to offer customers
a cradle-to-cradle service,
from buying a new product
to collection and recycling of
their old products when it is
time to replace them.
How we help customers 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.
Our Recycling plant in Telford is one of the largest fridge
recycling plants in Europe, operating to UK industry-
leading standards and the highest European standards,
ensuring that gases and oils harmful to the environment
are safely and efficiently captured. Refrigeration
products, including large American style fridges, are
our speciality, but we collect all the old fridges and
other white goods (also known as waste electrical and
electronic equipment or WEEE).
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 with
warranty via an established base of trade customers.
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.
Over the past few years, our Recycling operations
have been working to perfect the recycling of plastics
into new white goods components to complete true
circularity of recycling. Extracting high-quality plastics
from recycled materials is a complex process with
multiple steps to separate the various degrees of plastic
quality. We are working with our manufacturing partners
to design suitable high-quality components for use in
new appliances and other long-life applications.
Our plastics plant, like our appliance recycling process,
aims to be state of the art, working to the highest
European standards. We continue to invest in our
recycling processes to ensure that we keep improving
our processes to meet ever higher recycling standards.
AO World PLC Annual Report and Accounts 2022
Strategic Report
Read more about
how our plastics
plant works on
pages 42 and 43
with recycling had changed. We are continuing to
evaluate how to leverage our unique eco-system
to maximise recycling volumes, whilst limiting the
impact of our activities on the environment, both in
our operations, and also against alternative recycling
approaches (such as council amenity sites).
Our “Closing the Loop” partnership with key
manufacturers to supply recycled plastic to make
electrical appliances continued to progress, although
Covid restrictions hampered the pace of the project.
Our plastics have met the required manufacturer
and legislative standards and proven to create parts
imperceptible from existing parts moulded from virgin
plastics. This represents the first steps in our journey
to have appliances for sale on ao.com made with a
meaningful amount of recycled plastics components.
We are also continuing to collect third-party volumes
utilising our own logistics network, again providing
efficient service from council amenity sites, whilst
reducing the amount of miles driven.
Review of the year
After last year’s challenges under Covid restrictions, this
year Recycling operations benefited from a more stable
operating environment. Overall volumes were lower
due to the slowing of the overall market for MDA as well
as supply chain challenges, but strong output pricing
compensated for the lower recycling volumes, across
all key metals and plastics outputs. During the year, we
hit two key milestones: recycling our two millionth fridge
and five millionth appliance (white goods including
fridges) since the recycling site went live in early 2017.
Last year we used our UK-wide logistics network and
routing capabilities to grow our “Collect & Recycle”
proposition allowing more consumers to arrange the
collection and recycling of old products whether or
not they had purchased a new appliance from AO.
This provided an efficient and convenient doorstep
collection and introduce current and future customers
to our exceptional customer service, encouraging new
and repeat purchases.
This year we continued trialling various initiatives with
both manufacturers and customers. We used our wide
range of customer contact capabilities to encourage
customers to consider sustainability in their purchasing
habits, alongside a broad and detailed customer survey
to understand, post Covid, how customer behaviours
39
AO World PLC Annual Report and Accounts 2022
Recycling continued
Here’s how we recycle fridges, which we believe is one of the
safest, cleanest and most efficient processes in the UK…
Step
1.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.
Step
2.The motor is removed using
giant, heavy-duty cutters and
sent away for recycling.
Step
3.
The rest of the fridge is then
sent into a sealed chamber
to extract the gases in the
fridge’s insulation foam. To
do this, oxygen is removed
and replaced with nitrogen to
prevent anything igniting.
Step
6.
Nitrogen is used to condense
the gases into liquid so they
can be safely sent away for
disposal elsewhere.
Step
4.
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.
Step
7.What’s left of the fridge’s
remains is sent through four
different filtration systems,
to separate the different
materials from each other.
40
Step
5.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.
Step
8.
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.
AO World PLC Annual Report and Accounts 2022 Priorities for FY23
Sustainability is an ever-increasing part of our
lives, and, at AO, recycling is an essential part
of our cultural values of making our mums
proud. Working with large, complex appliances
poses complex disposal challenges requiring
specialist skills to be able to do this to a
consistently high standard. We are continually
challenging the status-quo to improve our
recycling processes (efficiency, environmental
standards and quality) for white goods and
plastics recycling, whilst ensuring we are
part of a broader unified AO Group service
proposition. As a vertically integrated
company, providing a cradle-to-cradle service
for our appliances is a fundamental part of
our strategy.
We have the capacity to process more
appliances and plastics following
improvements to both sites during Covid,
and by continuing to develop our recycling
propositions to ensure our customers get
a simple, trouble-free service, with the
knowledge their old appliance will be recycled
to the highest possible standards, we have a
unique opportunity to leverage the AO
eco-system, demonstrating how we can
vertically integrate our supply chain.
We continue to work further on aligning the
properties of different plastics with the goal
to get our recycled plastics into an increasing
number of long-life products.
Our focus over the coming year will be to:
y Deliver a cost-effective recycling service to
all our businesses and customers.
y Drive the highest possible environmental
and safety standards, continuing the
ROSPA Gold awards and WEEELABEX
recycling standards (covering fridge
recycling, ammonia fridge recycling, reuse
& repair, plastics recycling).
y Continue to develop the operation (by
training, process improvement and best
available techniques) to transition from
fixed to variable cost bases.
y Grow our plastics volumes and create a
sustainable supply of high-quality plastics
components for our manufacturers and
strategic partners.
41
AO World PLC Annual Report and Accounts 2022Strategic Report Recycling continued
Plastics Plant – how it works
Step
1.We remove large pieces of
plastic, which will require
further shredding, and also
dust/small particles of plastics
that won’t separate.
Step
3.We sink off the heavy plastics
using a water/calcium
carbonate solution, and these
go for further processing by a
trusted partner.
Step
4.We wash off the calcium
carbonate and using water,
float off polypropylene for
granulation in a separate
on-site process.
Step
5.We dry the plastics which
sank in Step 4 (high impact
polystyrene [HIPS] and
acrylonitrile butadiene styrene
[ABS]), granulate to create
plastic flakes of consistent
size, and remove any which are
outside our size distribution
parameters.
Step
7.The plastics are
electrostatically separated:
either being attracted to or
repelled from an electrode
now they are electrically
charged. This creates single
polymer plastics.
42
AO World PLC Annual Report and Accounts 2022 Step
2.We wash the material to
remove surface contamination
and prepare the plastics for
density separation.
Step
6.We optically sort the plastics
(targeting white – the coloured
plastics are processed later
through Steps 7-10), gently heat
and then electrically charge
the plastics.
Step
8.
Every bag produced is quality
tested through a leading-edge
technology flake scanner
for polymer purity, colour,
contamination content, and
only those which pass the
quality test are then prepared
for shipment.
Step
9.Our trusted extrusion partners,
heats and pushes the melted
plastic flakes (now an individual
polymer such as high impact
polystyrene [HIPS]) through a
filter to make extruded pellet.
Dependent on customer
requirements, additives
for colour or to help the
plastic flow into a moulding,
are added.
Step
10.
The plastics are sold to
manufacturers of high-quality,
long-life parts and products,
to replace virgin plastics with
an environmentally friendly
alternative.
43
AO World PLC Annual Report and Accounts 2022Strategic Report Our strategy
The rapid online growth
seen throughout Covid,
which has settled during
FY22, coupled with macro-
economic challenges
has led us to review our
strategy. Where previously
we were focused on top
line growth, both in the UK
and internationally, we
have pivoted the strategy
to focus on our leading
online position in the UK
electricals market and
optimising the Group's
profit and cash generation
potential. In the medium
term, our ambition is to
achieve:
y Average revenue growth
of 10+% per annum
y EBITDA margin of 5+%
y Improved cash
generation with FY23
capex expected to
be c.£5m
To achieve these ambitions
and ultimately our mission
we have five key strategic
objectives as set out below:
Read more about
UK retail on pages
30 and 32
Read more about
logistics on pages
36 and 37
1 Acquisition
We are a leading online retailer of
major domestic appliances and we
have a great repeat customer rate.
But we need to ensure that:
y we have a strong brand
identity, which remains
relevant in todays’ climate;
y we stay at the forefront
of digital acquisition
techniques; and
y we create reasons for
customers to come back to us
time and time again to shop for
appliances but also our newer
categories, increasing share of
wallet.
2 Brilliant customer
journey
Delivering a brilliant customer
experience and creating a
seamless shopping experience is
all about having:
y a slick, intuitive and engaging
website, with excellent and
inspiring product information,
the ability to easily add
supporting services and “add-
on” products and with a choice
of payment options;
y
y
self-serve options to amend
orders post purchase;
support from a friendly
team on the phone where
needed; and
y making it right, when things go
wrong (which they occasionally
do with such big stuff!).
For progress against these objectives
and to understand how we plan to
drive forward in FY23, please refer
to our business update sections on
pages 30 to 43
44
AO World PLC Annual Report and Accounts 2022
3 Comprehensive
category coverage
at great prices
Through expanding our product
ranges, we will position AO as a
broad electricals retailer, serving
the widest possible customer base.
We need to ensure that we are
offering great prices to customers,
whilst maintaining appropriate
levels of margin to meet our
financial targets.
4 Delivering
supporting
services
AO is known for outstanding
service and we need to maintain
and enhance this by:
y offering a full range of services,
for both existing and new
categories;
y
improving our best-in-class
delivery, easy returns, product
installation and set-up, and
recycling propositions; and
y enhancing the customer
lifecycle through services
such as warranties, repair
and maintenance and
product trade-ins in relevant
categories.
5 Leverage expertise
whilst simplifying
We have a number of centres of
expertise throughout the business
and we aim to leverage these and
our operating model to enhance
and grow the business but without
adding additional complexity.
A more focused approach on
our opportunities, whether it be
through other retail categories,
B2B, 3PL, or recycling, provides
economies of scale, which can help
us achieve revenue growth and our
profit and cash targets.
By focusing on these strategic objectives and our values, we can
fulfil our purpose and strive towards our mission.
We treat every customer like our gran
We make decisions that make our mums proud
We have a growth mindset
We operate at AO speed
To fulfil our purpose:
To make customers’ lives easier by helping them brilliantly
AO World PLC Annual Report and Accounts 2022
45
AO World PLC Annual Report and Accounts 2022Strategic Report Chief Executive Officer’s strategic review
AO was founded on the belief that online was a better
way to buy and sell electricals. That belief is as strong
as ever, even – and especially – as we go through one of
the most challenging environments we’ve weathered
as a Group. Our purpose is as important now as ever, to
make customers’ lives easier by helping them brilliantly.
The past 12 months have been a turbulent time for
retail and AO – of course – hasn't been immune to
those effects. The initial view, both in AO and beyond,
was that the Covid-enforced consumer behavioural
change would meaningfully stick in both the UK and
Germany, and with it would create lots of opportunity
to accelerate growth and expansion. It was seen as a
once-in-a-generation opportunity to leverage our scale
and market position, and to really take advantage
of the opportunity while it existed, and we invested
accordingly.
When Covid restrictions eased, the picture was very
different to that planned. It became clear as we
progressed through the new financial year that there
was a whole raft of new challenges to navigate.
In Germany customers reverted to an online mix
materially the same as before Covid, but associated
marketing costs were three times higher as the
competition for online sales intensified. The UK,
meanwhile, maintained a 30% year-on-year step
change in the online mix of MDA sales , but with both
geographies experiencing supply chain disruption,
reduced margins and increased costs of operation
through fuel prices and people, not least as a result of
the UK driver shortages, which are well documented.
Forecasting for peak trading was an almost impossible
task and relied on being able to predict – four months
ahead of time – the online share of the market, as
well as all the factors influencing the overall size of
the electricals market, the job market, oil prices,
wage inflation, container shipping prices and overall
consumer demand. There continued to be material
price inflation across the business as just about every
input cost from chips to containers and oil to steel
increased.
This has been compounded in recent months by a
demand gap in both territories. This is the result of a
combination of inflationary-driven household spending
squeeze and demand pull forward in some categories.
We are less affected by the latter and more by the
former. The Russian invasion of Ukraine has only made a
challenging situation worse.
Even with that all said, in FY22 we served over 1.5m
new customers in the UK and Germany. And we did so
with a consistently high and indeed market-leading
I’ve always said that
once customers find a
better way to shop, they
don’t go back. We want
to do more for them and
capitalise on their love
for AO..”
John Roberts
Founder and Chief Executive Officer
Read more about
the impact of
macroeconomic
factors on pages
14 and 17
46
AO World PLC Annual Report and Accounts 2022
Net Promoter Score and a 4.6 star rating on Trust
Pilot. Amazing service continues to be the fuel for our
flywheel and the way we’re able to attract and retain
customers, while delighting and innovating for them.
Through the year, we were pleased to see an improving
rate of returning customers and frequency of
purchases, with Covid first-time buyers coming back
faster than pre-Covid. Over 55% of our orders came
from repeat customers and this share is increasing, with
strong cross-category purchase rates.
In the UK, two and a half years ago, newer categories
were a drag on our profitability as we built scale. All
categories are now – at worst – contribution neutral.
Over the next 12 months we will ensure that all
contribute to overheads. A full range of services comes
with these expanded categories as we continually
improve our best-in-class delivery, easy returns, product
installation and set-up, and recycling propositions.
In February 2022, our recycling team reached the
milestone of processing five million white goods through
the plant, including more than two million fridges.
We’re in no doubt that we’ll drive higher customer
lifetime value and share of wallet through this approach.
I’ve always said that once customers find a better way
to shop, they don’t go back. We want to do more for
them and capitalise on their love for AO.
So, as we closed the financial year and faced further
macro-economic uncertainty and tighter consumer
spending, we turned our focus to delivering our cash
and profit plan, simplifying our business and developing
our winning culture.
Our core major domestic appliance category has
proven to be resilient over time, given the natural
replacement cycle of white goods and their non-
discretionary nature. In addition, expanding into
newer categories remains a key priority and a major
opportunity for us.
Strategically, scale matters on many fronts. We’ve
optimised our warehouse and outbase footprint to
ensure we’re delivering to our high standards while
reducing costs. Manufacturers are also now wide awake
to the possibilities of online, where they firmly see AO as
best in class. We’re as committed as ever about being
the long-term partner of choice for manufacturers.
The attractiveness of the quality and scale of the AO
platform is also presenting more new opportunities for
partnerships to leverage our capability.
In recycling, we continue to be proud of our ownership
of one of Europe’s largest and state-of-the-art recycling
plants. Future changes to WEEE regulation on extended
producer responsibility for retailers create attractive
recycling opportunities in future. Further, we’re already
seeing recycled polymers being used in new appliances
in our cradle-to-cradle, circular economy strategy.
Looking ahead, we have more volatility to navigate, but
the core fundamentals of the business are strong. AO
becomes the first-choice destination for electricals
through our absolute obsession with customers which
is at the heart of our culture: the range of choice and
service we provide, personalisation and price that we
can offer. We are unchanged in our belief that we can
do that better than anyone else in the market over the
long term.
We’re entering the new financial year with a period of
realignment, undertaking the strategic pivot to focus on
cash and profit generation.
Read more about
our German
business on
page 33
In January, the Board announced a strategic review of
our German business which, in June, led to a decision to
close that operation.
Read more about
our culture on
pages 22 and 23
This was based on the continuing deterioration in the
outlook for the German business, as well as the Board’s
responsibilities to shareholders and other stakeholders.
We expect this to have a cash cost in the short term, but
improve cash and profit by c.£1.5m per month
going forward.
In response to current volatility across the sector and
economy, the process of addressing the overheads
and operations of the business is underway into the
beginning of FY23. Short term, we anticipate sales and
costs will reduce, but profitability will increase.
To strengthen the balance sheet and increase liquidity
back to historic levels relative to revenue, in July, we
conducted a placing of new ordinary shares, which
was strongly supported by investors, raising c£40m of
capital. This also provides the flexibility to pursue our
significant long-term growth opportunities in the UK.
We’re turning to invest in multiple opportunities in
different sectors, categories, channels and territories as
future engines of growth in the medium term. We’ll put
customers first – as we’ve always done – while also taking
action to strengthen the balance sheet.
I’d like to thank the AO team, our Chair, and the Board,
as well as our committed investors and stakeholders
for their continued support and passion. We've said
goodbye to a number of colleagues over the past
twelve months, including the incredible people in
Germany, and I’d also like to thank them again for
everything they contributed during an exceptional time
with the company.
As shareholders will note, we are seeking approval
to restructure our Value Creation Plan following our
change in strategy. Full details are set out in the
Directors’ Remuneration Report; however the philosophy
behind it remains the same; it’s an opportunity for
every AO employee to receive a meaningful reward for
creating exceptional value over the long term, which I’m
confident we can achieve through our passion to serve
customers brilliantly. And, as before, I have committed
to gift 100% of the shares I receive from the VCP to help
disadvantaged young people in the UK, a cause I and all
at AO are passionate about.
We remain mindful of the current macroeconomic
environment, but we have confidence in the resilience
of our business model and the positive actions we
are taking.
John Roberts
CEO and Founder
17 August 2022
47
AO World PLC Annual Report and Accounts 2022Strategic Report
Chief Financial Officer’s review
At the start of our financial year in April 2021, we
planned for the continuation of the elevated growth
trends that we experienced during the Covid pandemic.
We therefore invested in our business to build upon the
foundations of expansion as well as to address some
of the operational strains rapid growth had put on
our infrastructure and people over the prior year. The
strategy to impress as many new customers as possible
proved successful, with over four million new customers
experiencing the AO way since FY20.
As the year progressed, however, macroeconomic
headwinds, including rising interest rates and higher
fuel and utility costs impacted customer behaviour as
cost-of-living pressures increased. Where the first half of
the year was impacted by driver shortages and global
supply chain inefficiencies, the second half experienced
progressively weaker customer demand across the
sector, affecting both revenue growth and profits.
In Germany, as companies invested in building their
online proposition and customers simultaneously
returned to pre-Covid behaviour, our German business
experienced increasingly intense competition.
Despite building a competitive platform that achieved
breakeven in the prior year, our German business
remained subscale in the wider market. As a result, in
January we started a strategic review of our business
in Germany which resulted in the announcement of its
closure in June 2022. As we progress with an orderly wind
down of the business, we expect the total cash costs of
closure in FY23 to be nil to £5m.
After the financial year end, in July 2022, we undertook
a share placing to strengthen the balance sheet and
increase liquidity back to historical levels (relative
to revenue base), as well as providing the flexibility
to pursue our future market opportunities. This was
strongly supported by shareholders and raised gross
proceeds of approximately £40 million. During the year
we also extended our £80m revolving credit facility
which is now due to expire in April 2024.
The current financial year marks a period of
realignment for the business as we undertake a
strategic pivot to focus on cash and profit generation.
The process of simplifying operations and optimising
our cost base is already underway. AO remains a
market leader in MDA in the UK with an 18% market
share and 32% overall online share, providing us with
a strong and resilient market position. The actions
we have taken, both to optimise our cost base and
strengthen our balance sheet, will allow us to invest
prudently in our business, seize market opportunities
and leverage our significant customer base. This is a
prudent approach given the difficulty of predicting the
near-term market dynamics.
Revenue (see table 1)
For the 12 months ended 31 March 2022, total Group
revenue decreased by 6.2% to £1,557.3m (2021:
£1,660.9m).
Read more about
our markets on
page 14
In the UK, total revenues decreased by 4.6% as
shortages in key product components and driver
availability in H1 impacted on our ability to deliver
our traditional full product range and our delivery
Given the challenging market
conditions and pressures on
consumer wallets, we are
shifting our strategic focus
from high growth to cash and
profit generation. This will
allow us to invest prudently
in our business, seize market
opportunities and leverage
our significant customer
base. This is a prudent
approach given the difficulty
of predicting the near-term
market dynamics.”
Mark Higgins
Chief Financial Officer
48
AO World PLC Annual Report and Accounts 2022
Read more about
UK Retail business
on page 30
proposition. This decline was somewhat offset by
higher average product value. The lower product sales
also fed through to services revenues due to reduced
installations and delivery charges.
In Germany, total revenues declined 16.5% against
a strong performance in the prior year during Covid
restrictions on traditional in-store retailers and the
effect of changes in consumer behaviour and intense
competition.
Product revenue
Total product revenue, comprising sales generated
from ao.com, ao.de, marketplaces and third-party
websites, decreased by 8.8% as the overall market
in the UK for consumer discretionary purchases
weakened considerably in H2. In Germany, the lifting
of Covid restrictions resulted in consumers returning
to traditional bricks and mortar shops to a greater
degree than anticipated. This was exacerbated by the
ongoing supply chain disruption and a global shortage
of components at manufacturers’ facilities resulting in
reduced product ranges across our industry.
In the UK, MDA revenue decreased by 7.3% as consumer
demand weakened in H2, compounded by challenges
in our logistics operations in H1, with the wide-spread
shortage of drivers and skilled installers. Non-MDA
revenues, comprising SDA, computing and gaming
but excluding AV, declined by 10.9%, in part due to
shortages of gaming products. AV revenue, which
includes televisions and audio visual, saw a decline of
22.0% over the comparable period last year, which was
inflated by Covid lockdown purchases and the televised
European football championships in the summer of
2021. B2B recorded strong growth across all its routes
to market, albeit from a modest base, as we continue
to gain market share and build further capabilities,
winning attractive contracts.
Product revenue in Germany declined by 17.8% (a
decline of 13.9% in Euros). Revenue was impacted
by highly competitive market conditions and
unsustainably high customer acquisition costs, as
traditional retailers sought to expand their online
capability. We therefore took the short-term decision to
reduce our online marketing efforts in Germany which
impacted sales growth.
Services
Services revenues, include fees for delivery, recycling,
installation and related services, declined in line with the
reduction in product revenue as well as being affected
by a shortage of qualified fitters in the UK during H1. In
Germany, the decline in services revenues reflected the
decline in product sales.
Commission
Commission revenue, which includes commissions
generated by network connections in our Mobile
business and from AO Care warranties, showed an
improvement of 7.6% against prior year revenues.
Overall, commissions from the sale of warranties
remained broadly flat against the prior year. The
number of plans sold in FY22 reduced from the highs
seen in FY21 although the prior year was impacted by
a c.£8m reduction of previously recognised revenue
due to a significant change in customer behaviour. The
business also recorded slightly elevated but temporary
levels of customer cancellations in Q4, primarily due
to the initial reaction from consumers to the cost-of-
living crisis, similar to that we experienced at the start
of the Covid pandemic. Post period end cancellations
have returned to a more normalised level as customers
adjusted.
In Mobile, following adjustments to our customer
proposition and the removal of the redemption
cashback offer, the average life of new contracts
has continued to improve and with the RPI increases
imposed by the networks, revenue has increased in
the year.
Third-party logistics
Third-party logistics performed well, increasing 48.9%,
albeit off a modest base. Our expertise in complex
two-person delivery is highly valued in our industry,
and we undertake a number of deliveries on behalf of
third-party clients in the UK including Hisense, Simba
ADD. The shortage of delivery drivers during the year
resulted in some limits being put on our ability to
accept incremental third-party business, but overall, we
were able to satisfy partner demand and build on the
number of entities we service. We continue to develop
this revenue opportunity as it leverages our operational
gearing.
1 Revenue
12 months ended
£m
Product revenue
Service revenue
Commission revenue
Third-party logistics revenue
Recycling revenue
Total revenue
12 months to
31 March 2022
12 months to
31 March 2021
% change
UK Germany
Total
UK Germany
Total
UK Germany
Total
1,114.4
50.3
156.8
22.7
24.1
181.7
1,296.1
1,200.3
220.9
1,421.2
3.0
0.7
3.6
–
53.3
157.5
26.3
24.1
54.0
146.0
16.5
17.7
4.0
0.3
1.2
–
58.0
146.3
17.7
17.7
(7.2%)
(6.8%)
(17.8%)
(23.3%)
7.4% 175.6%
37.7% 202.1%
35.8%
–
(8.8%)
(8.1%)
7.6%
48.9%
35.8%
1,368.3
189.0
1,557.3
1,434.5
226.4
1,660.9
(4.6%)
(16.5%)
(6.2%)
49
AO World PLC Annual Report and Accounts 2022Strategic Report
Chief Financial Officer’s review continued
Recycling
Recycling revenues performed well, increasing 35.8%
over the year. Operations recovered from the periodic
closures during the prior year whilst operating under
Covid restrictions when councils closed household
waste and recycling centres. Processed volumes
have increased overall year on year and the business
benefitted from a strong recovery in output prices for
recycled materials.
Gross margin (see table 2)
Gross margin for the Group remained broadly stable
as a percentage of revenues but decreased in absolute
terms due to the dilutive effect of reduced product
volumes in Germany. In the UK, gross margin reflected
the increased costs in fuel and driver rates but, as an
overall percentage of revenue, improved slightly due
to increased product pricing. These inflationary cost
increases were largely offset by an improvement in our
Mobile business profitability which in the prior year had
been impacted by changes in consumer behaviour.
In Germany, gross margin reduced to 3.2% as
competition in the market impacted on pricing and
the reduced volumes resulted in inefficiencies within
delivery costs. Gross margin was also impacted by a
£6.9m charge relating to the impairment of certain
assets in the business.
Selling, General & Administrative
Expenses (“SG&A”) (see table 3)
Group SG&A costs as a percentage of revenue
increased during the period to £303.6m (2021: £263.6m),
or as a percent of revenues from 15.9% to 19.5% .
The largest increases were in warehousing and other
administrative costs, mainly in response to Covid
pressures.
In the UK, SG&A costs increased to £272.7m (2021:
£235.6m), or as a percent of revenues from 16.4% to
19.9%. The largest cost increase was in warehousing,
which increased to £69.6m (2021: £58.7m), or as a
percentage of revenues from 4.1% to 5.1%. The drop in
sales volumes impacted on the recovery of the full year
costs of new property leases entered into in the previous
year to manage additional warehouse capacity during
the pandemic. Wage inflation also contributed to
cost rises. We are currently reviewing and rationalising
our warehousing footprint in view of the changing
demand dynamics.
Advertising and marketing costs in the UK increased
to £46.1m (2021: £43.3m), or as a percent of revenues
from 3.0% to 3.4% due to increased spending on brand
awareness and customer acquisition post Covid.
This was offset by a reduction in television advertising as
the business changed to more targeted social
media channels.
Other admin costs in the UK increased to £138.6m
(2021: £118.2m), or as a percentage of revenues from
8.2% to 10.1%. This primarily reflects the investment
in people made in the business in the second half of
FY21 to support the significantly increased growth,
particularly in our Retail business and in IT. In reaction
to the slowdown seen in the market in H2, the Group has
undertaken a right-sizing exercise across a number of
areas to align costs with a reduced level of activities
and, therefore, costs are expected to reduce as we move
into FY23. Other areas of increase include insurance
premiums and costs related to re-opening office
premises following the Covid-related restrictions in the
prior year.
In Germany, although shoppers returned to traditional
retailers to a greater degree than anticipated,
companies continued to build their online presence.
Competition in the online space therefore intensified,
which also drove up marketing costs as the cost per
clicks, in some cases, up more than 100%. Warehousing
and other admin increased as a percentage of sales
primarily as result of lower volumes with absolute levels
of spend being broadly equivalent to the prior period.
Operating loss and adjusted EBITDA
As a result of the above, our operating loss for the
period was £32.3m (2021: £29.7m profit).
Alternative performance measures
The Group tracks a number of alternative performance
measures in managing its business. These are not
defined or specified under the requirements of IFRS
because they exclude amounts that are included
in, or include amounts that are excluded from, the
most directly comparable measure calculated and
presented in accordance with IFRS or are calculated
using financial measures that are not calculated in
accordance with IFRS. The Group believes that these
alternative performance measures, which are not
considered to be a substitute for, or superior to IFRS
measures, provide stakeholders with additional helpful
information on the performance of the business. These
alternative performance measures are consistent with
how the business performance is planned and reported
within the internal management reporting to the Board.
Some of these alternative performance measures
are also used for the purpose of setting remuneration
targets. These alternative performance measures
31 March 2022
31 March 2021
Better/(worse)
UK Germany
Total
UK Germany
263.4
19.3%
6.0
3.2%
269.4
17.3%
273.0
19.0%
19.5
8.6%
Total
292.5
UK Germany
Total
(3.5%)
(59.5%)
(7.9%)
17.6% +3ppts
(54ppts)
(3ppts)
2 Gross Margins
12 months ended
£m
Gross profit
Gross margin
50
AO World PLC Annual Report and Accounts 2022 The Adjusting Items for the prior year were as follows:
y
y
In FY21, management reassessed the impact on
future expected cancellation rates as a result of an
increase in cancellations seen through the second
half of the prior year. As a result, revenue for FY21
was constrained by £8.1m with a corresponding
reduction in the contract asset. Given the size and
nature of the 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 subsequent years, the performance
of this contract was reassessed due to significant
losses being incurred and the benefits expected
from the contract not materialising. The Group
renegotiated the contract with new terms taking
effect from April 2021. However, the existing terms up
to 31 March 2021 resulted in the cost of fulfilling the
contract over its life exceeding any benefit gained
from it and therefore management added back the
full cost in the prior period of £2.2m.
The reconciliation of statutory operating (loss)/ profit to
Adjusted EBITDA is set out in table 4 overleaf.
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 which the Group excludes in order to
present a further measure of the Group’s performance.
Each of these items, costs or incomes, is considered to
be significant in nature and/or quantum or 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.
The Adjusting Item in the current year is:
y Due to the continued losses in the German business,
the Group has undertaken a strategic review
during the year. As a result of these losses and
the subsequent decision to close that business,
management have performed a full impairment
review of the assets at 31 March 2022. As a
consequence, management have made impairment
provisions of £7.3m at 31 March 2022 of which £1.2m
relates to inventory and £6.1m relates to Right of use
assets and other property, plant and equipment. In
addition, legal advice and other costs of the review
totalled £0.9m as at the year-end resulting in a total
of £8.2m of impairment and other charges in the
income statement. Given the nature of these costs,
they have been added back in arriving at adjusted
EBITDA.
3 Selling, General & Administrative Expenses (“SG&A”)
12 months ended
£m
Advertising and marketing
% of revenue
Warehousing
% of revenue
Research and development
% of revenue
Other admin
% of revenue
Adjustments
% of revenue
Administrative expenses
% of revenue
31 March 2022
31 March 2021
Increase/(Decrease) %
UK Germany
Total
UK Germany
Total
UK Germany
Total
46.1
3.4%
69.6
5.1%
17.5
1.3%
138.6
10.1%
0.9
0.1%
272.7
9.6
5.1%
7.3
3.9%
–
–
13.5
7.2%
0.4
0.2%
30.9
19.9%
16.3%
55.7
3.6%
76.9
4.9%
17.5
1.1%
152.1
9.8%
1.3
0.1%
303.6
19.5%
43.3
3.0%
58.7
4.1%
15.4
1.1%
118.2
8.2%
–
–
7.2
3.2%
6.9
3.0%
–
–
13.9
6.2%
–
–
50.4
3.0%
65.6
3.9%
15.4
0.9%
132.1
8.0%
–
–
6.5%
34.6%
10.5%
18.5%
6.6%
17.2%
13.6%
–
13.6%
@
17.3%
(2.9%)
15.1%
100.0% 100.0% 100.0%
235.6
16.4%
27.9
12.4%
263.6
15.9%
15.7%
10.5%
15.2%
51
AO World PLC Annual Report and Accounts 2022Strategic Report Chief Financial Officer’s review continued
Taxation
The tax credit for the year was £7.1m (2021: tax charge
of £3.1m), resulting in an effective rate of tax for the year
of 19.0%.
The Group is subject to taxes in the UK and Germany.
The Group continued 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 in the year due to its
trading results.
A prior period adjustment to deferred tax of £0.6m had
been recognised in the period due to an increase in
carried forward losses.
Our tax strategy can be found at ao-world.com/
responsibility/group-tax-strategy.
Retained loss and loss per share
(see table 5)
Retained loss for the period was £30.1m (2021: £17.1m
profit).
Basic loss per share was 6.33p (2021: 3.73p profit) and
diluted loss per share was 6.33p (2021: 3.68p earnings).
Basic loss per share is reconciled to adjusted basic
loss per share (after excluding the impact of foreign
exchange differences) of 6.10p (2021: 5.15p earnings) as
set out in table 5.
The diluted loss per share has been restricted to the
basic loss per share for the 12 months ended 31 March
2022 to prevent having an anti-dilutive effect.
Foreign exchange differences are deducted to arrive at
adjusted (loss) / earnings. The loss of £1.1m (2021: £6.8m)
relates to the impact of the euro/sterling exchange rate
on the value of intra-Group loans held in GBP
in Germany.
Cash resources and cash flow
At 31 March 2022, the Group’s net debt was £32.8m
(31 March 2021: £57.5m net funds). Net debt comprises
cash balances less borrowings and owned asset lease
liabilities. At 31 March 2022, the Group’s Total net debt,
being net debt less right of use asset lease liabilities,
was £134.1m (31 March 2021: £28.2m).
Cash balances at 31 March 2022 were £19.5m
(31 March 2021: £67.1m). The decrease in cash since
31 March 2021 is largely driven by the outflow from
working capital (see opposite), capital expenditure and
the repayment of lease liabilities offset by drawdown on
the Group’s revolving credit facility.
Borrowings of £45.0m (31 March 2021: £nil;) relate to
short- term funding drawn from the Group’s revolving
credit facility.
Lease liabilities increased by £13.4m to £108.6m
(31 March 2021: £95.3m) reflecting new right of use lease
liabilities of £45.4m and the downward reassessment
of lease terms net of lease payments in the period. The
new leases in the year principally relate to an additional
warehouse in Crewe, four new outbases, the new London
creative studio and delivery fleets in both the UK and
Germany.
During the year, the Group extended the term of its
£80m revolving credit facility by 12 months and this now
expires in April 2024. At 31 March 2022, the Group had
£30.1m available on this facility. The amount utilised
represents £45.0m of cash borrowings (see above) and
£4.9m of letters of credit/guarantees.
Working capital (see table 6)
At 31 March 2022, the Group had net current liabilities of
£91.5m (31 March 2021: £59.0m).
4 Operating income and adjusted EBITDA
12 months ended
£m
Operating (loss)/profit
Depreciation
Amortisation
Loss / (profit) on disposal of non-current assets
EBITDA
Adjusting items
Adjusted EBITDA
Adjusted EBITDA as % of revenue
31 March 2022
31 March 2021
% change
UK Germany
Total
UK Germany
Total
UK Germany
Total
(7.5)
24.9
3.8
0.4
21.6
0.9
22.5
1.6%
(24.8)
3.6
–
(0.1)
(21.3)
7.3
(14.0)
(7.4%)
(32.3)
28.5
3.8
0.3
0.3
8.2
8.5
0.5%
38.1
18.6
2.8
–
59.4
8.1
67.5
4.7%
(8.4)
3.2
–
–
(5.2)
2.2
(3.0)
29.7
21.8
2.8
(119.6%)
(195.1%)
(208.7%)
33.7%
33.6%
13.9%
–
30.8%
33.6%
–
100.0% 100.0% 100.0%
54.2
10.3
64.4
(63.6%)
(307.3%)
(99.3%)
(88.9%)
(233.9%)
20.7%
(66.7%)
(359.6%)
(86.8%)
(1.3%)
3.9%
£1.6bn
Group revenue
£8.5m
Group Adjusted
EBITDA
£37.2m
Group loss
before tax
52
AO World PLC Annual Report and Accounts 2022 At 31 March 2022, UK inventories were £82.0m
(31 March 2021: £115.1m) and UK stock days were 34 days
(31 March 2021: 39 days). Inventory levels were high at
the end of the previous year in response to the ongoing
impact of the pandemic and to ensure that we could
respond to customers with our excellent AO customer
service. As traditional retailing started to open in FY22,
stock levels returned to more normal levels and, as the
overall market remained soft throughout H2, we further
realigned inventory levels to reduced levels of sales.
UK trade and other receivables (both non-current and
current) were £243.9m as at 31 March 2022 (31 March 2021:
£230.5m) reflecting an increase in trade with our B2B
customers, which are on longer working capital cycles,
and the timing of supplier marketing commissions.
UK trade and other payables were £296.9m at
31 March 2022 (31 March 2021: £391.7m). Investment
in inventory at the end of FY21 drove up payables at
the prior period end with the working capital benefit
unwinding as purchasing patterns returned to more
normal levels during FY22. Trade payables days at
31 March 2022 were 47 days (31 March 2021: 52 days).
Net working capital decreased from £17.9m to £9.8m
in Germany, driven primarily by a significant reduction
in inventory levels from the abnormal levels seen at
the prior year end as well as reduction to align with the
lower level of sales seen during the latter part of FY22.
Capital expenditure
Total cash capital expenditure for the 12-month
period was £7.6m (2021: £6.3m), largely related to
ongoing investment in our recycling facility, new
outbase fit out costs and investment in our new creative
studio in London.
5 Retained profit for the year and earnings per share
12 months ended
£m
Post balance sheet event
During FY22, the Group's German business incurred
losses EBITDA losses of £21.3m. A strategic review was
started in Q4 FY22 and on 9 June 2022 it was announced
that the Group had taken the decision to close the
business.
As a consequence of the losses and the post year end
decision to close, management have reviewed the
carrying value of that businesses assets. This has been
performed using third party information regarding
fixed assets, including ROU assets, together with an
assessment of the realisable value of any remaining
inventory.
As a result, provisions of £7.3m have been made at
31 March 2022 to impair the relevant assets and this,
together with £0.9m of adviser costs accrued prior to
31 March 2022, have been included as "Adjusting" items
in note 6 to the financial statements.
The closure process is expected to be completed
during FY23.
On 11 July 2022, the Company completed a capital raise
through the issue of 93,801,251 new ordinary shares
of 0.25p each in the Company raising £40.3m (before
expenses). The net proceeds of the Capital raise will
strengthen the balance sheet and increase liquidity back
to historic levels (relative to revenue base), and provide
the flexibility to pursue our market opportunities.
Mark Higgins
Chief Financial Officer
17 August 2022
(Loss)/earnings
(Loss) / profit attributable to owners of the parent Company
Add back of foreign exchange movements on intra-Group loans
Adjusted (loss) / earnings attributable to owners of the parent Company
Number of shares
Weighted average shares in issue for the purposes of basic loss per share
Potentially dilutive share options
Diluted weighted average number of shares
Earnings/(loss) per share (in pence)
Basic (loss) /earnings per share
Diluted (loss) / earnings per share
Adjusted basic (loss) / earnings per share
31 March
2022
31 March
2021
(30.4)
1.1
(29.3)
17.7
6.8
24.5
478,558,948
7,028,898
485,587,846
475,626,353
6,337,186
481,963,539
(6.33)
(6.33)
(6.10)
3.73
3.68
5.15
6 Working capital
As at
£m
Inventories
Trade and other receivables
Trade and other payables
Net working capital
Change in net working capital
31 March 2022
Europe
15.0
18.2
(23.4)
9.8
(8.1)
UK
82.0
243.9
(296.9)
29.0
75.1
Total
97.0
262.1
(320.3)
38.8
67.2
31 March 2021
Europe
24.5
21.0
(27.6)
17.9
8.1
UK
115.1
230.5
(391.7)
(46.1)
(66.2)
Total
139.6
251.5
(419.3)
(28.2)
(58.2)
53
AO World PLC Annual Report and Accounts 2022Strategic Report Our risks
How do we manage risk?
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.
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
54
AO World PLC Annual Report and Accounts 2022 Internal Audit
The Internal Audit function shares risk
management information and best practice
across the AO Group, provides independent
assurance on key projects and controls and
monitors compliance, identifying gaps and
improvements and recommending corrective
action.
Business Unit Risk Management
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”)
Our RMC, in which our Executives participate, meets quarterly 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.
Audit Committee
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
The PLC Board has
overall responsibility
for effectiveness of AO’s
internal control and risk
management process. It
approves risk appetite and
risk capacity and agrees
on the principal risks and
mitigation strategy.
Principal risks
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; Macro-Economic
Conditions and the Competitive Environment; 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, Germany impairment and Going Concern which
are set out on pages 111 and 112.
Our risks have varying likelihoods and impacts, they range from operational risks in our
day-to-day activities to strategic risks that are inherent in progressing our strategy –
in particular external risks such as the market environment; and legal risks given the
regulatory frameworks to which we are subject.
Other risk management bodies
In addition to the above, we have:
y A Personal Data Steering Committee and Data Protection
y A Health and Safety Steering Committee that brings
team that supports privacy and data protection
governance;
y SM&CR Steering and Oversight Committee to ensure we
are treating customers fairly and supporting financial
services governance;
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
y Other control measures outlined elsewhere in this Annual
Report, including legal and regulatory compliance and
environmental compliance.
55
AO World PLC Annual Report and Accounts 2022Strategic Report Our risks continued
This year’s achievements
y Better understanding of risks;
increased – quantification of
what can go wrong and better
understanding of drivers/triggers
that would make risk material
y Built risk home page – more
ownership/more proactive
approach to risk management –
more interactivity
y Better understanding of three
lines model
y Survey to senior leaders
y Right-sizing risk work
y Built formal risk management
process into forecast and
budgeting
y ESG risk assessment as part
of TCFD
y Tooling for onboarding
of suppliers
y Increased assurance oversight
of tech
Actions for next year
y Building inter-action with business
units, more proactivity through
home page
y Better embedding of risk within
forecasting and budgeting process
y Following cessation of ERP
transformation project, find
alternative solutions to address or
mitigate risks that were meant to
be addressed through ERP
y Formalisation of risk tolerance
process and sign off in accordance
with current risk appetite
New for this year we have established an Information
Security Steering Group and an ESG Steering Group.
These groups will assess risks in the relevant areas and
feed into the RMC.
Previously we also had a Brexit Risk Management
Group and a specific Covid Business Continuity Group,
however, these have now been disbanded.
How are emerging risks identified?
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.
The legal team performs regular horizon scanning to
understand emerging regulatory or legal risks and
developments in governance and the ESG team raise
developments in the ESG field – in particular relating
to environmental and climate risk. As noted above, we
have established an ESG steering group to identify,
mitigate and manage climate risk (both physical
and transitional) going forward. We have a strategy
team that monitors market developments and
macro-economic developments, together with
the Group Head of Audit and Risk. The other risk
management bodies mentioned above also help to
identify emerging risks specific to their areas. Updates
are provided as relevant to the leaders of each business
units who also identify new risks in their operations.
New for this year, we have also introduced a risk survey.
Sixty senior leaders from across the Group were asked to
have their say on threats to AO in the short and medium
to long term by taking part in a short risk survey. The
results of the survey are fed into the Risk Management
Committee, reconciled to the Corporate Risk Register
and be included in the Board discussions on risk.
What is our 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 strategy for
entrepreneurial growth and the consequential 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
56
AO World PLC Annual Report and Accounts 2022 What are our principal risks?
Risk
A
Culture and
People
Relevant
strategic pillar
1
32
4 5
Risk trend
Nature of risk
Mitigating activities
Overall change during the year
The Group leadership team
have a shared responsibility
to drive culture throughout
the business on the basis of
AO’s values.
Senior employees receive
attractive remuneration
packages and we have an
incentive package to drive
motivation and retention.
Operational management
teams in each business unit
give the benefit of localised
decision making.
We aim to benchmark our
packages against the
market to ensure they
remain competitive.
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
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 in
business critical roles across
the Group given wage
inflation, and particularly
in areas of national skills
shortage.
AO’s culture was put to the test last year
with the continuing backdrop of Covid-19
and also labour shortages in certain key
areas including the driver population. The
eNPS score over the year significantly
decreased.
With the exception of front line workers,
AO have operated a hybrid working
model and we have welcomed our
people back into our offices to increase
innovation and collaboration, whilst
at the same time recognising the shift
in working habits and the increase in
remote working. We continue to review
working practices to ensure that culture
is maintained within a more flexible model
to consider work/life balance.
Employee attrition levels increased
during the year due to a number of
critical factors. In office-based roles
many new joiners were onboarded
remotely and, in some cases, did not
integrate into the AO culture. The
ability to work remotely also removed
geographical restrictions that previously
existed for support function workers,
whilst this enabled AO to recruit from a
wider labour pool, conversely some AOers
left the business in the opposite direction.
Retaining and attracting labour has been
a challenge nationally due to a record
number of job vacancies in the market,
high labour demand and significant wage
inflation. An example of this was seen
during the first half of FY22 where we
experienced significant challenges due
to the national shortage of driver labour.
This was partially addressed through
introducing a new employed driver model.
We have also conducted “right sizing” of
our headcount against current business
needs and continue to do so following
the extraordinary growth in FY21, which
has affected, and continues to effect,
employee morale.
Details on our significant accounting risks, namely the revenue recognition and contract asset recoverability in respect of both product protection plans
and mobile commissions, AO Mobile carrying value of goodwill and intangible assets impairment of assets in relation to AO Deutschland Limited, and
Going Concern and viability assessments are set out on page 112.
Link to strategy
1 Acquisition
2 Brilliant customer
journey
3 Comprehensive
category coverage
at great prices
4 Delivering supporting
services
5 Leverage expertise
whilst simplifying
Risk trend
Increase
Decrease
No change
57
AO World PLC Annual Report and Accounts 2022Strategic Report Our risks continued
Risk
B
IT systems
resilience and
agility
Relevant
strategic pillar
1
32
Risk trend
Nature of risk
Mitigating activities
Overall change during the year
The cyber threat landscape continues
to become more complex and the
frequency of organisations experiencing
cybercrime and ransomware has
continued to increase. Against this, AO
have placed additional focus on this
area over the past year, particularly
through the recruitment of specialist
cyber security roles, although further
investment is needed.
Through the year, we have continued to
review 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. We
have increased awareness of our security
environment and our understanding of
how to further enhance our defences.
During the year we began our Enterprise
Resource Platform transformation, that
would improve our systems to enable us
to operate optimally and efficiently on
a global scale. Given the changes to our
strategy this transformation, which would
have also benefitted the UK business,
has been postponed for the short to
medium term.
AO’s main IT systems are
interlinked and critical
for ongoing operations.
Therefore, failure of one
system may disrupt others.
The majority of customer
orders are taken through
our 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.
AO’s system estate is
comprised of bespoke
self-built applications
and enterprise-grade
commercial off-the-shelf
(“COTS”) products.
All self-built applications
are built with high levels of
redundancy, operational
monitoring, active alerting,
security controls 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.
2 Brilliant customer
journey
3 Comprehensive
category coverage
at great prices
4 Delivering supporting
services
5 Leverage expertise
whilst simplifying
Risk trend
Increase
Decrease
No change
Link to strategy
1 Acquisition
58
AO World PLC Annual Report and Accounts 2022 Risk
C
Compliance
with laws and
regulation
Relevant
strategic pillar
1 2
Risk trend
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:
y Data protection and
privacy;
y 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;
y Driver employment
status;
y Health and safety and;
y Environmental, Social
& Governance (“ESG”).
Regulatory developments
are routinely monitored
both in the UK and in Europe
to ensure that potential
changes are identified,
assessed and appropriate
action is taken.
AO 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 :
y 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, we
need to be mindful of developing
legislation.
y Drivers – we have introduced an
employed driver model this year,
which sits alongside our
self-employed model. The two
models are distinctive and should
reduce the risk of employment
status claims from drivers, however,
it could increase the likelihood of
tax challenges.
y Health and safety – AO continued
to operate safely through the
pandemic, maintaining a balance
of protecting our people without
disruption in our service proposition
to customers. We recognise the
learnings and increased resilience
we have developed from the
experience as we now transition
from pandemic to endemic that
will enable prompt and robust
response if there is a repeat of
events.
y ESG – The extent of ESG-related
legislation and reporting
requirements is significant. In
the past year, we have utilised
specialist knowledge in this area to
help us understand how to comply
and what ESG really means to
AO; where we need to focus future
efforts, and on ensuring alignment
to strategy. An ESG Steering
Group has been established with
members of the senior leadership
team accountable for developing
and implementing critical
ESG plans.
59
AO World PLC Annual Report and Accounts 2022Strategic Report Our risks continued
Risk
D
Business
interruption
Relevant
strategic pillar
1 2 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 centres in
the UK, may affect the
ongoing performance of our
operations and negatively
impact the Group’s finances
and our customers.
Multiple National
Distribution Centres (“NDCs”)
in the UK reduce single point
of failure risk and reliance on
any one distribution centre.
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.
Insurance policies are also
in place to further mitigate
this risk.
The Group has operated successfully
throughout the Covid-19 pandemic with
increased physical controls at AO sites
and in the delivery operation to ensure
the safety of employees and customers.
AO’s offices are fully open following the
removal of government restrictions/
advice, and many of our office-based
employees have adopted a hybrid
approach to work with a combination of
onsite and remote working. This has in
turn increased our resilience in the event
of a disruptive incident occurring at any
of our offices.
The physical warehousing estate
operates across more than one
main site, therefore, reducing risk
through decreasing the reliance on an
individual NDC.
There is ongoing work towards
implementation of an improved business
continuity plan (“BCP”) across the Group
with the assistance of a third-party tool.
This is a SaaS solution with increased
usability and availability if a disastrous
event occurred.
60
AO World PLC Annual Report and Accounts 2022 Risk
E
Macro-economic
conditions and
competitive
environment
Relevant
strategic pillar
1
32
4 5
Risk trend
Nature of risk
Mitigating activities
Overall change during the year
Customer proposition
remains strong and in our
core category of MDA
it is difficult to replicate
our infrastructure and
processes.
Robust relationships with
suppliers ensure we receive
our fair supply of stock.
Our price match promise
and technology ensure
that customers get the
best deals, and our digital
acquisition capabilities
ensure strong levels of
traffic to our websites.
Outside of MDA we continue
to learn and grow into other
categories.
We have a good finance
proposition, which enables
more customers to easily
spread the cost of their
purchase.
We closely monitor
competitor activity
and have the ability to
react quickly to ensure
our proposition remains
competitive. We continue
to develop our customer
retention strategies.
There is a high level of uncertainty in the
economy due in part to rising fuel and
energy costs driving up inflation, which
has affected, and is likely to continue to
affect, disposable household income and
consumer confidence, and, therefore,
reducing demand for electricals, mobile
phones and product protection plans
(and potentially increasing cancellations
of existing Product Protection Plans
(“PPPs”)). The conflict in Ukraine
has compounded this uncertainty,
particularly as there is an unknown
timeline as to how long it will last. With
this backdrop forecasting also remains
uncertain. These macro-economic
factors affect the overall electricals
market and AO are not immune.
Additionally, whilst the overall trend
towards online retail continues, online
penetration has naturally decreased
since the re-opening of store-based
retail following ease and then removal
of Covid-19 restrictions. AO expect the
migration to online retail to continue
but there is increased online competitor
activity (including manufactures seeking
to go directly to consumer), which has
intensified in a market that has seen
recent decline following the pandemic,
reduced disposable income, and given
the risk factors highlighted above.
The macro-economic
environment has seen the
level of risk increase to
almost unprecedented
levels in the past year,
which is expected to
continue through FY23.
Uncertainty in the UK (and
global) economy has been
increasing since Brexit and
the Covid-19 pandemic but
has since been superseded
by the conflict in Ukraine,
and the cost of living crisis,
particularly with price
rises on fuel, energy and
food. These issues are
exacerbated by wage
growth failing to match
inflation, therefore, real
wage decline. Additionally,
stock available from our
suppliers may be affected
by global supply chain
issues and due to materials
and labour shortages, and
increased operating and
transportation costs it can
be expected that suppliers
will increase cost prices.
The risk factors above are
also expected to increase
operating costs to AO.
Macro-economic risks
may result in slowing sales,
increased cancellation of
product, protection plans
(or initial sales of them) and
may impact the upgrade
sales we make on mobile
phone contracts. The
pressures in the market
subsequently are likely to
result in market decline
and increased competitor
activity.
All these factors make
forecasting challenging.
Link to strategy
1 Acquisition
2 Brilliant customer
journey
3 Comprehensive
category coverage
at great prices
4 Delivering supporting
services
5 Leverage expertise
whilst simplifying
Risk trend
Increase
Decrease
No change
61
AO World PLC Annual Report and Accounts 2022Strategic Report Our risks continued
Risk
F
Key commercial
relationships and
supply chain
Relevant
strategic pillar
3 4
Risk trend
Nature of risk
Mitigating activities
Overall change during the year
Our manufacturer relationships have
been further strengthened as we have
worked together to ensure essential
products can be delivered to customers.
Our relationship with D&G remains
strong as we work through a demanding
landscape where agility and flexibility
are key. Transparency, collaboration and
trust continue to be the cornerstones of
this relationship.
Our relationships with our network
partners have become much clearer as
we continue to roll our revised (de-risked)
operating and commercial models.
Clarity, consistency and candidness,
together with results, have been the key
building blocks here.
We have continued to develop our client
relationships in B2B and Logistics.
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 partners include:
y Manufacturers and
distributors;
y Delivery providers ;
y Plant and information
technology systems
suppliers;
y Network
operators; and
y B2B and Third-Party
Logistics clients.
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
and further the risk that we
fail to ensure we get a fair
allocation of stock where
it is available in limited
quantities.
It also includes our
relationship with D&G, whom
we act for as agent in selling
product protection plans.
There is ongoing
management of
relationships with key
suppliers to ensure strong
business relations.
We are careful to listen
to the concerns of all
suppliers and clients
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.
There is ongoing
management of stock
availability and stock
procurement to minimise
supply chain disruption and
customer dissatisfaction.
This is balanced with
continuous management
of working capital to
ensure cash liquidity and
headroom.
2 Brilliant customer
journey
3 Comprehensive
category coverage
at great prices
4 Delivering supporting
services
5 Leverage expertise
whilst simplifying
Risk trend
Increase
Decrease
No change
Link to strategy
1 Acquisition
62
AO World PLC Annual Report and Accounts 2022 Risk
G
Funding and
liquidity
Relevant
strategic pillar
1 2 3 4 5
Risk trend
Nature of risk
Mitigating activities
Overall change during the year
In general the macro-
economic environment
remains uncertain heading
into FY23 which could have
an impact on our profits
and cash generation
and, ultimately, liquidity
and ameks forecasting
challenging.
Given the financial
resources available to the
Group including its cash
resources, the Revolving
Credit Facility (“RCF”) that
was renewed in March 2022,
and which runs to April 2024
and the recent placing
which raised c.£40m of
capital, we currently have
sufficient funding and cash
resources to continue to
support the investment in
the UK.
Our three-year plan
models the impact of
reduced market share
in the UK;a number of
different scenarios have
been modelled to ensure
we continue to be viable –
please refer to page 64.
Throughout FY22, AO had to contend
with a high degree of uncertainty
and crystallisation of a number of
critical risks:
y As Covid-19 measures changed
throughout the year, before
being eased, consumer shopping
behaviour was difficult to predict
and the growth seen in online
penetration in FY21 fluctuated
causing volatility in sales and
revenue patterns. No more so was
this evident in the German market.
y The driver shortage, due in part to
the impact of Brexit, required AO
to adjust the driver model due to
operational constraints.
y Ongoing supply chain disruption
led to difficulty in forecasting stock
holding requirements leading to
periods of being either over or
under stocked.
y The high growth achieved in
FY21 led to increased overheads
across the Group as AO invested in
additional people and buildings.
We have extended our RCF facility in
March 2022, which now matures in April
2024. We have significantly reduced
overheads following “right sizing” of our
headcount and infrastructure against
current business needs following the
extraordinary growth in FY21.
We recognise that we are reliant on
suppliers offering us credit terms. If action
from any of our suppliers credit insurers
cause them to reduce our payment terms
this could have an effect on our cash
resources.
Emerging risks
As part of the RMC work, we have also been contemplating some emerging risks:
y We have discussed the government’s Resources
y Linked to this is the risk of climate change, and
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.
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.
y Covid-19 has potentially accelerated the migration
of shoppers online and has increased the risk
that 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 further
intensify.
63
AO World PLC Annual Report and Accounts 2022Strategic Report Our risks continued
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 2025. 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 current
macro-economic climate post Covid-19 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:
y 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 54 to 65 and in the
Corporate Governance Statement on page 90; and
y 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 2024.
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 46 to 47. The financial position of
the Company and its cash flows are described in the
Chief Financial Officer’s review on pages 48 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 £91.5m as at
31 March 2022,a cash outflow of £47.6m, and an increase
in net debt of £105.9m in the year ended 31 March 2022,
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 £80m revolving credit facility (which was extended
by 12 months to now expire in April 2024). At the date of
approval of these financial statements total liquidity
amounted to £60.7m.
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. The forecasts take account
of current trading, management’s view on future
performance and their assessment of the impact of
market uncertainty and volatility.
In assessing the going concern basis, the Directors have
taken into account severe but plausible downsides
to sensitise its base case and have run these in
combination. These primarily include:
y A downside of negative growth in the financial year
2023 and in the subsequent periods to account
for how the overall electrical online market could
be impacted by the continuing macro-economic
factors exacerbated by the conflict in Ukraine, such
as inflation, consumer confidence, interest rate
increases.
y
the cost of exit from Germany and potential
volatility in the timing and amount of cash inflows as
a result of this exit;
y product protection plan cancellation increases as a
result of macroeconomic trends;
y cost inflation being higher than anticipated
particularly in relation to wages; and
64
AO World PLC Annual Report and Accounts 2022 Strategic Report
Significant accounting policies
y a tightening of credit terms with suppliers as a result
of potential withdrawals or reductions of credit
insurance which could in turn, result in a reduction
in trade creditor days. The severe but plausible
downside has been considered at a reduction of 34
% on the cumulative average trade creditor days
over the previous 5 years.
Under this severe but plausible downside scenario
the Group continues to demonstrate headroom on its
banking facilities and remains compliant with quarterly
covenants which are linked to interest cover, dividend
cover and leverage and its annual covenant linked to
net assets.
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.
AO World PLC Annual Report and Accounts 2022
65
AO World PLC Annual Report and Accounts 2022 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
or 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
(starting on page 88) 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 94.
66
Customers
People
Suppliers and partners
Community
Shareholders
Our relationships with suppliers and partners
As a Group, we aim to build relationships and
Access to capital is vital to the long-term
is critical to our performance. We believe
support the communities where we operate.
performance of our business. We aim to
that we and our suppliers benefit the
We consider the social and environmental
provide fair, balanced and understandable
most where we have long-term mutually
impact of our operations and are fully
information to shareholders and analysts
supportive relationships, and work with them
committed to responsible retailing.
y
Steering and governance meetings with
with universities
through Make A Difference days
y Management meetings
y
Promotion of career opportunities
y Engagement with Board Committee
to ensure that our respective standards
and expectations of business conduct are
adhered too.
How we engage
y Annual supplier conference
y
“Top to top” (CEO) meetings
y Buying trips
finance partners
y Client meetings for B2B
y
Logistics and Recycling
What matters to them/
key topics raised
How we engage
Liaison with charity partners
Support to charities and fundraising
initiatives
y Encourage employee volunteering
y Employability forums
y
Participation in recycling forums
and events
y Good relations with the Environment
Agency and bodies such as WEEELABEX
including our strategy, business model,
culture, performance and governance.
How we engage
y
y
Financial results presentations
Institutional investor roadshow and
investor conferences
Chairs and Senior Independent
Director
y Capital markets days
y View of investors a regular Board
agenda item
What matters to them/
key topics raised
y
Financial performance
y
Long-term mutually supportive and
What matters to them/
collaborative relationships
key topics raised
y Customer proposition enhancements
y Environmental performance
y Opportunities and strategic ambition
y Growth opportunities
y Health and safety record
y Operating and financial information
y Responsible retailing, trust and ethics
Procurement decisions
y Governance
y
Payment practices
Investment and community support
y Confidence in Directors and
How we have responded
y We have developed a supplier onboarding
manual to help suppliers understand and
meet AO’s required standards
y CEO meetings with manufacturers and
suppliers
Sustainability initiatives
How we have responded
y Regular donation of appliances and
management
y
Shareholders returns
How we have responded
electricals to charities and good causes
Strategic review of German
y Worked with FareShare to donate 96
business unit
fridges nationwide to support the supply
Proactive communication from Chair
y
y
y Opening of new London creative hub
of fresh food into food banks
y
Supplier Conferences
y
Inspired by employee feedback, AO’s
y
y
y
y
y
Smile Foundation donated £60k to
UNICEF’s relief effort for children and
families affected by the war in Ukraine.
AO also donated fridges to a charity
supplying temperature controlled
medicines to refugee camps in Poland
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
y Dedicated, highly responsive customer
service centre and variety of digital
communication channels including social
media platforms and Chatbot
y CEO highly responsive to customer contacts
y Dedicated account management for
B2B clients
y Collection of customer satisfaction metrics
and use of feedback and review platforms
y Dedicated customer development team
y Extensive customer research including
surveys, customer focus groups and
forums to gather insight
y Use on-site customer survey and
feedback tools
y Virtual 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
y Customer service
y
y Ease of journey and convenience
y Reputation
y Data protection, compliance and
Product range and value
environmental impacts
Our AO culture is the most important element
in binding the competencies in our business
model together.
How we engage
y Regular business updates, such as
our “State of the Nation”, monthly
management meetings and dedicated
sharepoint site, “The Green Room”
y Use of Yammer, an internal social network
and YouTube, to enable a continued
conversation with and between our people
y
y
Feedback mechanisms including
employee survey, engagement forums
and confidential whistleblowing hotline
Formal partnership with USDAW (in
Logistics business)
y Recruitment, retention and annual
development plans
y Apprenticeship programmes
y Designated Non-Executive Director as
employee voice representative
y
Policies, procedures, and employee
handbook
What matters to them/
key topics raised
y Culture
y Reputation
y Reward and benefits
y Career and development opportunities
y Well-being/health and safety
How we have responded
y
Introduced an Always Listening strategy
to inform our improvement plans
How we have responded
y Enhanced customer communications
y
Launched an app-based well-being
service with 24/7 virtual GP
during the pandemic including creation of
dynamic videos to provide expectation and
requirements around AO installation services
Improvements in communications and
process in the event of order issues, delays
or faulty products
Introduction of customer self- serve
functionality around Returns, including
Drop @ Shop capability in My Account
Launch of 5* service level agreement with
drivers to promote excellent customer
service
y
y
y
y Continued to serve customers safely
through social distances measures and
enhanced cleaning regimes throughout
the pandemic period
y Extended company bonus scheme and
private medical insurance
y Restructure of the Value Creation Plan,
allowing all AOers to share in the success
of the business, together with the AO
Sharesave scheme
y
Flexible working arrangements to support
positive work and life balance
y Development of health and well-being
initiatives
y Continued focus on diversity and inclusion
AO World PLC Annual Report and Accounts 2022 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
or 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
(starting on page 88) sets out
in more detail how the Board
has approached its duty under
section 172.
Understanding our customers is critical to
Our AO culture is the most important element
the success of our Group. This allows us to
in binding the competencies in our business
continually improve our customer proposition,
model together.
thereby driving sales, increasing profitability
and allowing us to invest and innovate our
capabilities, and leverage new opportunities.
How we engage
How we engage
y Regular business updates, such as
our “State of the Nation”, monthly
management meetings and dedicated
y Dedicated, highly responsive customer
sharepoint site, “The Green Room”
service centre and variety of digital
communication channels including social
media platforms and Chatbot
y CEO highly responsive to customer contacts
y Dedicated account management for
B2B clients
y Collection of customer satisfaction metrics
and use of feedback and review platforms
y Dedicated customer development team
y Use of Yammer, an internal social network
and YouTube, to enable a continued
conversation with and between our people
y
Feedback mechanisms including
employee survey, engagement forums
and confidential whistleblowing hotline
y
Formal partnership with USDAW (in
Logistics business)
y Recruitment, retention and annual
y Extensive customer research including
development plans
surveys, customer focus groups and
forums to gather insight
y Use on-site customer survey and
feedback tools
y Virtual 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
y Customer service
y
Product range and value
y Ease of journey and convenience
y Reputation
y Data protection, compliance and
environmental impacts
How we have responded
y Enhanced customer communications
during the pandemic including creation of
dynamic videos to provide expectation and
requirements around AO installation services
y
Improvements in communications and
process in the event of order issues, delays
or faulty products
y
Introduction of customer self- serve
functionality around Returns, including
Drop @ Shop capability in My Account
y Apprenticeship programmes
y Designated Non-Executive Director as
employee voice representative
y
Policies, procedures, and employee
handbook
What matters to them/
key topics raised
y Culture
y Reputation
y Reward and benefits
y Career and development opportunities
y Well-being/health and safety
How we have responded
Introduced an Always Listening strategy
to inform our improvement plans
Launched an app-based well-being
service with 24/7 virtual GP
y
y
y Extended company bonus scheme and
private medical insurance
y Restructure of the Value Creation Plan,
allowing all AOers to share in the success
of the business, together with the AO
Sharesave scheme
y
Flexible working arrangements to support
positive work and life balance
y Development of health and well-being
y Continued focus on diversity and inclusion
y
Launch of 5* service level agreement with
drivers to promote excellent customer
initiatives
service
y Continued to serve customers safely
through social distances measures and
enhanced cleaning regimes throughout
the pandemic period
Customers
People
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
y Annual supplier conference
y
“Top to top” (CEO) meetings
y Buying trips
y
Steering and governance meetings with
finance partners
y Client meetings for B2B
y
Logistics and Recycling
What matters to them/
key topics raised
y
Long-term mutually supportive and
collaborative relationships
y Customer proposition enhancements
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
y
Liaison with charity partners
y
Support to charities and fundraising
initiatives
y Encourage employee volunteering
through Make A Difference days
y
Promotion of career opportunities
with universities
y Employability forums
y
Participation in recycling forums
and events
y Good relations with the Environment
Agency and bodies such as WEEELABEX
What matters to them/
key topics raised
y Environmental performance
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
y
Financial results presentations
y
Institutional investor roadshow and
investor conferences
y Management meetings
y Engagement with Board Committee
Chairs and Senior Independent
Director
y Capital markets days
y View of investors a regular Board
agenda item
What matters to them/
key topics raised
y
Financial performance
y Opportunities and strategic ambition
y Growth opportunities
y Health and safety record
y Operating and financial information
Procurement decisions
y Governance
Investment and community support
y Confidence in Directors and
y
y
y
y Responsible retailing, trust and ethics
y
Payment practices
How we have responded
y We have developed a supplier onboarding
manual to help suppliers understand and
meet AO’s required standards
y CEO meetings with manufacturers and
suppliers
y Opening of new London creative hub
Sustainability initiatives
How we have responded
y Regular donation of appliances and
electricals to charities and good causes
y Worked with FareShare to donate 96
fridges nationwide to support the supply
of fresh food into food banks
y
Supplier Conferences
y
Inspired by employee feedback, AO’s
Smile Foundation donated £60k to
UNICEF’s relief effort for children and
families affected by the war in Ukraine.
AO also donated fridges to a charity
supplying temperature controlled
medicines to refugee camps in Poland
management
y
Shareholders returns
How we have responded
y
Strategic review of German
business unit
y
Proactive communication from Chair
67
AO World PLC Annual Report and Accounts 2022Strategic 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, suppliers and our people, while driving down
costs and realising efficiencies in our operations.
Across AO’s business, there are a variety of sustainable
living initiatives in place, for example our continued
investment in our vertically integrated recycling facilities,
continually seeking efficiencies to our logistics operations,
the well-being of our people and community outreach
projects. We believe that customers and talent are
increasingly gravitating towards companies that are
properly addressing areas of sustainability and inclusion.
This year we have focused on streamlining our approach
and developing an over-arching ESG strategy to support
the long-term performance and sustainability of the
business.
Working towards the UN Sustainable
Development Goals
AO’s business strategy contributes to a range of the
United Nations Sustainable Development Goals (“SDG”),
identified during our ESG Materiality Assessment (see
page 69) and now embedded within our ESG Strategy.
We are committed to progressing on those areas where
we feel uniquely placed to make a positive difference.
AO SDG contribution
Environment
Social (our people and communities)
Governance
68
Our sustainability journey
2020/21
Dedicated resource to review and develop AO’s
ESG performance and strategy.
Signed up to the British Retail Consortium’s
(“BRC”) Net Zero Climate Action Roadmap,
including the following shared targets:
2030:
y Target for net zero emissions from purchased
electricity
2035:
y Target for net zero emissions from fleet
vehicles and heating
2040:
y Target for net zero emissions across product
value chain, both from suppliers and from
customers
2021/22
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:
y ESG strategy defined as part of overall
strategy work
y Baseline carbon footprint determined,
including Scope 3
y Full implementation of TCFD
recommendations
y ESG Governance Structure approved by the
Company Board, including ESG Steering
Committee chaired by the Chief Financial
Officer
Plans for 2022/23
y Consider targets and metrics related to key
focus areas of the ESG Strategy
y Further consider the setting of
science-based targets (“SBTs”) in line with the
Paris Agreement on Climate Change
y Evidence continued improvement in
managing ESG risks within our supply chain
AO World PLC Annual Report and Accounts 2022 Material sustainability issues
During the year, we conducted a materiality assessment
to identify the topics that are driving AO’s current and
future ESG performance defining these as risks, impacts
or opportunities.
A landscape review was undertaken to understand and identify the
potentially relevant ESG topics that might significantly influence AO’s
sustainability performance in the next three to five years, generated
internally through benchmarking and stakeholder interviews. The topic list
was then refined and discussed in more detail with external stakeholders
to ensure a richer insight. A deeper dive benchmarking review into AO’s
peers was also carried out to determine what was industry practice on AO’s
priority topics.
l
a
i
r
e
t
a
m
t
s
o
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r
e
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o
h
e
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a
t
s
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a
n
r
e
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I
1
2
3
5
9
12
6
8
10
13
7
4
11
14
15
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a
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e
t
a
m
t
s
a
e
L
Least material
External stakeholders
Most material
Landscape review and topics list
Develop and refine list
of material topics
What is the industry best-practice? What
topics are relevant for AO?
Stakeholder engagement
Who cares about these topics, and how?
Moving forward:
options for strategy
How could these topics be formalised
as part of strategy?
Visualisation and Validation
How should topics be visualised?
Are leaders comfortable with the priorities?
Materiality Matrix
The findings of the materiality assessment are
represented on our materiality matrix to help us
understand the importance to internal and external
stakeholders.
Materiality matrix
1 Waste and Recycling
8 Employee Talent and
2 Carbon (and GHGs)
3 Diversity and Inclusion
4 Customer privacy and
Retention
9 Resource consumption
10 Plastic and Packaging
data protection
11 Community investment
5 Supply chain
management
6 Ethical supply chains
7 Internal governance
12 Transparency
13 Health and Safety
14 Sustainable products
15 Natural material
Key:
Priority topics
Extend action
Table stakes
69
AO World PLC Annual Report and Accounts 2022Strategic Report
ESG strategy and pillars
Our ESG pillars have been derived from the materiality assessment
as follows:
Pillar
High Level
Material Topic
Key
Challenges
AO Long-term
Commitments
Sustainable
Living
Fair, Equal
and
Responsible
Fit for the
Future
Plastics and Packaging
Waste and Recycling
Sustainable Products
Carbon
Unsustainable
Consumption
Climate Change
Supporting people to live
low carbon lifestyles
Promoting circular and
sustainable consumption
and recycling
Talent Retention
and Attraction
Diversity, Equality
and Inclusion
Health and Safety
Data Protection/
Cyber Security
Internal Governance
Ethical and resilient
Supply Chains
Charity
Inequality
Being an equitable and
inclusive business
Providing safe, decent and
meaningful work across the
value chain
Value
proposition
Transparent and robust
supplier management
Supporting and respecting
customers’ rights to shop
safely online
70
AO World PLC Annual Report and Accounts 2022 Sustainable living
Promoting Circular and Sustainable
Consumption and Recycling
We take responsibility for the entire lifecycle of the products
we sell. 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.
Our plastics refining facility is now fully operational and
this year we have succeeded in meeting the plastic
recycling standards required to include recycled
content from our old appliances within a new fridge that
can be purchased on our website. The collaboration
with Beko continues to develop and our shared vision
of increasing the volume of recycled plastics from
old appliances within new appliances continues to
gather pace.
While we pursue circular recycling options within those
products we retail, we have continued to develop further
partnerships with third parties who can utilise our
recycle plastics in sustainable products. An example
of this is a partnership with domestic ventilation fan
manufacturer Volution Group, who have utilised plastics
recycled from old fridges collected from customers and
processed at our recycling facility in Telford.
Moving towards circularity
AO Recycling was the first recycling facility 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. We are proud to
have been the first recycling facility in England to
have gained this accreditation. 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
have been a UK leader in blowing agent capture rates.
For the fifth year running, our Telford recycling facility
has been awarded the Gold RoSPA for Health and
Safety.
This year we have continued to make investments in
our recycling facilities including new dock bays and
improvements in our packaging system to further
increase the take-back of product packaging from our
customers. 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
(including products that were not purchased from AO)
collecting products not just from houses, but also on
behalf of local authority recycling centres.
Our priority approach is to repair the pre-owned
appliances to the highest of standards and give them a
new lease of life so that they can be resold.
Whilst our experts work hard to repair and service
pre-owned or return appliances, when this is not
possible, they are recycled to the highest standard.
Through collaborating with our brand partners, we
continue to work to create a closed-loop process where
the appliances that have reached the end of their first
life are broken down and used to make new appliances.
71
AO World PLC Annual Report and Accounts 2022Strategic Report Sustainable living continued
Collection point
AO Collection Cooling units and 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
Resale
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
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
ElekDirect the
AO Outlet store
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
72
AO World PLC Annual Report and Accounts 2022 The following flow map shows the journey of products
after they have been discarded by consumers.
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 continuing to work 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 also continue to seek ways of
extending the life of electrical products through
innovative customer care offerings and our in-house
AO repair and recycling services, which this year were
expanded to include our new AO Rework facility at Crewe.
Supporting people to live
low carbon lifestyles
Our journey to net zero
To aid world efforts in limiting global warming to 1.5
degrees, we are considering how we can reduce our own
greenhouse gas emissions. During the year we have
worked with a third-party expert to calculate our Scope 1
and 2 (based on FY21 data) emissions and, for the first time,
our Scope 3 emissions. Through accurately measuring
our value chain emissions we have been able to establish
the year to 31 March 2021 as our future Greenhouse Gas
(“GHG”) baseline year and we will continue to explore
Science-based Targets and suitable KPI’s to ensure we
align with those commitments made as part of the BRC
Net Zero Roadmap.
By completing our Scope 3 emissions calculations we can
understand the role we can play in supporting customers
to reduce the GHG emissions created in using the products
they have purchased from AO. FY22 has seen changes in
energy labelling and spiralling rises in household energy
prices, both of which are already leading customers
to further prioritise lifetime running costs during their
purchasing decisions. We continue to monitor changes
in consumer behaviour and look at ways we can support
customers who wish to reduce their environmental
impact, or simply reduce the running costs of electrical
products through buying premium products with higher
energy efficiency ratings and other sustainability-related
features. Executive remuneration this year incorporated
metrics linked to our stakeholder relationships, which
we recognise are important to drive sustainable growth.
They included a performance underpin requiring the
development of a Group-wide ESG strategy, which was
approved by the Board in January 2022.
Initiatives to improve our
environmental performance
Close to 90% 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 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. Four electric vehicle
charge points have been installed between our Potters
Bar and Heywood outbases and have been used to
trial two different brands of electric vehicles. The
charge points have adapted data interfaces allowing
for the results of further trials to be monitored to help
inform our medium to long-term strategic plan for
decarbonisation. We introduced a number of carbon
fibre home delivery vehicles to the AO Logistics fleet,
significantly lowering the weight of each vehicle which
resulted in an improved payload meaning fewer vehicles
on the road and a reduction in fuel usage. The vans
have been specifically designed so that they can be
transferred to electric vehicles at the appropriate time.
We also purchased ten CNG vehicles and continue to
monitor their performance as a potential low emission
bridging technology. We continue to monitor developing
technology in this field, in particular for heavy payload
vehicles such as ours, before fully developing our fleet
strategy.
In line with the British Retail Consortium’s Climate Action
Roadmap, we have set a target to operate 100% LED
coverage in all new buildings by 2025 and we continually
assess where investments in our existing property can
support energy reductions and reduce operating costs.
During the year our 360,000 sq ft Alpha and
380,000 sq ft. Omega warehouses in Crewe, responsible
for c.30% of electricity usage across our estate, were
retrofitted with LED lighting. This project reduced
energy consumption at these sites.
Industry collaboration
Around five million people work within the UK’s retail
industry, making it the largest private sector employer,
providing vital goods and services for customers. The
industry also contributes significantly to the drivers of
climate change, with value chain emissions of over 215
MtCO2e (million tonnes CO2-equivelant) per year.
AO remains an active member of the British Retail
Consortium (“BRC”) Climate Action Roadmap, which
aims 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:
y Putting greenhouse gas data at the core of business
decision making;
y Operating efficient sites powered by renewable energy;
y Moving to low carbon logistics;
y Sourcing sustainably; and
y Helping employees and customers to live low
carbon lifestyles.
73
AO World PLC Annual Report and Accounts 2022Strategic Report Sustainable living continued
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 has engaged the
support of a third-party expert to support us in preparing to make,
for the first time, the relevant disclosures for the 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.
Where to find our TCFD recommended disclosures:
We confirm that, save as disclosed, the annual report includes all
climate-related financial disclosures required to be consistent with
the TCFD recommendations and recommended disclosures and
is in line with the current Listing Rules requirement (as referred to in
Listing Rule 9.8.6R(8)) having considered section Cof the TCFD Annex
"the Guidence for all sectors". Overall, we are partially compliant. This
is a highly complex topic and given the challenges we have faced
during the year and our pivot on strategy we have not made as much
progress in this area as we would have liked. Our disclosures in future
years will reflect our progress on addressing climate-related risks
and opportunities and establishing appropriate goals, metrics and
targets, and we will refine the quality of our reporting.
Governance
Cross -reference or explanation of non-compliance
Next Steps
y Board’s oversight of
climate-related risks and
opportunities
The Board has oversight of material climate-related risks and
opportunities, receiving regular updates from the Risk and Audit
Committees. Page 75
Continue with Board oversight
and embed within decision
making.
y Management’s role in
assessing and managing
climate-related risk and
opportunities
Management are responsible for identification, assessment and
management of climate-related risks and opportunities, as part of
our integrated risk management processes, which are maintained
at a business unit level, with the support of the Risk and Audit
team. Page 75
Continue assessing climate-
related risks with a holistic view
of the Group’s climate related
risk-landscape through the ESG
Steering Committee
Strategy
y Climate related risks and
opportunities identified
over the short, medium, and
long term
During FY22, we partnered with an expert third party to help our
management team identify relevant climate-related risks and
opportunities that might be material to AO over the short, medium
and long term. Page 75
Revisit climate-related risks and
opportunities to ensure relevant
and any new ones are identified.
y
Impact of climate-related
risks and opportunities on
our businesses, strategy,
and financial planning
Partially compliant – risk assessment performed and integrated in
short term (1-3 year) financial and strategic planning (for example
fuel and energy price impacts) but longer term assessment
needed
Climate-related risk and
opportunities to be specifically
considered in longer term
strategic and financial planning
, particularly with regard to
decarbonisation of fleet which
we see as a medium to longer
term initiative
y Resilience of our strategies,
taking into consideration
different climate-related
scenarios, including a 2°C or
lower scenario
Non-compliant. This is a highly complex topic and given the
challenges we have faced during the year and our pivot on
strategy we have not made as much progress in this area as we
would have liked
Full scenario planning to be
undertaken at the appropriate
time, expected to be within the
next 3 years
74
AO World PLC Annual Report and Accounts 2022 Risk management
y Processes for identifying
and assessing climate-
related risks
Risks are identified and assessed by each of the business units,
as part of our integrated risk management processes, which are
maintained at a business unit level, with the support of the Risk.
Climate-related risks are subject to the same assessment criteria
as other risks, and these are classified as either short term (1-3
years), medium term (3-5 years) and longer term (5+ years), and
are subject to the same assessment of likelihood and impact in
alignment with our wider risk management procedures. See pages
76 and 77
and Audit risk section from page 55
Continue with our processes to
ensure climate-related risks are
identified and assessed.
y Process for managing
climate related risks
All risks are assigned a risk manager, to ensure that risk is properly
managed and mitigated against
Continue with our processes to
ensure climate-related risks are
managed.
y How processes
Partially compliant – as per above.
As noted on page 56, one of our
actions for the next financial year
is formalise our process of risk
tolerance and acceptance of risk.
identifying assessing, and
management climate-
related risks are integrated
into the organisation’s
overall risk management
Metrics and targets
y Metrics used to assess
climate-related risks and
opportunities in line with
our strategy and risk
management processes.
Non-compliant. Whilst the Board has now set an over-arching ESG
strategy and established its (Scopes 1,2 and 3) baseline it has not
yet set specific metrics or goals in line with its strategy
Consider setting specific metrics
and goals within the next 3 years
y Scope 1, Scope 2, and Scope
3 GHG emissions, and
related risks
Partially compliant. Scopes 1 and 2 reported for FY22 – Scope 3
reported for FY21.
Further analysis to be done
on emissions, related risks and
action plan to reduce emissions
y Targets used to manage
climate related risks
and opportunities and
performance against
targets
Non-compliant. Whilst our Remuneration Committee has
considered climate-related targets in the context of Executive
Compensation, given the challenging market conditions and
focus on driving profitable growth whilst maintaining appropriate
cash resources, coupled with the assessment that climate-related
risks facing the Group are currently considered “low”, it has not
incorporated climate-related metrics in its incentive schemes to
date
Science Based targets to be
considered alongside any other
climate related performance
targets at the appropriate time,
expected to be within the next 3
years
75
AO World PLC Annual Report and Accounts 2022Strategic Report Sustainable living continued
Governance
The Board has oversight of material climate-related risks and
opportunities, receiving regular updates from the Risk and Audit
Committees. ESG matters, including environmental topics are
scheduled agenda items at least twice per year.
The Board considers climate-related issues in key decision making
as part of its s.172 obligations. For example this year the Board
considered the appropriateness of renewing diesel vehicle leases in
the context of aiming to reduce the Group's carbon footprint.
During FY22 we have reviewed our Principal Risks for climate change-
related drivers, to help demonstrate the importance of considering
climate change in our risk management processes. Please refer to
the paragraph below and our Risk Management section on page 54
as to how management of climate-related risks fall within our general
risk management processes.
Whilst the Board has now set an over-arching ESG strategy it has not
yet set specific goals and targets to address climate-related issues.
However we now have our (Scopes 1,2 and 3) baseline from which to do
so at the appropriate time.
The Remuneration Committee is responsible for determining whether
ESG goals generally, and specifically climate-related targets, should
be encompassed into Executive remuneration. Please refer to the
Directors' Remuneration report for the Remuneration Committee's
approach to these targets during FY22 and looking forward
into FY23.
Management are responsible for identification, assessment and
management of climate-related risks and opportunities, as part of
our integrated risk management processes, which are maintained
at a business unit level, with the support of the Risk and Audit team.
As noted overleaf management were involved in a series of climate-
screening workshops to understand our climate-related risks and
opportunities. Risks raised have been incorporated into relevant
risk registers. On a quarterly basis, business unit risk registers are
reviewed by the Risk and Internal Audit team, with critical risks
recorded on the corporate risk register. These risks are subject to
periodic review to determine whether the risks are being mitigated
within risk appetite.
Our ESG Steering Committee was also formed during the year.
Chaired by the CFO, this Committee will oversee the management
of climate risks and opportunities through the formation of working
groups covering key topics and reporting on risks and progress to the
Risk and Audit Committees and PLC Board.
Strategy
During FY22, we partnered with an expert third party to help our
management team identify relevant climate-related risks and
opportunities that might be material to AO over the short, medium
and long term. This included both physical risks and opportunities
of climate change, and risks and opportunities associated with
the transition to a low carbon society. Our work suggested that,
while climate-related risks are not currently considered to pose a
substantive risk to our business, we need to continually monitor
climate-related risks and opportunities. The risks and opportunities
listed below are relevant to our UK-only business going forward,
taking into account the sectors in which we operate; retail
(e-commerce); transportation (trucking services) and recycling but
based on a Group-wide assessment.
76
Short-term
Those climate-related risks that we deem most material to AO in the
short term are:
y
Increasing regulatory drivers for retailers to take responsibility
for WEEE take-back and packaging which could increase
operational complexity and costs (Retail).
y Failing to meet the demands of an increasingly environmentally
conscious customer base, in terms of product ranges and
information which could result in a reduction of sales and
market share (Retail).
In order to 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 use
our market insights to respond to consumer interests. This allows us
to adapt and move quickly to shifts in consumer demands, and as
new technologies become commonplace.
Medium to long-term
Those climate-related risks that we deem most material (but in any
event low to moderate) to AO in the medium to long term are:
y Transitional risks in relation to carbon reduction policies and
decarbonisation of our logistics fleet (Logistics).
y Physical risks impacting our sites: Increased frequency of power
outages at our Recycling facility would interrupt operations;
damage and a loss in sales due to increases in ambient
temperatures, flood risks and heatwaves (Long-term) (Retail,
Logistics & Recycling).
y Physical risks impacting our ability to deliver; be this flood risk
and heat waves or conversely very cold events resulting in
national road infrastructure problems and therefore impacting
effective logistics (Retail & Logistics).
In terms of the opportunities linked to climate change, we see the
most material being:
y Diversification of our product ranges and product categories
in response to physical risk of climate change, e.g. an increase
in heatwaves leading to increased demand for air conditioning
technology (Retail).
y
Increasing regulatory drivers for retailers to take responsibility
for WEEE take-back and packaging which could drive additional
income for our recycling business (Retail & Recycling).
These risks and opportunities pose different challenges to our
business depending on how successful we are at mitigating the
impacts of physical climate change as a global society.
We have used the Network for Greening the Financial System
(“NGFS”) scenario narratives to consider two alternate transition
scenarios – Divergent Net Zero 2050 and Nationally Determined
Contributions. We will use these scenarios to help inform how we think
of climate-related risks and opportunities as a business.
Under a Net Zero by 2050 scenario, emissions are kept in line with
more ambitious climate goals, which give us the best chance of
limiting global warming to 1.5 degrees by the end of the century.
However, under the Divergent scenario proposed by the NGFS, it is
achieved with different policies across sectors and geographies and
a quicker phase out of fossil fuels. This scenario is also characterised
by fast change in technologies. AO will need to be agile in response
to new technologies coming on the market, whilst responding to
potentially less disposable income for consumers, as a result of
higher costs of living (due to increased energy costs and varying, and,
in places ,stringent, climate policies). Decarbonising our operations
AO World PLC Annual Report and Accounts 2022 will require investment and policies to support decarbonisation may
be implemented quickly, with little foresight to allow for financial or
strategic planning. Consumer and market pressure to demonstrate
our response to climate change could increase, and will inform
the allocation of capital investment, so it will become increasingly
important to communicate our actions to mitigate climate change
and support a ‘just’ transition.
Under a limited climate action future, for which we have used the
NGFS Nationally Determined Contributions scenario, all current
pledges, even if not yet implemented, are actioned. Climate
ambition is moderate and consistent globally, resulting in 2.5
degrees of global warming by the end of the century. Under this
scenario, AO may see lower impact from the transition risks we
have deemed most material to us, as we already have sight of the
proposed policies and interventions needed in this scenario. This is
particularly relevant for energy-intensive recycling operations and
major logistics sites in Crewe and ensuring we can build a strong
long-term competitive advantage as retailer of choice for our
customers. Keeping pace with consumer and market expectations
on our response to climate change will be easier than the alternate
Net Zero 2020 scenario over the long term but still poses a challenge
for the immediate future.
Risk management
Risks are identified and assessed by each of the business units,
as part of our integrated risk management processes, which are
maintained at a business unit level, with the support of the Risk
and Audit team. On a quarterly basis, business unit risk registers
are reviewed by the Risk and Audit team. Critical risks are recorded
on the corporate risk register and are subject to periodic review
to determine whether the risks are being mitigated within risk
appetite. Principal risks are approved by the Board.
Our business unit and Corporate Risk registers include
ESG-related risks. Climate-related risks are subject to the same
assessment criteria as other risks, and these are classified as
either short term (1-3 years), medium term (3-5 years) and longer
term (5+ years), in alignment with our wider risk management
procedures and subject to the same assessment of likelihood and
impact as discussed in our Risk Management section on page 55.
All risks are assigned a risk manager, to ensure that risk is properly
mitigated against. Our Risk and Audit team are supporting the
business units to better identify and assess environmental risks to
ensure these are appropriately managed.
During 2021, our management team took part in a series of
climate risk workshops, facilitated by a third party to improve
awareness of climate-related issues and support better risk and
opportunity identification and assessment. This year we continue
to improve business unit management of, and information sharing
regarding, risk evaluation and management, to ensure this is
managed on a continuous basis across the business.
Metrics and targets
We aim to become a net zero carbon business by 2040 (from our
baseline of 2021). In addition to this, we intend to set our own interim
science-based targets across our Scope 1, 2 and 3 emissions medium
term. However, whilst our Remuneration Committee has considered
climate-related targets in the context of Executive Compensation,
given the challenging market conditions and focus on driving
profitable growth whilst maintaining appropriate cash resources,
coupled with the assessment that climate-related risks facing
the Group are currently considered “low”, it has not incorporated
climate-related metrics in its incentive schemes to date and, for the
same reasons, nor have any other any (non-remuneration linked)
goals or targets been set by the Board or management. During the
year, the Board and Remuneration Committee will further consider
putting in place appropriate climate-related goals, metrics and
targets.
Our Scope 1, 2 and 3 emissions are provided in the table below.
Over the course of this year, we have improved the calculation
method used to estimate our Scope 3 emissions and are now
able to provide estimated GHG emissions for use of sold goods, as
well as purchased goods and services, business travel, employee
commuting and fuel-energy-related emissions. This methodology
and further information is available below.
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.
Our carbon footprint is calculated by estimating the individual
greenhouse gases that result from AO’s activities, converted into
a carbon dioxide equivalent (tCO2e). We report Scope 1 and 2
emissions, and this year, we partnered with an expert third party
to complete the mapping of our Scope 3 emissions for the year
ended 31 March 2021. This will now act as AO’s baseline year for the
establishment of science-based targets in future years and aid us in
prioritising our impact and investments.
77
AO World PLC Annual Report and Accounts 2022Strategic Report Sustainable living continued
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 (please note the adjustments detailed below
for the current reporting year). 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 ratio as this is a relevant indication of our growth and is
aligned with our business strategy.
The total calculated Scope 1, 2 and 3 emissions for the reporting year
are shown on the following page.
Scope 1,2 & 3 Greenhouse Gas Emissions
Year ending 31 March
Scope 1 Direct emissions: Total emissions from operations and combustion of fuel
Scope 2 (Indirect emissions): Total emissions from energy purchased:
Market-based
Location-based
Total gross Scope 1 & 2:
Market-based
Location-based
Carbon Intensity ratio:
Tonnes of CO2e per £m of revenue
Scope 3
Category 1: Purchased goods & services
Category 11: Use of sold products
Other scope 3 emissions
Total gross scope 3 emissions
Total gross scope 1,2 & 3 emissions
Energy use kWh (Scope 1 and 2)
UK
Global (excluding UK)
20221,3 tCO2e
2021 tCO2e
2020 tCO2e
38,081
31,958
26,587
2,992
3,396
41,073
41,477
1,284
3,411
33,242
35,369
1,697
3,679
28,284
30,266
30.323
21.29
28.55
–
–
–
–
–
260,044
928,296
14,564
1,202,904
1,238,273
–
–
–
–
–
2022
15,769,141
n/d1
2021
13,156,641
2,991,426
2020
14,573,240
3,047,216
1 Due to difficulties in compiling data from our German business following the recent decision to close the business, UK only figures for FY22 are reported.
This will provide the appropriate comparison in future reporting years.
2 Based on UK revenue only for FY22
3 FY22 Scope 3 data not compiled
78
AO World PLC Annual Report and Accounts 2022 Fair, Equal and Responsible
Fair, Equal and Responsible
Our c.3,600 AOers are the foundation of our business
and their dedication, innovation and ambition
contribute to our success and sustainability. 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
and safe environment to work in, where they are treated
fairly and with respect. They are empowered, they are
incentivised and they know they are trusted. We love
watching them grow and thrive. We aim to 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.
Talent attraction and retention
The last year brought a number of challenges that we
couldn’t have anticipated including transitioning to
living with Covid and the concept of work becoming
increasingly flexible, unprecedented cost inflation
affecting customer behaviour and volatile supply
chains.
The labour market has seen an impressive revival from
the pandemic and the year has been challenging in
critical talent segments both in the UK and Germany
with a candidate driven market and competitors
inflating salaries, all of which has contributed to high
levels of employee turnover.
Against this highly competitive external landscape we
have evolved our people proposition, to give candidates
a compelling reason to join AO and develop a fulfilling
career. We have developed our hiring programme;
“Hiring the AO Way”, designed to ensure our processes,
ways of working and hiring teams are all focussed
on making exceptional hires at AO and our selection
processes are underpinned by AOs values and a great
candidate experience. Part of this programme has also
enabled us to design a focused and robust selection
programme to raise the bar for all senior hires into AO.
This programme is designed to ensure alignment to AO
leadership behaviours and values.
During the reporting period, we experienced an
unprecedented national shortage of HGV drivers.
Against this backdrop, our AO “Always Listening”
strategy enabled us to understand what was most
important to this population, with AO successfully
recruiting and retaining drivers by incorporating flexible
shift patterns and gaining a reputation for the options
we offered.
As we navigate these challenges we are proud of how
AOers continue to deliver exceptional service to all our
customers. Our immediate focus is to re-create our AO
culture within the framework of “Always Listening”, to
recognise and act on the impact of the changes to our
ways of working; and delivering our people proposition
ensuring a clear and compelling reason to join and
remain at AO, so every AOer across the Group can
come together as a One AO team, adjust and steer the
business through a more challenging environment.
We continue to review our hybrid ways of working,
forming principles, rather than a rigid policy, that works
for AOers. We are already seeing marked improvements
in culture over the last few months as AOers spend
more time face to face and feedback from our recent
engagement survey indicates that for AOers our new,
more flexible ways of working, has improved their
work-life balance, mental health and happiness.
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.
Chris Hopkinson, a Non-Executive Director, is our
People Champion and has Board responsibility for our
engagement initiatives. Chris reports back to the Board
and this, along with our regular People updates, allows
the Board to assess and monitor culture.
To support our engagement strategy, we use a variety
of ways to engage with AOers to understand what
matters to them. Our UK Group-wide engagement
survey in March 2022 achieved a completion rate of
73% and, therefore, represents the views of a significant
proportion of our workforce. The engagement survey
included questions around basic needs, individual and
team needs and personal growth, with results indicating
positive levels of satisfaction across each area across
the group, with work to do with our Tech function and
more broadly around access to opportunities for
personal growth. Our ENPS result was two, down from 22.
Naturally we are disappointed to see such a drop and
are working through the qualitative comments received
from the survey to drive improvements. Notably, our
proportion of passive voters has increased rather than
detractors and with targeted improvements and once
a clear strategy for the business in the medium term is
defined, we are confident ENPS results will improve.
Read more about
our culture pages
22 and 23
Read more about
how we engage with
our stakeholders
on pages 66 and 67
79
AO World PLC Annual Report and Accounts 2022Strategic Report Fair, Equal and Responsible continued
Learning and Development
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.
Building on earlier progress, development continues
as a priority with investments at all levels. Senior
Executives benefited from Critical Eye membership
to enable expansion to their external networks, build
personal development pathways and benefit from an
external Board Mentor. Aligned with this we invested in
leadership development with a focus on self-awareness
and team leadership skills to accelerate growth and
transformation.
AOers make AO unique, led by the best team managers.
Appreciating the continuing volatile business climate,
we have equipped our middle and senior managers in
areas such as change management, resilience, brave
leadership by introducing Henley Business School
Partnership online masterclasses.
Our listening channels are also an important way of
providing a credible voice from AOers to ensure their
views form part of decisions that are likely to affect
their interests. As well as employee surveys, we have AO
Engagement Champions and a 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 increase 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.
To ensure there is a broad awareness and
understanding of business wide performance, and
the financial and economic factors affecting AO, we
hold 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 160 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, to ensure all AOers are kept up to date with the
latest news and developments across the Group and to
enable two-way conversations between AOers across
the business.
Focus over the coming year will be on engaging and
connecting all AOers to our Group values, through a lens
of what this means at a local level, which will provide
AOers with a better opportunity to connect personally.
80
AO World PLC Annual Report and Accounts 2022 Working with an external provider we launched our first
virtually delivered line manager programme – License
to Manage – which supports our commitment to ensure
our line managers can be the best; focusing on building
collaborative high performing teams. To further support
our line managers, we have introduced Manager
Toolkits; easy to follow “How Do I” guidance, advice and
support to help Managers with all those moments that
matter, from hiring to retiring and everything in between.
Alongside the toolkit we have launched a manager
advice line, employee relations advisors on hand to
guide managers.
Apprenticeships continue to be a key focus for our
Learning and Development Team, unlocking existing
potential as well as enabling us to recruit new talent.
As at April 2022 we had 266 AOers participating across
16 different apprenticeship programmes including
leadership and management qualifications. Our HGV
driver apprenticeship programme is reaping rewards in
reducing attrition and increased performance. Attrition
in the apprentice population is tracking at a rate much
lower than that of employed drivers . Given the success
of this approach, we are currently developing an
apprenticeship pathway for Gas engineers and will look
at other roles in Logistics.
We have also embedded Group talent and succession
planning, especially for strategically critical roles,
to build a shared understanding and calibration of
potential and high performance across the business.
Over the next year, we will look to optimise our target
operating model through roles, structures and ways of
working. We will continue to raise the bar in the quality
of new hires, extend our learning opportunities and
continue to focus on high-performance leadership
teams. All of this, together with streamlined people
processes 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. Whilst we strive to ensure our reward package is
attractive and competitive. the post pandemic demand
for talent is inflating salaries across all sectors of our
business resulting in a challenge for us to compete for,
and retain, the best talent.
Despite a tough trading year, to remain competitive
and to support our workforce against the impact
of increases in the cost of living, we have awarded a
minimum of 3% pay increase to all qualifying AOers
together with enhancing our holiday benefits to
introduce holiday buying and flexible bank holidays.
We have responded to AOer feedback around well-being
support and healthcare benefits by introducing free flu
jabs and life cover for all. In the UK we have enhanced
our employee assistance programme to introduce
an app-based well-being service that supports AOers
and managers to get the help they need, the way they
want it, anytime, anywhere – in and out of work, day and
night. Additionally, in the UK we have launched a digital
healthcare benefit for all, allowing AOers 24/7 access to a
virtual GP service, physio and mental health counselling.
AO’s reward philosophy and principles support an
enhanced reward package for leaders. As such we have
extended the company bonus scheme and private
medical insurance, bringing our leadership reward
package more in line with the market.
We also offer an annual Sharesave scheme to all UK
employees, providing them with the opportunity to
purchase ordinary shares in the Company and continue
with our value creation plan, which all employees
participate . This helps to encourage employee interest
in the performance of the Group.
Diverisity and inclusion (“D&I”)
We are proud of AO’s inclusive environment where
everyone can succeed, grow their career and be
rewarded for their efforts. There is no doubt that as
well as being simply the right thing to do, this diversity
of thought and contribution can make AO a better
business for our customers and all stakeholders.
We continue to work to make our culture even more
inclusive and develop inclusive leaders . To enable
this, we have established a diversity and inclusion
advocates group to support our D&I action planning.
The group includes senior representation from across
the group and is led by the CFO. It has set out AO’s D&I
statement as:
AO is for everyone.
We should all feel that we belong. That's why we are
creating a welcoming and inclusive place to work.
and our D&I priorities of:
y One AO Approach to Inclusion – closing the gap
between our intent and our outcome;
y Supporting under-represented AOers to be the best
they can be; and
y Promoting AO’s Internal Inclusion Networks.
Our Women’s network has enjoyed good traction this
year developing its strategy and commencing regular
menopause support sessions. We also ran a number
of sessions to celebrate International Women’s Day,
with a focus on well-being and confidence, and will look
to build on the great feedback we received. Our other
networks have had less success and, in the year ahead,
we will look to apply some of the tactics used in the
Women’s group to drive other inclusion initiatives.
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.
To support AOers whose first language is not English we
have been trialling a language app, encouraging AOers
to use the tool with their families and friends – to help
them socially in their communities, not just at AO.
Our aim with these priorities is to engage all, and
prospective, AOers to build a fully inclusive environment
where people feel safe, respected, included and
themselves.
81
AO World PLC Annual Report and Accounts 2022Strategic Report Fair, Equal and Responsible continued
Gender representation and
gender pay gap
AO’s 2022 Gender pay gap report highlighted that
our Gender Pay Gap continues to narrow with a 15%
reduction in the Group’s median gap; AO’s overall Group
median of 3.4% is significantly below the ONS average
of 15.4%. Our gap is predominantly due to stronger
representation of men at more senior levels and, to
some degree, because of industry-led higher pay in
male dominated Tech roles.
Our Logistics and Recycling businesses are typically
male dominated, with only 20% female representation.
Retail and enabling functions have c.50% female
representation and, whilst Tech is a male dominated
industry, we have been promoting Tech careers for
women and have experienced some small gains in
diversity.
We will continue to support, develop and promote
female AOers and ensure our recruitment processes
are gender neutral. Our focus on developing a diverse
and inclusive culture will continue to be a key focus
for us this year. To continue to reduce our gender pay
gap and improve diversity we have and will continue to
work towards AO’s diversity and inclusion strategy that
is based on closing the gap between our intent and
outcomes through:
y Career opportunities and progression routes that
are clear and accessible to all
y Support for under-represented groups to
proactively develop their career
y Ensuring that the people we hire at AO match the
local demographic
y Diverse candidate shortlists
y Hiring teams who are diverse and knowledgeable to
mitigate biases
y Guarding against bias in our job design and
advertising
Our latest Gender Pay Gap report with a snapshot date
of 5 April 2021 can be found at ao-world.com.
At the end of our reporting period, whilst our Executive
Committee did not have any female representation, our
Senior Leadership team (which reports directly into our
Executive Committee) was 26% female (FY21: 25%). The
number of female AOers across the whole business was
30% (FY21: 31%).
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.
Ethnicity
We currently do not report on ethnicity representation.
We are working towards improving our population data
levels through building awareness and transparency
about the reasons why we wish to hold such data, the
value such insight can bring and how the data will be
stored. We anticipate making improvements to this
during the next year, to be able to better understand
the backgrounds of our teams and, from there,
commence reporting.
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:
y
y
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.
We have improved 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.
We have put an inclusion lens over our leadership
pipeline and succession process and built inclusive
practices into our leadership programmes. This is
coupled with comprehensive inclusion learning content
on our learning hub for all AOers.
Every day I wake up and
I know I’m going to have
a good day at work. I feel
supported and my own
personal development
goals feel recognised.”
AOer
82
AO World PLC Annual Report and Accounts 2022 Health and safety
Safety with a smile
At AO we are committed to maintaining a safe working
environment for all our employees and customers. We
drive a culture aimed at continuous improvement and
maintaining consistently high standards. Health, Safety
and Well-being is always on the agenda at AO and to
ensure we have a structured way of communicating
health and safety through the entire business, we
operated under the following structure consisting of
three separate tiers:
y Health and Safety Steering Group – designs and
leads the strategy for Health and Safety across
the Group
y Health and Safety Working Group – creates the
agenda for the Steering Group by highlighting the
highest risks, issues, and current performance
y Health and Safety Committees – Individual business
unit committees that meet regularly and feed into
the Working Group
As a business we deliver a thorough inspection schedule
to ensure that all our departments and premises
are managing risk to the highest standard. We use
the inspections and a range of KPI’s to monitor the
performance in each business unit.
Maintaining our health and safety accreditations
and management systems allows us to measure our
performance using external benchmarks.
The ISO45001 management system in Recycling and
RoSPA awards in Recycling and Logistics are two
examples of how we achieve this.
After managing the challenges of the pandemic, the
next 12 months will be focused on being brilliant at the
basics by using these key principles from our Group
Health and Safety Policy;
y Regularly update the Board of Directors on our
performance
y Provide all stakeholders with support to manage the
risk in their departments
y
Inspect each operational area of the business on a
risk-based frequency
y Assess risks to the business and our people,
providing measures to control these risks
y Provide adequate information, instruction and
training to all people working on behalf of the
business
y
Investigate all workplace incidents with the aim of
preventing a reoccurrence
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.
Reporting requirement Policies and standards that govern our approach
y Environmental policy
Environmental
Employees
y Group employee handbook
y Flexible working policy
Information necessary to understand our
business and its impact, policy due diligence
and outcomes
Sustainable living, pages 71 to 78
SECR/GHG emissions, pages 77 and 78
Our culture, pages 22 and 23
y Whistleblowing policy
y Data protection policy
Fair, Equal and Responsible, pages 79 to 83
y Health and safety policy
y Equal opportunities policy
y Modern slavery policy
y Data protection policy
y Hospitality and gifts policy
y Modern slavery policy
y Code of conduct
y Hospitality and gifts policy
y Anti-bribery policy
y Hospitality and gifts policy
Social matters
Human Rights
Anti-corruption and
bribery
Principal risks and
impact on the business
Description of business
model
Non-financial KPIs
Fit for the Future, pages 84 and 85
Risk report, pages 54 to 65
Our business model, pages 12 and 13
KPIs, page 03
Our policies and procedures are available on our corporate website or from our Company Secretary on request.
83
AO World PLC Annual Report and Accounts 2022Strategic Report Fit for the Future
Ethical and resilient supply chains
Our Modern Slavery statement for the year ended
31 March 2021 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/responsibility. 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 continue to
work effectively.
During the year, we reviewed 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.
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
Internal governance
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 pages 54 to 65.
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.
Our key objectives include:
y Maintaining integrity in respect of compliance and
reporting;
y Controlling and mitigating tax risks; and
y Enhancing shareholder value.
A copy of our current tax strategy can be found at on
our corporate website at ao-world.com/responsibility.
Data protection and cyber security
As an online retailer serving millions of customers,
protecting their data, and ensuring safe online shopping,
is critical to our business. We have data protection and
cyber security teams, which set out our policies in this
area and support stakeholder training with employee
modules included in an online learning hub – helping to
ensure that the GDPR principles are fully understood
and at the forefront of our minds. The Data Protection
Steering Committee meets quarterly to oversee our data
protection strategy, assess risk and monitor market
developments. We continue to invest in this area.
Community/Charity
Ukraine
Following overwhelming expressions of sympathy
and support for people in Ukraine from across AO, we
donated £60,000 from the AO Smile Foundation to an
international charity appeal for young people affected
by the war. This donation has contributed towards the
charity delivering life-saving equipment and first aid
kits to 14 hospitals, which has helped 4,000 pregnant
women and newborns, dispatching 85 trucks carry 858
tonnes of emergency supplies, establishing support
zones in 29 Metro stations where children and families
have been sheltering in Kharkiv and opening five special
hubs in Moldova and Romania to provide shelter and
protection for refugee families with up to 5,000 people a
day passing through them.
We also donated eight fridges from AO Recycling to a
charity that ships temperature-controlled medicines
to refugee camps and a team of AOers from Germany
took much needed supplies to the Polish border.
AO World PLC Annual Report and Accounts 2022 In addition, AOers have been doing their own
volunteering and fundraising across the business to
support people affected by the war,
AOers who chose to host a Ukrainian refugee family in
the UK are also able to use our Make A Difference days
to settle them in.
Supporting care givers during Covid-19
Following the efforts to support NHS staff during FY21,
through the donation of products to NHS hospitals
and care facilities, we have continued to donate much
needed products for patient and staff communal areas.
Are you AO-K
As part of our sponsorship of Sale Sharks, AO funds the
“Are You AO-K?” Programme in partnership with the Sale
Sharks Community Trust. It is an educational initiative
designed to teach young people how to start taking care
of their mental and physical well-being early on in life.
Delivered through a unique blend of classroom
workshops and mood-boosting rugby tag sessions led
by Sale Sharks players, the six-week course has so far
reached 20 primary schools in Greater Manchester with
new schools being registered each term.
At the end of the first season, Sale Sharks and AO
hosted a rugby tournament for over 450 pupils with
appearances from 19 Sale Sharks players including
England International, Jason Robinson.
AOer volunteering
To facilitate volunteering, we offer two paid Make
A Difference (“MAD”) days a year to every AOer. We
encourage AOers to support their local communities
and the causes that matter to them, while also offering
volunteering roles related to AO Smile charity partners
such as Onside YouthZones and through corporate
partnerships such as that of Sale Sharks. The AO
Smile Foundation continues its role as a founding
ambassador for Onside’s HideOut Youth Zone, through
a £25,000 a year donation and provision of volunteering
opportunities to AOers from our neighbouring
Manchester and Bolton offices.
Product donation
At AO we assess requests and need for product
donation on an individual basis and this year donated
over £9,000 worth of products. Recipients include
Glasgow A&E, London Ambulance Service, Electricity
North West and YMCA Brighton.
AO Smile
We support our people to make a positive contribution
to the wider community. Smile holds the top award of
Diamond Payroll Giving Award by the Government’s
Cabinet Office for the second year running. In addition,
when AOers raise money for a charity close to their
hearts, AO Smile foundation boosts the money raised
by up to 50%
AO Smile has supported numerous charities this past
year by providing fundraising boosts to AOers’ chosen
charities including Shelter, Children Today and the
Teenage Cancer Trust, donating £17,000 in total. During
the year, AOers donated £37,000 to AO Smile though
payroll giving.
The Company’s Strategic Report is set out on pages 08
to 85 and was approved by the Board on 17 August 2022
and signed on its behalf by:
Julie Finnemore
Company Secretary
17 August 2022
85
AO World PLC Annual Report and Accounts 2022Strategic Report 86
AO World PLC Annual Report and Accounts 2022 Our
Governance
88 Chair’s letter and introduction
92 Board of Directors
94 Corporate governance report
104Nomination Committee report
108Audit Committee report
116 Directors’ Remuneration report
142 Directors’ report
Excellent service. Easy-
to-use website, great
communication before
delivery... will definitely
purchase from AO again.”
Jean
AO Customer
Chair’s letter and introduction
Dear Shareholder
On behalf of the Board, I am pleased to present our
Corporate Governance report for the year ended
31 March 2022.
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, is instrumental to promoting the long-term
sustainable success of the Group.
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.
Last year’s report highlighted how the Board had moved
quickly to oversee the Group’s response to Covid-19 and
the steps needed to support sustained growth. This
included the design of a five-year strategy.
Our priority was and continues to be ensuring the safety
of our people and customers and I am proud of what
our people achieved, particularly during periods of
rapid growth as our markets shifted to online during
lockdown.
This year the Board has focused on assessing and
supporting the actions undertaken by management to
mitigate the impact of volatility in the macro-economic
environment in the aftermath of lockdown measures.
These adversely impacted on the Group’s operating
model during the reporting period. Impacts included:
challenges in finding self-employed drivers, which
constrained the Group’s ability to service demand in
the first half of the financial year; actions required to
drive efficiencies across the Group’s operating model
following a reduction in levels of demand against the
prior year and the strategic review of the German
business. Following the conclusion of this strategic
review in June 2022, the Board has more recently
concentrated on resetting the strategy of the Group as
a UK business, focused on driving profit and cash.
In January 2022 Luisa Delgado stepped down as a Non-
Executive Director of the Company to pursue personal
interests. Luisa made a valued contribution during her
three years with AO and on behalf of the Board, and
from me personally, I thank her for her significant and
active input and wish her well in her future endeavours.
In particular, Luisa led the development of an innovative
Driving good corporate
governance to help
steer the Company and
achieve its purpose.”
Geoff Cooper
Chair
88
AO World PLC Annual Report and Accounts 2022 incentive scheme (fully described in the Remuneration
report) which won near-universal approval and is being
increasingly copied across other companies.
Following Luisa’s resignation from the Board and the
committees of which she was Chair or a member,
Shaun McCabe was appointed as interim Chair of the
Remuneration Committee, (being an existing member
of the Committee) and I was appointed as an additional
member and Marisa Cassoni was appointed as an
additional member of the Nomination Committee.
The Board is now seeking to appoint three additional
NEDs to enhance its skill set and to address aspects of
Code non-compliance. During the year, the Nomination
Committee defined the brief for the new appointments
and has engaged a third-party search firm to assist.
This will continue to be a focus over the coming months
and we will conduct our search as broadly as possible
as we seek to increase the level of diversity in our
Boardroom, with our priority being to recruit individuals
with suitable experience and skills and who are the best
fit for the Group.
The Code requires a FTSE 350 Board (of which the
Company was a member for part of the reporting
period) to conduct an externally facilitated review of its
effectiveness at least every three years. Our last such
review was conducted for the year ended 31 March 2018
with an external review due in the previous financial
year. However, the Board determined that, given the
pace at which the business was moving and the impact
of Covid on the usual workings of the Board, any such
review would be conducted in somewhat artificial
circumstances and not give a true reflection of the way
in which the Board was operating. It was therefore the
Board’s intention to conduct an externally facilitated
review during the FY22 reporting period but, having
regard to the impending appointment of three new
NEDs and wider business challenges, the Board again
determined that an internal review of its effectiveness,
led by me, was more appropriate. The results of the
internal review indicated that the Board is working well
and that there are no significant concerns about its
effectiveness. We intend to conduct an external review
once we have appointed additional NEDs who have
settled into the workings of the Board.
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 last
two years 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 the
impact on our supply chain and we 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 begins by the tone set in the Boardroom. In light of
the pandemic-driven increase in employee numbers
and also recognising the challenges homeworking
and recruitment have on our culture, the Board
has increased its level of focus and discussion with
management on protecting culture and engagement.
89
AO World PLC Annual Report and Accounts 2022Our Governance Chair’s letter and introduction continued
The Board understands that a highly engaged
workforce is critical to our success. During the year,
Chris Hopkinson continued his work as 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.
This year the Board has also defined AO’s ESG strategy,
approving the materiality assessment and defining its
governance arrangements. The Board will have direct
oversight of all ESG matters (including climate) with a
dedicated ESG steering committee established to take
responsibility for the pillars. You can read more about
this work in our Sustainability report (pages 68 to 85 ).
Finally, I look forward to meeting shareholders at our
next Annual General Meeting which will be held on
28 September 2022 at AO Bolton, 5a The Parklands,
Lostock, BL6 4SD. As was the case last year, all
Directors wishing to remain in office will seek election
and re-election at the AGM. 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 2022AGM@ao.com..
Geoff Cooper
Chair
17 August 2022
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 page 147. Disclosures
required by DTR 7.2.8 relating to the Group’s diversity
policy are detailed in the Sustainability: Fair, Equal
and Responsible on page 81 and in the Corporate
Governance report on page 106 and 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. Save
as disclosed, the Directors consider that the Company
has, throughout the period under review, complied with
the provisions of the Code. The Directors confirm that,
through the activities of the Audit Committee described
on pages 108 to 115, it has reviewed the effectiveness
of the Company’s system of risk management and
internal controls.
90
AO World PLC Annual Report and Accounts 2022 Selection of the code
Further information
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.
Business model – pages 12 and 13
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 22 and 23
Workforce engagement– pages 79 and 80
Governance framework – page 94
Board of Directors – pages 92 and 93
Division of responsibilities – page 95
Independence and time commitments – page 101
Nomination Committee report – pages 104 to 107
Composition,
succession and
evaluation
The Nomination Committee is responsible for
regularly reviewing the composition of the Board. It
appraises the Directors and evaluates the skills and
characteristics required on the Board.
Board evaluation – page 100
Nomination Committee report – pages 104 to 107
Board skills and experience – page 99
Audit, risk and
internal control
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.
Risk Management report – pages 54 to 65
Audit Committee report – pages 108 to 115
Remuneration
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.
Remuneration Committee report – pages 116 to 146
Areas of Code non-compliance:
y The Board did not complete an externally facilitated review
of the Board during the reporting period but expects to do so
once new NED appointees have settled into their roles. More
details on the approach to the review of the Board during the
reporting period can be found on page 100.
y 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.
y Following the resignation of Luisa Delgado, an independent
Non-Executive Director of the Company and as a member of
the Audit and Nomination Committees, and as Chair of the
Remuneration Committee on 31 January 2022, for part of the
reporting period:
− at least half the Board, excluding the Chair, did not
comprise independent Non-Executive Directors
− the Audit Committee comprised only two independent
NEDs (which is required for FTSE350 companies, but not
small-cap companies where only two are required (and to
which class the Company now belongs))
y Notwithstanding the addition of independent Non-Executive
Director Marisa Cassoni as a member of the Nomination
Committee in place of Luisa, the majority of this committee
(excluding the Chair) was not independent during the
reporting period.
The Board intends to appoint three independent Non-Executive
Directors during the current financial year (and to appoint them to
appropriate committees) to address any shortfalls to independence
requirements prescribed by the Code.
91
AO World PLC Annual Report and Accounts 2022Our Governance Board of Directors
Key
A
N
Audit
Committee
Nomination
Committee
R Remuneration
Committee
P People
Champion
Chair of
Committee
Geoff Cooper
Non-Executive Chair
John Roberts
Founder and
Chief Executive Officer
Mark Higgins
Chief Financial Officer
Committee membership
N
R
Committee membership
None
Committee membership
None
Appointment to the Board
2 August 2005 (AO Retail Limited
19 April 2000)
Relevant skills and
experience
y Co-founded the business
over 20 years ago, giving him
thorough knowledge and
understanding of the Group’s
business
y Extensive CEO experience:
led the management team
to successfully develop and
expand the business during
periods of challenging
market conditions
y
y
Innovator and visionary lead
Significant market
knowledge and
understanding
Appointment to the Board
1 August 2015
Relevant skills and
experience
y Group Finance Director
for four years prior to
appointment as AO’s Chief
Financial Officer
y
Senior finance roles held
at Enterprise Managed
Services Limited and the
Caudwell Group
y Member of the Chartered
Institute of Management
Accountants
Appointment to the Board
1 July 2016
Relevant skills and
experience
y Over 25 years’ UK public
company board experience,
including chair and chief
executive officer roles
y
Significant retail and
customer-facing industry
experience across the UK
y Ability to steer boards
through high-growth
strategies and overseas
expansion
y
Former non-executive chair
of Bourne Leisure Holdings,
Dunelm Group Plc and Card
Factory Plc, and former chief
executive officer of Travis
Perkins Plc
y Member of the Chartered
Institute of Management
Accountants
Significant current external
appointments
None
Independent
Yes
92
AO World PLC Annual Report and Accounts 2022 Marisa Cassoni
Senior Independent
Non-Executive Director
Chris Hopkinson
Non-Executive Director
and Employee Champion
Shaun McCabe
Non-Executive Director
Committee membership
A
N
R
Committee membership
N
P
Committee membership
R A*
Appointment to the Board
5 February 2014
Appointment to the Board
12 December 2005
Appointment to the Board
24 July 2018
Relevant skills and
experience
y Wealth of board experience
as an executive and non-
executive director
y
Previously finance director
of John Lewis Partnership,
Royal Mail Group and the UK
division of Prudential Group
y Recent former non-executive
y
y
y
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
Relevant skills and
experience
y
Former City financial analyst
y
Significant industry
experience
y 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
y
ICAEW chartered
accountant with a strong mix
of knowledge of consumer-
focused businesses and
digital expertise
y
y
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
Currently the Chief Financial
Officer of Trainline Plc and non-
executive director and audit and
risk committee chair at boohoo
group plc, Shaun has been
appointed as Chief Financial
Officer of boohoo group plc and
will take up the position later this
year, stepping down as Chief
Financial Officer of Trainline plc
on 15 September 2022
Independent
Yes
*Interim
93
AO World PLC Annual Report and Accounts 2022Our Governance Corporate governance report
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
Leadership
team
(Strategic delivery
and long-term
planning)
Operational
Committee
(Performance and
operational
delivery)
Management
team
(Update and
communication
forum)
Audit
See page 108
Risk
See page 54
Remuneration
See page 116
Nomination
See page 104
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 is supported
by the leadership team, who are the direct reports of the
Executive Committee, and comprise a team of highly skilled
and experienced senior management including the Managing
Directors of the Group’s Business Units, and leaders from our
enabling and supporting functions including IT, finance, HR
and legal. The leadership team meets with the Executive
Committee monthly and is focused on the strategic direction and
achievement of the Group’s priorities.
Operational Committee meetings, led by the COO, are held weekly.
This Committee focuses on performance, operational delivery,
forecasting and resolution of any business issues with escalation
to the leadership team as required. It is formed by leadership team
members with operating responsibility. The Group’s management
team is led by the CFO and comprises our work level three AOers
(defined as those who lead, run key operations, or have specialist
knowledge to lead projects and processes). The management
team meets monthly and receives an update from the Executive
Committee on the financial performance and strategic priorities of
the Group, as a two-way communication session.
Steering Committees are also in place for key areas of
compliance such as the General Data Protection Regulation
("GDPR"), Senior Managers and Certification Regime ("SM&CR"),
and health and safety and are also formed for specific projects as
required. During the year we defined our ESG strategy, creating an
ESG Steering Committee to drive our objectives.
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.
94
AO World PLC Annual Report and Accounts 2022 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
y Providing leadership of the Board
y Setting the Board’s agenda to emphasise strategy, performance and value creation
y Monitoring the effectiveness of the Board
y Ensuring good governance
y Facilitating both the contribution of the Non-Executive Directors and constructive
relations between the Executive and Non-Executive Directors
Founder and Chief
Executive Officer
John Roberts
Chief Financial Officer
Mark Higgins
y Day-to-day running of the Group and effectively implementing the Board’s decisions
y
y
y
y
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
Providing strategic financial leadership of the Company and day-to-day management of the
finance function
y Day-to-day running of the Group and implementing the Board’s decisions
Senior Independent
Director
Marisa Cassoni
y Acting as an internal sounding board for the Chair and serving as an intermediary for the
other Directors, with the Chair, when necessary
y 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
Marisa Cassoni
Chris Hopkinson
Shaun McCabe
y Bringing independence, impartiality, experience and special expertise to the Board
y Constructively challenging the Executive Directors and Group management team, and
helping to develop proposals on strategy and ensuring good governance, to scrutinise
and hold to account the performance of management and Executive Directors against
performance objectives
Designated Non-Executive
Director – People
Champion
Chris Hopkinson
y
Providing an appropriate avenue for AOers to raise any areas of concern
y Ensuring a regular dialogue between employees and the Board to aid information flow and to
communicate the views and concerns of the workforce
y Working with the Board to take appropriate steps to evaluate the impact of Board proposals
on the workforce
y Assessing and monitoring the Group’s culture
y Ensuring workforce policies and practices are consistent with the Company’s values
95
AO World PLC Annual Report and Accounts 2022Our 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 146.
Committee
Role and Terms of
Reference
Membership required
under Terms of
Reference
Audit
Reviews and reports to
the Board on the Group’s
financial reporting,
internal control and risk
management systems,
whistleblowing, internal
audit and the independence
and effectiveness of the
External Auditors
At least three Independent
Non-Executive Directors
(or such number as is
required from time to
time by the UK Corporate
Governance Code)
Minimum
number of
meetings per
year under
Terms of
Reference
Committee
report on
pages under
Terms of
Reference
Three
108 to 115
Remuneration
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)
Three
116 to 146
Nomination
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
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
96
AO World PLC Annual Report and Accounts 2022 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.
Whilst 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. External
speakers are also invited to present to the Board on
topical industry and regulatory issues.
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 2022
Examples of some of the key matters considered by the
Board during the year are set out below.
Strategy
y Oversaw the strategic review of the Group’s German
operation, considering the strategic direction of the
business and the available options
y Reviewed the introduction of an employed
driver-model to sit alongside the Group’s existing
self-employed driver model to help mitigate the
impact of the national driver shortage on business
operations
y Reviewed and approved a new creative studio hub
to assist with the creative transformation of the
Group’s content to best showcase and market
products
Operational performance
y Review of regular reports from senior management
on trading, business performance and health
and safety
y Supported management in the continual review of
current trading and reforecasting and reviewed the
actions proposed to drive efficiencies and to tailor
the Group’s cost base appropriately
y Reviewed business case for new vehicles leases to
replace existing fleet and support future growth
y Oversaw the initiation of a business transformation
project (subsequently approving its indefinite pause
until trading conditions improve) focusing on the
cultural impact, performance measurement and
key milestones, project governance and risks to
delivery
Finance and investor relations
y 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
y Reviewed the monthly reports produced by the CFO
y Received reports and updates on investor relations
activities and the views of shareholders (including
engagement with key shareholders by the Chair to
understand, in particular, current investor sentiment
on governance arrangements and the strategic
development of the Group)
y Approval of extension of the Group’s existing
Revolving Credit Facility for an additional year
Governance
y Defined the Group’s ESG strategy, validated the
materiality assessment and agreed the governance
arrangements.
y Continuing review of compliance with the Code
y Consideration of the composition and effectiveness
of the Board
y Received updates from the HR Director on people
issues, for example, Gender Pay Gap analysis
y
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
y Conducted the annual review and approved the
appropriate updates of matters reserved for the
Board and other policies and statements including
the Company’s Gender Pay Gap statement, annual
Modern Day Slavery statement and Supplier Code
of Conduct
Risk management
y Undertook the annual review of the principal and
emerging risks of the Group and consideration of
risk appetite.
y Via the Audit Committee, reviewed and validated
the effectiveness of the Group’s systems of internal
controls and risk management framework
y Received reports on specific risk areas across
the Group including GDPR and the IT security
environment
97
AO World PLC Annual Report and Accounts 2022Our Governance Corporate governance report continued
Board meeting attendance
The table below summarises the attendance of the
Directors during the year ended 31 March 2022.
Board Meeting Attendance*
Director
Geoff Cooper
John Roberts
Mark Higgins
Chris Hopkinson
Marisa Cassoni
Shaun McCabe
Luisa D. Delgado
Meetings
eligible
to attend
10/10
10/10
10/10
10/10
10/10
10/10
7/8
100%
* Excluding Luisa Delgado who resigned from the
Board on 31 January 2022
Board Gender
Board Role and Independence
17%
Male
Female
33%
40% independent
(excluding the Chair)
Independent
including the
Chair*
Non-
independent
NED
Executive
Director
50%
83%
17%
Board Tenure at 31 March 2022
* Chris Hopkinson is considered non-independent
in respect of his Board tenure only
3-4 years
5-6 years
6-7 years
8-9 years
10+ years
10+ years
o
d
a
g
e
D
l
e
b
a
C
c
M
n
u
a
h
S
.
D
a
s
u
L
i
Shaun McCabe
Geoff Cooper
Mark Higgins
Marisa Cassoni
Chris Hopkinson
John Roberts
Skills matrix
Retail/customer-focused business experience
Digital experience
Finance and accounting
International experience
Functional experience in management and operations
Marketing
Strategy
Public Company governance
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o
o
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r
a
M
98
i
n
o
s
s
a
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i
AO World PLC Annual Report and Accounts 2022
Composition, succession
and evaluation
Composition
As at the date of this Annual Report, the Board
comprises six members: the Chair, two Executive
Directors and three Non-Executive Directors, which
includes the Senior Independent Director. Excluding the
Chair, two 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 page
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.
The composition of the Board has continued to be 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 promoting diversity.
Following the resignation of Luisa Delgado as a Non-
Executive Director towards the end of the reporting
period, our Board currently includes one woman,
representing 17% of its membership (2021: 29%). During
the year, the Nomination Committee defined the
process and brief for the recruitment of three additional
Independent Non-Executive Directors as we seek to
enhance the skill set of the Board, address areas of
Code non-compliance and as part of succession
planning. A specialist third party has been engaged to
assist with the search.
The Directors remain supportive of the
recommendations of the Parker and Hampton-
Alexander reviews and are committed to increasing
female and ethnic representation on the Board and
throughout the wider organisation, as they believe that
the business should have a culture that truly accepts
diversity of thought, equity and inclusion. Therefore, in
making new appointments, the Board will conduct the
search as broadly as possible, exploring all avenues
and opportunities to identify suitable candidates, with
our priority being to recruit individuals with suitable
experience and skills and, who are the best fit for the
Group.
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 policy on diversity,
can be found on page 106. 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: Fair, Equal and Responsible report
on pages 79 to 83. For information on our procedures
concerning the appointment and replacement of
Directors, please see the Directors’ report on page 142.
For the purposes of assessing compliance with the
Code, the Board considers that Marisa Cassoni and
Shaun McCabe 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 95, 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 and which we are expecting to enhance with
the recruitment of further NEDs.
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. An audit of Board member skills and
experience was conducted in the year, as the base for
setting out search criteria for new NEDs.
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.
99
AO World PLC Annual Report and Accounts 2022Our Governance Corporate governance report continued
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 regular, 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 ended 31 March
2018 with an external review due in the previous financial
year. However the Board determined that, given
the pace at which the business was moving and the
impact of Covid on the usual workings of the Board,
the review would have been conducted in somewhat
artificial circumstances and not given a true reflection
of the way in which the Board was operating. It was
therefore the Board’s intention to conduct an externally
facilitated review during the FY22 reporting period but,
given the changing dynamics of the Board and wider
business challenges, the Board again determined
that an internal review of its effectiveness was more
appropriate. We intend to conduct an external review
once we have appointed additional NEDs who have
settled into the workings of the Board.
The internal evaluation was led by the Chair. As part of
this process, one-to-one meetings were conducted with
all Directors, the Company Secretary and the COO who
were given the opportunity to express their views about:
y
y
y
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.
100
AO World PLC Annual Report and Accounts 2022 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 prior year, we procured the services of a third
party to assist with improvements to Board information.
This included 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. The new
approach has been well embedded during the year.
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, Luisa D. Delgado requested approval
from the Board to accept external non-executive
directorships with Telia Company AB (publ) and Fortum
Oyj. in June 2022, Shaun McCabe requested approval
to accept the external directorship as Chief Financial
Officer of boohoo group plc (where he is currently non-
executive director), stepping down as Chief Financial
Officer of Trainline plc at the same time. The Board
assessed the appointments and was satisfied that the
time commitment required would not prevent Luisa D.
Delgado or Shaun McCabe from performing their 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.
101
AO World PLC Annual Report and Accounts 2022Our Governance Corporate governance report continued
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.
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 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.
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
102
AO World PLC Annual Report and Accounts 2022 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. During the year the Chair of the Board also
engaged individually with a number of shareholders to
understand, in particular, current investor sentiment
on governance arrangements and the strategic
development of the Group.
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, Numis Securities and
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
The AGM of the Company will take place at 8:00 am
on 28 September 2022 at the Company’s head office
at 5a The Parklands, Lostock, Bolton BL6 4SD. All
shareholders have the opportunity to attend and vote,
in person or by proxy, at the AGM. The notice of the AGM
can be found in a booklet 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. Whether or not
you are able to attend, the Board encourages all
shareholders to vote as soon as possible and, in any
event, by no later than 8.00 am on 26 September 2022
by taking advantage of our registrar’s secure online
voting service (via aoshareportal.com) by using the
CREST system, or by using a proxy voting form which
is available on request from the Company’s registrars,
Link Group.
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
2022AGM@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 92% to 100%.
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 whilst 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:
y Board papers include consideration of section
172 factors to ensure that decision making is fully
informed and to enable discussion
y Regular updates are received from the HR Director
on people, culture, diversity, talent and engagement
y The Non-Executive Director People Champion, Chris
Hopkinson, provides regular feedback and updates
from the Employee Voice to the Board forum
y The CEO holds a monthly State of the Nation, a
live update given to all employees including an
interactive Q&A session
y The Board’s strategy sessions include the potential
impact to stakeholders when deciding and agreeing
on strategic priorities
y The CEO and CFO meet with major shareholders
and feedback is provided to the Board
y The Board receives regular presentations from
the Group management team, Legal Director and
external advisers
103
AO World PLC Annual Report and Accounts 2022Our Governance Nomination Committee report
I am pleased to introduce the report of the Nomination
Committee for the year ended 31 March 2022. Full
details of the Committee and its activities during the
year are given below.
Committee members and meetings attended
Geoff Cooper
Chris Hopkinson
Luisa D. Delgado*
Marisa Cassoni*
Meetings
eligible to
attend
4/4
4/4
1/2
2/2
* Marisa Cassoni was appointed as a member of the Committee
following the resignation of Luisa Delgado from the Board on 31
January 2022
Membership and meetings
y During the year, the Nomination Committee
comprised three Non-Executive Directors.
y The Code requires that the majority of the
Committee are Independent Non-Executive
Directors. 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. Luisa D. Delgado was deemed
independent and Marisa Cassoni who has
replaced Luisa on the Committee is also deemed
independent. 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.
y Detailed experience, skills and qualifications of all
Committee members can be found on pages 92
and 93.
y 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.
y Under its Terms of Reference, the Committee is
required to meet no less than twice a year. This year
the Committee met four times; this number being
deemed appropriate to the Committee’s role and
responsibilities during the year.
y 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.
Delivering a balanced
Board with the right
skills mix.”
Geoff Cooper
Chair
104
AO World PLC Annual Report and Accounts 2022 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, the Executive team and the
Company Secretary. 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 which has 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
Following the resignation of Luisa Delgado, an
Independent Non-Executive Director, the Board became
non-compliant with an aspect of the Code namely the
provision requiring that half the Board, excluding the
Chair, are Independent Non-Executive Directors. Whilst
the Board has previously determined that additional
Independent Non-Executive Directors be appointed
to the Board to further strengthen and diversify its
work, the impact of Covid-19, and other changes in the
business recently has, thus far, delayed this. However,
the Nomination Committee has now recommenced
this search in earnest (having particular regard to the
requirements of the Code). It conducted a skills audit
of the current Board, matched against expected
challenges and requirements, and has engaged a
specialist third-party search firm to assist with the
recruitment of three independent Non-Executive
Directors; focusing on candidates with a mixture of PLC
Board, Remuneration Committee, technology, digital
and financial skills and experience with a requirement
on the firm to identify and present qualified people
from differing ethinc backgrounds to be considered
for the appointments. The Committee has designed
the brief based on its review 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. We will conduct our search as
broadly as possible as we seek to increase the level of
diversity in our Boardroom. 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 and we hope to
make appointments during the current financial year.
However, we are cognisant of the current challenges in
our business and those of the external market for NED
recruitment and therefore our priority will be to recruit
individuals with suitable experience and skills and who
are the best fit for the Group.
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.
105
AO World PLC Annual Report and Accounts 2022Our Governance Nomination Committee report continued
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.
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 seeking to increase female
representation, and appoint at least one Director
from an ethnic minority background to the Board. The
Board and the Committee will look to drive the agenda
on diversity and inclusion across the Group over the
coming year.
Female representation on our Board is currently 17%
(2021: 29%), and 26% at senior management level (which
comprises our Executive Committee (none of whom are
female) and their direct reports). Currently we have no
ethnic diversity at any of these levels. The section above
on Board composition details the Board’s intention to
commence a search to identify an additional three 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: Fair, Equal
and Responsible report on pages 79 to 83.
Board effectiveness
Pursuant to the recommendation set out in the Code,
an externally facilitated review of the Board was due in
the previous financial year but as previously reported,
it was 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. It was
therefore the Board’s intention to conduct an externally
facilitated review during the FY22 reporting period
but, given the changing dynamics of the Board, wider
business challenges and the ongoing appointment of
additional Non-Executive Directors, the Board again
determined that this was not appropriate. An internal
process of evaluating the performance of the Board, led
by me, was instead undertaken. We intend to conduct
an external review once we have appointed additional
NEDs who have settled into the workings of the Board.
Highly productive and effective strategy days were held
during the reporting period which, together with holding
Board meetings face to face again, have 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 100 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. During the year, Luisa Delgado requested
and was granted approval from the Board to accept
external non-executive directorships with Telia
Company AB (publ) and Fortum Oyj.
106
AO World PLC Annual Report and Accounts 2022 Reappointment of Directors
On the recommendation of the Nomination Committee
and in line with the Code, all currently appointed
Directors will retire at the 2022 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 three 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
17 August 2022
107
AO World PLC Annual Report and Accounts 2022Our Governance Audit Committee report
Ensuring effective
internal control and risk
management, together
with fair, balanced
and understandable
reporting.”
Marisa Cassoni
Chair, Audit Committee
108
On behalf of the Committee, I am pleased to present
this year’s Audit Committee report for the year ended
31 March 2022. 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
eligible to
attend
5/5
5/5
3/4
* Luisa Delgado resigned from the Board and its Committees on
31 January 2022.
An additional meeting between the Chair of the
Committee, management and the Auditor was also
held during the year. Committee members unable to
attend this meeting received papers in advance and
fed back to the Chair as appropriate. Following the
meeting members were fully briefed on the matters
discussed with those matters requiring approval by the
Committee ratified at the following meeting.
Membership
y For the majority of the year*, the Audit Committee
comprised three Independent Non-Executive
Directors.
y 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.
y 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.
AO World PLC Annual Report and Accounts 2022 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 100. The review for the year to 31 March 2022
concluded that the Committee continued to operate
effectively during the year.
Key work during the year
y Focused on financial reporting, to ensure the
Annual Report and Accounts is fair, balanced and
understandable.
y Reviewed interim results statements and financial
results presentations, including going concern
statements.
y Reviewed the effectiveness of external and
internal audit processes and the effectiveness and
appropriateness of our system of internal controls.
y Conducted a detailed review of: i) business controls
around contact approval processes; ii) financial
and commercial controls for the mobile business;
iii) improvements to the German governance
environment and iv) proposed KPIs for shared
services.
y Approved the appointment of an external third
party to conduct an Internal Audit Quality
Assessment, supported the assessment
process and reviewed the outcome of the
Assessment setting actions to respond to its key
recommendations.
y Reviewed the quarterly internal audit reports
together with management responses and reviewed
the progress on required actions to improve the
controls environment.
y Recommended the reappointment of the External
Auditor, terms of engagement and reviewed audit
and non-audit fees.
y Reviewed the Group’s risk management procedures.
y Reviewed the Group’s whistleblowing and anti-
bribery and fraud prevention procedures and
controls.
y Reviewed the Group’s finance function
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 reviewing the actions
identified by the Internal Audit function to improve
certain aspects of the Group’s control environment.
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.
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.
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 and any proposed amendments
to the plans is approved by the Committee. During the
year, following the recruitment of a dedicated IT Auditor,
the Committee approved a specific IT Audit Plan and
has received regular updates thereon.
109
AO World PLC Annual Report and Accounts 2022Our Governance Audit Committee report continued
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:
y
IT/Tech: The initial audits completed under the IT
Audit Plan indicated some deficiencies in the control
environment that could leave the business susceptible
to respond to cyberattack or data breach.
y From a thematic perspective, there have been
recurring audit concerns raised regarding reliance
on compensating manual controls, legacy systems
and deficiencies at the second line of defence.
These themes are consistent across the Group and
not specific to a particular business area. The ability
to improve in these areas has been restricted by
tough trading conditions.
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. In line with guidance from the
Institute of Internal Auditors and the International
Professional Practice Framework (IPPF), the Committee
determined that an External Quality Assessment (“EQA”)
of AO’s Internal Audit activities be conducted during the
reporting period and approved the appointment of EY
to carry out the assessment.
As part of this process the extent of compliance with the
IPPF and the Code of Practice was assessed, the function
was benchmarked against peer and comparable
organisations and the current views of stakeholders
on Internal Audit and its performance and future
expectations were considered via a series of interviews.
The result of the review highlighted that the Group’s
Internal Audit function was mostly compliant against
the IPPF with only minor enhancements required, and
met the key principles set out in the Code of Practice.
The assessment had been delayed as a result of
Covid-19 working practices. The Committee reviewed
the outcome of the assessment and determined and
assigned appropriate actions.
Overall, the External Quality Assessment did not raise any
significant concerns and confirmed that the Internal Audit
function is fulfilling its role with positive feedback from
stakeholders. Many of the recommendations identified
through the review have already been addressed by
Internal Audit during the current financial year, and a
status update to the remaining recommendations has
been provided as part of FY23 Internal Audit Planning.
Following the External Quality 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 that it continues to do so. The necessary
procedures are also in place to ensure the appropriate
independence of the Internal Audit function.
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 allow appropriate follow-up
action to take place. The Committee also reviewed
the Group’s anti-bribery and 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 2022 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 ended 31 March 2022 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.
110
AO World PLC Annual Report and Accounts 2022 Following the Committee’s review, we were pleased to provide
assurance to the Board that the Annual Report and Accounts
for the year ended 31 March 2022 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 147 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.
Significant financial matters
Revenue recognition
and contract asset
recoverability in
respect of product
protection plans
Revenue recognition,
contract asset
recoverability in our
Mobile business
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.
During the final quarter of the reporting period, the Company expressed an increase
in cancellations which management believe was a reaction to the macro-economic
challenges facing consumers. Management has, as is normal practice, reassessed the
estimates and judgements used in recognising revenue which are detailed in Note 22.
Management 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 any 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.
Management reassesses the judgements and estimates used on a half-yearly basis
taking into account any changes in customer behaviour particularly with regard to
cancellations and cashback redemptions. During the current year, management has
seen a reduction in the level of cancellations as well as cashback redemptions which
supported the variable consideration constraints put in place in the prior year. Changes
in contractual entitlement, particularly with regard to significant RPI increases invoked
by the Mobile Network Operators has resulted in management reassessing 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 Annual 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.
111
AO World PLC Annual Report and Accounts 2022Our Governance Audit Committee report continued
Significant financial matters
AO Mobile – carrying
value of goodwill and
intangible assets
Impairment of assets in
relation to
AO Deutschland Limited
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 2022
had a carrying value of £25.2m. The carrying value is assessed by performing a value in use
calculation at each balance sheet date based on a discounted cash flow 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 2022, the amount of headroom above the carrying value was £0.7m. Note 16 to the
Annual 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 a 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.
As a result of the continued losses in our German business, management commenced a strategic
review in Q4 which concluded post year end in the decision to close the business. Management
has, as is normal practice, assessed the whether the continued losses indicated any impairment
of the German business’s assets at 31 March 2022. The decision to close the business post year
end has provided further evidence of potential impairment and management have therefore
reviewed the carrying value of all assets in that business. This has utilised third party information
where available particularly with regard to owned and leased properties as well as information
arising from the closure process itself. Further details of the review undertaken and the impact
on asset values at 31 March 2022 is included in note ••. Management has prepared a detailed
paper assessing each asset and setting out the key sources of for the assumptions used for
the valuation as well as the appropriate disclosures required. The Committee has reviewed the
judgements and estimates used by management to assess the carrying value of the relevant
assets and, following appropriate challenge, we consider the exercise undertaken and the
resulting carrying values to be appropriate.
Going Concern and
viability assessments
The Committee reviewed the Group’s going concern and viability statements as set out
on pages 64 and 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 2025 and recommended to the
Board the adoption of both the going concern and viability statements for inclusion in this
report.
112
AO World PLC Annual Report and Accounts 2022 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 29 September 2021,
KPMG LLP was reappointed as AO’s External Auditor for
the financial year ended 31 March 2022. 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 the external audit
process and independence of the External Auditor.
The assessment of the audit effectiveness for the year
ended 31 March 2021 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:
y openness of communication between the External
Auditor and senior management;
y any risks to audit quality that the External Auditor
identifies;
y
y
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;
y whether the original audit plan was met;
y
y
y
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;
y whether an appropriate degree of challenge and
professional scepticism was applied by the External
Auditor through its meetings with management; and
y 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 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 2021 AGM. David Neale replaced
the incumbent Audit Partner in September 2020 and
has led the audit for the years ending 31 March 2021
and 2022.
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.
113
AO World PLC Annual Report and Accounts 2022Our Governance Audit Committee report continued
Reappointment of External Auditor
for the 2023 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 2022 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 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 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 £75,000 and £5,000 in
relation to agreed upon procedures in relation to the
Group’s covenant reporting pack (2021: £50,000), and
representing c.9% of the value of the Group Audit
(2021: c.7%). 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 was 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 2023.
External Auditor fees
During the financial year, the Group External Auditor’s
fees were £0.8m (2021: £0.8m). 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 services 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 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 2023
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.
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
17 August 2022
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AO World PLC Annual Report and Accounts 2022 AO World PLC Annual Report and Accounts 2022
115
Our Governance Directors’ remuneration report
This section sets out the
Company’s Directors’
Remuneration report. The
report is structured as follows:
y The annual statement from the Chair of the
Remuneration Committee
y The revised Directors’ remuneration policy
(which will be put to the shareholder vote at
the 2022 AGM/which received shareholder
approval at the 2021 AGM)
y The Annual Report on Remuneration for
FY22 (which will be subject to an advisory
vote at the 2022 AGM)
FY22 highlights
Highlights of the work of the Remuneration
Committee in FY22 and to the date of this report:
y Considered the restructuring of the Value
Creation Plan
y Reviewed the proposed Directors’
remuneration policy including consideration
of the requirements of the 2018 UK Corporate
Governance Code and various investor
guidance on remuneration.
y Determined the levels of vesting for the AO
Incentive Plan FY22 Award.
y Determined the shares to be released
pursuant to the AO Incentive Plan FY19 Award.
y Undertook a deep dive in relation to pay levels
against the market for Executives and wider
workforce.
y Determined the remuneration for FY23 for our
Executive Directors, the Executive Committee
and certain senior management.
y Set the performance conditions for the AO
Incentive Plan FY23 Award.
y Reviewed the Company’s Gender Pay Gap
report and recommended actions.
Ensuring a reward
strategy that supports
short and long-
term sustainable
performance.”
Shaun McCabe
Interim Chair,
Remuneration Committee
116
AO World PLC Annual Report and Accounts 2022 Annual Statement by the Chair
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 2022 (FY22).
Pay for sustainable performance; our
remuneration policy
During FY21, the Committee undertook a 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. After careful
consideration, the Committee decided that, the AOIP
continued to be the most appropriate approach for AO.
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.
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.
Whilst the Committee continues to believe that the
AOIP remains the most appropriate framework, we
have reviewed our approach to performance measures
for FY22 as we pivot our strategy to be one focused
on the UK, profitable growth and cash generation. For
FY23 we intend to re-balance and focus performance
measures such that 60% of the AOIP award is based on
financial measures (PBT and liquidity headroom) with
the remaining 40% based on a strategic transformation
measure and stakeholder impact measures (further
details below). The Committee believes these are the
right balance of measures to reflect the strategic
and operational focus for the business over the next
12 months. This approach, however, requires a minor
amendment to our Directors’ remuneration policy as
currently a minimum of 70% of the award must be
based on financial performance. We will therefore be
submitting a revised policy for shareholder approval
at the 2022 AGM; whilst our intention is that financial
measures will continue to represent the majority of
the award, we are proposing to reduce the minimum
proportion from 70% to 50% to provide the Committee
with the flexibility to incentivise management to drive
some fundamental strategic initiatives.
All variable remuneration will continue to be 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.
Value Creation Plan (“VCP”)
Over recent months the Committee has spent
substantial time considering the current VCP, its terms
and the rationale for introducing such a plan. The VCP
was aimed at incentivising and rewarding exceptional
performance and retaining the talented team whilst
driving exceptional value creation for shareholders.
The scheme is currently significantly underwater (as the
share price threshold for anything to vest is £5.23); it is
therefore neither incentivising nor retaining our people.
Since the introduction of the VCP, our strategy is much
changed following our decision to exit Germany and
to focus on generating profitable growth in our UK
markets together with cash generation. We believe
that this revised strategy will deliver significant value
to shareholders in the medium to long term; we still
want to reward exceptional value creation and believe
an all employee VCP scheme will galvanise our people
in delivering that value. Accordingly, the Committee
believes it is in the best interests of shareholders and
our people to restructure the original VCP and therefore
we will be putting forward a new VCP for shareholder
approval at the 2022 AGM which will replace the
current VCP.
We have retained many features of the original VCP –
with a maximum plan value of £300m – capable of being
achieved at a £6bn market cap (as before). However, in
order to fully incentivise and reward employees from
the current share price, we are proposing the plan will
begin funding at a share price of £1. In recognition of
the reduced threshold target, the funding rate of the
scheme will be significantly reduced from 10% of the
value created above the threshold to 5.5%. As before
30% of the plan value will be allocated in total to the
two current Executive Directors and COO (10% each),
capped at a total payout of £20mn for each Executive
Director, with the remaining 70% allocated to current
and future employees. The plan would cease funding on
achievement of a £10.43 share price.
For any payments to be made under the plan, our share
price will need to increase by more than two-fold from
our recent placing price of £0.43 and would represent
a c.18% compound annual growth rate from that share
price over a five-year period (with a compound annual
growth rate over a five-year period of c.89% for the plan
to pay out in full).
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AO World PLC Annual Report and Accounts 2022Our Governance Directors’ remuneration report continued
As before, this new VCP:
y will extend to all our current employees and subject
to future performance, has the ability to deliver,
what we believe to be, substantial rewards for those
individuals. All employee participation is a key
feature of this incentive plan;
y assist with the retention of our talented team. For
our Executives, awards are phased over 5, 6 and
7 year periods, with the maximum opportunity
only achievable if our ambitious growth plans
are sustained in the long-term. This, therefore,
represents exceptional value creation for our
shareholders and long-term investors and provides
financial motivation for our entire workforce to
accelerate profitable growth.
y
y
y
is designed to provide an effective motivational
incentive plan to support extraordinary
performance, with sufficient safeguards to underpin
sustainable value creation.
is subject to an overall cap on dilution of 5% of
issued share capital (excluding shares issued under
other schemes).
requires that employees must be employed at
the vesting date to receive a payment under the
scheme; market standard malus and clawback
provisions apply; and the Committee has the
discretion to override the formulaic outcome.
Details of the proposed Value Creation Plan are set out
on page 123.
This new 2022 VCP will replace the current VCP
approved in 2020.
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,
although we will always use discretion to deliver the
right outcome for the business where we deem that
appropriate.
Performance and reward for FY22
The Annual Report on Remuneration (set out on pages
130 to 141) describes how the policy approved at the
2021 AGM has been implemented in the year under
review. It will be the subject of an advisory vote at the
forthcoming AGM.
Base salaries and benefits
As outlined in last year's DRR, during the year we
conducted an in-depth review in the remuneration
of our Executives alongside the broader employee
population to assess the market competitiveness of
compensation, particularly in light of the evolution of
the business in the last three years and against market
changes, particularly in key talent clusters. The review
of Executive salaries was therefore delayed pending this
review. In terms of the remuneration of our Executives
we determined that on a total compensation basis, the
packages continued to be appropriate. We therefore
awarded a base salary increase to both the CEO and
CFO of 2.7% (effective 1 April 2021) in line with the rate
given to the wider workforce. No changes were made to
benefits or pension entitlements.
AOIP Award FY22
In terms of variable pay, the Executives were granted
AOIP FY22 Awards where the performance conditions
were set 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) – specifically these were (i) ao.com
revenue growth in the wider electricals category (i.e.
excluding MDA) (ii) Germany revenue growth (with a
profit underpin) and (iii) a business transformation
target; and
3. Stakeholder/ESG impact measures, representing
targets for the longer term – specifically (i)
maintaining customer NPS scores (across the Group)
at high levels and (ii) improving our employee NPS
with an underpin that the Group must develop a
credible ESG strategy.
As is covered earlier in this report, the Group has had
a challenging year in the aftermath of Covid as we
have seen customers return to stores at rates greater
than we anticipated and also as we have seen online
competition intensify affecting the top line, and
significant cost-inflation affecting the bottom line.
Against this backdrop, Group revenues decreased
by 6% year on year to £1.58bn, with Group Adjusted
EBITDA falling by 87% year on year to c. £8.5m, with
both territories experiencing negative growth. Whilst
on a two-year comparison basis (which we monitor to
understand underlying growth rates and exclude the
extraordinary effects of Covid-19), top line performance
is pleasing at 52%, none of the financial performance
conditions we set for the FY22 AOIP Award were met and,
accordingly, no awards made in respect of them.
The business transformation target related to the
design of a target operating model which would be the
blue-print of how people, processes and systems would
need to be structured and setting out the required
capabilities to deliver the strategy and the roadmap
to fulfilling these capabilities and structures and would
include ERP design and how international expansion
would be structured. Given the market challenges
faced by the Group, in both the UK and Germany which
were unexpected at the time the target was set, the
strategic review of Germany and the work that has been
done to simplify the business, reduce costs and right-
size it accordingly, the Committee judged that it was
appropriate that half of the amount pertaining to this
metric, i.e. 5%, be awarded.
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 87.
118
AO World PLC Annual Report and Accounts 2022 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 where
the business has suffered unexpected challenges
and difficult consumer markets. Accordingly, the
Committee has determined that this performance
condition has been met in full.
The employee NPS score has fallen during the year
as we have sought to right-size the business in light of
market conditions and to reduce the infrastructure and
teams that we had invested in to capitalise on the rapid
growth initially presented by Covid. Whilst such a low
score was inevitable in the circumstances and the latest
employee survey indicated many positive sentiments
on culture, the Committee judged that none of the 10%
pertaining to this metric should be awarded. Notably
however, a credible ESG strategy was developed as can
be seen on page 70.
In total, the Committee has awarded 15% of the
maximum AO Incentive Plan Award, which we feel is a fair
reflection of the progress made in pivoting the strategy
and business operations during the year, our customer
impact and the hard work and dedication shown by
the Executives over the year against extraordinary
market conditions and macro-uncertainty. 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 FY22 Award are disclosed on pages
131 and 132.
The Committee deems that the payout levels over the
past years show the AOIP functioning as intended, with
a minimal payout this year reflecting the Company’s
financial performance.
AOIP FY19 Award – release of conditional
deferred shares
Mark Higgins was granted a conditional deferred share
award pursuant to the FY19 AOIP Award which had a
deferral period spanning FY20 to FY22 inclusive and
which at the point of grant had a value of £343,400.
The Remuneration Committee has deemed that
the performance underpin has been met in full and
accordingly 371,484 shares will be issued to Mark in
August. These shares are not subject to a holding period
of one year – this requirement was introduced for FY21
awards onwards.
Approach to remuneration for FY23
Executives
The Remuneration Committee has awarded pay
increases to Executives of 3%, in line with the rate of
increase awarded to the wider workforce. Benefits and
pension entitlements remain as per the previous year.
In terms of variable pay, the Executives will be entitled
to participate in the AOIP.
We have continued to set the performance conditions
along three sets of deliverables:
1. Financial (output) metrics, focused on profit before
tax and liquidity headroom (60% weighting);
2. A strategic transformation measure, specifically
aimed at transforming the strategy of the business
(away from international top line growth to a more
simplified UK-only business focused on profitable
growth) (20% weighting); and
3. Stakeholder impact measures, focusing on
customers and employees (20% weighting).
Whilst we recognise the importance of ESG, given the
extraordinary market dynamics and the cost of living
crisis affecting consumers, the focus for this year needs
to be on driving profitable growth whilst maintaining
appropriate cash resources. Accordingly, we have not
set ESG-related metrics per se; albeit the stakeholder
measures encompassing customers and employees
are aimed at ensuring the goodwill of the business and
driving long-term sustainability.
The Committee believes these measures provide
the appropriate balance, driving transformation,
recognising the importance of key stakeholders, and
output measures that should drive the creation of
shareholder value.
Non-Executives
Fees for the Non-Executive Directors (including the
Chair) were reviewed during the year and no increases
were awarded.
Further details regarding the implementation of our
policy in the year ahead are provided on pages 137
to 140.
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.
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.
I hope this sets out clearly how the Committee has
implemented the existing policy during FY22, the key
features of the policy and how we propose to implement
it in FY23.
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.
Shaun McCabe
Interim Chair, Remuneration Committee
AO World PLC
17 August 2022
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AO World PLC Annual Report and Accounts 2022Our 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.
measures will continue to represent the majority of the
award but we are proposing to reduce this proportion
from 70% to 50% to provide the Committee with the
flexibility to incentivise management to drive some
fundamental strategic initiatives. 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.
We are also proposing to amend the policy to include a
new restructured Value Creation Plan.
The Policy will be put to a binding shareholder vote
at the 2022 AGM and, subject to approval, will take
formal effect from that date. We do not propose any
fundamental changes to 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,
we are proposing one small change in relation to
the AO Incentive Plan and apportionment between
financial performance conditions and non-financial
performance conditions; our intention is financial
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 Chair and other senior
Executives of the Group.
The Committee’s overarching aims in setting the
Policy are: to attract, retain and motivate high-calibre
senior management 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 profitable
120
AO World PLC Annual Report and Accounts 2022 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 put forward at the 2021 AGM
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 we propose
to introduce a flexible benefits plan for the leadership
team under which we will ensure that Executive
Directors’ pension contributions are aligned with the
rate received for the majority of the wider workforce in
the UK.
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.
growth and innovation; and 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. Executive Directors are
invited to attend Remuneration Committee meetings
when it is considering and developing policy to
ascertain their views, particularly given application of
the policy beyond executives. However, the executives
do not vote on and do not attend parts of meeting
where their specific compensation is being considerd
and approved.
As mentioned previously, following a review of the
remuneration policy in the context of the remuneration
landscape, taking into account our evolving
strategy and stakeholder views, we believe that it
is operating effectively and closely aligns to our
strategy and, apart from the apportionment between
financial performance conditions and non-financial
performance conditions and the incorporation of
the VCP, we are not proposing any changes to the
Policy or its operation. Input was received from the
Chair and management whilst ensuring that conflicts
of interest were suitably mitigated. The Committee
also considered carefully corporate governance
developments.
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.
Whilst deliberating on the proposed incentive structure,
we have welcomed the opportunity to discuss our
proposals with a number of key investors.
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AO World PLC Annual Report and Accounts 2022Our 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
Other benefits
AO incentive plan
Value Creation Plan (“VCP”)
Purpose and
link to strategy
y To aid the recruitment and retention of high-
y To provide an externally
calibre Executive Directors with the expertise and
experience to deliver the Company’s strategy
y To reflect individual experience and expertise
y To provide a fair and appropriate level of fixed
basic income
competitive benefit whilst
remaining internally consistent
with percentages of contributions
y To provide an appropriate level
of percentage of in-service fixed
income in retirement
y 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
y To reward the delivery of annual objectives relating to the business strategy
y To retain and motivate all of our employees and drive exceptional value creation
y Through significant deferral into the Company’s shares to align the long-term interests of
over the long-term
Executive Directors with those of shareholders
Operation
y Normally reviewed annually, with any increase
normally effective on 1 April (increases may
be awarded at different times if considered
appropriate by the Committee)
y Executive Directors may
receive an employer’s pension
contribution and/or a cash
payment in lieu of pension
y 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
y 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
y The Committee may provide other employee
benefits to Executive Directors on broadly similar
terms to the wider workforce
y The Committee has the ability to reimburse
reasonable business-related expenses and any
tax thereon
y The vesting of awards will be subject to the satisfaction of performance conditions set by
y A conditional share award over ordinary shares in the Company with a value equal
the Committee and measured over a performance period
to the units in the award. The value of the units will depend on the plan value on the
y The performance period will be of at least one year and will normally be one financial year
relevant measurement dates.
of the Company
y 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
y No more than one-third of the total award will be delivered in cash
y 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
y The plan will be funded based on the creation of shareholder value above share
price hurdles as determined by the Committee. The plan will cease funding at a set
share price as considered appropriate by the Committee. The plan may be funded
at different rates between hurdles if considered appropriate. Details of the share
price hurdles are provided in the Annual Remuneration Report.
y For Executive Directors the award will vest (to extent that the share price
hurdles are met) with a maximum of one-third following the completion of the
performance periods ending 31 March 2027, 31 March 2028 and 31 March 2029 (the
y Normally 62.5% of maximum is payable for target levels of performance with 25%
measurements dates).
normally paying for threshold levels of performance.
y The level of funding of the plan is subject to a maximum dilution of 5% of the
y Following the vesting of deferred shares awards, Executives will normally be required to
Company’s issued share capital.
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
y Awards are not pensionable
y 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
y Awards are subject to recovery provisions that enable the Committee to withhold
or recover the value of awards within three years of each measurement date as set
out above where there has been a material misstatement of any Group Member’s
financial results, an error in assessing the plan value applicable to the award or
in the information or assumptions on which the award was granted or vests, a
material failure of risk management, fraud or material financial irregularity in any
Group Member or a relevant business unit, serious reputational damage to any
Group Member or a relevant business unit, serious misconduct or material error on
the part of the Participant, a material corporate failure or a material safety failure
in any Group Member or a relevant business unit or any other circumstances which
the Board in its discretion considers to be similar in their nature or effect.
y Up to 300% of salary for each Executive Director in respect of any financial year
y The maximum value that an individual can receive from the scheme is capped
at £20mn.
y 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
y 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
y 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)
y The Committee reviews the salaries of Executive
y N/A
y N/A
y Awards are based on performance measures with stretching targets as set and assessed
y Performance will be assessed based on the three-month average share price at
Directors each year taking due account of all the
factors described in how the salary policy operates
by the Committee
y Financial measures (e.g. EBITDA, revenue, cash flow) will represent the majority (at least
each measurement date versus share price hurdles determined by the Committee.
These share price hurdles have been disclosed in the Annual Remuneration Report.
50%) of the award, with any other measures representing the balance
y The Committee will have absolute discretion on the vesting of the awards to
override the formulaic outcomes. Framework of performance measures (revenue
growth profitability, cash, customer satisfaction and employee engagement) for
assessing holistic Company performance against macro-economic factors.
y 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
y 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
y No vesting will occur below a threshold level of performance as set by the Committee on a
year-by-year basis
y Set initially at a level required to recruit suitable
Executive Directors, reflecting their experience
and expertise and in context of other comparable
positions
y 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 in market practice;
and (g) external economic conditions, such as
inflation
y Periodic account of practice in comparable
companies (e.g. those of a similar size and
complexity) may be taken by the Committee
y Whilst no monetary maximum has been set, annual
increases will generally be linked to those of the
average of the wider workforce
y 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
y The Committee retains the flexibility to set the
salary of a new hire at a discount to the market
initially, and implement a series of planned
increases over the subsequent few years,
potentially higher than for the wider workforce, in
order to bring the salary to the desired position,
subject to Group and/or individual performance
Maximum
opportunity
Framework
used to assess
performance
122
AO World PLC Annual Report and Accounts 2022 Element
Base salary
Pension
Other benefits
AO incentive plan
Value Creation Plan (“VCP”)
y To aid the recruitment and retention of high-
y To provide an externally
y To provide a competitive benefits package to
y To reward the delivery of annual objectives relating to the business strategy
y To retain and motivate all of our employees and drive exceptional value creation
y Through significant deferral into the Company’s shares to align the long-term interests of
over the long-term
Executive Directors with those of shareholders
Purpose and
link to strategy
calibre Executive Directors with the expertise and
competitive benefit whilst
aid recruitment and retention of high-calibre
experience to deliver the Company’s strategy
remaining internally consistent
Executive Directors with the expertise and
with percentages of contributions
experience to deliver the Company’s strategy
y To reflect individual experience and expertise
y To provide a fair and appropriate level of fixed
basic income
y To provide an appropriate level
of percentage of in-service fixed
income in retirement
y 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
y 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
y The Committee may provide other employee
benefits to Executive Directors on broadly similar
terms to the wider workforce
y The Committee has the ability to reimburse
reasonable business-related expenses and any
tax thereon
y The vesting of awards will be subject to the satisfaction of performance conditions set by
the Committee and measured over a performance period
y The performance period will be of at least one year and will normally be one financial year
of the Company
y 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
y No more than one-third of the total award will be delivered in cash
y 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
y Normally 62.5% of maximum is payable for target levels of performance with 25%
normally paying for threshold levels of performance.
y 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
y Awards are not pensionable
y 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
y A conditional share award over ordinary shares in the Company with a value equal
to the units in the award. The value of the units will depend on the plan value on the
relevant measurement dates.
y The plan will be funded based on the creation of shareholder value above share
price hurdles as determined by the Committee. The plan will cease funding at a set
share price as considered appropriate by the Committee. The plan may be funded
at different rates between hurdles if considered appropriate. Details of the share
price hurdles are provided in the Annual Remuneration Report.
y For Executive Directors the award will vest (to extent that the share price
hurdles are met) with a maximum of one-third following the completion of the
performance periods ending 31 March 2027, 31 March 2028 and 31 March 2029 (the
measurements dates).
y The level of funding of the plan is subject to a maximum dilution of 5% of the
Company’s issued share capital.
y Awards are subject to recovery provisions that enable the Committee to withhold
or recover the value of awards within three years of each measurement date as set
out above where there has been a material misstatement of any Group Member’s
financial results, an error in assessing the plan value applicable to the award or
in the information or assumptions on which the award was granted or vests, a
material failure of risk management, fraud or material financial irregularity in any
Group Member or a relevant business unit, serious reputational damage to any
Group Member or a relevant business unit, serious misconduct or material error on
the part of the Participant, a material corporate failure or a material safety failure
in any Group Member or a relevant business unit or any other circumstances which
the Board in its discretion considers to be similar in their nature or effect.
Maximum
opportunity
increases will generally be linked to those of the
and/or cash supplement of up
year depending on the cost to the Company and
average of the wider workforce
to 9% of salary (which is the rate
the Executive Director’s individual circumstances,
y Whilst no monetary maximum has been set, annual
y Employer’s defined contribution
y As the value of benefits may vary from year to
y Up to 300% of salary for each Executive Director in respect of any financial year
y The maximum value that an individual can receive from the scheme is capped
at £20mn.
received by other managers in
no monetary maximum has been set
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
y 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)
Operation
y Normally reviewed annually, with any increase
y Executive Directors may
normally effective on 1 April (increases may
be awarded at different times if considered
appropriate by the Committee)
receive an employer’s pension
contribution and/or a cash
payment in lieu of pension
y Set initially at a level required to recruit suitable
Executive Directors, reflecting their experience
and expertise and in context of other comparable
positions
y 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 in market practice;
and (g) external economic conditions, such as
inflation
y Periodic account of practice in comparable
companies (e.g. those of a similar size and
complexity) may be taken by the Committee
y 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
y The Committee retains the flexibility to set the
salary of a new hire at a discount to the market
initially, and implement a series of planned
increases over the subsequent few years,
potentially higher than for the wider workforce, in
order to bring the salary to the desired position,
subject to Group and/or individual performance
Framework
used to assess
performance
Directors each year taking due account of all the
factors described in how the salary policy operates
y The Committee reviews the salaries of Executive
y N/A
y N/A
y Awards are based on performance measures with stretching targets as set and assessed
y Performance will be assessed based on the three-month average share price at
by the Committee
y Financial measures (e.g. EBITDA, revenue, cash flow) will represent the majority (at least
each measurement date versus share price hurdles determined by the Committee.
These share price hurdles have been disclosed in the Annual Remuneration Report.
50%) of the award, with any other measures representing the balance
y The Committee will have absolute discretion on the vesting of the awards to
y 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
y 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
y No vesting will occur below a threshold level of performance as set by the Committee on a
year-by-year basis
override the formulaic outcomes. Framework of performance measures (revenue
growth profitability, cash, customer satisfaction and employee engagement) for
assessing holistic Company performance against macro-economic factors.
123
AO World PLC Annual Report and Accounts 2022Our Governance Directors’ remuneration report continued
Historic arrangements
The Committee reserves the right to make any
remuneration payments and/or payments for loss of
office (including exercising any discretion available to
it in connection with such payments) notwithstanding
that they are not in line with the Policy where the terms
of the payment were agreed (i) before 17 July 2014
(the date the Company’s first shareholder-approved
Directors’ remuneration policy came into effect); (ii)
before the Policy came into effect, provided that
the terms of the payment were consistent with the
remuneration policy in force at the time they were
agreed; (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;
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;
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
c.
d.
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.
We are seeking to amend the Policy this year in relation
to the weightings that apply to financial performance
measures against non-financial measures. Whilst our
intention is that financial measures together will still
comprise a majority of the measures, we are proposing
to reduce the minimum level to 50% (previously 70%) to
provide the Committee with the flexibility to incentivise
management to drive some fundamental strategic
initiatives.
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.
124
AO World PLC Annual Report and Accounts 2022 CEO total remuneration opportunity at different
levels of performance
CFO total remuneration opportunity at different
levels of performance
£3,000k
£2,500k
£2,000k
£1,500k
£1,000k
£500k
£0k
£1,475k
42%
21%
38%
£555k
100%
£2,027k
48%
24%
27%
£2,518k
19%
£3,000k
£2,500k
£2,000k
39%
£1,500k
19%
22%
£1,000k
£500k
£0k
£1,901k
19%
39%
19%
22%
£1,531k
48%
24%
27%
£1,114k
42%
21%
38%
£420k
100%
Fixed pay
AOIP – cash
AOIP –
deferred shares
Share price growth
Below threshold
Target
Maximum
Maximum + 50%
share price growth
Below threshold
Target
Maximum
Maximum + 50%
share price growth
Post-cessation of office
ownership guidelines
Post-employment guidelines were introduced from
1 April 2020 and enhanced in the Policy put forward
last year, with Executive Directors now normally being
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
if 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, as will the proposed restructured VCP.
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.
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.
Assumptions:
y Below threshold = fixed pay only (i.e. basic salary,
benefits and pension).
y Target = fixed pay plus 62.5% of maximum
AOIP payout.
y Maximum = fixed pay plus 100% of maximum
AOIP payout.
y 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.
y Fixed pay includes the base salaries for each
Executive Director applying on 1 April 2022, 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 medical cover)
based on the cost of supplying those benefits
in FY22.
y Maximum AOIP Award is equivalent to 300% of salary.
In addition, the Executive Directors will – subject to
shareholder approval - also participate in the 2022 VCP,
which gives 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 2027, 2028 and 2029
respectively), with the total maximum payable capped
at £20m for each Executive Director. The VCP is not
included in the scenario charts above.
125
AO World PLC Annual Report and Accounts 2022Our Governance Directors’ remuneration report continued
Service contracts, and loss
of office payments
Service contracts normally continue until the Executive
Director’s agreed retirement date or such other date
as the parties agree. The Company’s policy is that
Executive Directors’ service contracts must provide
that no more than 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:
Provision
Detailed items
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 to cover the
value of contractual benefits and pension, normally subject to mitigation and paid
monthly*
In addition, any statutory entitlements would be paid as necessary
Change of control
There will be no enhanced provisions on a change of control
* The Committee may elect to make a lump sum termination payment (up to a maximum of 12 months’ base salary and
contractual benefits as part of an Executive Director’s termination arrangements where it considers it appropriate to do so.
Termination Provisions
AO Incentive Plan
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.
126
AO World PLC Annual Report and Accounts 2022 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.
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.
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.
Value Creation Plan
Awards normally lapse on cessation of employment.
The Committee will have discretion to allow awards
to vest in exceptional circumstances as considered
appropriate. Awards may be prorated for the proportion
of the performance period completed.
127
AO World PLC Annual Report and Accounts 2022Our Governance Directors’ remuneration report continued
Changes of control provisions
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.
Value Creation Plan
Awards will vest based on the value of the plan at
the relevant date and any other factors as the
Board consider relevant. In these circumstances, the
Committee may determine that any outstanding
awards are settled in cash.
Chair and Non-Executive Directors’
letters of appointment
The Chair 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.
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:
y 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.
y 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.
y 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 share plans 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.
y Any new Executive Director may participate in the
all-employee AO Value Creation Plan on the terms
approved by shareholders (subject to approval at
the 2022 AGM).
y 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.
y 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.
128
AO World PLC Annual Report and Accounts 2022 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-Executive
Directors
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.
y Fees are determined by the Board, with Non-
Executive Directors abstaining from any discussion
or decision in relation to their fees
y 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
y The Chair is paid a consolidated all-inclusive fee for
all Board responsibilities
y 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
y Additional fees may be paid to reflect additional
Board or Committee responsibilities as appropriate
y 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
y 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
y Additional non-significant benefits may be
introduced if considered appropriate
129
AO World PLC Annual Report and Accounts 2022Our Governance Directors’ remuneration report continued
Annual Report on Remuneration
The Annual Remuneration for FY22 was structured
within the framework of the remuneration policy
adopted by shareholders in 2021 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 FY22 (Audited)
The audited table below shows the aggregate
emoluments earned by the Directors of the Company
during the period 1 April 2021 to 31 March 2022 (or
relating to that period in the case of the AO Incentive
Plan) (FY22) and, for comparison, the amounts
earned during the period 1 April 2020 to 31 March
2021 (or relating to that period in the case of variable
remuneration) (FY21).
Executive Directors
John Roberts
Mark Higgins
Chair
Geoff Cooper
Non-Executive Directors5
Chris
Hopkinson
Marisa Cassoni
Shaun McCabe
Luisa D. Delgado6
Total
Total
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
FY22
FY21
Salaries
and fees
£
476,500
464,000
359,500
350,000
200,000
200,000
55,000
55,000
80,000
75,000
55,000
55,000
62,500
Benefits/
taxable
expenses
£1
19,960
19,055
16,661
14,536
Pension2
£
42,885
41,200
32,355
33,921
–
–
–
–
-
-
–
–
579
–
–
–
–
–
–
–
–
–
Total
fixed
£
539,345
524,255
408,516
398,457
200,000
200,000
55,000
55,000
80,000
75,000
55,000
55,000
63,079
AOIP
cash3
£
71,475
452,400
53,925
341,250
AOIP
deferred
shares4
£
–
–
354,210
–
Total
variable
£
71,475
452,400
408,135
341,250
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£
610,820
976,655
816,651
739,707
200,000
200,000
55,000
55,000
80,000
75,000
55,000
55,000
63,079
65,000
1,288,500
1,264,000
0
37,200
33,591
–
75,240
75,121
65,000
1,400,940
1,372,712
–
125,400
793,650
–
354,210
–
479,610
65,000
1,880,550
–
793,650
2,166,362
1 For John Roberts, benefits include medical cover 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.
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.
2 Executive Directors were entitled to Company pension
contributions of 9% of gross basic salary for FY22. For FY21 they
received 12.75% of gross basic salary 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%) and from 1 October 2020, the pension
contribution rate was reduced to 9% in line with the wider
management contribution rate with no NIC deduction.
3 Both John Roberts and Mark Higgins were granted an award
under the AO Incentive Plan of 300% of salary for the
performance period of FY22. Following partial attainment of the
performance conditions 15% of the award has vested of which
one-third has been paid in cash with the remaining two-thirds of
value payable in the form of a deferred share award. The deferred
share award will be released in July 2025 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 FY22 single figure. The value of the deferred shares will be
disclosed in the single figure in the FY25 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. Discretion has
been exercised in respect of the award as noted on page 132.
4 Mark Higgins was granted a conditional deferred share award
pursuant to the FY19 AOIP Award which had a deferral period
spanning FY20 to FY22 inclusive and which at the point of grant
had a value of £343,400. John Roberts was entitled to an FY19
AOIP award in 2018, as founder and Executive Director (but
not at that time CEO) but, waived his entitlement to this. The
Remuneration Committee has deemed that the performance
underpin has been met in full and accordingly 371,484 shares
will be issued to Mark in August. For the purpose of the single
figure these awards have been valued based on the three-month
average share price to 31 March 2022 of 95.35p. The share price
used to determine the award in July 2019 was 92.44p. 3.1% of the
value disclosed is therefore attributable to share price growth.
The Committee did not exercise discretion in relation to this share
price appreciation.
5 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.
6 Luisa Delgado stepped down from office on 31 January 2022.
130
AO World PLC Annual Report and Accounts 2022 Details of variable pay earned
in FY22 (Audited)
AO Incentive Plan FY22 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 2022.
The targets for the AO Incentive Plan Award were
weighted towards financial metrics (70%), with the
remaining 30% subject to the achievement of strategic
objectives; as set out below.
The following table sets out the targets, actual
performance against these targets and accordingly,
the applicable payout for the FY22 AO Incentive
Plan Award.
Measure (weighting)
Group revenue (25%)
Group Adjusted EBITDA (20%)
Cash inflow (10%)
Targets
Threshold
On target
Stretch
Threshold
On target
Stretch
Threshold
On target
Stretch
AO.com non-MDA revenue growth (5%) Threshold
Germany Revenue (with EBITDA
underpin) (10%)
Customer NPS (10%)*
Employee NPS (10%)
Business Transformation (10%)
On target
Stretch
Threshold
On target
Stretch
Threshold
On target
Stretch
Threshold
On target
Stretch
Committee judgement
based on the progress
achieved in relation to
the transformation of
the business
£1,86bn
£1,96bn
£2,06bn
£45m
£60m
£75m
£11.2m
£26.2m
£41.2m
10% YOY
15% YOY
20% YOY
£316m
£332.6m
£349.2m
70
75
80
15
30
45
* This is the average NPS figure across ao.com, mpd.co.uk and ao.de, weighted by revenue.
% payout
(for this element)
25%
Performance
achieved
Award
62.5%
100%
25%
62.5%
100%
25%
62.5%
100%
25%
62.5%
100%
25%
62.5%
100%
25%
62.5%
100%
25%
62.5%
100%
£1,58bn
0%
£8.5m
0%
-£47.6m
0%
<0
0%
£189m
0%
85
10%
2
5
0%
5%
Total
15%
Performance against financial targets
As is covered earlier in this report, the Group has
had a challenging year in the aftermath of Covid
as we have seen customers return to stores at rates
greater than we anticipated and also as we have seen
online competition intensify. None of the financial
performance conditions were met and accordingly, no
awards made in respect of them.
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 87. 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 suffered
unexpected challenges and difficult consumer markets.
Accordingly, the Committee has determined that this
performance condition has been met in full.
131
AO World PLC Annual Report and Accounts 2022Our Governance Directors’ remuneration report continued
The employee NPS score has fallen during the year
as we have sought to right-size the business in light of
market conditions to reduce the infrastructure and
supporting teams that we had invested in to capitalise
on the rapid growth initially presented by Covid. Whilst
the latest employee survey indicated many positive
sentiments on culture, the Committee did not feel it
appropriate for any of the 10% pertaining to this metric
to be awarded given the low score.
The business transformation target related to the
design of a target operating model which would be the
blueprint of how people, processes and systems would
need to be structured, and would set out the required
capabilities to deliver the strategy and the roadmap
to fulfilling these capabilities and structures and would
include ERP design and how international expansion
would be structured. Given the market challenges faced
by the Group, in both the UK and Germany which were
unexpected at the time the target was set, the strategic
review of Germany and the work that has been done
to simplify the business, reduce costs and right-size
it accordingly, the Committee judged that half of the
amount pertaining to this metric, i.e. 5% should be
awarded.
In total, therefore, we have awarded 15% of the
maximum award to our Executive Directors.
CEO
CFO
Max opportunity
(% salary) Outcome % max
15%
15%
300%
300%
Cash award
(1/3rd)1
£71,479
£53,918
Share award
(2/3rd)2
£142,958
£107,835
1 The cash element has been paid following the determination of vesting by the Board.
2 The share award will be granted in August 2022 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 2025 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.
132
AO World PLC Annual Report and Accounts 2022 Release of shares under the
FY19 AOIP Award
Mark Higgins was granted a conditional deferred share
award pursuant to the FY19 AOIP Award which had a
deferral period spanning FY20 to FY22 inclusive and
which at the point of grant had a value of £343,400.
The Remuneration Committee has deemed that
the performance underpin has been met in full and
accordingly 371,484 shares will be issued to Mark in
August.
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 2022 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 Delgado5
Other employees
(AO World PLC)
FY22 vs FY21
Taxable
benefits2
4.3%
1.1%
0%
0%
0%
0%
0%
Salary1
2.7%
2.7%
0%
0%
6%
0%
13%
AOIP cash
element3
-84%
-84%
0%
0%
0%
0%
0%
-1.1%
7.4%
221%
FY21 vs FY20
Taxable
benefits2
-10.8%
-14.3%
AOIP cash
element3
110%
110%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
-29.9%
102%
Salary1
3%
3%
0%
0%
0%
0%
0%
4%
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 or
Executives; percentage changes relate only to inflationary costs
of providing these benefits.
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 FY21 received
in cash, compared to the cash element participants in the AO
Incentive Plan are expected to receive relating to FY22, in each
case excluding Executive Directors.
4 Marisa Cassoni received an increase in fees following an increase
in the additional fee paid to the Audit Chair.
5 Luisa Delgado received an increase in fees following an increase
in the additional fee paid to the Remuneration Committee Chair
based on the fees payable for a full year.
133
AO World PLC Annual Report and Accounts 2022Our Governance Directors’ remuneration report continued
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 has historically been a constituent, which
includes companies of a broadly comparable size and complexity.
AO World PLC
FTSE 250
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
01/02/2022
Table 2, below, shows the total remuneration figure for the Chief Executive during the financial years ended 31 March
2013 to 31 March 2022. 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)
FY13
FY14
227†
0%
–
–
537†
0%
–
–
FY15
537†
0%
–
–
FY16
588†
10%
–
–
FY17
575*‡
10%
FY18
781*
37.5%
FY19
551†‡
–
FY20
733†
–
FY21
977†
–
FY22
611†
–
–
–
–
–
50.5%
47.8%
97.5%
15%
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
% change
19.4%
No distributions were made to shareholders in FY22 or FY21
FY21
£144.7m
FY22
£172.7m
1
Includes base salaries, social security and pension, and share based payment charges.
134
AO World PLC Annual Report and Accounts 2022 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).
Method
Option A
Option A
Option A
Year
FY22
FY21
FY20
Notes:
P25
25th percentile
pay ratio
27:1
P50
50th percentile
pay ratio
23:1
P75
75th percentile
pay ratio
16:1
46:1
35:1
37:1
28:1
26:1
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 FY22 was calculated
and ranked using 2021/22 P60 and P11D data,
employer pension contributions and payments
under the Company share schemes, in line with the
reporting regulations. The total remuneration for
FY22 for the employees identified at P25, P50 and
P75 is £22,643, £27,218, and £37,860 respectively. The
base salary in respect of FY22 for the employees
identified at P25, P50 and P75 is £21,247, £26,106 and
£35,757 respectively.
3. FY22 payments to the wider employee base referred
to above include the FY21 cash element of the
FY20 AOIP payment, which was paid in FY21, but
for the CEO, we have used the single total figure
value, which includes the FY22 AOIP cash payment
paid in early FY23, but which relates to the FY22
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.
135
AO World PLC Annual Report and Accounts 2022Our Governance Directors’ remuneration report continued
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 in the policy section,
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
decrease in the pay ratio this year compared to last is
influenced by the AOIP outcome (which has vested at
15% for FY21 vs 97.5% in the prior year for the CEO).
For the reasons given above and AOIP outcomes, the
Company believes that the ratio is consistent with the
pay, reward and progression policies across the Group.
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 2022.
External appointments
No fees were received by Executive Directors for
external appointments during the year ended
31 March 2022.
Directors’ shareholdings and share
interests (Audited)
Directors’ shareholdings as at 31 March 2022 are set out
below in Table 3.
During the year under review no options were exercised
by either of the Executive Directors.
There have been no changes to Directors’ shareholdings
during the period from 1 April 2022 to the date of this
report save that shortly following year end John Roberts
made a gift of 1,472,416 shares to a charitable trust.
Although Mark Higgins, Chris Hopkinson, Marisa Cassoni
and Geoff Cooper did not participate in the Company's
recent capital raise due to the requirements of MAR
they have each indicated their intention to subscribe
for 19,080, 2,000,000, 10,520 and 25,701 ordinary shares
respectively following the announcement of the Group's
results for FY22 at the placing price.
3 Directors’ shareholdings
Geoff Cooper
John Roberts
Mark Higgins
Chris Hopkinson
Marisa Cassoni
Shaun McCabe
Luisa D. Delgado6
Shares held
beneficially
at 31 March 20221
Target
shareholding
guidelines
(% of salary)2
Target
shareholding
achieved
128,573
107,360,413
95,448
22,631,306
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
674,900
880,923
N/A
N/A
N/A
N/A
SAYE
options5
N/A
5,421
NIL
N/A
N/A
N/A
N/A
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.
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. Conditional awards over 390,000 shares were
awarded in July 2021 as part of the AOIP FY21 award (based on a
share price of £2.32), which will be released in July 2024 subject
to the attainment of the performance underpin and continued
employment
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 August 2022. 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. Further conditional awards over
294,181 shares were awarded in July 2021 as part of the AOIP FY21
award (based on a share price of £2.32), which will be released in
July 2024 subject to the attainment of the performance underpin
and continued employment.
Further share awards are expected to be granted to John Roberts
and Mark Higgins in September 2022 as part of the AO Incentive
Plan Award FY22 grant – with a value of £142,958 and £107,835
at grant respectively, which will be released in July 2025 subject
to the attainment of the performance underpin and continued
employment.
5 John entered into a SAYE contract during FY21, under which
options over 5,421 were granted.
6 Luisa Delgado stepped down from office on 31 January 2022 –
figures relate to Luisa’s shareholding on this date.
136
AO World PLC Annual Report and Accounts 2022 Implementation of remuneration policy for 2022/2023 (“FY23”)
The Policy can be found on pages 120 to 129 of this Annual Report.
Salary
Salary increases have been awarded to the Executives at 3% with effect from 1 April 2022, in line with the rate
granted to the wider workforce.
The current salaries as at 1 April 2022 (and those as at 1 April 2021) are as follows:
Individual
John Roberts
Mark Higgins
Base salary
at 1 April
2022
Base salary
at 1 April
2021*
£490,795
£370,285
£476,500
£359,500
Role
CEO
CFO
%
increase
3%
3%
* Whilst not in force at 1 April 2021, following its in-depth review into salaries, the Committee, part way through FY22, awarded a 2.7% increase
to the Executives (being the increase granted to UK employees at the April pay review) backdated to 1 April 2021.
For comparison, the average salary increase provided to all UK employees in April 2022 was 3%.
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 may also continue to receive benefits, if they so elect, 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
AOIP
Year 1
Annual performance
Year 2
Year 3
Year 4
CEO and CFO
300% of salary
One-year
performance
measures
One-third paid
in cash
Deferred into shares for
three years
Subject to additional
performance underpin
conditions
Year 5
One-year holding period
Two-thirds deferred into
shares and subject to
additional holding period
137
AO World PLC Annual Report and Accounts 2022Our Governance Directors’ remuneration report continued
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
2022 and 31 March 2023 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 FY23.
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 requirements
in the Code.
Performance conditions for the FY23
AO Incentive Plan Award
In terms of variable pay, the Executives will be entitled
to participate in the AOIP, we have continued to set
the performance conditions along three sets of
deliverables:
1. Financial (output) metrics focused on profit before
tax and liquidity headroom;
2. A strategic transformation measure, specifically
aimed at transforming the strategy of the business
(away from growth at all costs to a more simplified
UK-only business focused on profitable growth); and
3. Stakeholder impact measures focusing on
customers and employees.
Whilst we recognise the importance of ESG, given the
extraordinary market dynamics and the cost of living
crisis affecting consumers, the focus for this year needs
to be on driving profitable growth whilst maintaining
appropriate cash resources, and so we do not have
ESG specific metrics; albeit the stakeholder measures
encompassing customers and employees are aimed at
ensuring the goodwill of the business and driving long-
term sustainability.
The Committee believes these measures provide
the appropriate balance, driving transformation,
recognising the importance of some of our
stakeholders, and output measures that should drive
the creation of shareholder value.
For the financial/output metrics we have set targets
with regard to the Company’s budget for the year
ahead and following a robust process with a stretching
and ambitious mindset. 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 26 and 27 and 22 to 25,
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
e-commerce sites, weighted by revenue.
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 the results from employee
surveys in the UK throughout the performance period.
Group financial
(60%)
Strategic
transformation
non-financial
(20%)
Stakeholder
measures
non-financial
(20%)
Performance condition
UK PBT
Liquidity headroom
Weighting
30%
30%
Strategic pivot
Customer NPS
Employee NPS
20%
10%
10%
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.
The Committee has discretion to override the formulaic
outcome 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.
AO All Employee Value Creation Plan
As noted in the annual statement from the Chair of the
Remuneration Committee, we are seeking to introduce
a new Value Creation Plan, subject to shareholder
approval at the 2022 AGM.
This new plan directly aligns to the long-term vision
and strategy of the Company, as restructured
following our exit of the German market and our pivot
to focus on generating profitable growth in our UK
markets and cash generation. As before the VCP is
aimed at incentivising and rewarding exceptional
performance and retaining the talented team whilst
driving exceptional value creation for shareholders and
long-term investors.
138
AO World PLC Annual Report and Accounts 2022 A key feature of the proposed plan is that it includes
the whole AOer population, each of whom will be able
to share in any value created above a set share price
hurdle. This all employee participation reflects the
unique, entrepreneurial culture that exists at AO.
In considering the design of such a new plan, the
Remuneration Committee has been conscious to design
an effective motivational incentive plan to support
extraordinary performance, while ensuring that the plan
includes safeguards that are aligned to sustainable
value creation, and are reflective of our unique culture
and values that are at the heart of our competitive
edge. These features are set out below:
y Eligibility – all employees, including Executive
Directors.
y Form of Award – a conditional share award over
ordinary shares in the Company with a value
equal to the units in the award. The value of the
units will depend on the plan value on the relevant
measurement dates.
y Mechanics – the plan will begin funding at a share
price of £1 (equivalent to market cap of c.£575mn
with our current share capital) and from there will
fund a rate of 5.5% of value created. In each case,
30% of the plan value will be allocated in total to
the two current Executive Directors and COO (10%
each), capped at a maximum payout of £20mn for
each, with the remaining 70% allocated to current
and future employees. The plan would cease
funding on achievement of a £10.43 share price
(equivalent to market cap of £6.0bn with our current
share capital).
y Dilution - the level of funding is subject to a
maximum dilution of 5% of the Company’s issued
share capital.
y
Individual cap – there is a cap on the aggregate
payments to any individual of £20m. This maximum
payment is only achievable if the Company’s share
price reaches £7.32 by March 2027 and is at or
above that same level in March 2028 and 2029. The
maximum individual payment in any given year
under the VCP is £6.67m.
y Performance and vesting
− (Executive Directors and COO) – three-month
average share price measured at:
<
<
<
31 March 2027 (5 year performance period) –
maximum 1/3rd vests
31 March 2028 (6 year performance period) –
maximum 1/3rd vests
31 March 2029 (7 year performance period) –
maximum 1/3rd vests
− All other employees – three-month average
market cap measured at:
<
31 March 2027 (5 year performance period)
– maximum 100% vests. Remuneration
Committee retains discretion to the
treatment of awards after year 5 including
ability to measure performance at a
later date
y Share-based payment –awards will normally be a
conditional share award over ordinary shares in the
Company settled in AO shares therefore providing
for all employee share ownership. The Company
retains flexibility to settle in cash if required.
y Leavers and Joiners – awards normally lapse on
cessation of employment. The Committee will have
discretion to allow awards to vest in exceptional
circumstances. Awards may be pro-rated for the
proportion of the performance period completed.
y Recovery provisions – awards for Executive Directors
and certain other key employees are subject to
extended malus and clawback terms. Clawback
will apply for up to 3-years following the end of each
performance period (i.e. up to 10 years in total).
y Discretion – the Committee will have absolute
discretion on the vesting of the awards to override
the formulaic outcomes. In exercising such
discretion, the Committee would take into account
a number of factors to assess holistic Company
performance against macro-economic conditions,
including, but not limited to, revenue growth,
profitability, cash, customer satisfaction and
employee engagement.
Illustrative pay-outs for the Executive Directors and plan
funding under different share price scenarios are set
out below:
Share Price
Annualised growth from 11 July 2022 (£0.43)
Additional value created for shareholders from 11 July 2022
Executive Directors each
Total employee pool to be distributed to eligible employees
1 No vesting below this level. Straight line vesting between points
£11
18%
£328m
Nil
Nil
£4.342
59%
£2.25bn
£10.6m
£74.1m
£10.433
89%
£5.75bn
£20m
£238.4m
2 Equates to a market cap of £2.5bn based on the current issued share capital plus the directors intended subscriptions as part of the
recent placing.
3 Equates to a market cap of £6.0bn based on the current issued share capital plus the directors intended subscriptions as part of the
recent placing.
139
AO World PLC Annual Report and Accounts 2022Our Governance Directors’ remuneration report continued
This new 2022 will replace the current VCP approved in 2020.
All-employee share plans
The Company proposes to roll out a new SAYE scheme each year and all Executive Directors will be entitled to
participate on the same basis as other employees.
Share ownership requirements
As with prior years, the required share ownership level for the Executive Directors for FY22 will be 200% of salary.
All Executives are 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 no increases to Non-Executive Director fees for FY23 and fees remain as shown below.
Non-Executive Director fees
Chair 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
2022/2023
£200,000
2021/2022
£200,000
% change
0%
£55,000
£55,000
£15,000
£20,000
£10,000
£15,000
£20,000
£10,000
0%
0%
0%
0%
Details of Directors’ service contracts and letters of appointment
Details of the service contracts and letters of appointment in place as at 31 March 2022 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
Notice
period by
Company
(months)
Notice
period by
Director
(months)
Date
joined
Group
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
Mark Higgins
31/05/2014
Initial term of three years from date of letter subject to
notice – renewed for successive one-year periods subject
to termination by either party
Continuous employment until terminated by either party
Chris Hopkinson
14/02/2014
Initial term of three years expired – renewed for successive
one-year periods subject to termination by either party
Shaun McCabe
25/07/2018
John Roberts
14/02/2014
Initial term of three years from date of appointment
Continuous employment until terminated by either party
3
3
12
3
3
12
3
05/02/2014
3
01/07/2016
12
10/07/2011
3
12/12/2005
3
25/07/2018
12
19/04/2000
140
AO World PLC Annual Report and Accounts 2022 Remuneration Committee
membership
The members of the Committee were, for the year in
question, Luisa D. Delgado (Chair), until 31 January 2022
Marisa Cassoni, and Shaun McCabe who has taken
the role of Interim Chair following Luisa’s departure.
Geoff Cooper has also joined the Committee as interim
member, whilst the search for new Non-Executives is
underway.
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 FY22, there were six 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 94 onwards. The Executive Directors and the HR
Director 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 2022 in relation to incentive arrangements
and the review of the remuneration policy for Executive
Directors. 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 £51,300 plus VAT.
Shareholder feedback (Unaudited)
At the 2021 AGM, the Annual Remuneration Report for
the year ended 31 March 2021 was put to shareholders
by way of an advisory vote and the Policy was put to
shareholders for a binding vote. Votes cast are set out in
the table below.
2021: To approve the Directors’
remuneration report
2021: To approve the Directors’
remuneration policy
Votes in
favour
No. of shares
Votes against
No. of shares
%
Total number
of votes cast
%
Votes
withheld
No. of shares
380,758,176
93.70
25,600,788
6.30
406,358,964
511
395,008,912
97.62
9,617,077
2.38
404,625,989
1,733,486
As ever, the Committee welcomes any enquiries or feedback shareholders may have on the Policy or the work of the
Committee.
Shaun McCabe
Interim Chair, Remuneration Committee
AO World PLC
17 August 2022
141
AO World PLC Annual Report and Accounts 2022Our 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 2022. This report set outs
additional statutory information.
2022 Annual General Meeting
The Annual General Meeting (“AGM”) of AO World PLC
(the “Company”) will be held at 5a The Parklands,
Lostock, Bolton BL6 4SD on Wednesday 28 September
2022 at 8.00am. The notice convening the meeting with
details of the business to be transacted at the meeting
and explanatory notes is set out in a separate AGM
circular which has been issued to all shareholders at the
same time as the Report.
Results and dividends
The Group’s and Company’s audited financial
statements for the year are set out on pages 159 to
202. The Directors do not recommend payment of a
dividend by the Company in respect of the year ended
31 March 2022.
Issued 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 2022, the
issued share capital of the Company was £1,198,806.32,
comprising 479,522,526 ordinary shares of 0.25p each.
As at the date of this document the issued share
capital of the Company was £1,433,309.44 comprising
573,323,777 ordinary shares of 0.25p each. Please see
Post Balance Sheets Events on page 144 for further
information.
During the year, the Company issued 132,684 ordinary
shares of 0.25p each to satisfy the exercise of options
under the AO 2016 Employee Reward Plan (July 2018
grant) and 12,337 ordinary shares of 0.25p each to
satisfy the early exercise of options under the AO World
Sharesave scheme (2020 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 186 . All the information detailed in Note 28
on page 186 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.
At the Annual General Meeting of the Company, to
be held on 28 September 2022, the Directors will seek
authority from shareholders to allot shares in the
capital of the Company up to a maximum nominal
amount of £955,539.63 (382,215,851 shares (representing
approximately 66.6% of the Company’s issued ordinary
share capital)) of which 191,107,925 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 57,332,377 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.
142
AO World PLC Annual Report and Accounts 2022 Shareholders are also encouraged to vote by taking
advantage of the Company registrar’s secure online
voting service which is available at aoshareportal.com
or by requesting a Form of Proxy from them and
returning it by post. 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.
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 prior year
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.
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
Camelot Capital Partners LLC
John Roberts1
Odey Asset Management LLP
(including through financial instruments)
Phoenix Asset Management Partners Limited
Conifer Capital Management LLC
Christopher Hopkinson2
Invesco Limited
Number of ordinary shares/
voting rights notified or
aware of
Percentage of voting rights
over ordinary shares of
0.25p each
117,666,848
107,360,413
87,603,880
25,550,000
35,378,376
22,631,306
20,354,689
20.52%
18.73%
15.28%
4.46%
6.17%
3.95%
3.55%
1 Holding includes 882,350 ordinary shares held by Sally Roberts, defined under MAR as a person with whom John Roberts is closely
associated, and 6,348 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 Christopher Hopkinson is
closely associated but excludes 250,000 ordinary shares held in a Pension of which Mr Hopkinson is one of the beneficiaries.
143
AO World PLC Annual Report and Accounts 2022Our Governance Directors’ report continued
Directors
No new appointments were made to the Board during the Period.
Director
Geoff Cooper
Position
Chair
Served in the year ended 31 March 2022
Served throughout the year
Marisa Cassoni
Senior Independent Non-Executive Director
Served throughout the year
Luisa D. Delgado
Independent Non-Executive Director
Mark Higgins
Chief Financial Officer
Chris Hopkinson
Non-Executive Director
Shaun McCabe
Independent Non-Executive Director
John Roberts
Founder and Chief Executive Officer
Resigned 31 January 2022
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 99.
Appointment and replacement
of Directors
The appointment and replacement of Directors of the
Company is governed by the Articles.
Appointment of Directors: A Director may be
appointed by the Company by ordinary resolution of
the shareholders or by the Board (having regard to the
recommendation of the Nomination Committee). A
Director appointed by the Board holds office only until
the next Annual General Meeting of the Company and is
then eligible for reappointment.
The Directors may appoint one or more of their number
to the office of CEO or to any other Executive office
of the Company, and any such appointment may be
made for such term, at such remuneration and on such
other conditions as the Directors think fit.
Retirement of Directors: Under the Articles, at every
Annual General Meeting of the Company, all Directors
who held office at the time of the two preceding AGMs
and did not retire at either of them shall retire from
office but may offer themselves for re-election, and if
the number of retiring Directors is fewer than one-third
of Directors, then additional Directors shall be required
to retire. However, in accordance with the Code, all
Directors will retire and be subject to re-election at the
forthcoming AGM.
Removal of Directors by special resolution: The
Company may, by special resolution, remove any
Director before the expiration of their period of office.
Termination of a Director’s appointment: A person
ceases to be a Director if:
i.
that person ceases to be a Director by virtue of any
provision of the Companies Act 2006 or is prohibited
from being a Director by law;
ii. a bankruptcy order is made against that person;
iii. a composition is made with that person’s creditors
generally in satisfaction of that person’s debts;
iv. that person resigns or retires from office;
v.
in the case of a Director who holds any Executive
office, their appointment as such is terminated or
expires and the Directors resolve that they should
cease to be a Director;
vi. that person is absent without permission of the
Board from Board meetings for more than six
consecutive months and the Directors resolve that
they should cease to be a Director; or
vii. 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.
Post-balance sheet events
On 11 July 2022 the Company completed a Capital Raise
through the issue of 93,801,251 new ordinary shares
of 0.25p each in the Company raising £40.3million
(before expenses). The net proceeds of the Capital
Raise will strengthen the balance sheet and increase
liquidity back to historic levels (relative to revenue
base), and provide the flexibility to pursue our market
opportunities.
Although Mark Higgins, Chris Hopkinson, Marisa Cassoni
and Geoff Cooper did not participate in the Company's
recent capital raise due to the requirements of MAR
they have each indicated their intention to subscribe
for 19,080, 2,000,000, 10,520 and 25,701 ordinary shares
respectively following the announcement of the Group's
results for FY22 at the placing price.
On 9 June 2022 the Group announced the conclusion
of a strategic review of its German business (AO
Deutschland Limited) and that the Directors had
determined that closure was the best course of action.
A structured and orderly closure for the Group's
customers, employees and suppliers is anticipated to
be concluded by the end of 2022.
144
AO World PLC Annual Report and Accounts 2022 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.
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 commenced a process
to liquidate both of its subsidiaries registered in this
territory, which was completed 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.
145
AO World PLC Annual Report and Accounts 2022Our Governance Directors’ report continued
Reporting requirements
As permitted by section 414C of the Company Act 2006, certain information required to be included in the Directors’
report has been included in the Strategic report and its location, together with other information forming part of the
Directors' report, is set out below.
Reporting requirement
Location
Strategic report – Companies Act 2006 s.414A-D Strategic report on pages 08 to 87
Likely future developments of the business
and Group
DTR4.1.8R – management report – the Directors’
report and Strategic report comprise the
‘management report’
Directors’ remuneration including disclosures
required by Schedule 5 and Schedule 8 of
SI2008/410 – Large and Medium-sized
Companies and Groups (Accounts and
Reports) Regulations 2008
Statement on corporate governance
Strategic report on pages 08 to 87
Directors’ report on pages 142 to 147, and the Strategic report on pages 8
to 87
Directors’ Remuneration report on pages 116 to 141
Corporate Governance report, Audit Committee report, Nomination
Committee report and Directors’ Remuneration report on pages 88 to 141
Board’s assessment of the Group’s internal
control systems
Corporate Governance report on page 88, and the Audit Committee
report on page 109
Board of Directors
Community
Corporate governance statement on pages 92 and 93
Strategic report; Sustainability report on pages 68 to 87
Business relationships with suppliers,
customers and others
Strategic report: How we engage with our stakeholders report on
pages 66 and 67
Directors’ interests
Diversity policy
Employee engagement
Employee involvement
Employees with disabilities
Directors’ Remuneration report on page 136
Strategic report: Sustainability- Fair, Equal and Responsible on page 81
the Corporate Governance report on page 99, and the Nomination
Committee report on page 106
Strategic report: Engaging with our stakeholders on pages 66 and 67;
Sustainability report - Fair, Equal and Responsible on page 79
Strategic report: Engaging with our stakeholders on pages 66 and 67;
Sustainability report - Fair, Equal and Responsible on page 79
Strategic report: Sustainability report – Fair, Equal and Responsible on
page 82
Going concern and viability statement
Strategic report pages 64 and 65
Task Force on Climate-related Financial
Disclosures
Greenhouse gas emissions and streamlined
energy and carbon reporting
Details of use of financial instruments and
specific policies for managing financial risk
TCFD disclosures on page 74 and 75
Strategic report: Sustainability report page 78
Note 33 to Group financial statements on page 190
Significant related party agreements
Note 34 to the consolidated financial statements page 194
Directors’ responsibility statement
Directors’ responsibility statement on page 147
The Strategic report comprising pages 08 to 87 and this Directors’ report comprising pages 142 to 147 have been
approved by the Board and are signed on its behalf by:
Julie Finnemore
Company Secretary
17 August 2022
146
AO World PLC Annual Report and Accounts 2022
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:
y
select suitable accounting policies and then apply
them consistently;
y make judgements and estimates that are
reasonable and prudent;
y
y
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;
y assess the Group and parent Company’s ability
to continue as a going concern disclosing, as
applicable, matters related to going concern; and
y use the going concern basis of accounting unless
they either intend to liquidate the Group or the
parent Company or to cease operations, or have no
realistic alternative but to do so.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the parent Company’s transactions and
disclose with reasonable accuracy at any time the
financial position of the parent Company, and enable
them to ensure that its financial statements comply
with the Companies Act 2006. They are responsible for
such internal control as they determine is necessary to
enable the preparation of financial statements that are
free from material misstatement, whether due to fraud
or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the
assets of the Group and to prevent and detect fraud
and other irregularities.
Under applicable law and regulations, the Directors
are also responsible for preparing a Strategic report,
Directors’ report, Directors’ Remuneration report and
corporate governance statement that complies with
that law and those regulations.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information
included on the Company’s website. Legislation in the
UK governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
Responsibility statement of the
Directors in respect of the Annual
Financial Report
We confirm that to the best of our knowledge:
y
y
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.
John Roberts
Chief Executive Officer
Mark Higgins
Chief Financial Officer
17 August 2022
147
AO World PLC Annual Report and Accounts 2022Our Governance Our
Results
160
150 Independent Auditor’s Report
159 Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement
of financial position
Consolidated statement
of changes in equity
161
162
163 Consolidated statement of cash flows
Notes to the consolidated
financial statements
Company statement
of financial position
Company statement
of changes in equity
Notes to the Company
financial statements
164
195
196
197
Shareholder information
203 Important information
204 Glossary
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Janice
AO Customer
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 2022 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:
y
y
y
y
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 2022 and of the Group’s loss for the year then ended;
the Group financial statements have been properly prepared
in accordance with UK adopted international accounting
standards;
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..
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 6 financial years ended 31 March 2022. 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 (2021: £2.5m)
0.16% (2021: 0.15%) of Group total revenue
Coverage
Key audit matters
Recurring risks
99% (2021: 99%) of Group total revenue
New: Going concern
Product protection plans contract asset
Network commissions contract asset
Recoverability of Mobile goodwill
Recoverability of parent Company’s investment in subsidiaries
and debt due from Group entities
vs 2021
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.
150
AO World PLC Annual Report and Accounts 2022 Recurring risk
The risk
Our response
Going concern
Refer to pages 64 to 65
(Going concern and
viability statement);
Page 112
(Audit Committee
Report),
Page 164
(Accounting policy and
basis of preparation)
Disclosure quality:
The financial statements explain how
the Board has formed a judgement
that it is appropriate to adopt the
going concern basis of preparation for
the Group and parent company.
That judgement is based on an
evaluation of the inherent risks to
the Group’s and Company’s business
model and how those risks might affect
the Group’s and Company’s financial
resources or ability to continue
operations over a period of at least a
year from the date of approval of the
financial statements.
The risks most likely to adversely
affect the Group’s and Company’s
available financial resources and
metrics relevant to debt covenants
over this period are;
y Market uncertainty and volatility
y
y
Falling demand in the post
Covid-19 period as a result of rising
inflation impacting consumers’
disposable income.
Reduction in credit insurers’ cover,
which could potentially lead to
reduction in credit terms.
All of these factors present difficulties
in forecasting future financial
performance.
The risk for our audit was whether or
not those risks were such that they
amounted to a material uncertainty
that may have cast significant doubt
about the ability to continue as a going
concern. Had they been such, then
that fact would have been required to
have been disclosed.
We considered whether these risks could plausibly affect the
liquidity or covenant compliance in the going concern period by
assessing the directors’ sensitivities over the level of available
financial resources and covenant thresholds indicated by the
Group’s financial forecasts taking account of severe, but plausible,
adverse effects that could arise from these risks individually and
collectively.
Our procedures included:
y
Funding assessment: we obtained direct confirmation of the
facility levels available to the group from the lenders and the
related covenants and other key terms. We then assessed the
ability of the group to remain compliant with its covenants and
its liquidity needs through challenge and evaluation of cash flow
forecasts.
y Historical comparison: we assessed the historical accuracy of
forecasting, taking into consideration the external factors that
have presented challenges with this, and the reasons for the
variances arising.
y
Sensitivity analysis: we critically challenged the reliability of
the forecasts and key areas of sensitivity in the context of the
macroeconomic environment and how these were applied
to the base case and in their severe but plausible downside
scenarios and assessed whether these were sufficiently severe,
or whether further downsides should be applied. We challenged
the severity of sensitivities relating to creditor days as a result of
some credit insurers reducing cover during the period. This was
assessed through a reduction to average creditor days in the
forecast period. We challenged how the Group had considered
macroeconomic factors, such as cost and wage inflation and
sensitised this to external market data.
y Assessing transparency: we assessed whether disclosures
relating to the going concern assessment of the group and
parent company were adequate, and appropriately addressed
the assessment made by management and sensitivities applied.
We performed the tests above rather than seeking to rely on any
of the group’s controls because the nature of the balance is such
that we would expect to obtain audit evidence primarily through the
detailed procedures described.
Our results:
We found the going concern disclosure in note 3 of the financial
statements without any material uncertainty to be acceptable
(2021: Acceptable).
151
AO World PLC Annual Report and Accounts 2022Our Financials Independent Auditor’s Report continued
to the members of AO World PLC
Recurring risk
The risk
Our response
Product
protection plans
contract asset
£90.7 million
contract asset
(2021: £80.7 million)
Refer to page 111
(Audit Committee
Report),
Page 165
(Accounting policy),
Page 171
(Other areas
of estimation
uncertainty); and
page 182
(Financial disclosures –
contract asset),
Subjective estimate
Our procedures included:
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 £90.7 million has
a degree of estimation uncertainty,
with a potential range of reasonable
outcomes. The financial statements
note 22 disclose the sensitivity
estimated by the Group.
Data capture
Completeness and accuracy of data
used in the model could be incorrect
because of the manual nature involved
in the data transfer.
Calculation error
The model used to calculate the fair
value is complex and 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
profitability based on forecast
performance expected require
judgement.
y 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.
y Methodology implementation: With the assistance of our own
data modelling specialists we assessed the accuracy of the
implementation of the methodology behind the calculation.
y
y
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 application of historic plan data in
generating an expected average life of plans sold. This was
assessed against the historic accuracy of the model using such
methodology.
y Our sector experience: We challenged the assumptions made
such as life of the plans, cancellation rates and expected future
plan profitability based on our knowledge of the business and
the group, considering factors occurring in the macroeconomic
environment.
y
Sensitivity analysis: We performed sensitivity analysis on
judgemental assumptions and challenged the impact of the
macroeconomic climate on these assumptions.
y 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 performed the tests above rather than seeking to rely on any
of the group’s controls because the nature of the balance is such
that we would expect to obtain audit evidence primarily through the
detailed procedures described.
Our results:
We found the carrying value of the contract asset for product
protection plans and all related disclosures to be acceptable (2021:
acceptable)
152
AO World PLC Annual Report and Accounts 2022 Recurring risk
The risk
Our response
Network
commission
contract asset
£83.4 million
contract asset
(2021: £91.5 million)
Refer to page 111
(Audit Committee
Report),
page 165
(Accounting Policy),
Page 171
(Other areas of
estimation uncertainty);
and pages 182 to 183
(Financial Disclosures)
Subjective estimate
Our procedures included:
y Data comparisons: We performed reconciliations of historic
cash received to third party data. We agreed a sample of
income from new connections and disconnections to both bank
statements and the database system.
y Methodology implementation: We assessed the methodology
behind the calculation to verify whether it incorporates the
accounting standards appropriately.
y 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.
y Our sector experience: We challenged the assumptions
made such as future clawback of upfront revenue, number of
customer disconnections and monthly expected cash receipts
based on our knowledge of the business, third party trends and
the group.
y
Sensitivity analysis: We performed sensitivity analysis
on judgemental assumptions as described above and
challenged the impact of the macroeconomic climate on these
assumptions.
y 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.
We performed the tests above rather than seeking to rely on any
of the group’s controls because the nature of the balance is such
that we would expect to obtain audit evidence primarily through the
detailed procedures described.
Our results:
We found the carrying value of the network commission’s contract
asset to be acceptable (2021:acceptable)
The network commissions contract
asset is based on the value of
commissions due over the expected
life of mobile phone network contracts.
As this requires subjective estimates
to be made there is a risk that the
contract asset is materially misstated.
The effect of these matters is that,
as part of our risk assessment, we
determined that the contract asset
carrying value of £83.4 million has
a degree of estimation uncertainty,
with a potential range of reasonable
outcomes. The financial statements
note 22 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 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.
153
AO World PLC Annual Report and Accounts 2022Our Financials Independent Auditor’s Report continued
to the members of AO World PLC
Recurring risk
The risk
Our response
Subjective estimate
Our procedures included:
MobilePhonesDirect Goodwill (“Mobile
goodwill”) is significant and at risk of
irrecoverability due to uncertainty of
achieving future forecasts.
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 and EBITDA
margin.
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.
y Historical comparison: We assessed the reasonableness of
the budget by considering the historical accuracy of previous
forecasts;
y
Benchmarking assumptions: We evaluated the Group’s
assumptions included within the discounted cash flow forecasts
by comparing key inputs such as projected revenue, EBITDA
margin, discount rate, terminal growth rate and apportionment
of stewardship costs to internally and externally derived data;
y 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.
y
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
y 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 judgmental 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
(2021: acceptable)
Low risk, high value
Our procedures included:
The carrying amount of the Parent
Company’s investment in subsidiaries
and debtors due from group entities
balance represents 70% (2021: 36%)
and 15% (2021: 57%) respectively
of the Company’s total assets. The
recoverability of investments and
debtors due from group entities 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
historically was considered a risk
given the performance of the German
business. However following the
announcement of the strategic review
of this prior to the year end and the
subsequent announcement of the
closure of the entity ,the intercompany
receivable with the German business
has been impaired in full. There is no
further significant judgement in the
debtors due from group entities.
y
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.
y Assessing subsidiary audits: We considered the results of the
audit work on subsidiary financial results for the period.
y Comparing valuations: We compared the carrying amount to
the Group’s market capitalisation to assess whether there are
any indicators of impairment.
y
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.
y Historical comparisons: We assessed the reasonableness of
the expected subsidiaries’ profit by analysing the forecasting
accuracy for each in previous periods; and
y 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;
We performed the tests above rather than seeking to rely on any
of the group’s controls because the nature of the balance is such
that we would expect to obtain audit evidence primarily through the
detailed procedures described.
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 following the impairment charge
that was recognised in the year. (2021: acceptable).
Recoverability of
Mobile goodwill
Mobile Goodwill: £14.7m;
(2021: £14.7 million)
Refer to page 112
(Audit Committee
Report),
pages 166 to 167
(Accounting Policy),
Page 170
(Key sources of
estimation uncertainty);
and page 177
(Financial Disclosure)
Recoverability
of Parent
Company’s
investment in
subsidiaries and
debt due from
group entities
Investment in
subsidiaries
£87.8 million;
(2021: £85.4 million)
Refer to page 197
(Accounting Policy and
financial disclosures)
Debtors due from
Group entities £18.3m
(2021: £137.3 million)
Refer to page 168
(Accounting Policy);
and page 195
(Company statement
of financial position)
154
AO World PLC Annual Report and Accounts 2022 We continue to perform procedures over Volume rebates
receivable, however considering the mechanical nature of the
manual calculations and low historic audit findings in this area, 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, the Network Commission key audit matter
reported was in relation to both contract asset and contract
liability. We continue to perform procedures over Network
Commission contract liabilities, however following the cashback
incentive being stopped there is no longer significant estimation
uncertainties relating to contract liabilities, as such 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.
3. Our application of materiality and an
overview of the scope of our audit
The scope of the audit work performed was predominately
substantive as we placed limited reliance upon the Group's
internal control over financial reporting.
Materiality for the group financial statements as a whole was
set at £2.5 million (2021: £2.5m), determined with reference to
a benchmark of group total revenue of £1,557.3m, of which it
represents 0.16% (2021: 0.15%) of group total revenue.
We consider total revenue to be the most appropriate
benchmark. Year over year, revenue has remained similar and the
most stable measure. In recent years, the Group has invested in
overseas territories and invested in brand development and this,
together with macroeconomic changes has resulted in profit and
loss volatility. Therefore, profit or loss is not considered to be an
appropriate benchmark.
Materiality for the parent company financial statements as a
whole was set at £1.3m (2021: £0.8m), determined with reference
to a benchmark of gross assets, of which it represents 0.5%
(2021: 0.3%).
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% (2021: 75%) of materiality
for the financial statements as a whole, which equates to £1.875m
(2021: £1.875m) for the group and £0.98m (2021 : £0.59m) 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
(2021: £125,000), in addition to other identified misstatements that
warranted reporting on qualitative grounds.
Of the group’s 13 (2021: 13) reporting components, we subjected
7 (2021: 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 opposite.
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
£1,557.3m (2021: £1,660.9m)
Group Materiality
£2.5m (2021: £2.5m)
£2.5m
Whole financial statements
materiality (2021: £2.5m)
£1.8m
Range of materiality at
7 components (£0.5m-£2.3m)
(2021: £0.3m to £2.1m)
Group total revenues
Group materiality
£0.125m
Misstatements reported to the
Audit Committee (2021: £0.125m)
Group total revenue
Group total assets
99%
(2021: 99%)
99
99
100%
(2021: 99%)
99
100
Group total profits and losses that
made up the Group loss before tax
99%
(2021: 98%)
98
99
Full scope for Group audit
purposes 2022
Full scope for Group audit
purposes 2021
Residual components
155
AO World PLC Annual Report and Accounts 2022Our Financials Independent Auditor’s Report continued
to the members of AO World PLC
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 Parent Company, or to cease their operations, and as they
have concluded that the Group’s and the Parent 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”).
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:
An explanation of how we evaluated management’s assessment
of going concern is set out in the related key audit matter in
section 2 of this report.
y
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.
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.
Our conclusions based on this work:
y we consider that the directors’ use of the going concern basis
of accounting in the preparation of the financial statements is
appropriate;
y 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’s or Company's ability to
continue as a going concern for the going concern period;
y 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
y
the related statement under the Listing Rules set out on pages
64 to 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.
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:
y 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.
y Reading Board and Audit Committee minutes.
y Considering remuneration incentive schemes and
performance targets for management and directors.
y 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.
156
AO World PLC Annual Report and Accounts 2022 y The risk management framework disclosures describing these
risks and how emerging risks are identified, and explaining how
they are being managed and mitigated; and
y
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.
We are also required to review the viability assessment, set out on
page 64 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’s 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:
y
y
y
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.
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:
y we have not identified material misstatements in the strategic
report and the directors’ report;
y
y
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:
y
the directors’ confirmation within the viability assessment
on page 64 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;
157
AO World PLC Annual Report and Accounts 2022Our Financials Independent Auditor’s Report continued
to the members of AO World PLC
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
17 August 2022
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:
y 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
y
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
y certain disclosures of directors’ remuneration specified by law
are not made; or
y we have not received all the information and explanations we
require for our audit.
We have nothing to report in these respects.
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 147,
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 www.frc.org.uk/auditorsresponsibilities.
The Company is required to include these financial statements
in an annual financial report prepared using the single electronic
reporting format specified in the TD ESEF Regulation. This auditor's
report provides no assurance over whether the annual financial
report has been prepared in accordance with that format.
158
AO World PLC Annual Report and Accounts 2022 Consolidated income statement
For the year ended 31 March 2022
Revenue
Cost of sales
Impairment of German assets
Cost of sales
Gross profit
Administrative expenses
Impairment of German assets / Costs of Strategic review
Administrative expenses
Other operating income
Operating (loss) / profit
Finance income
Finance costs
(Loss) / Profit before tax
Tax credit / (charge)
(Loss) / Profit after tax for the year
(Loss) / Profit for the year attributable to:
Owners of the Company
Non-controlling interests
(Loss) / Profit per share (pence per share)
Basic (loss) / profit per share
Diluted (loss) / profit per share
Note
5, 6
8
6
8
6, 7
8
6,8
11
12
13
29
15
15
2022
£m
1,557.3
(1,281.0)
(6.9)
(1,287.9)
269.4
(302.3)
(1.3)
(303.6)
1.9
(32.3)
2.6
(7.5)
(37.2)
7.1
(30.1)
(30.4)
0.3
(30.1)
(6.33)
(6.33)
2021
£m
1,660.9
(1,368.4)
–
(1,368.4)
292.5
(263.6)
–
(263.6)
0.8
29.7
4.3
(13.8)
20.2
(3.1)
17.1
17.7
(0.6)
17.1
3.73
3.68
159
AO World PLC Annual Report and Accounts 2022Our Financials
Consolidated statement of comprehensive income
For the year ended 31 March 2022
(Loss) / Profit for the year
Items that may subsequently be recycled to income statement
Exchange differences on translation of foreign operations
Total comprehensive (loss) / profit for the year
Total comprehensive (loss) / profit for the year attributable to:
Owners of the Company
Non-controlling interests
2022
£m
(30.1)
1.0
(29.1)
(29.4)
0.3
(29.1)
2021
£m
17.1
5.8
22.9
23.5
(0.6)
22.9
160
AO World PLC Annual Report and Accounts 2022 Consolidated statement of financial position
For the year ended 31 March 2022
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right of use assets
Trade and other receivables
Deferred tax
Current assets
Inventories
Trade and other receivables
Corporation tax receivable
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Lease liabilities
Provisions
Net current liabilities
Non-current liabilities
Trade and other payables
Lease 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
Note
16
17
18
18
22
20
21
22
24
23
25
26
27
23
26
20
27
28
28
28
30
29
2022
£m
28.2
12.2
32.7
86.6
92.4
9.0
261.1
97.0
169.7
1.9
19.5
288.1
549.2
(313.9)
(45.0)
(20.3)
(0.4)
(379.6)
(91.5)
(6.4)
(88.3)
-
(2.5)
(97.2)
(476.8)
72.4
1.2
–
104.4
28.5
(60.7)
73.4
(1.0)
72.4
The financial statements of AO World PLC, registered number 05525751, on pages 159 to 194 were approved by the Board of Directors and
authorised for issue on 17 August 2022. They were signed on its behalf by:
John Roberts
CEO
Mark Higgins
CFO
AO World PLC
AO World PLC
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
161
AO World PLC Annual Report and Accounts 2022Our Financials Consolidated statement of changes in equity
As at 31 March 2022
Share
capital
£m
1.2
–
–
–
–
–
–
1.2
–
–
–
–
–
1.2
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
(Loss) / Profit for
the period
Share-based
payment charge
(net of tax)
Issue of shares
(net of expenses)
Foreign currency
gain arising on
consolidation
Movement
between reserves
Balance at
31 March 2022
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
103.7
22.2
0.5
–
–
0.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
104.3
22.2
0.5
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
104.4
22.2
0.5
11.7
–
4.2
–
–
–
(6.3)
9.6
–
5.0
–
–
(2.7)
11.8
(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
(0.3)
–
–
–
4.2
0.6
5.8
0.4
0.1
–
6.3
–
–
–
(4.0)
(3.0)
(33.1) 97.7
(1.3) 96.4
–
–
–
1.0
–
–
–
–
–
–
(30.4)
(30.4)
0.3
(30.1)
–
–
–
2.7
5.0
0.1
1.0
–
–
–
–
–
5.0
0.1
1.0
–
(3.0)
(3.0)
(60.7) 73.4
(1.0) 72.4
162
AO World PLC Annual Report and Accounts 2022 Consolidated statement of cash flows
For the year ended 31 March 2022
Cash flows from operating activities
(Loss) / Profit for the year
Adjustments for:
Depreciation and amortisation
Loss on disposal of property, plant and equipment
Impairment of German assets / Costs of Strategic review
Finance income
Finance costs
Taxation (credit) / charge
Share-based payment charge
Increase in provisions
Operating cash flows before movement in working capital
Decrease / (Increase) in inventories
Increase in trade and other receivables
(Decrease) / Increase in trade and other payables
Total movement in working capital
Taxation refunded / (paid)
Cash (used in) / generated from operating activities
Cash flows from investing activities
Acquisition costs relating to right of use assets
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
New borrowings
Interest paid on borrowings
Interest paid on lease liabilities
Repayments of borrowings
Repayment of lease liabilities
Net cash generated in / (used in) financing activities
Net (decrease) / increase in cash
Cash and cash equivalents at beginning of year
Exchange gains on cash and cash equivalents
Cash and cash equivalents at end of year
Note
17, 18
11
12
31
27
25
12
12
24
2022
£m
(30.1)
32.2
0.3
8.2
(2.6)
7.5
(7.1)
5.8
0.6
14.8
41.2
(8.3)
(101.8)
(68.9)
1.7
(52.4)
(1.0)
(7.6)
(1.0)
(9.6)
0.1
–
45.0
(1.6)
(4.8)
–
(24.3)
14.4
(47.6)
67.1
–
19.5
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
163
AO World PLC Annual Report and Accounts 2022Our Financials
Notes to the consolidated financial statements
For the year ended 31 March 2022
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 and approved
by the Directors in accordance with UK adopted International
Accounting Standards ("UK adopted IFRS" ).
The address of the registered office is given on page 203. 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 Group has elected not to apply the exemption granted in
the "Covid-19-related rent concessions beyond 30 June 2021"
amendment to IFRS 16, "Leases", as the Group has not received
material Covid-19-related rent concessions as a lessee.
Other standards, interpretations and amendments effective in
the current financial year have not had a material impact on the
Group financial statements.
New accounting standards in issue
but not yet effective
New standards and interpretations that are in issue but not yet
effective are listed below:
y Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
"Interest Rate Benchmark Reform" – phase 2
y Annual improvements to IFRS Standards 2018 - 2020
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
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
164
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 on pages 54 to 65.
Notwithstanding net current liabilities of £91.5m as at 31 March
2022,a cash outflow of £47.6m, and an increase in net debt
of £105.9m in the year ended 31 March 2022, 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 £80m revolving
credit facility (which was extended by 12 months to now expire in
April 2024). At the date of approval of these financial statements
total liquidity amounted to £60.7m.
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. The forecasts take account of current trading,
management’s view on future performance and their assessment
of the impact of market uncertainty and volatility.
In assessing the going concern basis, the Directors have taken into
account severe but plausible downsides to sensitise its base case
and have run these in combination. These primarily include:
y A downside of negative growth in the financial year 2023 and
in the subsequent periods to account for how the overall
electrical online market could be impacted by the continuing
macro-economic factors exacerbated by the conflict in
Ukraine, such as inflation, consumer confidence, interest rate
increases.
y
the cost of exit from Germany and potential volatility in the
timing and amount of cash inflows as a result of this exit;
y product protection plan cancellation increases as a result of
macroeconomic trends;
y cost inflation being higher than anticipated particularly in
relation to wages; and
AO World PLC Annual Report and Accounts 2022 3. Significant accounting policies continued
y a tightening of credit terms with suppliers as a result of
potential withdrawals or reductions of credit insurance which
could in turn, result in a reduction in trade creditor days. The
severe but plausible downside has been considered at a
reduction of 34 % on the cumulative average trade creditor
days over the previous 5 years.
Under this severe but plausible downside scenario the Group
continues to demonstrate headroom on its banking facilities and
remains compliant with quarterly covenants which are linked
to interest cover, dividend cover and leverage and its annual
covenant linked to net assets.
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.
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 operates under contracts with a number of Mobile
Network Operators (“MNO”). Over the life of these contracts, the
service provided 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 £115.6m). The individual consumer
enters into a contract with the MNO for the MNO to supply the
ongoing airtime over that contract period and with AO Mobile
Limited for the supply of the handset. The Group earns a commission
for the service provided to each MNO (“network commission”).
The method of estimating the revenue and the associated contract
asset in the month of connection is to estimate all future cash flows
that will be received from the network and discount these based on
their timing of receipt. The determined commission is recognised
in full in the month of connection of the consumer to the MNO as
this is the point at which the Group has completed the service
obligation relating to the consumer connection.
Commission revenue is only recognised to the extent it can
be reliably measured for each consumer. The level of network
commission earned is based on an agreed contractual
percentage 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.
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AO World PLC Annual Report and Accounts 2022Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2022
3. Significant accounting policies continued
For certain MNOs, where they are not considered reliably
measurable they are recognised in the month received.
Logistics revenue
The Group provides third-party logistics services to a number of
customers. Revenue from logistics is recognised on completion of
the delivery.
Recycling revenue
Revenue from the recycling of used electrical products is
recognised at the point of sale to the end user.
Volume and marketing-related expenditure
At the year end, the Group is required to estimate supplier income
receivable due from annual agreements for volume rebates, some
of which span across the year-end date. Estimates are required
where firm confirmation of some amounts due are received after
the year end. Where estimates are required, these are calculated
based on historical data, adjusted for expected changes in
future purchases from suppliers, and reviewed in line with current
supplier contracts.
Commercial income can be recognised as volume rebates or
as strategic marketing investment funding. Volume rebates are
recognised in the income statement as a reduction in cost of
sales in line with the recognition of the sale of a product. Strategic
marketing investment funding is recognised in one of two ways:
y
In advertising costs or cost of sales to offset directly
attributable costs incurred by the Group on behalf of the
suppliers; and
y 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:
y
y
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 discount applied
to the contract assets in relation to product protection
plans and network commissions in excess of their previously
recognised value;
y Movement in the valuation of the put and call options; and
y Foreign exchange gains arising on the retranslation of intra-
Group loans.
Finance costs are recognised in the consolidated income
statement in the period to which they occur.
Finance costs comprise:
y Movement in the valuation of the put and call options;
y Finance costs incurred on finance leases and right of use
lease liabilities, which are recognised in the income statement
using the effective interest method;
y Financing costs of raising debt and ongoing utilisation/non-
utilisation fees; and
y Foreign exchange losses arising on the retranslation of intra-
Group loans.
166
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair
value less attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised
cost using the effective interest method less any impairment
losses.
Impairment of tangible and intangible assets
At each statement of financial position date, the Group reviews
the carrying amounts of its tangible and intangible assets to
determine whether there is any indication that those assets have
suffered an impairment loss. Where the asset does not generate
cash flows that are independent from other assets, the Group
estimates the recoverable amount of the cash-generating unit
(“CGU”) to which the asset belongs.
Goodwill is not amortised but is reviewed for impairment annually,
or more frequently where there is an indication that the goodwill
may be impaired. For the purpose of impairment testing, goodwill
is allocated to each of the Group’s CGUs expected to benefit from
synergies of the combination.
The recoverable amount of an asset or cash-generating unit is
the greater of its value in use and its fair value less costs to sell.
In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of
money and the risks specific to the asset.
An impairment loss is recognised if the carrying amount of an
asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognised in profit or loss. Impairment
losses recognised in respect of CGUs are allocated first to reduce
the carrying amount of any goodwill allocated to the units, and
then to reduce the carrying amounts of the other assets in the
unit (group of units) on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In
respect of other assets, impairment losses recognised in prior
years are assessed at each reporting date for any indications
that the loss has decreased or no longer exists. An impairment
loss is reversed if there has been a change in the estimates used
to determine the recoverable amount. An impairment loss is
reversed only to the extent that the asset’s carrying amount
does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment
loss had been recognised.
Goodwill impairment review
Goodwill is required to be tested for impairment annually.
Impairment testing on goodwill is carried out in accordance with
the methodology described in Note 16. Such calculations require
judgement relating to the appropriate discount factors and long-
term growth prevalent in a particular market as well 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.
AO World PLC Annual Report and Accounts 2022 3. Significant accounting policies continued
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:
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.
Asset class
Domain names
Amortisation method and rate
5 years straight-line
Computer software
3 to 5 years straight-line
Marketing-related assets
10 years straight-line
Customer lists
5 years straight-line
Software costs incurred as part of a service agreement are only
capitalised when it can be evidenced that the Group has control
over the resources defined in the arrangement. Any expenditure
capitalised includes the cost of materials, direct labour and
overhead costs that are directly attributable to preparing the
asset for its intended use and capitalised borrowing costs.
Other development expenditure is recognised in the income
statement as an expense as incurred.
Software customisation and configuration costs relating to
software not controlled by the Group are expensed over the
period such services are received. Software costs are stated
at cost less accumulated amortisation and less accumulated
impairment losses.
Amortisation methods, useful lives and residual values are
reviewed at each statement of financial position date.
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and accumulated impairment losses.
Depreciation is recognised so as to write off the cost of
assets (other than freehold land and assets in the course of
construction) less their residual values over their useful lives on the
following bases:
Asset class
Property alterations
Depreciation method and rate
10 years straight-line or over the life of the
lease to which the assets relate
Fixtures, fittings and plant
and machinery
15% reducing balance or 3 to 10 years
straight-line
Motor vehicles
2 to 10 years straight-line
Computer equipment
3 to 5 years straight–line
Office equipment
Leasehold property
15% reducing balance or 3 to 5 years
straight-line
Depreciated on a straight-line basis over
the life of the lease
Freehold property
25 years straight-line
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.
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.
Subsequent measurement
The Group applies IAS 36 to determine whether a right of use
asset is impaired and accounts for any identified impairment loss.
All leases are subject to the Group’s annual review to assess
whether the current lease terms are still in line with the overall
intentions of the Group. It is the Group’s policy that all leases
relating to right of use assets - land and buildings are specifically
reviewed once the remaining life of the lease becomes less than
three years. If the Group intends to extend the lease beyond the
initial lease period then this is reflected at that time.
167
AO World PLC Annual Report and Accounts 2022Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2022
3. Significant accounting policies continued
Any leases, where the expected lease life is expected to be
reduced or ended, are adjusted once the Group is satisfied that
the reduction is likely to occur.
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.
Based on the past experience of the Group, the likelihood of
extending leases that relate to all other asset categories beyond
their initial lease period is considered to be low.
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.
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.
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.
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.
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.
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, in hand, on
demand deposits and cash in transit.
168
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.
AO World PLC Annual Report and Accounts 2022 3. Significant accounting policies continued
Taxation
Tax on the profit or loss for the year comprises current and
deferred tax. Tax is recognised in the income statement except to
the extent that it relates to items recognised directly in equity, in
which case it is recognised in equity.
Current tax is the expected tax payable or receivable on the
taxable income or loss for the year, using tax rates enacted or
substantively enacted at the statement of financial position
date, and any adjustment for items of income or expense that are
taxable or deductible in other years or that are never taxable or
deductible.
Research and development credits are accounted for in
accordance with IAS 12. The credit is recognised once a
reasonable estimate of the amount can be made.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and its tax base 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.
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.
169
AO World PLC Annual Report and Accounts 2022Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2022
3. Significant accounting policies continued
Transactions denominated in foreign currencies are translated
into the functional currency at the exchange rates prevailing
on the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated into
functional currency at the rates of exchange at the reporting
date. Exchange differences on monetary items are recognised
in the income statement. Intra-Group loans are translated at the
year-end exchange rate with the resulting exchange differences
recognised within interest.
Alternative performance measures
The Group tracks a number of alternative performance measures
in managing its business. These are not defined or specified under
the requirements of IFRS because they exclude amounts that
are included in, or include amounts that are excluded from, the
most directly comparable measure calculated and presented in
accordance with IFRS, or are calculated using financial measures
that are not calculated in accordance with IFRS. The Group
believes that these alternative performance measures, which are
not considered to be a substitute for or superior to IFRS measures,
provide stakeholders with additional helpful information on the
performance of the business. These alternative performance
measures are consistent with how the business performance is
planned and reported within the internal management reporting
to the Board. Some of these alternative performance measures
are also used for the purpose of setting remuneration targets.
These alternative performance measures should be viewed as
supplemental to, but not as a substitute for, measures presented
in the consolidated financial statements relating to the Group,
which are prepared in accordance with IFRS. The Group believes
that these alternative performance measures are useful
indicators of its performance.
EBITDA
EBITDA is defined by the Group as profit/(loss) before interest, tax,
depreciation, amortisation, profit/loss on the disposal of fixed
assets and impairment of 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 Item in the current year is:
y Due to the continued losses in the German business, the Group
has undertaken a strategic review during the year. As a result
of these losses and the subsequent decision to close that
business, management have performed a full impairment
review of the assets at 31 March 2022. As a consequence,
management have made impairment provisions of £7.3m at
31 March 2022 of which £1.2m relates to inventory and £6.1m
relates to Right of use assets and other property, plant and
equipment. In addition, legal advice and other costs of the
review totalled £0.9m as at the year-end resulting in a total
of 8.2m of impairment and other charges in the income
statement. Given the nature of these costs, they have been
added back in arriving at adjusted EBITDA.
170
The Adjusting Items for the prior year were as follows:
y
y
In FY21, management reassessed the impact on future
expected cancellation rates as a result of an increase in
cancellations seen through the second half of the prior year.
As a result, revenue for FY21 was constrained by £8.1m with a
corresponding reduction in the contract asset. Given the size
and nature of the 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 subsequent years, the
performance of this contract was reassessed due to
significant losses being incurred and the benefits expected
from the contract not materialising. The Group renegotiated
the contract with new terms taking effect from April 2021.
However, the existing terms up to 31 March 2021 resulted in the
cost of fulfilling the contract over its life exceeding any benefit
gained from it and therefore management added back the
full cost in the prior period of £2.2m.
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. At 31 March 2022 these amounted to £25.1m.
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.
Whilst at 31 March 2022 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.
AO World PLC Annual Report and Accounts 2022 4. Key sources of estimation
uncertainty continued
Other areas of estimation uncertainty
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 key inputs, including:
y
y
y
y
y
y
the contractual agreed margins;
the number of live plans;
the discount rate;
the estimated length of the plan;
the estimated historic rate of attrition; and
the estimated 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
attrition 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., changes seen in
the previous year 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. During the year,
management have refined the estimations in relation to claims
(which impacts profit share) based on more granular information
from Domestic & General regarding the claims performance
of specific cohorts. This has resulted in an increase in revenue
recognised of £2.7m. As with all years, other small refinements
have been made but have had an immaterial impact on the
revenue recognised.
The commission receivable balance as at 31 March 2022 was £90.7m
(2021: £80.7m). The rate used to discount the revenue for the FY22
cohort is 3.54% (2021: 3.55%). The weighted average of discount
rates used in the years prior to FY22 was 4.12% (2021: 4.63%).
Revenue recognition and recoverability of income
in relation to network commissions
Revenue in respect of commissions receivable from the Mobile
Network Operators (“MNOs”) for the brokerage of network contracts
is recognised in line with the principles of IFRS 15, when the Group
obtains the right to consideration as a result of performance of its
contractual obligations (acting as an agent for a third party).
Revenue in any one year therefore represents an estimate of
the commission due on the contracts sold, which management
estimates reliably based upon a number of key inputs, including:
y The contractually agreed revenue share percentage – the
percentage of the consumer’s spend (to MNOs) to which the
Group is entitled;
y The discount rate using external market data (including risk
free rate and counter party credit risk) - 0.53% (2021: 0.1%);
y The length of contract entered into by the consumer (12 – 24
months); and
y The estimated 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 (c4%).
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 and any additional churn expected
as a result of recent price increases announced and applied by
the MNO's, for which a reduction to revenue is made 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 product protection plans, the Directors compare the cash
received to the initial amount recognised in assessing the
appropriateness of the assumptions used.
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. During the year,
management have refined the estimations in relation to the
assumed collection of commissions utilising more recent trends
(and ignoring the unusual factors seen during FY21). This has
resulted in an increase in revenue recognised of £1.4m. Other
small refinements have been made which have had an immaterial
impact on the revenue recognised.
The commission receivable balance as at 31 March 2022 was
£83.4m (2021: £91.5m). The rate used to discount the current year
revenue is 0.53% (2021: 0.10%).
171
AO World PLC Annual Report and Accounts 2022Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2022
Recoverability of Deferred tax assets
At 31 March 2022, the Group has UK tax losses of £39.7m and
accordingly has recognised a deferred tax asset of £8.0m.
In recognising the asset, management have taken account
of the historic profitability of the UK business together with its
forecasts (utilising the same information as in the going concern
and viability statement). In recent years, other than FY22, the UK
business has been profitable. The unprecedented circumstances
which have affected the post Covid trading period have been
the prime reason for the result in FY22 and management have
taken actions to mitigate the impacts of the current cost of living
squeeze and difficult macro-economic conditions. The business
therefore expects to be profitable in the future and therefore has
assessed that utilising the losses is probable and as such the
asset has been recognised.
Management acknowledge that the economic environment is
providing a difficult backdrop on which to forecast but believes
that its forecasts reflect the impact of the current challenges.
However, as a consequence of the significance of the asset, this is
disclosed as a significant area of accounting judgement.
Impairment of assets in AO Deutschland
Due to the continued losses in Germany, pre-year end
management commenced a strategic review of the operations
in the country. Post year end, a decision was taken to close
that business which indicated the assets were impaired at 31
March 2022. An impairment assessment as at 31 March 2022 was
undertaken and this has resulted in the write down of certain
assets at the year-end. A judgement was taken to assess whether
there were conditions in existence at the year end.
These write downs include:
y A one off provision of £1.2m against unsold inventory which is
considered as outside normal provision policies.
y An impairment provision of £6.1m against rights of use
property and other assets after considering the recoverable
value being whether the company is able to either return the
assets back to the landlord or sublet the assets. To the extent
that management can negotiate the exit from the leases,
there is the possibility that the overall rights of use asset may
in part be recovered, however this is uncertainty and therefore
an impairment provision is recorded.
Negotiations are ongoing with suppliers with regards to the
amount due to or from the German business with regards to
trading balances including returned stock, payables and rebates.
At 31 March 2022, the amounts included in the balance sheet
regarding suppliers are either contractually due or payable.
Management however note that discussion are ongoing with
suppliers and until these discussions are concluded it may not be
possible to determine how much will be settled.
The above may not be finalised until later in FY23 and therefore
are included to ensure the uncertainties are properly disclosed.
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
Year ended (£m)
Product revenue
Service revenue
Commission revenue
Third-party logistics revenue
Recycling revenue
Total revenue
31 March 2022
UK
Germany
1,114.4
50.3
156.8
22.7
24.1
181.7
3.0
0.7
3.6
–
Total
1,296.1
53.3
157.5
26.3
24.1
31 March 2021
Germany
220.9
4.0
0.3
1.2
–
UK
1,200.3
54.0
146.0
16.5
17.7
Total
1,421.2
58.0
146.3
17.7
17.7
1,368.3
189.0
1,557.3
1,434.5
226.4
1,660.9
Details of the revenue in each category are set out in the accounting policies note on pages 165 to 166.
172
AO World PLC Annual Report and Accounts 2022 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 Germany.
Operating segments are determined by the internal reporting regularly provided to the Group’s Chief Operating Decision Maker. The
Chief Operating Decision Maker, who is responsible for allocating resources and assessing performance of the operating segments,
has been identified as the Executive Directors and has determined that the primary segmental reporting format of the Group is
geographical by customer location, based on the Group’s management and internal reporting structure. Transactions between
segments are undertaken on an arm’s length basis using appropriate transfer pricing policies.
a) Income statement
The following is an analysis of the Group’s revenue and results by reportable segments.
Year ended (£m)
Revenue
Cost of sales
Impairment of German assets
Cost of sales
Gross profit
Administrative expenses
Impairment of German assets / Strategic Review
Administrative expenses
Other operating income
Operating (loss) / profit
Finance income
Finance costs
(Loss) / Profit before tax
Tax credit / (charge)
(Loss) / Profit after tax
31 March 2022
UK
Germany
1,368.3
(1,104.9)
–
(1,104.9)
263.4
(271.8)
(0.9)
(272.7)
1.8
(7.5)
2.6
(5.6)
(10.5)
7.2
(3.3)
189.0
(176.1)
(6.9)
(183.0)
6.0
(30.5)
(0.4)
(30.9)
0.1
(24.8 )
–
(1.9)
(26.7)
(0.1)
(26.8)
Total
1,557.3
(1,281.0)
(6.9)
(1,287.9)
269.4
(302.3)
(1.3)
(303.6)
1.9
(32.3)
2.6
(7.5)
(37.2)
7.1
(30.1)
31 March 2021
Germany
226.4
(206.8)
–
(206.8)
19.5
(27.9)
–
(27.9)
–
(8.4)
–
(6.9)
(15.3)
–
(15.3)
UK
1,434.5
(1,161.6)
–
(1,161.6)
273.0
(235.6)
–
(235.6)
0.8
38.1
4.3
(6.9)
35.4
(3.1)
32.3
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 (loss)/ profit
Depreciation
Amortisation
Loss / (Profit) on disposal of
non-current assets
EBITDA
Adjusting items (see Note 3):
Adjusted EBITDA
31 March 2022
Germany
(24.8)
3.6
–
(0.1)
(21.3)
7.3
(14.0)
UK
(7.5)
24.9
3.8
0.4
21.6
0.9
22.5
Total
(32.3)
28.5
3.8
0.3
0.3
8.2
8.5
31 March 2021
Germany
(8.4)
3.2
–
–
(5.2)
2.2
(3.0)
UK
38.1
18.6
2.8
–
59.4
8.1
67.5
Total
1,660.9
(1,368.4)
–
(1,368.4)
292.5
(263.6)
–
(263.6)
0.8
29.7
4.3
(13.8)
20.2
(3.1)
17.1
Total
29.7
21.8
2.8
–
54.2
10.3
64.4
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).
173
AO World PLC Annual Report and Accounts 2022Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2022
6. Segmental analysis continued
c) Other information
2022 (£m)
UK
Germany
2021 (£m)
UK
Germany
Intangible
assets
1.0
–
1.0
Intangible
assets
2.8
–
2.8
Additions
Right of use
PP&E
assets Depreciation Amortisation
9.2
0.1
9.3
38.4
6.5
44.9
24.9
9.7
34.6
3.8
–
3.8
Additions
Right of use
PP&E
11.4
0.2
11.6
assets Depreciation Amortisation
2.8
26.2
18.6
1.5
27.7
3.2
21.8
–
2.8
Loss / (Profit)
on disposal
0.4
(0.1)
0.3
Profit on
disposal
–
–
–
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
8. Operating (loss) / profit for the year
Operating (loss) / profit for the year has been arrived at after charging/(crediting):
Depreciation of:
Owned assets
Owned assets financed by lease
Right of use assets
Amortisation
Loss on disposal of property, plant and equipment
Cost of inventory
Staff costs
Other operating income:
Short-term sublets
Settlement of claim in relation to overcharging of interchange fees
Adjusting items (see Note 3)
Impairment of German assets / Costs of Strategic review
Revisions to estimates in relation to contract assets
Onerous contract costs
2022
£m
55.7
76.9
17.5
153.5
303.6
2022
£m
5.8
3.0
19.6
3.8
0.3
1,103.8
172.7
(0.5)
(1.4)
8.2
–
–
2021
£m
50.4
65.6
15.4
132.2
263.6
2021
£m
4.4
3.2
14.2
2.8
–
1,202.6
144.7
(0.8)
–
–
8.1
2.2
174
AO World PLC Annual Report and Accounts 2022 8. Operating (loss) / profit for the year continued
Adjusting items are included in the income statement as follows:
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating loss
9. Auditor’s remuneration
The analysis of the Auditor’s remuneration is as follows:
Fees payable to the Company’s Auditor and their associates for the audit of the Company’s annual accounts
Fees payable to the Company’s Auditor and their associates for other services to the Group
The audit of the Company’s subsidiaries
Total Auditor’s remuneration
2022
£m
–
6.9
6.9
1.3
8.2
2022
£m
0.1
0.7
0.8
2021
£m
8.1
2.2
10.3
–
10.3
2021
£m
0.1
0.7
0.8
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 114.
No services were provided on a contingent fee basis.
Non-audit fees of £75,000 were incurred in relation to the review of the interim financial statements (2021: £45,000) and £5,000 in relation
to agreed upon procedures in relation to the Group’s covenant reporting pack (2021: £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)
11. Finance income
Movement in valuation of put and call option
Unwind of discounting on non-current contract assets
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
2022
Number
4,435
7
4,442
2021
Number
3,909
7
3,916
2022
£m
145.6
14.5
6.8
5.8
172.7
2022
£m
–
2.6
2.6
2022
£m
4.8
0.6
1.0
1.1
–
–
7.5
2021
£m
121.4
14.5
5.5
3.3
144.7
2021
£m
0.8
3.4
4.3
2021
£m
4.0
0.4
1.9
6.8
0.1
0.6
13.8
175
AO World PLC Annual Report and Accounts 2022Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2022
13. Tax
Corporation tax:
Current year
Adjustments in respect of prior years
Deferred tax (see Note 20)
Current year
Adjustments in relation to prior years
Total tax credit / (charge)
2022
£m
2021
£m
(0.3)
(0.3)
(0.6)
(5.9)
(0.6)
(6.5)
(7.1)
3.4
–
3.4
(0.1)
(0.3)
(0.4)
3.1
The expected corporation tax charge for the year is calculated at the UK corporation tax rate of 19% (2021: 19%) on the (loss) / 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 (credit) / charge for the year can be reconciled to the (loss) / profit in the statement of comprehensive income as follows:
Year ended 31 March
(Loss) / Profit before tax on continuing operations
Tax at the UK corporation tax rate of 19% (2021: 19%)
Ineligible expenses
Impact of difference in current and deferred tax rates
Income not taxable
Share-based payments
Prior period adjustments
Tax (credit)/charge for the year
2022
£m
(37.2)
(7.1)
0.4
(1.2)
(0.1)
1.7
(0.9)
(7.1)
2021
£m
20.2
3.8
1.7
–
(0.1)
(2.0)
(0.3)
3.1
An increase in the UK corporation rate from 19% to 25% (effective 1 April 2023) was substantively enacted on 24 May 2021. The impact
of the rate change has been considered when recognising the deferred tax in relation to UK companies, and where there is a material
difference between deferred tax recognition at 25% and deferred tax recognition at 19%, the deferred tax has been recognised at the
rate in which it is expected to unwind.
14. Dividends
The Directors do not propose a dividend for the year ended 31 March 2022 (2021: £nil).
15. (Loss) / Earnings per share
The calculation of the basic and diluted (loss) / earnings per share is based on the following data:
(Loss) / 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
Potentially dilutive shares options
Weighted average number of diluted ordinary shares
(Loss)/ Earnings per share (pence per share)
Basic (loss) / earnings per share
Diluted (loss) / earnings per share
2022
£m
(30.4)
2021
£m
17.7
478,558,948
475,626,353
7,028,898
6,337,186
485,587,846
481,963,539
(6.33)
(6.33)
3.73
3.68
The diluted loss per share has been restricted to the basic loss per share to prevent having an anti-dilutive effect.
The basic (loss) / earnings per share is affected by significant non-cash foreign exchange movements arising from intra-Group funding
arrangements. Management have therefore presented an adjusted (loss) / earnings per share which is based on an adjusted (loss) /
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.
176
AO World PLC Annual Report and Accounts 2022 15. (Loss) / Earnings per share continued
(Loss) / Earnings
(Loss) / Profit attributable to owners of the parent Company
Add back of foreign exchange movements on intra-Group loans
Adjusted (loss) / earnings 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
(Loss) / Earnings per share (pence per share)
Basic (loss) / earnings per share
Diluted (loss) / earnings per share
Adjusted (loss) / earnings per share
16. Goodwill
Carrying value at 31 March 2021 and at 31 March 2022
2022
£m
(30.4)
1.1
(29.3)
2021
£m
17.7
6.8
24.5
478,558,948
475,626,353
7,028,898
6,337,186
485,587,846
481,963,539
(6.33)
(6.33)
(6.10)
3.73
3.68
5.15
£m
28.2
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 2022, 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 2022. 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 9.7% (2021: 9.1%).
The key assumptions, which take account of historic trends, upon which management have based their cash flow projections are sales
growth rates, selling prices and product margin.
Management do not believe that any reasonable possible sensitivity would result in any impairment to this goodwill.
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 14.8% (2021: 14.2%).
The total recoverable amount in respect of goodwill for this CGU group is greater than its carrying value by £0.7m in management's
base case.
The main assumptions underlying the value in use calculation are the volume of mobile connections (and hence revenue) where growth is
forecast at 3% per annum per year and EBITDA that is assumed to stay flat at c2% and the discounted rate.
The Directors have performed sensitivity analysis on the numbers included in the three-year strategic plan for the business in assessing
the value in use. Management believes that the key assumptions are revenue margin and the discount rate. If revenue growth was 4%
lower than forecast it would have an impact of (£0.8m) on the amount of headroom. If margin reduced by 2% this would have an impact
of (£0.7m) on the amount of headroom (without management taking any mitigating action). If the discount rate increased by 5% it would
have a £(0.8m) impact on the amount of headroom assuming all other factors stayed the same
However, management believes 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. If the key assumptions were to move by more than the sensitivities identified above,
there is a possible upside to the forecast relating to contractual inflationary price increases as disclosed in note 22.
177
AO World PLC Annual Report and Accounts 2022Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2022
Further details of this area of estimation uncertainty are set out in Note 4.
17. Other intangible assets
Cost
At 31 March 2020
Additions
Disposals
At 31 March 2021
Additions
Disposals
At 31 March 2022
Amortisation
At 31 March 2020
Charge for the year
Disposals
At 31 March 2021
Charge for the year
Disposals
At 31 March 2022
Carrying amount
At 31 March 2022
At 31 March 2021
Domain
names
£m
Software
£m
Marketing
related
assets
£m
Customer
lists
£m
1.5
–
–
1.5
–
(0.3)
1.2
1.1
–
–
1.1
0.1
–
1.2
–
0.3
4.9
2.8
(0.4)
7.3
1.0
(0.5)
7.8
2.7
1.2
(0.2)
3.7
2.2
(0.2)
5.7
2.1
3.6
14.8
–
–
14.8
–
–
14.8
1.9
1.5
–
3.4
1.5
–
4.9
9.9
11.4
0.4
–
–
0.4
–
–
0.4
0.1
0.1
–
0.2
0.1
–
0.2
0.2
0.3
Amortisation is charged to administrative costs in the consolidated income statement.
18. Property, plant and equipment
Owned assets
Cost
At 31 March 2020
Additions
Disposals
Transfer from AICC
Exchange differences
At 31 March 2021
Additions
Disposals
Exchange differences
At 31 March 2022
Accumulated depreciation
At 31 March 2020
Charge for the year
Disposals
At 31 March 2021
Charge for the year
Impairment
Disposals
At 31 March 2022
Carrying amount
At 31 March 2022
At 31 March 2021
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
3.3
0.7
–
1.7
(0.2)
5.5
0.3
–
–
5.8
0.9
0.4
–
1.4
0.5
-
–
1.9
3.9
4.1
5.2
–
–
(5.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
14.4
1.0
–
–
–
15.3
2.5
(0.8)
–
17.0
6.4
1.4
–
7.8
1.7
-
(0.7)
8.8
8.2
7.5
14.5
3.3
–
3.6
–
21.3
2.9
(0.4)
–
23.8
5.9
2.3
–
8.2
3.2
-
(0.2)
11.2
12.6
13.1
12.1
4.3
(0.1)
–
–
16.4
1.7
–
(0.1)
18.0
8.4
2.3
(0.1)
10.6
2.3
-
–
12.9
5.1
5.8
9.6
2.3
(0.2)
(0.1)
–
11.6
1.8
–
–
13.4
8.4
1.1
–
9.5
1.0
0.2
–
10.7
2.7
2.1
0.3
0.1
–
–
–
0.4
0.1
(0.1)
–
0.3
–
0.1
–
0.1
0.1
-
(0.1)
0.1
0.2
0.3
At 31 March 2022, the net carrying amount of leased plant and machinery included above was £7.8m (2021: £12.3m).
178
Total
£m
21.6
2.8
(0.4)
24.0
1.0
(0.8)
24.2
5.7
2.8
(0.2)
8.4
3.8
(0.2)
12.0
12.2
15.6
Total
£m
59.4
11.6
(0.3)
–
(0.2)
70.5
9.3
(1.4)
(0.1)
78.3
30.1
7.6
(0.1)
37.6
8.8
0.2
(1.0)
45.6
32.7
32.8
AO World PLC Annual Report and Accounts 2022 18. Property, plant and equipment continued
Right of use assets recognised are reflected in the following asset classes:
Right of use assets
Cost
At 31 March 2020
Additions
Disposals
Exchange differences
At 31 March 2021
Additions
Disposals
Exchange differences
At 31 March 2022
Accumulated depreciation
At 31 March 2020
Charge for the year
Disposals
At 31 March 2021
Charge for the year
Impairment
Disposals
At 31 March 2022
Carrying amount
At 31 March 2022
At 31 March 2021
Land and
buildings
£m
Motor
vehicles
£m
Computer
equipment
£m
85.8
12.4
(4.2)
(0.4)
93.6
28.6
(6.8)
(0.1)
115.3
30.6
8.7
(1.1)
38.2
11.0
0.2
(0.7)
48.7
66.6
55.4
20.0
15.3
(0.8)
(0.1)
34.5
16.3
(7.8)
–
43.0
11.1
5.3
(0.4)
16.0
8.4
5.7
(6.8)
23.3
19.7
18.5
1.0
–
–
–
1.0
–
–
–
1.0
0.4
0.2
–
0.6
0.2
–
–
0.8
0.2
0.4
Total
£m
106.8
27.7
(5.0)
(0.5)
129.1
44.9
(14.6)
(0.1)
159.3
42.0
14.2
(1.5)
54.8
19.6
5.9
(7.4)
72.8
86.6
74.3
The expense relating to short-term leases and low value assets included within the Income Statement amounted to £2.4m (2021: £0.5m).
At 31 March 2022, the Group was not committed to any leases which had not yet commenced (2021: nil).
179
AO World PLC Annual Report and Accounts 2022Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2022
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 2022.
Name of subsidiary
AO Retail Limited
Expert Logistics Ltd
Worry Free Limited
Elekdirect Limited
Appliances Online Ltd
Principal place of
business
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
AO Deutschland Limited
Germany
AO Ltd
AO.BE SA
AO Recycling Limited
WEEE Collect It Limited
WEEE Re-use It Limited
United Kingdom
Belgium
United Kingdom
United Kingdom
United Kingdom
Electrical Appliance Outlet Limited United Kingdom
Mobile Phones Direct Limited
United Kingdom
AO Mobile Limited
United Kingdom
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
Jersey
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Class of shares held
Ordinary
Proportion of ownership
interests and voting
rights held by AO World
PLC
100%†
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%
99.99%*
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
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 203 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%).
180
AO World PLC Annual Report and Accounts 2022 20. Deferred tax
Deferred tax is recognised by the Group as shown in the table below:
At 31 March 2020
(Debit)/credit to income statement
(Debit)/credit to reserves
At 31 March 2021
(Debit)/credit to income statement
(Debit) to reserves
At 31 March 2022
Share
options
£m
0.8
Accelerated
depreciation
£m
1.5
Short-term
timing
difference
£m
0.3
Intangible
fixed assets
£m
(2.6)
Transitional
relief on IFRS
16 adoption
£m
0.9
Losses and
unused tax
relief
£m
1.2
0.7
0.9
2.4
(0.8)
(0.9)
0.7
(0.1)
–
1.4
(0.3)
–
1.1
0.1
–
0.4
0.1
–
0.5
0.3
–
(2.3)
(0.2)
–
(2.5)
(0.1)
–
0.8
–
–
0.8
(0.5)
–
0.7
7.7
–
8.4
The Group has an unrecognised deferred tax asset of £1.0m (2021: £2.0m) in respect of unused losses carried forward.
21. Inventories
Finished goods
2022
£m
97.0
Total
£m
2.1
0.4
0.9
3.4
6.5
(0.9)
9.0
2021
£m
139.6
Included within inventories are stock provisions of £2.2m (2021: £0.5m), including £1.2m as a result of the closure of our German business.
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
2022
£m
25.8
174.1
50.0
12.2
262.1
2022
£m
92.4
169.7
262.1
2021
£m
19.8
172.2
46.8
12.7
251.5
2021
£m
85.3
166.2
251.5
All of the amounts classified as non-current assets relate to contract assets.
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
Revenue recognised *
Cash received
Revisions to estimates – adjusting items (see Note 3)
Revisions to estimates – other
Unwind of discounting
Balance carried forward
2022
£m
172.2
145.9
(151.0)
–
4.4
2.6
174.1
2021
£m
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.
181
AO World PLC Annual Report and Accounts 2022Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2022
22. Trade and other receivables continued
Included in the contract asset balance in relation to product
protection plans at 31 March 2021 was an amount of £0.4m in
relation to variable consideration recognised as revenue up to
that date which has reversed in the year ended 31 March 2022. This
is included in the revisions to estimates above.
Included in the contract asset balance in relation to Network
Commissions at 31 March 2021 was an amount of £4.8m in relation
to previously constrained revenue which has now been recognised
in the year ended 31 March 2022. This is included in the revisions to
estimates above.
The Group still recognises that there is inherent risk in the amount
of revenue recognised as it is dependent on future customer
behaviour which is outside of the Group’s control and therefore
at 31 March 2022 an amount of £8.9m has been constrained in
relation to revenue recognised.
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:
y
y
y
y
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 – 3.54% (2021: 3.55%);
the estimate of profit share relating to the scheme as a whole
based on information provided by D&G;
y 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 9.1% weighted average
cancellation by month); and
y
the estimated length of the plan based on historical data plus
external assessments of the potential life of products (5 to 16
years).
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.2.8m plans that have been sold. Of these, c.1.05m 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 makes a regular assessment of the data and
assumptions with a detailed review at half year and full year to
182
ensure this continues to reflect the best estimate of expected
future trends.
As set out in Note 2, 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
Cancellations increase by 2%
Cancellation rate reduces by 2%
Profit share increases or decreases by 10%
Impact on contract
asset and revenue
£m
(1.8)
1.8
1.0/(1.0)
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). The impact of reasonable potential changes is shown in the
sensitivities above.
Profit share
The profit share attaching to the overall scheme is dependent
on factors such as the price of the plan, the cost of claims and
the administration of the scheme itself. Given changes in macro-
economic conditions, there is an increased risk that claims
cost could increase but also the possibility that to counter
any increase in cost that D&G could (with agreement from AO)
increase the price per plan. The above sensitivity considers what
any reasonable change in either of these could mean to the
overall profit share.
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. Revenue is
recognised at the point the individual consumer signs a contract
and is connected 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.
AO World PLC Annual Report and Accounts 2022 Prepayments and accrued income
At 31 March 2021, there is £19.0m (2021: £18.2m) 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 30 June 2022, the balance outstanding was £3.3m (31 May 2021:
£5.0m).
23. Trade and other payables
Trade payables
Accruals
Contract liabilities
Deferred income
Other payables
2022
£m
205.0
28.9
44.1
18.1
24.2
320.3
2021
£m
273.8
36.8
63.0
27.4
18.3
419.3
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases is 47 days (2021: 52 days),
the reduction reflecting the conclusion of certain extended term
agreements during the prior 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.
Historically, certain mobile phone contracts included variable
consideration resulting from cash back rights that a customer
must claim periodically and as a consequence the Group have
constrained the transaction price in relation to the potential
cashback redemptions based on historical data. As a result of
a change in the sales proposition, from Q4 of FY21 cashback
incentives were not offered and therefore during the current year
no amounts have been added to the liability which amounted to
£8.2m at 31 March 2021. Redemptions have taken place against
the liability and at 31 March 2022 the liability now amounts to
£0.1m compared to a total maximum liability of £0.2m. During the
year there has been no reversal of amounts recognised in prior
periods (2021: £7.2m).
Trade and other payables are classified as:
Current liabilities
Long-term liabilities
2022
£m
313.9
6.4
320.3
2021
£m
411.4
7.9
419.3
22. Trade and other receivables continued
The key inputs to management’s base case model are:
y
y
y
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 – 0.53% (2021:
0.10%);
the length of contract entered into by the consumer (12 – 24
months); and
y 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 revenue.
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.
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
2% increase in cancellations
2% decrease in cancellations
6% increase in contractual entitlement
Impact on contract
asset and revenue
£m
(1.6)
1.6
0.9
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, interest rates and
inflation. The impact of reasonable potential changes is shown in
the sensitivities above.
Contractual entitlement
The entitlement from the MNO’s is based on our percentage
share of the customers spend. As monthly spend may increase
given prices are linked to RPI the Group’s potential share of spend
could increase. Countering this, any increase in prices may result
in increased churn and therefore the above sensitivity aims to
provide a reasonable estimate of what any further change in
RPI (primarily from April 2023) could have on our contractual
entitlement.
183
AO World PLC Annual Report and Accounts 2022Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2022
24. Net debt
Cash and cash equivalents at year end
Borrowings – Repayable within one year
Owned asset lease liabilities – Repayable within one year
Owned asset lease liabilities – Repayable after one year
Net (debt) / funds (excluding leases relating to right of use assets)
Right of use asset lease liabilities – Repayable within one year
Right of use asset lease liabilities – Repayable after one year
Net debt
2022
£m
19.5
(45.0)
(2.0)
(5.3)
(32.8)
(18.3)
(83.0)
(134.1)
2021
£m
67.1
–
(4.0)
(5.6)
57.5
(17.4)
(68.3)
(28.2)
Whilst not required by IAS 1 Presentation of Financial Statements, the Group has elected to disclose its lease liabilities split by the nature
of the asset that they relate to. This is to give the users of these Financial Statements additional information that the Directors feel will
be useful to the readers, understanding of the business.
Movement in financial liabilities in the year was as follows:
Borrowings
£m
–
Lease
liabilities
£m
95.3
(0.6)
–
(0.6)
45.0
–
–
0.6
45.6
45.0
(4.8)
(24.3)
(29.1)
–
45.4
(7.8)
4.8
42.4
108.6
Borrowings
£m
21.9
Lease
liabilities
£m
84.1
(21.9)
(0.4)
–
(22.3)
–
–
0.4
–
0.4
–
–
(4.0)
(17.6)
(21.6)
32.8
(3.5)
4.0
(0.5)
32.8
95.3
Balance at 1 April 2021
Changes from financing cash flows
Payment of interest
Repayment of lease liabilities
Total changes from financing cash flows
Other changes
New Borrowings
New lease liabilities
Reassessment of lease term
Interest expense
Total other changes
Balance at 31 March 2022
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
184
AO World PLC Annual Report and Accounts 2022 25. Borrowings
Secured borrowing at amortised cost
Drawdowns on Revolving Credit Facility
Amount due for settlement within 12 months
2022
£m
45.0
45.0
45.0
2021
£m
–
–
–
On 6 April 2020, AO Limited, a direct subsidiary of AO World plc entered into an £80m revolving credit facility. The facility is secured by a
debenture over the assets of the companies party to the agreement, a charge over the relevant company shares and a charge over the
AO.com domain name. During the year, the facility expiry date was extended by 12 months to 6 April 2024. The amount drawn at 31 March
2022 was £49.9m and represented £45.0m of cash drawings plus £4.9m of letters of credit (2021: £3.9m of letters of credit).
26. Lease liabilities
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
The provisions all relate to dilapidations and the movement in the year is shown below:
At 31 March 2021
Provisions created in the year
Utilised in the year
At 31 March 2022
Minimum lease payments
2022
£m
24.6
77.8
24.1
–
126.5
2021
£m
25.3
64.8
17.1
0.6
107.8
Present value of minimum
lease payments
2022
£m
20.3
65.2
23.1
-
108.6
2022
£m
2.9
2022
£m
0.4
2.5
2.9
2021
£m
21.4
58.3
15.0
0.6
95.3
2021
£m
2.4
2021
£m
0.1
2.3
2.4
Dilapidations
provision
£m
2.4
0.6
(0.1)
2.9
185
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.
AO World PLC Annual Report and Accounts 2022Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2022
31. Share-based payments
Performance Share Plan
The table below summarises the amounts recognised in the
income statement during the year.
AO 2018 Incentive Plan
AO 2019 Incentive Plan
AO 2020 Incentive Plan
AO 2021 Incentive Plan
Value Creation Plan (“VCP”)
Sharesave scheme
Total share scheme charge
2022
£m
0.4
0.5
1.2
0.1
2.1
1.5
5.8
2021
£m
0.5
0.7
0.9
–
0.9
0.3
3.3
The details regarding each of the schemes are as follows:
Schemes vesting in the current year
No schemes vested during the year ended 31 March 2022.
AO 2018 Incentive Plan
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 18 August 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 outstanding conditional
shares relating to the scheme, as at 31 March 2022, was 1,551,198.
AO 2019 Incentive Plan
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 outstanding conditional
shares relating to the scheme, as at 31 March 2022, was 1,486,954.
28. Share capital, investment in own shares
and share premium
At 1 April 2021
Share issue
At 31 March 2022
Number
of shares
m
479.4
0.1
479.5
Share
capital
£m
1.2
–
1.2
Share
premium
£m
104.3
0.1
104.4
On 19 July 2021, the Company issued 132,684 shares to satisfy
options granted in July 2018 under the AO World 2016 Employee
Reward Plan (see Note 31).
On 6 September 2022, the Company issued 12,337 to satisfy the
early vesting of options under the AO World Sharesave Scheme
(2020 grant) (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 2022 the number of shares held by the EBT was
711,041.
29. Non-controlling interest
Balance at 1 April 2021
Share of (profit) / loss for the year
Acquisition of minority interest
Balance at 31 March 2022
2022
£m
1.3
(0.3)
–
1.0
2021
£m
1.0
0.6
(0.4)
1.3
The non-controlling interest relates to 18.4% (2021: 18.4%) 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 2022, AO Recycling Limited had non-current assets of
£16.9m (2021: £17.0m), net current liabilities of £17.5m (2021: £18.4m)
and non-current liabilities of £5.2m (2021: £6.2m). During the
year, AO Recycling Limited contributed £22.3m (2021: £14.8m)
and £4.4m
(2021: £0.5m loss) to the Group’s revenue and Adjusted EBITDA
respectively. Its retained loss for the year was £5.8m (2021: £3.5m).
Net cash outflow was £0.2m (2021: £3.5m outflow).
No options were exercised in the current year.
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.
186
AO World PLC Annual Report and Accounts 2022 31. Share-based payments continued
AO 2020 Incentive Plan
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.
Based on the performance criteria achieved, and subject to
continued employment, the number of outstanding conditional
shares relating to the scheme, as at 31 March 2022, was 2,065,754.
AO 2021 Incentive Plan
On 26 July 2021, the Company adopted the AO 2021 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
2022. The vesting date for the conditional shares is July 2025.
The fair value was determined to be the share price at grant date
of £2.43.
Twenty-five per cent of the awards are subject to a Group revenue
performance condition for the year ended 31 March 2022 as
shown below:
Group revenue for the performance period
Below £1,860m
£1,860m (Threshold)
£1,960m (Target)
£2,060m or higher (Stretch)
Extent to which
performance
condition satisfied
0%
25%
62.50%
100%
Twenty per cent of the awards are subject to a Group EBITDA
performance condition for the year ended 31 March 2022 as
shown below:
Group Adjusted EBITDA for the
performance period
Below £45m
£45m (Threshold)
£60m (Target)
£75m or higher (Stretch)
Extent to which
performance
condition satisfied
0%
25%
62.50%
100%
Ten per cent of the awards are subject to a Group cash inflow
performance condition for the year ended 31 March 2022 as
shown below:
Group cash inflow for the performance
period
Below £11.2m
£11.2m (Threshold)
£26.2m (Target)
£41.2m or higher (Stretch)
Extent to which
performance
condition satisfied
0%
25%
62.50%
100%
Five per cent of the awards are subject to a revenue growth in
non-MDA categories performance condition for the year ended
31 March 2022 as shown below:
Revenue growth in non-MDA categories
Below 10%
10% (Threshold)
15% (Target)
20% or higher (Stretch)
Extent to which
performance
condition satisfied
0%
25%
62.50%
100%
Ten per cent of the awards are subject to a German revenue (in
euros) performance condition for the year ended 31 March 2022
as shown below:
Group revenue for the performance period
Below €316m
€316m (Threshold)
€332.6m (Target)
€349.2m 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 NPS performance condition for the year ended 31 March
2022 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 2022 as shown below:
Net promoter score for the
performance period
Below 15
+ 15 (Threshold)
+ 30 (Target)
+ 45 or higher (Stretch)
Extent to which
performance
condition satisfied
0%
25%
62.50%
100%
Ten per cent of the awards are subject to a business
transformation target performance condition for the year ended
31 March 2022.
The Remuneration Committee of the Board determines the extent
to which this target has been met.
The number of awards made were 2,600,000 and based on
the performance criteria achieved, and subject to continued
employment, the number of conditional shares relating to the
scheme is expected to be 290,000.
187
AO World PLC Annual Report and Accounts 2022Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2022
31. Share-based payments continued
Value Creation Plan
The Awards
The Company has 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.
Details of Awards made are described in more detail below.
Executive Awards
On 30 September 2020, 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 meeting the performance conditions:
Percentage of value above the hurdle
attributable to the Awards
AO total market cap < £2.5bn (£5.23
per share) at measurement date
AO total market cap between £2.5bn
and £4.5bn 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.
There were no new executive awards in the current year.
Employee Awards
On 30 September 2020, 138,866 initial conditional awards were
granted.
Subsequent to the initial award there has been further conditional
awards of 18,079, 23,288 and 26,007 granted in November 2020,
July 2021 and November 2021 respectively.
At the date of the last grant award, the number of allocated
awards not forfeited total 163,776.
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 < £2.5bn (£5.23 per share) at measurement date
0%
AO total market cap between £2.5bn and £4.5bn at measurement date
7% of the excess between £2.5bn and £4.5bn
AO total market cap between £4.5bn and £5.0bn at measurement date
As above plus 10% of the excess between £4.5bn and £5.0bn
AO total market cap between £5.0bn and £6.0bn (£12.55 per share)
at measurement date
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 £5.0bn 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:
31 March 2025
31 March 2027
£0.595bn - £1.032bn £0.595bn - £1.032bn £0.595bn - £1.032bn
31 March 2026
£2.5bn
£2.5bn
£2.5bn
£4.5bn/£6.0bn
£4.5bn/£6.0bn
£4.5bn/£6.0bn
0.0%
0.0%
0.0%
4.5 – 3.35 years
5.5 – 4.35 years
6.5 – 5.35 years
0.0% - 0.5%
0.0% - 0.5%
0.0% - 0.5%
45.0% - 50.0%
45.0% - 50.0%
45.0% - 50.0%
nil
nil
nil
Assumptions
Market capitalisation at grant
Hurdle
Cap
Dividend yield
Expected term
Risk-free rate
Volatility
Discount for post vesting restrictions
188
AO World PLC Annual Report and Accounts 2022 31. Share-based payments continued
The fair value of each award was as follows:
Award
Initial grant – 30 September 2020
Second grant – 30 November 2020
Third grant – 1 July 2021
Fourth grant – 22 November 2021
31 March
2025
42.57
42.57
58.36
9.49
31 March
2026
21.90
21.90
28.70
9.50
31 March
2027
18.14
18.14
23.18
9.75
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.
2022
No. of
options
4,492,282
3,981,372
(1,590,611)
(836,449)
6,046,594
2022
WAEP (£)*
1.53
0.88
2.41
0.89
0.96
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
During the year ended 31 March 2022, options were granted on 23 December 2021. For the shares outstanding at 31 March 2022, the
remaining weighted average contractual life is 2.17 years (2021: 1.78 years). The weighted average fair value of options granted during the
year was £0.88 per share.
The following table gives the assumptions made during the year ended 31 March 2022:
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%
22 Jan
2020
0.79%
46.5%
0.00%
25 Jan
2021
0.79%
46.5%
0.00%
3 years
3 years
3 years
23 Dec
2021
0.58%
45.0%
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 £6.8m (2021: £5.5m).
Contributions totalling £0.8m (2021: £0.7m) were payable at the end of the year and are included in accruals.
189
AO World PLC Annual Report and Accounts 2022Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2022
33. Financial instruments
a) Fair values of financial instruments
Receivables and payables
For receivables and payables classified as financial assets and liabilities in accordance with IAS 32, fair value is estimated to be
equivalent to book value. These values are shown in Notes 22 and 23, respectively. The categories of financial assets and liabilities and
their related accounting policy are set out in Note 3.
Cash and cash equivalents
The fair value of cash and cash equivalents is estimated as its carrying amount.
Call and put option
The fair value of the call and put options (arising on the acquisition of AO Recycling Limited in 2016) are based upon an independent
valuation at the year end using the Monte Carlo model.
The carrying value of the put option is based on an estimate of the likely amount payable over the life of the option based on
discounted future cash flows.
Borrowings
The fair value of interest-bearing borrowings is calculated based on the present value of future principal and interest cash flows,
discounted at the market rate of interest at the date of inception.
Fair values
The fair values of all financial assets and financial liabilities by class together with their carrying amounts shown in the statement of
financial position are as follows.
2022
Carrying
amount
£m
2022
Fair value
£m
2021
Carrying
amount
£m
2021
Fair value
£m
Financial assets designated as fair value through profit or loss
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)
Total financial liabilities
Total financial instruments
19.5
25.8
62.2
107.5
(205.0)
(97.2)
(45.0)
(108.6)
(455.8)
(348.3)
19.5
25.8
62.2
107.5
(205.0)
(97.2)
(45.0)
(108.6)
(455.8)
(348.3)
67.1
19.8
59.5
146.4
(273.8)
(118.1)
–
(95.3)
(487.2)
(340.8)
The table below shows the movement in valuation for both the call and put option during the year.
Call option
At 31 March 2020
Change in valuation
At 31 March 2021 and at 31 March 2022
Put option
At 31 March 2020
Exercised in the year
Unwind of discount
Change in valuation
At 31 March 2021 and at 31 March 2022
67.1
19.8
59.5
146.4
(273.8)
(118.1)
–
(95.3)
(487.2)
(340.8)
£m
0.6
(0.6)
–
£m
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.
To date, AO World PLC has exercised options over 21.6% of the remaining shares taking its shareholding to 81.6%. No options were
exercised in the current year.
190
AO World PLC Annual Report and Accounts 2022 33. Financial instruments continued
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:
y Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
y 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).
y 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 2022
Call option
At 31 March 2021
Financial liabilities
Put option to acquire non-controlling interest
At 31 March 2022
Put option to acquire non-controlling interest
At 31 March 2021
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
2022
£m
25.8
25.8
2021
£m
19.8
19.8
191
AO World PLC Annual Report and Accounts 2022Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2022
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 2022
Not past due
Past due 0–30 days
Past due 31–120 days
More than 120 days
At 31 March 2021
Gross
£m
18.4
Impairment
£m
–
4.9
1.2
2.0
26.5
16.0
3.1
0.1
0.8
20.0
–
–
(0.7)
(0.7)
–
–
–
(0.2)
(0.2)
Net
£m
18.4
4.9
1.2
1.3
25.8
16.0
3.1
0.1
0.6
19.8
The current year includes an impairment charge of £0.7m (2021: £0.2m) to trade receivables. Contract assets are also assessed for credit
risk. Total contract assets at 31 March 2022 were £174.1m (2021: £172.2m). Management assesses the counterparty risk relating to these
assets that comprise commissions receivable from blue chip Mobile Network Operators or from the Group's, protection plan partner.
The level of counterparty 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
302.2
45.0
108.6
455.8
Carrying
amount
£m
Contractual
cash flows
£m
383.7
95.3
479.0
383.7
107.8
491.5
302.2
45.0
126.5
473.7
Within
1 year
£m
375.8
25.3
401.1
Within
1 year
£m
295.8
45.0
24.6
365.4
Between
1 and 5
years
£m
Between
5 and 10
years
£m
6.4
–
77.8
84.2
–
–
24.1
24.1
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
Non-derivative financial liabilities
Trade and other payables
Bank loans
Lease liabilities
At 31 March 2022
Non-derivative financial liabilities
Trade and other payables
Lease liabilities
At 31 March 2021
192
AO World PLC Annual Report and Accounts 2022 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:
Fixed and variable rate instruments
Fixed rate
Variable rate
2022
£m
7.2
45.0
52.2
2021
£m
9.6
–
9.6
If interest rates increased by 1%, and the level of cash drawings on the Group’s facility remained the same throughout the year, there
would be an impact on the finance cost of approximately £0.5m.
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 2024.
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:
Euros
Liabilities
Assets
2022
£m
168.2
2021
£m
157.5
2022
£m
40.2
2021
£m
41.3
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.
193
AO World PLC Annual Report and Accounts 2022Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2022
33. Financial instruments continued
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.
Sterling strengthens by 10%
Sterling weakens by 10%
Euro currency impact
2022
£m
(12.8)
11.6
2021
£m
(11.6)
10.6
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
2022
£m
5.6
3.1
–
8.7
2021
£m
4.6
3.0
–
7.6
Further information about the remuneration of individual Directors is provided in the audited part of the Directors’ Remuneration report
on pages 116 to 141.
35. Post balance sheet events
During FY22, the Group's German business incurred losses EBITDA losses of £21.3m. A strategic review was started in Q4 FY22 and on 9
June 2022 it was announced that the Group had taken the decision to close the business.
As a consequence of the losses and the post year end decision to close, management have reviewed the carrying value of that
businesses assets. This has been performed using third party information regarding fixed assets, including ROU assets, together with an
assessment of the realisable value of any remaining inventory.
As a result, provisions of £7.3m have been made at 31 March 2022 to impair the relevant assets and this, together with £0.9m of adviser
costs accrued prior to 31 March 2022, have been included as "Adjusting" items in note 6 to the financial statements.
The closure process is expected to be completed during FY23.
On 11 July 2022, the Company completed a Capital raise through the issue of 93,801,251 new ordinary shares of 0.25p each in the
Company raising £40.3m (before expenses). The net proceeds of the Capital raise will strengthen the balance sheet and increase
liquidity back to historic levels (relative to revenue base), and provide the flexibility to capitalise on market opportunities.
194
AO World PLC Annual Report and Accounts 2022 Company statement of financial position
As at 31 March 2022
Non-current assets
Intangible assets
Property, plant and equipment
Right of use assets
Investment in subsidiaries
Trade and other receivables
Deferred tax asset
Current assets
Corporation tax receivable
Trade and other receivables
Cash at bank and in hand
Total assets
Current liabilities
Trade and other payables
Lease liability
Net current liabilities
Non-current liabilities
Lease liability
Derivative financial liability
Total liabilities
Net (liabilities) / 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
8
7
8
9
10
10
11
12
12
2022
£m
1.0
3.0
8.7
87.8
18.3
1.0
119.8
0.9
2.7
2.1
5.7
2021
£m
1.9
2.2
6.4
85.4
137.3
2.0
235.2
0.8
3.8
0.7
5.3
125.5
240.5
(120.7)
(1.2)
(121.9)
(116.2)
(7.7)
–
(7.7)
(129.6)
(4.1)
1.2
104.4
22.2
0.5
11.9
0.4
(144.7)
(4.1)
(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
The financial statements of AO World PLC, registered number 05525751, were approved by the Board of Directors and authorised for
issue on 17 August 2022. They were signed on its behalf by:
John Roberts
CEO
Mark Higgins
CFO
AO World PLC
AO World PLC
195
AO World PLC Annual Report and Accounts 2022Our Financials 0.1
–
–
–
0.3
–
0.4
–
–
–
–
(21.6)
4.5
–
–
–
6.3
(10.8)
(136.6)
–
–
2.7
Total
£m
117.8
4.5
3.9
0.6
0.3
–
127.1
(136.6)
5.3
0.1
–
0.4
(144.7)
(4.1)
Company statement of changes in equity
As at 31 March 2022
Share
capital
£
Share
premium
account
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
Share-based
payments
reserve
£m
Other
reserve
£m
Retained
losses
£m
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
Loss for the year
Share-based
payments charge
(net of tax)
Issue of shares
(net of expenses)
Movement
between reserves
Balance at
31 March 2022
1.2
103.7
22.2
0.5
–
–
–
–
–
–
–
0.6
–
–
–
–
–
–
–
–
–
–
–
–
1.2
104.3
22.2
0.5
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
1.2
104.4
22.2
0.5
11.7
–
3.9
–
–
(6.3)
9.3
–
5.3
–
(2.7)
11.9
196
AO World PLC Annual Report and Accounts 2022
Notes to the Company financial statements
For the year ended 31 March 2022
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 2021 / 2020
Additions
Group share-based payments
At 31 March 2022 / 2021
Impairment
At 31 March 2021 / 2020
Charge in the year
At 31 March 2022 / 2021
Carrying amount
At 31 March 2022 / 2021
2022
£m
85.4
–
3.0
87.4
–
0.6
0.6
2021
£m
83.1
0.1
2.2
85.4
–
–
–
87.8
85.4
The Company has made capital contributions to its subsidiaries
of £3.0m (2021: £2.2m) in relation to the allocation of share-based
payment charges.
As a result of the continued losses in AO Deutschland Limited and
the pre-year end announcement of a strategic review into the
German business (which has post year end resulted in the decision
to close the business), management have impaired the value of
the investment in that company. This related to the cumulative
amount of capital contributions made to AO Deutschland
Limited in respect of share based payment charges for German
employees.
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:
y a cash flow statement and related notes;
y comparative period reconciliations for share capital, tangible
fixed assets, intangible assets;
y disclosures in respect of transactions with wholly owned
subsidiaries;
y disclosures in respect of capital management;
y
the effects of new but not yet effective IFRSs;
y disclosures in respect of the compensation of key
management personnel; and
y 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:
y
IFRS 2 Share-based Payments in respect of Group-settled
share-based payments;
y certain disclosures required by IAS 36 Impairment of Assets
in respect of the impairment of goodwill and indefinite life
intangible assets; and
y 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 164.
197
AO World PLC Annual Report and Accounts 2022Our Financials Notes to the Company financial statements continued
For the year ended 31 March 2022
4. Intangible assets
Cost
At 31 March 2021
Additions
Disposals
At 31 March 2022
Amortisation
At 31 March 2021
Charge for the year
At 31 March 2022
Carrying amount
At 31 March 2022
At 31 March 2021
Domain
names
£m
Software
£m
1.2
–
(0.2)
1.0
0.9
0.1
1.0
–
0.3
3.0
0.7
(0.3)
3.4
1.4
1.0
2.4
1.0
1.6
Total
£m
4.2
0.7
(0.5)
4.4
2.3
1.1
3.4
1.0
1.9
Amortisation is charged to administrative costs in the income statement.
5. Property, plant and equipment and right of use assets
Computer and
office equipment
£m
Leasehold
improvements
£m
Total
£m
Right of use
assets
£m
Cost
At 31 March 2021
Additions
Disposals
At 31 March 2022
Accumulated depreciation
At 31 March 2021
Charge for the year
At 31 March 2022
Carrying amount
At 31 March 2022
At 31 March 2021
The carrying value of right of use assets is analysed as follows:
Right of use assets
Land and buildings
Motor vehicles
3.0
0.8
–
3.8
1.9
0.7
2.6
1.2
1.2
2.7
1.2
–
3.9
1.6
0.5
2.1
1.8
1.1
5.7
2.0
–
7.7
3.5
1.2
4.7
3.0
2.2
2022
£m
8.3
0.4
8.7
9.5
6.4
(3.0)
12.9
3.1
1.1
4.2
8.7
6.4
2021
£m
6.1
0.3
6.4
198
AO World PLC Annual Report and Accounts 2022 6. Subsidiaries
Details of the Company’s subsidiaries at 31 March 2022 are as follows:
Principal place of business Class of shares held
United Kingdom
Ordinary
Proportion of ownership
interests and voting rights
held by AO World PLC
100%†
Name of subsidiary
AO Retail Limited
Expert Logistics Ltd
Worry Free Limited
Elekdirect Limited
United Kingdom
United Kingdom
United Kingdom
Appliances Online Ltd
United Kingdom
AO Deutschland Limited
Germany
AO Ltd
AO.BE SA
United Kingdom
Belgium
AO Recycling Limited
United Kingdom
WEEE Collect It Limited
United Kingdom
WEEE Re-use It Limited
United Kingdom
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Electrical Appliance Outlet
Limited
Mobile Phones Direct
Limited
AO Mobile Limited
United Kingdom
Ordinary
United Kingdom
United Kingdom
Ordinary
Ordinary
BERE Limited
Jersey
AO Business Limited
AO B2B Limited
AO Trade Limited
AO Rental Limited
AO Care Limited
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
AO Premium Club Limited
United Kingdom
AO Club Limited
United Kingdom
AO Distribution Limited
United Kingdom
AO Logistics Limited
United Kingdom
Ordinary and redeemable
preference share
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
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%
99.99%*
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
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 203 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
199
AO World PLC Annual Report and Accounts 2022Our Financials Notes to the Company financial statements continued
For the year ended 31 March 2022
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 2020
(Debit)/Credit to income statement
Credit to reserves
Deferred tax asset at 31 March 2021
(Debit)/Credit to income statement
Debit to reserves
Deferred tax asset at 31 March 2022
Share
options
£m
0.7
Losses and
unused tax
£m
0.3
Transitional
relief
£m
0.2
Other timing
difference
£m
0.1
0.4
0.4
1.5
(0.5)
(0.5)
0.5
(0.3)
–
–
0.2
–
0.2
–
–
0.2
–
–
0.2
0.1
–
0.2
(0.1)
–
0.1
Total
£m
1.3
0.2
0.4
2.0
(0.4)
(0.5)
1.0
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 (2021: £nil) in respect of share options.
8. Trade and other receivables
Amounts owed by Group undertakings
Prepayments
Other receivables
The Trade and other receivables are classified as:
Non-current assets - Amounts owed by Group undertakings
Current assets
2022
£m
18.3
1.6
1.1
21.0
2022
£m
18.3
2.7
21.0
2021
£m
137.3
2.7
1.1
141.1
2021
£m
137.3
3.8
141.1
Amounts owed by Group undertakings are payable after more than year. All other trade and other receivables are receivable in less
than one year.
At 31 March 2022, amounts due from AO Deutschland Limited of [£124.6m] have been fully impaired as a result of the continuing losses in
that business as well as the strategic review which was ongoing at the year end date (which has subsequently resulted in the decision to
close the German business).
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.
2022
£m
1.5
5.3
0.9
113.0
120.7
2021
£m
0.9
9.2
0.8
94.9
105.8
200
AO World PLC Annual Report and Accounts 2022 10. Lease Liabilities
Secured borrowing at amortised cost
Lease liabilities
Amount due for settlement within 12 months
Amount due for settlement after 12 months
Total lease liabilities
Movements in the year were as follows:
At 1 April 2022
Changes from financing cash flows
Repayment of lease liabilities
Payment of interest
Total changes from financing cash flows
Other changes
New lease liabilities
Reassessment of lease term
Interest charge
Total other changes
At 31 March 2022
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 2020
Change in valuation
At 31 March 2021 and at 31 March 2022
Put option
At 31 March 2020
Change in valuation
Exercised in the year
At 31 March 2021
Change in valuation
At 31 March 2022
2022
£m
8.9
1.2
7.7
8.9
2021
£m
7.5
1.1
6.4
7.5
Lease leases
£m
7.5
(1.3)
(0.4)
(1.7)
6.1
(3.4)
0.4
3.2
8.9
£m
0.6
(0.6)
–
£m
(0.3)
(0.1)
0.3
(0.1)
0.1
–
201
AO World PLC Annual Report and Accounts 2022Our Financials 12. Share capital and share premium
At 1 April 2021
Share issue
At 31 March 2022
Number
of shares
m
479.4
0.1
479.5
Share
capital
£m
1.2
–
1.2
Share
premium
£m
104.3
0.1
104.4
Merger
reserve
£m
22.2
–
22.2
On 19 July 2021, the Company issued 132,684 shares to satisfy awards under the vested ERP (see Note 31).
On 6 September 2022, the Company issued 12,337 to satisfy the early vesting of options under the AO World Sharesave Scheme (2020
grant) (see Note 31).
13. Share-based payments
The Company recognised total expenses of £2.5m (2021: £1.1m) 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.
14. 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 2022, the balance outstanding with AO Recycling Limited was £2.0m (2021: £6.3m).
2022
£m
0.1
2021
£m
0.1
202
AO World PLC Annual Report and Accounts 2022 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
Bankers
Barclays Bank plc
51 Mosley Street
Manchester M60 2AU
HSBC Bank plc
4 Hardman Square
Spinningfields
Manchester M3 3EB
National Westminster Bank plc
No. 1 Hardman Boulevard
Manchester
M3 3AQ
UniCredit Bank AG
Moor House
20 London Wall
London EC2Y 5ET
Registrar
Link Group
Unit 10, Central Square
29 Wellington Street
Leeds
LS1 4DL
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.
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.
203
AO World PLC Annual Report and Accounts 2022Our Financials Glossary
Adjusted EBITDA means Profit/(loss) before tax, depreciation,
amortisation, net finance costs, profit/loss on the disposal of fixed
assets and Adjusting items.
FY20, FY21 and FY22 mean the financial year of the Company
ended 31 March 2020, 31 March 2021 and 31 March 2022
respectively
Adjusting items means the items as set out on page 170
GAAP means Generally Accepted Accounting Practice
AGM means the Group’s Annual General Meeting
GHG means greenhouse gas
An AOer means one of our amazing employees
IAS means International Accounting Standards
AOIP means The AO 2018 Incentive Plan, a form of LTIP
IFRS means International Financial Reporting Standards
AO World, AO or the Group means AO World Plc and its subsidiary
undertakings
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, or Enterprise Resource
Planning, as the context requires
Europe means the Group’s entities operating within the European
Union, but outside the UK
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
MPD means Mobile Phones Direct
NPS means Net Promoter Score, which is an industry measure of
customer loyalty and satisfaction
PSP means the AO Performance Share Plan, a form of LTIP
RMC means our Risk Management Committee
SDA means small domestic appliances
SECR means Streamlined Energy and Carbon Reporting
SEO means Search Engine Optimisation
SG&A means Selling, General & Administrative Expenses
SID means Senior Independent Director
SKUs means stock keeping units
UK means the Group’s entities operating within the United
Kingdom
VCP means the 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-business.com
ao-delivery.com
ao-outlet.co.uk
ao-recycling.com
mobilephonesdirect.co.uk
elekdirect.co.uk
Corporate
ao-world.com
204
AO World PLC Annual Report and Accounts 2022 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
AO, 5A The Parklands
Lostock
Bolton BL6 4SD