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The UK’s
Most Trusted
Electrical Retailer
AO World PLC
Annual Report and Accounts 2023
We make
customers’
lives easier by
helping them
brilliantly.
We’re the UK’s most trusted
electricals retailer
What started as a £1 bet in 1999
became AO, the UK’s most trusted
major electricals retailer.
We sell over 6,000 different products on ao.com from
major domestic appliances, small domestic appliances,
audiovisual equipment, computing, mobile, gaming to
smart home technology.
With over 400,000 Trustpilot reviews, we’re the most
trusted major electricals retailer in the UK. Millions of
happy customers choose AO because we’re able to
deliver at speed with our tried-and-tested logistics
network as well as offering installation, industry-leading
recycling, finance and insurance – all underpinned by
service that’s magic in the moments that matter.
Contents
Strategic Report
Performance
Investment case
Chair’s statement
Our markets
How we create value
02
04
06
08
10
What matters to us
- Our brand
- Our values
- Our culture
- Our suppliers
- Our technology
- Our customer focus
Our in-house ecosystem
12
14
16
18
20
22
24
26
Our strategy
Chief Executive Officer’s strategic review 28
30
Chief Financial Officer’s review
38
46
50
50
51
52
54
Engaging with our stakeholders
Our approach to materiality
Sustainable living
Our ESG strategy
Sustainability
Recycling
Our risks
Task force on climate-related
financial disclosures (“TCFD”)
Fair, equal and responsible
Fit for the future
Our Governance
Chair’s letter and introduction
First impressions
Board of Directors
Corporate Governance Report
Nomination Committee Report
Audit Committee Report
Directors’ Remuneration Report
Directors’ Report
Our Financials
Independent Auditor’s Report
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement
of financial position
Consolidated statement
of changes in equity
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
Important information
Glossary
60
68
76
80
82
84
86
96
100
108
130
138
147
148
149
150
151
152
183
184
185
191
192
C
Our mission is
to become the
destination for
electricals
1
A strategy focused
on five crucial pillars
2
Led by our purpose:
making customers’
lives easier by helping
them brilliantly
3
Living our values:
ensuring we don’t
only make our mums
proud, but make our
grandchildren and
future generations
proud too by being
a responsible retailer
AO World PLC Annual Report and Accounts 2023
01
Overview Cumulative UK Customers4 (‘000)
Performance
Key Performance Indicators1
Group revenue
(£m)
Group Adjusted
EBITDA2 (£m)
5
3
4
,
1
8
6
3
,
1
9
3
1
,
1
1
0
9
9
4
7
.
5
7
6
.
3
0
4
1
.
8
3
.
4
5
4
.
5
2
2
Cash flow3 (£m)
60.2
(22.1)
(32.2)
(0.3)
(47.6)
Profit
before tax:
£8m
(FY22: £11m loss)
Net funds6:
£4m
(FY22: £33m
net debt)
FY19 FY20 FY21 FY22 FY23
FY19 FY20 FY21 FY22 FY23
FY19 FY20 FY21
FY22 FY23
Operational highlights
y AO remains a UK market leader in MDA with a
16% market share and 30% overall online share
y Over 800,000 new customers4 experienced
the AO Way, with an increase in the repeat
customer purchase rates
y Customer satisfaction scores remain
outstanding, with Net Promoter Scores5
averaging c.85 and over 400,000 Trustpilot
reviews averaging 4.6 out of 5 stars
y In the year, we simplified the UK operations and
focused on more profitable lines of business
y Over six million large appliances have now
been given new life or recycled at our AO
Recycling facility and we continue working with
manufacturers to use our recycled plastic in
new products
y The Germany operation was closed quickly
and efficiently with minimal cash impact
02
AO World PLC Annual Report and Accounts 2023 Group revenue
(£m)
Group Adjusted
EBITDA2 (£m)
Cash flow3 (£m)
Cumulative UK Customers4 (‘000)
12,000
10,000
8,000
6,000
4,000
2,000
0
UK NPS5
85
(FY22: 86)
UK Trustpilot
average
rating
4.6/5
(FY22:4.6/5)
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23
1
2
Unless otherwise stated all numbers,
including any restated comparatives,
relate to the continuing operations of the
Group and therefore exclude the impact
of Germany. Refer to Note 35 on page 181
for further details.
Adjusted EBITDA is defined as profit/(loss)
before tax, depreciation, amortisation,
net finance costs, profit/loss on disposal
of fixed assets and other adjusting items
(including restructuring costs).
3 Net (decrease)/increase in cash.
4
5
6
A customer is defined as an individual
customer who has purchased through us
via ao.com in the UK.
NPS is an industry measure of customer
loyalty and satisfaction; NPS is based on a
turnover weighted average of ao.com and
MPD, adjusted for responses.
Net funds is defined as cash less
borrowings less owned asset lease
liabilities but excluding right-of-use asset
lease liabilities. Net funds/debt also
includes any cash overdrafts and owned
asset lease liabilities in Germany.
Geoff
Cooper
Chair
A leaner, simpler, more
efficient business.”
Read the Chair’s statement
on pages 06 to 07
John
Roberts
Chief
Executive
Driving forward our more
efficient model centred around
trust and excellence.”
Read the Chief Executive’s review
on pages 28 to 29
03
AO World PLC Annual Report and Accounts 2023Strategic Report Investment case
The destination
for electricals
The electricals market
has grown 19% over the
last ten years, and moved
increasingly online over
this period.
Although there has been a slight downturn in the last year, we expect
these trends 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 expertise 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 profitability and solid UK market positions underpin our
long-term investment case.
04
AO World PLC Annual Report and Accounts 2023
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.
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 and electronic equipment
(“WEEE”) plastics and metals.
3
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.
6
Our amazing culture
Our excellent 4.6 star Trustpilot rating
and world-class net promoter scores
make us the UK’s most trusted electrical
retailer and 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.
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
growth opportunity with the capability
to grow 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.
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.
05
AO World PLC Annual Report and Accounts 2023Strategic Report Chair’s statement
Rebuilding for profitable growth
UK consumers and companies, including retailers,
have suffered the economic aftermath of three
major shocks in a very short period – Brexit, the
Covid-19 pandemic and the war in Ukraine. For many
retailers, the last 18 months have been challenging
as consumers have grappled with the resulting cost
of living crisis. Inflation in energy costs, food prices
and wages together with renewed industrial unrest
in many sectors have dominated the headlines. AO
has been affected by these pressures, yet, looking
back on the financial year, we have done what
we always do – focus on our core strengths and
continue serving our customers, suppliers and
other stakeholders.
The early part of the year centred around our
strategic review of Germany, with the decision taken
ultimately to close our operations there to protect
shareholder value. We commenced an orderly
closure back in July 2022 and I’m pleased that it has
gone as well as we could have hoped, with a minimal
cash cost to the Group over the year and all matters
now materially wrapped up. We sincerely thank all
our employees in Germany who worked so hard to
build that business and who have helped progress
the closure, as difficult as that may have been.
With our business now focused solely on the UK
and with external macroeconomic pressures, it was
necessary to put the business on a sounder financial
footing. A capital raise was completed in July 2022
realising gross proceeds of c.£41m. We have also
recently renewed our revolving credit facility which
will support our working capital cycles to April 2026.
Our pivot in strategy to the UK has been well
executed and well documented in our trading
updates over the year. We are now a leaner, simpler,
more efficient business, with a clear focus on profit
and cash generation. Financial performance has
been driven by (1) improvements in gross margin;
(2) simplifying and/or cutting lines of business that
Geoff Cooper
Chair
A leaner, simpler, more efficient
business, focused on profit and
cash generation and most trusted
by customers.”
A remarkable year,
as we transform the
business to strong
profitable growth.
06
AO World PLC Annual Report and Accounts 2023 Read more about
customer focus on
pages 14 and 15
Read more about
our suppliers on
pages 22 and 23
on culture has driven some changes in personnel
but we are all collaborating in the way we did pre-
Covid, with a renewed energy and ambition and I
believe this will be a significant driver of improved
performance over the coming years.
The restructured VCP, approved by shareholders
at our 2022 AGM, is helping to galvanise our
people to deliver exceptional value creation and
I’ve been pleased with the way the Executives have
rolled this out to the teams and are using it to really
drive performance.
Board
During the year, Peter Pritchard and Sarah Venning
were appointed as Non-Executive Directors, to
enhance the skill set of the Board. Both Peter and
Sarah have significant and relevant experience
which deepens the Board’s existing skills and
knowledge. They have already made a substantial
impact to the work of the Board and its Committees
and I was pleased to note that through their fresh
eyes on the business there is much to celebrate at
AO and the culture of obsessing about the customer
is unwavering. See their first impressions at page 82.
Having served as a Non-Executive Director for over
nine years, Marisa Cassoni has decided to retire and
will not be standing for re-election at the Company’s
forthcoming AGM. I wish Marisa well for the future and
thank her for her significant contribution during her
time with the Company, particularly for her influence
as Chair of the Audit Committee and as a member of
the Remuneration and Nomination Committees.
Overall, it has been a difficult yet remarkable
year and I want to give thanks to the Board, our
Executives and all our people for their support, hard
work, grit and determination in setting AO up for its
next stage of top-line growth in the medium term
and with renewed purpose. I look forward to FY24
confident in our ability to deliver on our 5% EBITDA
ambition in the short term and returning to top line
growth in the medium term. Our strategy now is to
invest prudently in the business, seize the significant
market opportunities that we see in front of us,
leveraging our growing and loyal customer base.
There are exciting times ahead.
Geoff Cooper
Chair
4 July 2023
do not fit our core model or are otherwise unduly
complex and (3) rationalising our infrastructure and
reducing our headcount and cost base to better
fit the business that we are today. As we progress
into FY24 our run-rate profitability looks strong
as we start to annualise the improvements and
efficiencies made in the second half of the year.
Operational performance has also been pleasing.
We have progressed a number of projects to improve
customer proposition and to position ourselves as
the UK’s most trusted electrical retailer. Despite
changes to our charging policies to offset some
inflationary pressures, our customer satisfaction
results remain strong. We have over 400,000
Trustpilot reviews averaging 4.6 out of 5 stars, over
800,000 new customers experienced the AO Way
during the year and our customer NPS results, at
c.85 on average, remain market leading. We remain
a UK market leader in MDA with a 16% overall market
share and a 30% online share and are pleased at
the resilience of our sales in this category.
Over six million large appliances have now been
given new life or recycled at our AO Recycling
facility and following our first full year of operations
at our plastics plant, we have confidence in the
production and quality of our recycled plastics. We
are establishing strong relationships with clients
to supply them our plastics and are pleased that
the Volution Group fan which is made from our
recycled plastics won recycled product of the year
at the Awards in Excellence in Recycling and Waste
Management 2023.
Naturally we’ve had to prioritise some things over
others during the year and the timescales for our
more ambitious plans to transform our technology
systems, grow our creative media hub and progress
certain ESG initiatives have necessarily been
extended. Nonetheless, I am pleased by the steady
improvements we have made in critical areas such
as information security and delivery routing. In the
medium term we will continue to make progress in
all priorities.
Culture and people
FY23 has been a challenging time for some of
our colleagues with employees impacted by role
reductions as we reduced overheads. This drove
concerns on job security which impacted employee
engagement, with morale being further affected
by the cost of living crisis. Our retail team has
historically been laser-focused on driving top line
growth and the pivot to profitability, with the change
in emphasis that entails, has naturally been difficult
for some team members to adjust to. As we move
into FY24 on a sound financial footing and with
clarity on our strategy and our high-performance
culture, we are now starting to benefit from cohesion
across the business following the introduction of
our “work from work” strategy. The clear direction
07
AO World PLC Annual Report and Accounts 2023Strategic Report Our markets
With borrowing more expensive as a result of
interest rates rising, 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, AO is positioned well
for the expected increase in customers using “Buy
Now Pay Later” (BNPL) providers. At AO, customers
have access to a range of finance options to help
fund their purchases, whether it be revolving credit
or promotional instalment plans. The revolving
credit adjusts rate and credit line to the individual
customer’s, profile, ensuring responsible lending and
facilitating those needed purchases in a challenging
economic landscape. AO acts as Introducer in the
distribution of AO Finance through NewDay, the
product being regulated by the Financial Conduct
Authority (“FCA”).
Despite the above factors, April 2023’s Major
Purchase Index (“MPI”) increased by 5 points to
-288. 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 April 2023 improvement
and the consistent improvement over the last three
months would suggest that household finances are
slowly strengthening.
Macroeconomic section sources:
1.
indexmundi.com/commodities.
2. https://commonslibrary.parliament.uk/research-
briefings/cbp-9491/.
3. https://www.ons.gov.uk/economy/
inflationandpriceindices/bulletins/
consumerpriceinflation/october2022
4. https://www.bankofengland.co.uk/explainers/will-
inflation-in-the-uk-keep-rising.
5. As all measures jump, are we seeing early signs of
recovery? (GFK.com): https://www.gfk.com/press/
UK-Consumer-confidence-up-six-points-in-April
6. https://www.ons.gov.uk/
employmentandlabourmarket/peopleinwork/
employmentandemployeetypes/bulletins/
averageweeklyearningsingreatbritain/
april2023#:~:text=Using%20CPI%20real%20
earnings%2C%20in,by%203.4%25%20on%20
the%20year.
7. Mintel, Major Domestic Apppliances, UK report
2022, 62%.
8. https://www.gfk.com/press/UK-
Consumerconfidence-up-six-points-in-April
Macroeconomic factors
The first half of the year saw the consequences of
the ongoing Russia/Ukraine conflict impact gross
margin. The increasing cost of raw materials saw
the price of goods increase and the cost of delivery
impacted as a result of fuel prices. The Commodity
Metals Price Index1 peaked in March 2022 and has
since reduced, however, still remains high compared
to the previous 5 year period. The Commodity
Fuel Index peaked significantly in June 2022, and
has since reduced from this peak by 40%1 as at
March 2023.
Energy prices had been expected to increase by
80% in October 2022, however, the energy price
guarantee limited this increase to 27%2. The British
Government extended the energy price cap, set at
£2,500 until April 2023, with the expected increase
to £3,000 for typical consumption now delayed
until July 20232. The fixed price electricity and fuel
contracts which the Group has secured for the
majority of FY24 will, however, provide AO with some
short-term stability.
High fuel and energy prices are driving UK inflation,
which hit a 20-year high in October 2022 where it
peaked at 9.6% (CPIH Index)3. Inflationary pressures
on fuel, food and electricity prices are expected
to continue during 2023 and the Bank of England
suggests inflation should stabilise, particularly with
the recent increases in the Bank of England base
rate. The Base Rate increased 0.5% to 5%4 in May
2023 and inflation reduced month on month by
1.4ppt to 8.7%4 in the 12 months to April 2023.
GfK’s long-running Consumer Confidence Index
increased for the third month in a row to -30 in April
20235, up 19 points from the record low in September
2022. This is positive news and is indicative of green
shoots in terms of consumer finances after the
recent tough economic conditions.
From April 2023, Corporation tax rates have
increased to 25% (from 19%). There was no
significant change in personal tax, however, the
freezing of personal allowances coupled with
inflation will act to weaken consumer spending.
The ONS quotes6 that the growth in employees’
average total pay (including bonuses) was 5.9%
and growth in regular pay (excluding bonuses)
was 6.6% in December 2022 to February 2023.
Growth in total and regular pay fell in real terms
(adjusted for inflation) in the year December 2022 to
February 2023, by 3.0% for total pay and 2.3% for
regular pay.
The majority of MDA sales are driven by distressed
purchases7 thus providing AO with some resilience
to macroeconomic impacts. Given the movement in
consumer confidence, a healthy labour market and
inflation forecast to fall sharply to 5%4 by the end
of the year giving a real wages increase, we would
expect to start to see an upturn in discretionary
consumer spending.
08
AO World PLC Annual Report and Accounts 2023 Our markets
With the closure of Germany, the business has a
laser focus on the UK electricals market.
As at 31 March 2023, the UK B2C electricals1 market
was worth £30bn2, a decrease of 2.9%2 year on year.
Although the market declined year on year, SDA
and mobile categories continued to see growth at
11%2 and 3%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 £27.6bn,2 a decline year on year
of 3%. Since our IPO in 2014, the UK addressable
market has increased 21% given our expansion into
new categories (and growth in MDA), representing a
2.1% compound annual growth rate.
AO remains a UK market leader in MDA, with a 16%4
market share, and a 30%4 overall online share.
Online continues to present an opportunity for
growth for the market. With 57% 4 of the total
electricals market transacted online and with
forecasts of online penetration to increase
from 20235, AO is perfectly placed to grow its
market share. AO continually invests in the online
proposition through improved product visualisation
and interactive product information, which enables
a better digital journey for our customers. AO’s
operational gearing gives the business the ability
to move with this expected growth with limited
investment required.
Category opportunity
Being the destination for electricals means having
an expansive, curated range of products across all
electrical categories, to serve our customers’ needs.
AO’s strategic pivot to profit in FY23 has seen a small
number of non-profitable products from our range
removed in the short term until we reorganise to make
them profitable. With over 6,0003 products available
to buy from our website, we continue to review and
develop ranges, improve availability, and expand into
new subcategories to meet our customers’ needs
with the latest products and trends. We will do this
with a continued laser focus on profit and cash.
Our markets sources:
1. Electricals is defined by GfK as MDA, SDA,
AV, consumer electronics, garden, DIY, baby,
cookware, office equipment, lifestyle, mobile,
smart home, and personal care.
2. GfK, gross value, for the 12 months to 1 April 2023.
Company data, gross value.
3. Company data, net value.
4. Analysis of GfK data from 12 months to 1
April 2023.
5. Global data – UK Electricals 2021–2026: https://
www.globaldata.com/store/report/uk-electricals-
market-analysis/
AO addressable market growth by year2
29
28
28
23
24
25
£m
35
30
25
15
10
5
0
14
9
9
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
MDA
SDA
AV
CE
Gaming
Mobile
Garden & DIY
Smart Home
Personal Care
UK T o t a l e l e c t r i c als market £
rrent U
K a d d r essable m
a
r
k
e
t
£
3
0
.
0
b
n
2
u
c
O
A
AO FY23 UK
product sales
£1,049.8m3
2
7
.
6
b
n
2
09
AO World PLC Annual Report and Accounts 2023Strategic Report
How we create value
What we do, how we do it and how we create value is best
illustrated through our flywheel. This is how we will achieve
our mission to be the destination for electricals.
How we create value
Obsessing about
customers, joining up the
business, united behind
the same mission are
the foundations of value
creation.
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 the digital experience.
This is what makes our flywheel fly and
is how we create value for all
our stakeholders.
1 & 2. Customers are at the heart
of our strategy. Everyone at AO is
dedicated to giving our customers,
both consumer and business, the
best possible experience, from
finding the right product at the
right price, to frictionless delivery,
installation and recycling, all
with an AO smile. It’s why we’re the
most trusted.
3. Once customers experience the
AO Way to buy 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.
4. 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.
5. 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. We can then
choose to fund further investment
in our other businesses, including
recycling, mobile, B2B, logistics,
financial services and in brand
development. These feed back
into enhancing our customer
experience, as well as underpinning
our investment in technology.
Our flywheel
5
Pivot to
profitable growth
Operational gearing
Simplification
Focus and repeat
1
The destination
for electricals
Product information
Choice
Invest and Innovate
Grow profitable sales
“More chicken in the chicken
soup” for customers
Leverage AO platform
4
10
Customer loyalty
Good repeat purchase rate
Cross category purchase
Increasing share of wallet
3
2
Amazing service
Market leading customer
satisfaction NPS scores
AO Culture and Values
AO World PLC Annual Report and Accounts 2023 Key resources and our competitive advantage
Value generated for:
Brand
The UK’s most trusted major electrical retail brand
focused on customer service with a smile. Our
Trustpilot ratings don’t just happen by accident.
Culture and People
We perform best when operating as One AO, working
smartly together, living our values and delivering
with expertise. We live the service pledge every day
and truly care about being better.
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.
Technology
Technology is and always has been integral to
delivering a brilliant customer experience. We have a
compelling customer proposition which we continue
to invest in, to make our proposition better, faster
and more convenient.
Infrastructure –
interconnected services
We have end-to-end infrastructure including in-house
logistics and recycling capabilities. We are a vertically
integrated business that is united behind one mission,
this is our One AO approach.
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.
People
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.
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.
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.
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 and help appliances stay
out of landfill.
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.
Read more in our Section 172 statement
on pages 46 to 49
11
AO World PLC Annual Report and Accounts 2023Strategic Report What matters to us
Our
brand
The “Trust, Fame and Love”
framework remains
the core tenet of our
brand strategy.
We need long-term brand building strategies
to attract new customers and shorter-term
acquisition strategies to stimulate existing
customers.
Consequently, FY23, saw continued
investment including increased above the
line activity, increased activation across core
sponsorship initiatives and test and learn
activity across social. We have continued to
see improvements across all key metrics.
Establishing AO as the destination for
electricals and one of the UK’s most trusted
retailers requires a disciplined, consistent
approach to our brand alongside evolving
cross-channel creative execution, back-end
marketing systems and media planning.
With this in mind, we reorganised the relevant
disciplines under a united brand and
marketing function with shared goals and a
single plan, focused on executing high-quality
campaigns and leveraging our brand assets.
Brand positioning
Our brand positioning is focused on building
and maintaining trust with our customers by
consistently highlighting our unique customer
service ethos. Our brand should be known for
being reliable, honest, and transparent with
our customers.
We introduced the UK’s most trusted retailer
campaign in November 2023 providing a
strong, long-term foundation to build upon.
Sponsorship
Building brand equity beyond the
transactional, and focusing on what our
consumers care about is at the core of our
sponsorship strategy.
12
AO World PLC Annual Report and Accounts 2023
On that basis, our partnerships provide an
opportunity to reach a wide audience, across the
North West. The objectives are clear:
1. Amplify our brand awareness by placing AO in
front of as many consumers as possible
2. Create topics to talk to more consumers, more
often, about things that will excite them
Both the AO Arena and our principal partner status
with Sale Sharks, along with our sponsorship of
Manchester Thunder have continued to deliver
increasing positive sentiment, growth in awareness
of the partnerships and positive brand metrics in the
region.
We continue to maintain our long-term relationships
with Bolton Lads and Girls Club alongside Lancashire
Country Cricket Club, furthering our support to
include the Club’s age group sides and medical team.
We have also recently commenced sponsoring
the Manchester Thunder netball team, reaching a
different demographic of fans.
Bear
Bear, the AO Teddy continues to surprise and
delight customers at the point of delivery. Bear also
continues as our mascot at activations and a core
character on all AO social channels.
Social media
Social media remains a key channel in our brand
and marketing strategy. More mature social media
channels such as Facebook and Instagram
continue to engage customers with organic content
and paid advertising.
Emerging channels such as TikTok inspire innovation
as well as being an attractive place for customers to
spend time, providing us with huge opportunities to
test and learn.
For example, social e-commerce is emerging in
importance to customers which is why we have been
an early adopter, experimenting with Facebook
and TikTok live shopping events in late 2022. This
gave customers a chance to shop and interact with
AO experts in a new way as well as attracting new
followers to our channels.
Our website
Our website is our shop and as such, plays an
important role in helping customers move from
browsing, to researching and to purchase by
creating inspiration through the purchase journey.
This involved refreshing content rules to raise the
bar with our product content, providing strong
foundations as we develop improved experience
layers through the journey.
Through tech partnerships, we have been testing
new elements of the digital experience. By using
real-time web behaviour data, we can personalise
their product recommendations, social proof
messaging and onsite search results. These
enhancements have driven an enhanced shopper
experience, improved conversion and revenue as
well as supporting our focus on directional selling.
13
AO World PLC Annual Report and Accounts 2023Strategic Report .
What matters to us continued
Our
customer
focus
Thank you AO for obviously
being aware of customer
needs, for training and
managing staff who are 100%
enthusiastic and helpful,
for stocking a huge range
of obtainable goods and
for letting me experience a
SUPER Company.”
Bridget
The delivery team were really
friendly, really quick and left
me with some information
about my plumbing that could
mean we have an opportunity
to prolong the life of our new
machine. They also provided
more information on first
cycle washes on the machine.
Excellent service from
ordering, updates on delivery,
right through to the delivery.”
Alfred
14
AO World PLC Annual Report and Accounts 2023 The AO smile is more than a logo, it’s how we make
customers feel in every interaction with us.
That’s why customers come back again and again.
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
70%
60%
50%
40%
30%
20%
10%
0%
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
Q1 Q3
3
3
2
2
Y
Y
F
F
Q1
7
1
Y
F
Q3 Q1 Q3 Q1 Q3
8
9
7
1
1
1
Y
Y
Y
F
F
F
8
1
Y
F
9
1
Y
F
Q1 Q3 Q1 Q3
6
5
1
1
Y
Y
F
F
6
1
Y
F
5
1
Y
F
* A customer is defined as an individual customer who
has purchased through us via ao.com in the UK.
Customers*
(’000s)
12,000
10,000
8,000
6,000
4,000
2,000
0
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
FY23
Net promoter
score1 FY23
85
UK2 average (FY22: 86)
1
NPS is a measure of customer
loyalty and satisfaction
2 UK is based on a weighted
average of ao.com and MPD
responses
ao.com followers
on social media
Total followers† FY23
Facebook
1.87m
FY22: 1.88m
Twitter
92k
FY22: 85k
Instagram
81k
FY22: 82k
YouTube
27k
FY22: 26k
TikTok
70k
FY22: 24k
Pinterest
10k
Total 2.15m
FY22: 9k
UK Trustpilot FY23
Trustpilot
Total reviews
394k
FY22: 339k
Average FY23
Rating 4.6/5
FY22: 4.6/5
†Data during week ending 31 March 2023
15
AO World PLC Annual Report and Accounts 2023Strategic Report
.
What matters to us continued
Our
culture
16
AO World PLC Annual Report and Accounts 2023
For 23 years, we’ve nurtured a culture at AO where brilliant people
create magic in the moments that matter for our customers. With
over 400,000 reviews on Trustpilot, which rates us “Excellent”, we’re
proud to be the most trusted major electricals retailer.
Amazing service doesn’t happen by accident.
It’s rooted in the attitude of the person who’s serving
you as the customer. Their attitude is normally an
output of culture. We believe the best run and most
successful businesses have a strong and clearly
defined culture. It’s a shared ethos that binds teams
together in pursuit of a common goal.
We believe that being together drives creativity,
pace and teamwork, where culture is gained
by osmosis and not reading a manual. Our high
standards are set by the millions of daily micro
behavioural actions. It’s how the next generation
learn the nuances from the last. Seeing and
experiencing something first hand is learning.
We aim to inspire our people through great
leadership, creating trust and accountability,
to deliver exceptional results with every AOer
incentivised by our unique AO All Employee
Value Creation Plan.
Our culture was tested over the last 12 months
whilst we pivoted our strategy to focus on profit
and cash generation in the UK business and, whilst
rightsizing the business was the right thing to do,
these decisions are difficult on a human level and
inevitably this impacted satisfaction levels.
Having a growth mindset is a core value for AO
and AOers have told us that career progression is
important to them. In a year of significant change
it has been disappointing for us that we haven’t had
the same level of opportunities to offer to AOers as
would usually be available to them.
However, our core culture has proved resilient and
we are pleased to see levels of engagement and
satisfaction beginning to rise. We’re continuing to
listen to AOers and invest in their development and
our culture.
Customer-centric thinking
Our front line teams are the people who help our
customers directly day in, day out whether on the
phone in our contact centres or the drivers and
engineers who deliver and install products across
the UK.
Supporting all of them are all other AOers from
Commercial to Legal to Tech. At AO, if you’re not
supporting a customer directly, you’re supporting
someone who is.
Providing trusted service and creating magic in
the moments that matter for customers is an
output of the standards we set by millions of
micro-behavioural actions where we are all working
together towards clear shared goals with shared
values. This means we are more than the sum of
our parts because we think and act in a joined up
way across the entire business resulting in brilliant
service and consistent business performance.
Our purpose
Operational excellence is at our core, offering
hassle free service and creating 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
wide range of electricals that are always available
with the best price, simple payments and the most
trusted service. We’re always human, we are fair and
we’re always there.
“ We make customers’ lives easier
by helping them brilliantly.”
17
AO World PLC Annual Report and Accounts 2023Strategic Report We make decisions
that make our
mums proud
We empower our people to make the right
decisions, not necessaril.Y the eas,Y ones.
We inspire each other to be our true selves
and the best that we can be.
We genuinel,Y care, we listen to each other,
and we do ever,Ything we can to make
things better.
Having a positive impact on the world
in which we live is the right thing to do.
What matters to us continued
Our values
We have a
growth mindset
Creativit.Y and thinking big
is what we do.
We're a high performing team;
alwa,Ys learning and stretching.
We challenge ourselves to seek
better wa,Ys of doings things.
We see opportunities others don't,
and thinking differentl.Y strengthens
our future.
18
AO World PLC Annual Report and Accounts 2023 We make decisions
that make our
mums proud
We empower our people to make the right
decisions, not necessaril.Y the eas,Y ones.
We inspire each other to be our true selves
and the best that we can be.
We genuinel,Y care, we listen to each other,
and we do ever,Ything we can to make
things better.
Having a positive impact on the world
in which we live is the right thing to do.
19
We have a
growth mindset
Creativit.Y and thinking big
is what we do.
We're a high performing team;
alwa,Ys learning and stretching.
We challenge ourselves to seek
better wa,Ys of doings things.
We see opportunities others don't,
and thinking differentl.Y strengthens
our future.
AO World PLC Annual Report and Accounts 2023Strategic Report .
What matters to us continued
Our
technology
Technology is, and
always has been, at
the heart of our focus
on delivering a brilliant
customer experience.
20
AO World PLC Annual Report and Accounts 2023 From our website navigation structure to our customer insights
that inform customer choice, to our logistics network, 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 still
consider digital an integral 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.
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 enables us to leverage our
operational gearing, 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 progressed our multi-year strategy
to invest and develop further our architecture,
focusing on developing our customer model,
logistics infrastructure and leveraging data
and automation for faster decision making and
increased efficiencies.
During the year, we replaced several key on-premise
systems with best-of-breed software-as-a-service
applications, including systems that power onsite
search and navigation, and logistics routing. We are
leveraging the benefits of these newer technologies
to bring increased efficiencies and added value to
customer experiences.
Our medium-term strategy remains 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 FY24
This year will see us complete the first important
milestone in our Enterprise Resource Planning
transformation, giving us an efficient and scalable
foundation upon which to further grow and develop
the business.
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-added experiences and propositions.
21
AO World PLC Annual Report and Accounts 2023Strategic Report .
What matters to us continued
Our
suppliers
Our suppliers are essential
partners in helping us
delight customers.
22
AO World PLC Annual Report and Accounts 2023
Heading 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 suppliers 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 & General, for whom we
promote product protection plans as their 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 recent uncertainty
in the world economy and resulting ongoing
component shortages and subsequent supply
chain disruptions, our close relationships with
manufacturers remained strong and consistent,
allowing us to maintain good stock levels to meet
customer demand.
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. Many of the drivers are supplied by multi-
crew businesses. 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.
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 offers a range
of mobile phone contracts with the network
operators Vodafone, O2 and Three, and handsets
from manufacturers such as Apple, Samsung, and
Google. Mobiles are an indispensable product
for most of our customers and add an important
customer touchpoint and entry into our wider
product range.
AO Finance has been provided through NewDay since
2019, offering customers the ability to spread the
cost of their purchases through easy and affordable
payment options using a flexible finance account.
Customers have access to a range of finance options
to help fund their purchases, whether it be revolving
credit or promotional instalment plans. The revolving
credit adjusts rate and credit line to the individual
customer’s profile, ensuring responsible lending and
facilitating those needy purchases in a challenging
economic landscape. AO acts as Introducer in
the distribution of AO Finance through NewDay,
regulated by the FCA.
AO Care is provided through Domestic & General,
a trusted provider of service plans and insurances
for millions of domestic appliances, and the
UK’s leading provider of appliance breakdown
protection. AO has worked with Domestic & General
since 2004, as its agent, and AO Care provides
peace of mind for our customers by ensuring their
essential electricals are protected with a plan that
goes beyond basic manufacturer guarantees and
consumer rights legislation; all important when
customers are budgeting against a tough economic
landscape. AO Care includes 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; and as an
insurance policy, customers can be confident 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
and third-party providers of significant plant and
infrastructure to meet our high standards.
23
AO World PLC Annual Report and Accounts 2023Strategic Report Our eco-system of expertise
and services
Our eco-system is a range of our expertise and services – from across retail
and logistics through to financial services and our very own recycling plant.
Our customers are at the heart of everything we do and that’s why we are
constantly evolving our eco-system to meet market demand and ensure we
achieve our mission. It’s not about what we do though, it’s how we do it.
Product – From fridges and freezers, laundry products
and dishwashers, to smart tech, computing and tv and
entertainment. We sell over 6,000 products on our multiple
e-commerce platforms, all at a competitive Price.
Content – Our multimedia team produce our in-house
diverse content which includes imagery, videos, how to
guides and lifestyle, and energy efficiency ratings.
Tech – Our bespoke shop functionality, pricing tools which
enable us to sweep the market several times a day, to
keep our prices competitive. Our my account functionality
enables customers to order, review and make changes to
their orders up to the day of delivery.
Product
+ Content +
Tech
Warranty and finance – We work with Domestic and
General (the UK’s leading specialist warranty provider) to
offer our customers a product protection plan to provide
them with the peace of mind that their new product could
be repaired or replaced if required. On behalf of NewDay,
we promote a range of credit products at competitive
rates, but also use 0% interest free offerings and buy now
pay later for promotional purposes; we ensure adherence
to responsible lending practices and provide simple and
clear finance options for our customers.
Webshop supported by our contact centre
Webshop
Warranty
and Finance
s
t
c
u
d
o
r
p
o
t
n
i
Logistics
Our in-house Logistics network comprises five distribution
centres, with a total of over 1.2m square feet, 17 delivery
depots and around 800 trucks and 300 trailers, we are
able to offer nationwide delivery seven days a week with
dynamic timeslots and next day options.
i
k
c
a
b
s
c
t
s
a
p
f
o
e
s
u
e
R
l
Customers
House
Customers house – our services include the basics of
unpacking and inspecting customers’ products, to
complex gas cooking and integrated installations – we go
the extra mile.
Waste
Recycling
Resale
Resale – Where it’s possible to do so,
we will look to resell any products
scrapped by our customers via our
own third party outlets (see page
54 for further details).
Recycling – Our purpose-built, state-
of-the-art WEEE (Waste Electrical
and Electronic Equipment) and
plastics recycling facilities in Telford.
Bertha (our WEEE recycling facility)
is capable of processing fridges and
other large domestic appliances
responsibly and correctly. As the
biggest WEEE recycling facility in the
UK, we can recycle around 700,000
appliances every year; almost a
quarter of the UK’s total. Our plastic
recycling plant can process 25,000
tonnes of plastic a year, which allows
us to sort the output from Bertha for
resale or reuse.
24
AO World PLC Annual Report and Accounts 2023
Key
Recycling operations
Distribution centres
Outbases
25
AO World PLC Annual Report and Accounts 2023Strategic Report Our strategy
Our strategy is to leverage our market-leading customer
proposition and scale in order to achieve our mission.
Throughout the year, 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: average revenue growth of 10+% per annum and EBITDA margin of 5+%.
To achieve these ambitions and ultimately our mission we have five key strategic objectives as set out below:
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 today’s 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 and 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 Self-serve options to amend
orders post purchase;
y 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!).
3
Comprehensive
category coverage at
great prices
Through expanding our product
ranges, we will position AO as
the destination for electricals,
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.
All underpinned by our culture.
26
AO World PLC Annual Report and Accounts 2023 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
Continue to drive
efficiencies and
leverage expertise
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.
For progress
against these
objectives, please
refer to the CEO
and CFO reviews.
By focusing on
these strategic
objectives and
our culture and
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
27
AO World PLC Annual Report and Accounts 2023Strategic Report Chief Executive Officer’s
strategic review
As we began the 2023 financial year, it was
abundantly clear that a period of macroeconomic
uncertainty lay ahead.
Our number one priority was to trade our way
successfully and resiliently through whatever
economic climate prevailed. The core thrust was
to pivot the business firmly towards cash and
profit generation.
The team’s deep understanding of the dynamics
and drivers of the business made it relatively
straightforward to identify both the opportunities
and the challenges that we needed to tackle, and
also enabled us to move quickly and decisively.
Our core UK business has always been strong,
profitable, and cash generative, providing us with
a fantastic platform from which to explore new
opportunities for growth over the last 23 years.
With those economic clouds on the horizon, we
decided to only continue with operations or
initiatives where we had line of sight to profitability
or cash generation.
As part of our plan we also undertook a successful
capital raise to strengthen our balance sheet. Our
cash position continued to improve through the
second half of the year as our actions to improve
profitability gained traction.
Over the last 23 years AO has always been an
entrepreneurial business with huge ambition, and
one that’s not afraid to try new things.
It’s rare you know instantly whether a new venture
will succeed; it takes time, patience, conviction,
intuition, reinvention and some humility to admit
when you’re wrong.
Our decision-making process took us back to our
fundamentals and made us carefully consider what
drives our flywheel and what adds grit to the AO
machine. Specifically, the output of our strategic
review resulted in the closure of our operations in
Germany, our housebuilders contracts and our
store-within-a-store trial with Tesco. While each
John Roberts
CEO
Our core UK business has always
been strong, profitable, and cash
generative, providing us with a
fantastic platform from which
to explore new opportunities for
growth over the last 23 years.”
We now have over 400,000 Trustpilot
reviews. I’m looking forward to building
on that fantastic foundation in the years
ahead to maintain our position as the
most trusted electricals retailer in the UK.
28
AO World PLC Annual Report and Accounts 2023 Read more about
values on pages 18
and 19
Read more about
our customer focus
on pages 14 and 15
We now have over 400,000 Trustpilot reviews.
I’m looking forward to building on that fantastic
foundation in the years ahead to maintain our
position as the most trusted electricals retailer in
the UK.
Our strategy will always be centred around our
obsession with customers and treating them like
our grans.
This obsession is a moat around our business and
makes repeating what we do, and the way that
we do it, ever more difficult for our competitors to
replicate, meaning that its value to our customers
will only increase.
This is true across a whole host of areas from culture,
customer service, loyalty, brand relationships and
our B2B partnerships.
During FY24, having embedded the changes from
our pivot year, our focus will move back to profitable
and cash generative growth through disciplined
investment at the right pace and at the right time.
We’ll drive our structural advantage of having an
extremely well invested, more efficient model with
better unit economics, built for the future not the
past, leveraging our scale centred around trust
and excellence.
We expect the output of this to be that we will deliver
>5% EBITDA margin for the current year and firmly
back to driving profitable, top line growth by the end
of the Financial Year.
John Roberts
CEO
4 July 2023
had good long-term potential, their complexity,
short and medium term cash consumption and
opportunity cost meant that they were no longer
compatible with the pressing priorities of 2023.
We also simplified aspects of our operations,
consolidated several teams and realised more
of the value we deliver for customers. We’ve
rationalised relevant ranges and raised the bar of
what we are willing to accept in our supply chains.
Inevitably that has cumulatively reduced sales,
but I believe the best businesses are often defined
by what they decide not to do, rather than always
chasing every opportunity.
Rationalisation and simplification also meant that
we needed fewer people. We had to say goodbye to
a number of AOers which is never an easy decision
but I am clear it was both right and necessary.
Whilst the economic element of those choices may
have been relatively straightforward, of course, the
human element is always much harder.
During the three year Covid period, over five million
new customers experienced the AO Way. From a
market perspective, there was a step up and then
a step back, demand was brought forward and
product usage increased.
Overall, the market is normalising with online
penetration now comfortably over 50% compared
to around 40% pre-Covid, when stores were the
dominant channel for customers. Our expectation
is that the migration to online will progressively
continue over time, as it has for 22 of the last 23
years, as more customers realise that online is
simply a better way to shop the category.
Since our launch in 2000, we’ve been investing
in our relationships with our supplier partners
and the depth of trust required to navigate this
hugely unpredictable trading period proved to be
invaluable. I’d like to thank them for all their support.
I’d also like to thank all AOers for their continued
support and commitment during a journey that has
required many leaps of faith. I’m always very proud
of how they rise to challenges and how they protect
our culture in both difficult times as well as good,
which is ultimately at the heart of our ability to
deliver for customers.
Whilst some post-Covid disruption remains in
global supply chains, making certain aspects of
forecasting difficult, we now consider the Covid
period to be concluded and its lasting impact to be
entrenched.
Looking forward, Our priority now is to cement the
progress that we’ve made with our pivot to profitable
growth and cash generation by focusing on brilliant
execution and investing to deepen our relationships,
while growing our brand and share of wallet.
29
AO World PLC Annual Report and Accounts 2023Strategic Report Chief Financial Officer’s review
Operational highlights
Over the last 12 months we have executed a
significant reorganisation and simplification of the
business. The closure of our German business in the
year has enabled us to focus on the UK business
and really drive the efficiencies from our vertically
integrated model.
UK retail
Our UK retail business is one of the market
leaders in MDA retailing and generates strong
and sustainable cashflows. We serve customers
through both B2B and B2C channels. Established
over 20 years ago, we offer customers a full range
of MDA products complemented by a range of
smaller domestic appliances, computing, AV,
mobile phones, consumer electronics, gaming and
smart home products.
Our UK website, ao.com, 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 appropriately
competitive.
Over 800,000 new customers experienced the AO
Way this year, bringing the total historical number
of customers on ao.com in the UK to 11.3 million. Of
the customers who shopped with us during FY23,
over 58% were repeat. In line with our profit plan,
we continue to drive growth in product categories
in which we can leverage our whole ecosystem
and deliver a desired level of profit from the sale of
these goods. Accordingly, we expected our pivot
to profitability and cash generation to impact our
market share and it has. Our share of the MDA online
market fell 2ppt to 30% for FY23 with our overall
market share falling slightly year on year to 16%.We
once again, reported market-leading, outstanding
customer satisfaction scores averaging 85 on NPS
Mark Higgins
CFO
We are pleased with the improvement in our financial
performance over the year that was driven by our
shift in our primary strategic focus from growth,
towards cash and profit generation. Whilst the
pressures on the UK consumer are well-documented
and have inevitably had an impact on demand in
the electricals market, our core business of Major
Domestic Appliances (“MDA”) – which represents 57%
of our total revenue – remains robust. Our near-term
priorities are to continue to optimise our cost base
and leverage our growing and loyal customer base
in order to progress our growth opportunities over
the medium term.”
Successfully pivoting
the business to strong
profitable performance.
30
AO World PLC Annual Report and Accounts 2023 and 4.6/5 on Trustpilot, based on over 400,000
reviews. This is a clear demonstration that our
laser focus on outstanding service and customer
satisfaction remains excellent, notwithstanding our
pivot to profit and cash.
The first half of the year was impacted by supply
chain issues and customer demand also weakened
as a result of political uncertainty in Ukraine, rising
inflation and increasing cost of living pressures. The
business invested heavily in chasing market share
in the first quarter of the year in order to combat
these issues.
The strategic realignment saw us removing parts
of the business that didn’t fit our priorities. We
ended the trial of a store-in-store format with
Tesco and have also terminated our business in the
housebuilder sector.
We introduced delivery charges for all orders to
offset the growing costs of delivering for our logistics
business. We have accelerated our pricing structure
development, particularly in non-MDA categories
that have been in an investment and growth
phase over the last few years. As a result, very few
products are now incrementally loss making and the
corresponding margin drag has been removed. We
expected that this would impact our overall sales
volume in the second half of the year, but it has
delivered the planned step change in profitability
and cash generation.
We have completed a major staffing restructure,
which has seen a significant reduction in headcount
and subsequent saving in the cost of senior and
middle management layers. A detailed review of our
office footprint was completed in the year, which
has seen the business close three offices across
the Group.
Our Financial Services business performed
resiliently as our customers continue to recognise
the value and peace of mind of 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.
There was no material impact to warranty
cancellation rates as a result of the underlying
macroeconomic events.
Mobile
AO Mobile (Mobile Phones Direct) continues to
focus 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.
Rising inflation costs have impacted the market,
with the margins being squeezed as consumers
become more cost conscious. The business has
concentrated on the quality of its connections
that it makes rather than choosing to compete
purely on price. In doing so it has lost some market
share, however, the value of customer tenures has
improved in the year which has served to offset
some of this decline.
Logistics
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 number of
third-party logistics clients. Our delivery network
operates from our hub in Crewe, comprising our
warehouses and distribution centres with a total of
over 1.2 million sq ft of space and via a network of 17
delivery depots across the UK.
As the business pivoted to profit and cash, the
logistics operation was able to flex the driver
resource down, rationalise our warehouse and
outbase requirements and leverage our operational
gearing through third-party logistics. We are able
to leverage our expertise in complex two-person
delivery, which is highly valued in our industry, to
deliver incremental profitability. We will continue to
leverage this opportunity without it distracting from
our core business.
A new logistics routing system was introduced
in the year which has enabled us to develop our
delivery routing, enabling the operation to further its
efficiencies and expand our capacity to continue to
provide our customers with brilliant customer service.
31
AO World PLC Annual Report and Accounts 2023Strategic Report Chief Financial Officer’s review continued
Financial performance
We started the 2023 financial year facing a difficult
market as a result of inflationary pressures on
both our customers and our cost base and saw a
continued post-Covid drag of customers returning
to an offline purchase. Initially we reacted by
discounting sales prices to maintain market
share through the short term volatility. In Q1 our
strategic pivot towards cash and profit generation
fundamentally realigned the business during the
rest of the year. This has entailed a rigorous and
wide-reaching programme aimed at simplifying
our operations and optimising our cost base,
completed through the following key steps:
1. Improving gross margin
Delivery charges were introduced for all orders to
offset the growing costs of delivering for our logistics
business, and pleasingly the customer response
was good, as customers accepted that delivery has
a cost. In addition, we also accelerated our pricing
structure development, particularly in non MDA
categories that have been in an investment and
growth phase over the last few years, which served
to reduce margin drag.
2. Simplifying our operation
We closed our operations in Germany, brought
an end to our trial with Tesco and terminated
our activities in the housebuilding sector, as
those initiatives were non-core, loss making, cash
consumptive and no longer fit with our focused
priorities.
3. Optimising our cost base
and overhead reduction
Throughout the year we identified and implemented
a wide range of opportunities to increase
operational efficiencies, particularly in light of
our simplified operations. These have included
removing 158,000 sq ft of warehouse and outbases,
rationalising vehicles, reducing our office footprint
and lowering our stock holding. We also undertook
an organisational restructure, which resulted in a
reduction in headcount particularly in senior and
middle management roles.
Recycling
Our recycling plant in Telford is one of the largest
fridge recycling plants in Europe, and it operates to
the highest UK and European standards. This ensures
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 old fridges and other
white goods (also known as “WEEE” - waste electrical
and electronic equipment). We have our own highly
skilled repairs team which refurbishes appliances
delivered to the plant that still have a useful life.
These are then sold with a warranty through our
established base of trade customers.
During the year we achieved a key milestone of
recycling or reusing our six millionth appliance.
Even though overall volumes processed in the
year were lower due to the slowing of the overall
market for MDA, strong pricing across all key metals
and plastic outputs compensated for the lower
recycling volumes.
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. During
FY23 the throughput of plastic to our recycling
plant grew by 20%, with the output quality of
materials continuously improving. We were able
to demonstrate REACH and RoHS compliance,
and progressed external laboratory testing for
mechanical specifications, taking us a step closer
to our strategic objective of ‘Closing the Loop’
partnership with key manufacturers to supply
recycled products to make electrical appliances.
This quality in plastics recycling has been
recognised by the Awards in Excellence in Recycling
and Waste Management 2023, where the business
was awarded Recycled Product of the Year. In
partnership with Volution Group our high-quality
plastics output has been used to manufacture
over 330,000 ventilation fan units (domestic and
commercial). This again brings us closer to our goal
of seeing our recycled plastics back into products
for sale on ao.com.
We continue to collect third-party volumes using
our own logistics network, again providing efficient
service from council amenity sites, whilst reducing
the amount of miles driven.
Closure of international operations
As we reported in last year’s Annual Report we
made the decision to close our German business
and ceased trading in there in early July 2022.
During the remainder of the year, we then closed
down our operations, terminated leases and
agreements and concluded other arrangements. As
expected the total cash impact from the closure of
our operations was around zero in FY23. As we move
in to FY24 there remains one outbase lease to exit.
32
AO World PLC Annual Report and Accounts 2023 Our cash flow strengthened in the year as a
result of the impact of operational changes and
further supported by the capital raising with gross
proceeds of approximately £40m. Subsequent
to the 2023 year-end we also renewed our £80m
Revolving Credit Facility, which is now due to expire
in April 2026.
Our priorities for the current financial year are to
leverage our cost base and strong balance sheet
for profitable growth. AO remains a market leader in
MDA in the UK with a 16% share of the total market
and a 30% share of the online market, which
provides us with a strong and resilient base from
which to grow. Our strategy is to invest prudently
in the business, seize the significant market
opportunities that we see in front of us, and leverage
our growing and loyal customer base.
The following commentary, unless otherwise stated,
covers our UK business only.
Revenue (see table 1)
For the 12 months ended 31 March 2023, revenue
decreased by 16.8% to £1,138.5m (2022: £1,368.3m).
Product revenue
Product revenue, comprising sales generated from
ao.com, marketplaces and third-party websites,
decreased by 21.5% as the impact of our actions
to improve profitability took hold combined with
the impacts of the cost of living on crisis consumer
spending, and the market normalised post-Covid.
H1 was also impacted by supply chain issues, which
were subsequently materially resolved in H2.
Our revenues reduced in line with our change in
strategy and pivot to prioritise profit over revenue
as set out above. Our MDA revenue decreased
YoY by 18.2%, with the total UK MDA market value
falling 6.3% and the online MDA market value falling
by 11.7%. Our non MDA revenues, comprising SDA,
computing and gaming but excluding AV, declined
by 14.7%. Our AV revenue, which includes televisions
and audio visual, saw a decline YoY of 35.6%..
Services revenue
Services revenues, which includes fees for delivery,
recycling, installation and related services, was
impacted by the reduction in product revenue.
However, this was offset by the introduction of delivery
charges on all orders to counteract the growing costs
of delivery for our logistics business. The net result
was that services revenue increased by 11.7%.
Commission revenue
Commission revenue, which includes commissions
generated by network connections in our Mobile
business and from AO Care warranties decreased
by 0.2%.
In Mobile, the number of connections increased
in FY23 which, coupled with further RPI increases
imposed by the networks, resulted in an increase in
Mobile commission revenue in the year.
In AO Care, the number of plans sold in FY23 reduced
from FY22 in line with the drop in product revenue and
consequently commissions from the sale of warranties
reduced against the prior year. This was partly offset
by an increase in certain plan prices in the period
in order to counter the increased costs incurred by
Domestic & General in running the scheme.
Third-party logistics revenue
Third-party logistics performed well, with YoY
revenue growth of 21.2%, 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 and other services on behalf
of third-party clients in the UK including Hisense
and Simba. This revenue delivers incremental
profitability. The business will continue to
maximise this revenue opportunity to leverage our
operational gearing, without it distracting from the
core business.
1 Revenue
Year ended
£m
Product revenue
Service revenue
Commission revenue
Third-party logistics revenue
Recycling revenue
31 March
2023
31 March
2022
874.8
56.2
156.4
27.6
23.6
1,114.4
50.3
156.8
22.7
24.1
1,138.5
1,368.3
%
Change
(21.5%)
11.7%
(0.2%)
21.2%
(2.1%)
(16.8%)
33
AO World PLC Annual Report and Accounts 2023Strategic Report
Chief Financial Officer’s review continued
Recycling revenue
Recycling revenues decreased 2.1% over the year,
which again was a pleasing performance when
taking into account the wider trading environment.
Processed volumes decreased overall year on year,
although this was offset by an increased output
from the plastics plant, as well as improvements in
output prices for recycled materials.
Gross margin (see table 2)
Gross profit, including product margins, services and
delivery costs, decreased by 9.6% to £238.2m (2022:
£263.4m), against a sales decrease of 16.8%. Gross
margin increased by 1.6ppts to 20.9%. This increase
reflects the significant steps taken by the business
to offset inflationary increases in operational
costs through pricing actions and the focus on
profitable sales.
Selling, General & Administrative
Expenses (“SG&A”) (see table 3)
SG&A costs decreased during the period to £226.4m
(2022: £272.7m), but as a percentage of revenues
remained flat at 19.9%. The largest cost decreases
were seen in warehousing and other admin.
Warehousing costs, which include the costs of
running our central warehouses for both our
customers and for our third-party customers as
well as the outbase infrastructure and our recycling
operation came under focus during the period.
Savings were made through both third-party leasing
and efficiency improvements at the sites themselves.
This resulted in a reduction to warehousing costs
in cash terms to £59.8m (2022: £69.6m). However,
warehousing as a percentage of sales increased
slightly year on year, given the drop in sales volume.
Other admin costs decreased to £124.1m (2022:
£156.1m), or from 11.4% to 10.9% as a percentage of
revenues. This primarily reflects the actions that the
business has taken as part of the detailed overhead
review and property rationalisation. The headcount
of the business entering into FY23 was aligned
with expected international growth. Therefore,
following the decision to focus exclusively on the UK
operation, a rightsizing of headcount was necessary
during the year. With reduced headcount and a
move to remote working for some specialised areas
of the group, the need for office space has also
reduced. As we move into FY24, the annualisation of
savings is expected to offset inflationary pressures
and should see the business deliver a like-for-like
cost base.
Advertising and marketing costs in the UK
decreased to £38.0m (2022: £46.1m) and remained
relatively flat as a percentage of revenues. Spend
decreased as the business focused on the efficiency
of acquisition spend.
2 Gross Margin
Year ended
£m
Gross profit
Gross margin
3 Selling, General & Administrative Expenses (“SG&A”)
Year ended
£m
Advertising and marketing
% of revenue
Warehousing
% of revenue
Other admin
% of revenue
Adjustments
% of revenue
Administrative expenses
% of revenue
34
31 March
2023
238.2
20.9%
31 March
2022
263.4
19.3%
%
Change
(9.6%)
+ 1.6 ppts
31 March
2023
31 March
2022
38.0
3.3%
59.8
5.2%
124.1
10.9%
4.5
0.4%
226.4
19.9%
46.1
3.4%
69.6
5.1%
156.1
11.4%
0.9
0.1%
272.7
19.9%
%
Change
(17.5%)
(14.1%)
(20.5%)
395.7%
(17.1%)
AO World PLC Annual Report and Accounts 2023 Operating profit and Adjusted
EBITDA (see table 4)
As a result of the above actions and dynamics, our
operating profit for the period was £12.5m (2022:
£7.5m loss).
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)
from continuing activities before interest, tax,
depreciation, amortisation, 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 which the Group excludes in
order to present a further measure of the Group’s
performance. Each of these items, costs or incomes,
is considered to be significant in nature and/or
quantum or are consistent with items treated as
adjusting in prior periods.
Excluding these items from profit metrics provides
readers with helpful additional information on
the performance of the business across periods
because it is consistent with how the business
performance is planned by, and reported to, the
Board and the Chief Operating Decision Maker.
The Adjusting Items for the current year are
as follows:
y Following the Group’s change of strategy to
focus on the UK business, the Group started
a simplification of its operations which has
included removing areas of the business that
did not fit our priorities, including, the trial with
Tesco, simplifying the organisational structure
and associated contracts and exiting surplus
properties. As a consequence, the Group has
recognised an expense of £4.5m relating to the
restructuring which, due to its size and nature, has
been added back in arriving at Adjusted EBITDA.
The Adjusting Items for the prior year were as
follows:
y Due to the continued losses in the German
business, the Group undertook a strategic review
during the prior year. Legal advice and other
costs of the review totalled £0.9m during the
year and given the nature of these costs, they
were added back in arriving at Adjusted EBITDA.
All other charges arising as a result of the review,
principally relating to the impairment of assets in
the German business, were included in the result
for that business which is shown as a discontinued
operation in these financial statements.
The reconciliation of statutory operating profit/
(loss) to Adjusted EBITDA is set out in table 4.
4 Operating profit and Adjusted EBITDA
Year ended
£m
Operating profit/(loss)
Depreciation
Amortisation
Loss on disposal of non-current assets
EBITDA
Adjusting Items
Adjusted EBITDA
Adjusted EBITDA as % of Revenue
31 March
2023
31 March
2022
12.5
25.6
2.6
0.2
40.9
4.5
45.4
4.0%
(7.5)
24.9
3.8
0.4
21.6
0.9
22.5
1.6%
%
Change
267.0%
2.9%
(31.9%)
(49.0%)
89.6%
395.7%
101.9%
35
AO World PLC Annual Report and Accounts 2023Strategic Report Chief Financial Officer’s review continued
Taxation
The tax charge for the year was £1.2m (2022: tax
credit of £7.2m) resulting in an effective rate of tax
for the year of 15.8% in continued operations.
The Group is subject to taxes in the UK and
Germany. The Group continued to be able to offset
a proportion of its German losses against profits
arising within the UK in the relevant overlapping
period through its registered branch structure
in Germany. No overseas tax is attributable to
Germany in the year due to its trading results.
Our tax strategy can be found at ao-world.com/
responsibility/group-tax-strategy.
Retained loss and earnings/ (loss)
per share (see table 5)
The calculations for earnings/ (loss) per share are
set out in table 5.
Cash resources and cash flow
At 31 March 2023, the Group’s available liquidity,
being Cash and cash equivalents plus amounts
undrawn on its revolving credit facility, was £88.9m
(2022: £49.6m). Group liquidity was strengthened via
a successful share placing in July 2022 which raised
net proceeds of £39.1m.
Net funds, which comprise cash balances less
borrowings and owned asset lease liabilities, were
£3.6m (2022: £32.8m net debt). Cash balances
at 31 March 2023 were £19.1m (2022: £19.5m). The
movement in net funds represents a cash inflow from
operations generated by the improved profitability
partly offset by a working capital outflow (see table
6), the inflow from the proceeds of the share placing
offset by the repayment of borrowings, interest and
lease liabilities. Borrowings of £10.0m (2022: £45.0m)
relate to short term funding drawn from the Group’s
revolving credit facility.
At 31 March 2023, the Group’s Total net debt, being
net funds less all right of use asset lease liabilities,
was £76.1m (2022: £134.1m).
Lease liabilities decreased by £23.3m to £85.3m
(2022: £108.6m) principally reflecting capital
repayments of £26.1m and the early exit or
reassessment of leases of £8.2m offset by new lease
liabilities of £11.0m. New leases in the year principally
relate to the replenishment of the delivery fleet with
newer vehicles replacing older obsolete models. As
expected, following the decision to close its business
in Germany, almost all of the Group’s liabilities in
Europe have either been settled or terminated early.
On 5 April 2023, the Group renewed its £80m
revolving credit facility and this now expires in April
2026. At 31 March 2023, the Group had £69.8m
available on its old facility. The amount utilised
represents £10.0m of cash borrowings (see above)
and £0.2m of guarantees.
Working capital (see table 6)
At 31 March 2023, the Group had net current
liabilities of £47.9m (2022: £91.5m).
At 31 March 2023, UK inventories were £73.1m (2022:
£82.0m) and UK stock days were 40 days (2022: 34
days). Overall inventory levels reduced in line with
the reduction in sales albeit the Group continues
to run an efficient stock holding model ensuring
that a sufficient and efficient level of inventory is
held to maintain customer availability. Inventory
days at the end of March were however higher than
the previous year as a consequence of the timing
of purchasing in our Mobile business to maintain
availability across the range.
5 Retained profit for the year and earnings per share
12 months ended
£m
Profit/ (Loss)
Profit/ (Loss) attributable to Owners of the Parent Company from Continuing operations
Loss attributable to Owners of the Parent Company from Discontinued operations
Number of shares
Weighted average shares in issue for the purposes of basic earnings/ (loss) per share
Potentially dilutive shares
Diluted weighted average number of shares
Earnings/ (Loss) per share from continuing operations (pence per share)
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Loss per share from continuing and discontinued operations (pence per share)
Basic loss per share
Diluted loss per share
36
31 March
2023
31 March
2022
6.2
(8.8)
(2.6)
(3.6)
(26.8)
(30.4)
548,947,969
478,558,948
15,509,762
564,457,731
7,028,898
465,587,847
1.13
1.10
(0.48)
(0.47)
(0.75)
(0.75)
(6.33)
(6.33)
AO World PLC Annual Report and Accounts 2023 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 2023
31 March 2022
UK
73.1
230.9
(253.5)
50.5
21.5
Europe
–
0.2
(0.8)
(0.6)
(10.4)
Total
73.1
231.1
(254.3)
49.9
11.1
UK
82.0
243.9
(296.9)
29.0
75.1
Europe
15.0
18.2
(23.4)
9.8
(8.1)
Total
97.0
262.1
(320.3)
38.8
67.2
UK trade and other receivables (both non-current
and current) were £230.9m as at 31 March 2023
(2022: £243.9m) reflecting a reduction in trade with
B2B customers as we exited loss making business, in
addition to the lower level of sales activity reducing
the amount of supplier marketing commissions.
UK trade and other payables were £253.5m
at 31 March 2023 (2022: £296.9m). Again, this is
reflective of the lower level of activity in the year
across the business. Trade payables days at
31 March 2023 were 51 days (2022: 47 days).
The changes in working capital in Germany are
all reflective of the decision to close operations in
June 2022.
Capital expenditure
UK cash capital expenditure for the 12-month period
was £2.2m (2022: £7.5m), largely related to ongoing
investment in IT equipment, company vehicles and
leasehold improvements.
Acquisition of Non
Controlling Interest
In November 2022, the Company acquired the
remaining 18.4% of issued share capital in
AO Recycling Limited for consideration of
£2.5m. AO Recycling Limited is now a wholly
owned subsidiary.
Mark Higgins
Chief Financial Officer
4 July 2023
37
AO World PLC Annual Report and Accounts 2023Strategic 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
Retail Mobile Logistics Recycling
Financial Services IT and Projects Financial and Legal People
38
AO World PLC Annual Report and Accounts 2023 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 at least
twice a year 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
at least twice a year 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 CRR is reviewed by the Audit Committee
periodically 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 twice per year 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;
the UK Electricals Market; Key Commercial
Relationships; and Funding and Liquidity.
In addition, we carry some significant accounting
risks, namely the accounting in relation to product
protection plans, Network Commission receivables
and AO Mobile carrying value of goodwill and
intangible assets, which are set out on page 103.
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 Data Protection and Security Committee,
with Data Protection and Information Security
teams, that supports privacy and data protection
governance;
y Senior Managers and Certification Regime
(“SM&CR”) Steering and Oversight Committee
to ensure we are treating customers fairly and
supporting financial services governance;
y A Health and Safety Steering Committee that
brings together the various health and safety
teams within the business to share knowledge and
ensure the right culture is promoted right across
the Group; and
y Other control measures outlined elsewhere in this
Annual Report, including legal and regulatory
compliance and environmental compliance.
39
AO World PLC Annual Report and Accounts 2023Strategic Report Our risks continued
The Company’s Risk Appetite Statement is reviewed
annually, in line with the strategic direction of
the Group, recent experience and the regulatory
environment, and whilst the fundamental principles
of our risk appetite remain consistent, we regularly
review our risk appetite against the financial
performance of the business to ensure that we are
not overly exposed to the impact of downside risk
or are too cautious and are potentially throttling
opportunities.
Listed in the tables on the following pages are the
most significant risks that may affect our future.
This year’s achievements
y Revised our gross impact scale in line with the
liquidity position of the business.
y Improved risk appetite scoring to better ensure
that the business unit risk reporting is aligned to
the Board’s appetite for risk.
y Increased our focus on technology risks, by
strengthening our Information Security team
and tools.
y Risk survey to senior leaders.
y Right-sizing risk work.
y Commenced work to address expected
regulatory changes to the internal control
environment through the UK Corporate Reforms.
Actions for next year
y Continuing with work to address expected
regulatory changes to the internal control
environment through the UK Corporate Reforms,
including process mapping activity around
the three expected areas of internal control
focus (finance, technology and operations) and
identifying ‘in-scope’ risks areas; implementing
software to facilitate control activity; completing
a material fraud risk assessment and drafting
an audit and assurance policy. AO also plans to
engage third-party specialist resource to assist in
readiness and gap analysis activity.
y Continue to improve embedding of risk within
forecasting and budgeting process.
y Formalisation of risk tolerance process and sign
off in accordance with current risk appetite.
How are emerging risks identified?
Our Group Head of Audit and Risk meets with the
senior team of each of our business units at least
twice per year (and more frequently as required)
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 CRR.
The legal team performs regular horizon scanning
to understand emerging regulatory or legal risks
and developments in governance or the wider ESG
field, particularly relating to environmental and
climate risk.
Following the simplification of operational
structures, ESG risks are now being managed at a
local level within business units. We monitor market
developments and macroeconomic developments
and these are discussed at business unit risk
management meetings. 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.
We run an annual risk survey where senior leaders
from across the Group are asked to have their say
on threats to AO in the short and medium to long
term. The results of the survey feed into the RMC,
and are reconciled to the CRR, which is then included
in Board discussions on risk. Periodically the board
also has a “no papers” discussion on risk to ensure
open thinking and that all risks are identified.
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 organic 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.
40
AO World PLC Annual Report and Accounts 2023 What are our principal risks?
A Culture and people
B IT systems resilience and agility
Relevant strategic pillar
1
4 5
32
Relevant strategic pillar
1
4 5
32
Nature of risk
Culture is a key ingredient in the success of the business and a unique
differentiator from our competitors. A failure to maintain the culture
could affect all areas of the business including our ability to attract and
retain customers, and our relationships with suppliers and partners.
Nature of risk
AO’s IT systems are critical for ongoing operations. Significant
downtime of the website or warehouse management system as a result
of a successful systems breach or failure could affect the ability to
trade and could affect our reputation.
This could be further impacted by significant erosion of our leadership
team and/or not having the right amount and capability of dedicated
people across the Group.
Risk drivers include wage inflation, working policies, areas of national
skills shortage and our change in strategy and financial viability.
Control and mitigation
The Group’s leadership team has a shared responsibility to drive culture
throughout the business on the basis of AO’s values. Engagement
is promoted both locally and Group-wide through various forums.
Employee surveys and engagement groups run to understand any
issues and what we can do better.
Attractive remuneration and benefits packages with incentives
for senior management and the value creation plan for the whole
employee population help to attract, motivate and retain.
Learning and Development hub and programmes develop our people
alongside a variety of apprenticeship programmes.
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.
Control and mitigation
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.
Off-the-shelf products are subject to a procurement and review process
to ensure that their failure modes, availability service levels and security
qualities are well understood.
Information Security risks are mitigated through our new security
operations centre and dedicated infosec personnel who are driving
forward our three-year infosec strategy and stay abreast of security
risks and developments in protection. Regular training and simulations
undertaken alongside external penetration testing. Policies and
standards defined and communicated.
AO takes a multi-layered, continuously improvement approach to align
IT infrastructure to strategy.
Overall change during the year
Overall change during the year
Following our pivot on strategy during the first part of the year,
employees were impacted by role reductions as we reduced overheads.
This drove concerns around job security, which impacted employee
morale, and was exacerbated by the cost of living crisis and, for most
of our team, the return to full-time office working. Our retail team has
historically been laser-focused on driving top line growth, and the pivot
to profitability has been more difficult for some of them to adapt to.
We have continued to review the operational qualities of our systems
estate, with regard to availability, performance, recovery and security
and have recovery plans in place in the event of failure. We have
replaced our routing system and made a number of improvements
to our front end to help enhance our customer proposition and drive
efficiencies. We have also started work to transition to Dynamics 365
finance system.
As we end the year on a sound financial footing and with clarity on our
strategy and high-performance culture, we are now starting to benefit
from culture improvements following our “work from work” strategy. The
clear direction on culture has driven some changes in personnel but we
are all collaborating together in the way we did pre-Covid.
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 has placed
additional focus on this area over the past year, introducing a security
operation centre and other IT controls and protections and also
expanding our Infosec team.
Link to strategy
1 Acquisition
4 Delivering supporting services
Increase
Decrease
Risk trend
2 Brilliant customer journey
5 Leverage expertise whilst simplifying
No change N New
3 Comprehensive category coverage at great prices
41
AO World PLC Annual Report and Accounts 2023Strategic Report
Our risks continued
C Compliance with laws and regulation
D Business interruption
Relevant strategic pillar
1
4 5
32
Nature of risk
A disastrous event occurring at or around one or more of the Group’s
sites, including our main distribution centres, may affect the ongoing
performance of our operations and negatively impact the Group’s
finances and our customers.
Control and mitigation
Our multi-site distribution network in Crewe reduces the 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 multi-site
distribution network in Crewe 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.
Relevant strategic pillar
1 2 4
Nature of risk
Changes in regulations or compliance failures may affect our strategy
or operations, in particular in 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;
y Mobile and Ofcom rules and guidance; and
y Environmental, Social & Governance (“ESG”).
Control and mitigation
Regulatory developments are routinely monitored 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, an internal audit team who provide assurance on compliance
and a health and safety function.
Further specific governance and steering committees oversee key
regulatory risks such as data protection and security, health and
safety and SM&CR.
Third-party legal advice is sought where necessary and any
recommendations are implemented and subject to ongoing
monitoring.
Regular training is conducted, through the learning management
system and, in operational areas, face-to-face Health and Safety
module, as appropriate.
H&S risk assessment programme covering all areas. Policies and
standards defined and communicated.
Overall change during the year
Overall change during the year
No notable changes to the risks in this area, however, the extent of ESG-
related legislation and reporting requirements continues to increase
and we have not prioritised developments in this area during the year
under review.
Whilst the Group has simplified its warehousing infrastructure (and
concentrated its stock risk slightly), it still maintains three warehouses.
There is ongoing work towards implementation of an improved business
continuity plan (“BCP”) across the Group.
Link to strategy
1 Acquisition
4 Delivering supporting services
Increase
Decrease
Risk trend
2 Brilliant customer journey
5 Leverage expertise whilst simplifying
No change N New
3 Comprehensive category coverage at great prices
42
AO World PLC Annual Report and Accounts 2023
E UK electricals market
F Key commercial partnerships
Relevant strategic pillar
1
4 5
32
Relevant strategic pillar
3 4
Nature of risk
Uncertainty in the UK (and global) economy has been increasing since
the Covid-19 pandemic, 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, all of which can affect consumer demand (and
therefore sales), sales rates or cancellation rates of product protection
plans, defaults on mobile phone contracts or cancellations or a
reduction in out-of-contract income or upgrade rates.
Additionally, 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. These risks could be further exacerbated by a
shortage of microchips that are required in our products particularly
if there are further geopolitical tensions that disrupt production and
availability.
All these factors make (1) forecasting challenging and (2) competition
(both from retail businesses and as manufacturers consider going
direct to consumer) more intense.
Nature of risk
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, and ultimately sales
and profit.
Key partners include:
y Manufacturers and distributors;
y Delivery partners;
y Mobile network operators;
y Finance and Insurance providers;
y B2B and Third-Party Logistics clients; and
y Plant and information technology systems suppliers.
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.
Control and mitigation
Customer proposition remains strong and in our core category of MDA
it is difficult to replicate our infrastructure and processes.
Control and mitigation
There is ongoing management of relationships with key suppliers to
ensure strong business relations.
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.
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.
Overall change during the year
Overall change during the year
There continues to be 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. Our MDA category has proved
resilient but our newer categories less so.
We have seen product protection plans take-up rates remain broadly
the same year on year and cancellation rates relatively stable.
Whilst our supply chains have not been materially impacted by the
conflict in Ukraine, there is still potential disruption should the conflict
between China and Taiwan escalate. Whilst the overall trend towards
online retail continues, online penetration has decreased against the
highs during the periods of Covid-19 restrictions. Further, as we pivot
our strategy to focus on profitable growth and change some of our
charging policies, we need to be mindful of how competitive we are.
Our manufacturer relationships have continued to be strong over the
year, with the improvement in liquidity and simplification in strategy
enabling us to enhance these even further, ensuring good allocation of
available stock.
Our relationships with D&G and Newday remain strong as we work
through a demanding landscape for the customer and ensure we
deliver the right insurance and finance offerings in this regulated space.
Transparency, collaboration and trust continue to be the cornerstones
of this relationship.
Our relationships with our network partners have strengthened over the
year as we move to more strategic and balanced partnerships. Clarity,
consistency and candidness, together with results, have been the key
building blocks here.
We have drawn back on some of our B2B operations through our
simplification strategy and whilst there are opportunities in these areas,
these do not pose a key risk at present.
43
AO World PLC Annual Report and Accounts 2023Strategic Report
Emerging risks
As part of the RMC work, we have also been contemplating
some emerging risks:
y We have discussed the government’s Resources and Waste
Strategy, which includes the design and development of
more sustainable products in its desire to move to a more
circular economy. Should the average life of products be
increased, this could affect the market dynamics of sales
of electricals. Further, we note the government’s intention
to introduce extended producer responsibility with the
possibility that retailers are forced to take back customers’
waste electricals for free (and no longer be able to charge
transportation costs). This, in the short term, could cause
operational challenges with regard to van fill and recycling
capacity.
y Linked to this are the transitional risks of climate change;
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 Whilst an opportunity in many ways, the benefits and
potential threats that Artificial Intelligence (AI) may pose
are still yet to be fully understood. AO will look to harness
this developing technology, however there are some risks
that must be monitored including; if we fail to leverage AI
strategically and commercially in an optimal way, we may
fall behind our competitors; data could be compromised
or distorted; algorithm bias may distort the market against
AO’s favour.
Our risks continued
G Funding and liquidity
Relevant strategic pillar
1
4 5
32
Nature of risk
In general the macroeconomic environment remains uncertain
heading into FY24 which could have an impact on our profits and
cash generation and, ultimately, liquidity and makes forecasting
challenging.
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.
Control and mitigation
The Group has in place an £80m revolving credit facility and at 31 March
2023 cash balances of £19.1m
Further, given our pivot in strategy to focus on profitable growth and the
closure of the German business, the Group’s underlying business is now
cash generative.
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 45.
Overall change during the year
The Group’s Revolving Credit Facility (“RCF”) was renewed in April
2023, and runs to April 2026. This, together with the equity issuance
of c.£40m of capital conducted in summer 2022, means we currently
have sufficient funding and cash resources to continue to support the
investment in the UK. Further, given our pivot in strategy to focus on
profitable growth and the closure of the German business, the Group’s
underlying business is now cash generative.
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 N New
44
AO World PLC Annual Report and Accounts 2023
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 2026. 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 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 emerging and 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 38 to 44 and in the Corporate Governance
Statement on page 103; and
y Financial analysis and forecasts showing current financial
position and performance, cash flow and covenant
requirements.
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 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 with the current facility due to expire in
April 2026.
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 02 to
77. The financial position of the Company and its cash flows
are described in the Chief Financial Officer’s review on pages
30 to 37. In addition, the Notes to the Financial Statements
include the Company’s policies and processes for managing
its capital, its financial risk management objectives, details
of its financial instruments and hedging activities, and its
exposures to credit risk and liquidity risk. Further information
on our risks is on pages 38 to 44.
Notwithstanding net current liabilities of £47.9m as at
31 March 2023, 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 renewed in April 2023
to now expire in April 2026). At 30 June 2023 total liquidity
amounted to £62.8m.
The Directors have prepared base and sensitised cash flow
forecasts for the Group covering the period to 31 March 2025
(“the going concern period”) which indicate that the Group will
remain compliant with its covenants and will have sufficient
funds through its existing cash balances and availability of
funds from its revolving credit facility to meet its liabilities as
they fall due for that period. 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 also run these in combination. These
primarily include:
y A downside of negative growth in FY24 and in the
subsequent periods to account for how the overall
electrical online market could be impacted by the
continuing macroeconomic factors such as inflation,
consumer confidence, and interest rate increases;
y Changes in margin including the impact of any changes in
the Group’s policy with regard to charging;
y The impact of a change in product protection plan
cancellations as a result of a macroeconomic event e.g.,
continued interest rate increases, utilising data seen where
other events have happened (e.g., Covid outbreak, initial
cost of living crisis); and
y Changes in other revenue including the impact of a
reduction in logistics third-party income.
Under these severe but plausible downside scenarios, the
Group continues to demonstrate headroom on its banking
facilities and remains compliant with its quarterly covenants
which are interest cover (Adjusted EBITDA being at least 4x
net finance costs) and leverage (Net debt to be no more
than 2.5x EBITDA). The likelihood of a breach of covenants
is considered remote and hence headroom against its
covenants has not been disclosed.
In addition, the Directors have considered mitigating actions
including limiting discretionary spend and managing working
capital should there be any pressure on headroom. These
would provide additional headroom but have not been
built into the going concern forecast. 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.
45
AO World PLC Annual Report and Accounts 2023Strategic Report Engaging with our stakeholders
We depend on a range of
different resources and
relationships and recognise
that effective engagement with
our key stakeholders is critical
to achieving our purpose
and strategic objectives in a
sustainable way.
Understanding the perspectives of our stakeholders
and building and maintaining good relationships
enables their views to be taken into account in
management 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 80) 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 2006. This statement includes the
information demonstrating how the Board has had
regard to these matters in its actions as set out in
this section.
Customers
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 a 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 Extensive customer research including
surveys, data analytics and customer
research
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 Trust and reputation
y Customer service
y Value for money
y Ease of journey and convenience
y Data protection, compliance and
environmental impacts
How we have responded
y Introduction of product recommendations
and recently viewed products (via Qubit)
y Introduction of Youreko to give customers
information about running costs of
products
y Created category ranges of AO Favourites
and AO Loves to help customers find
products with the latest tech
y Improvements in communications and
process in the event of order issues, delays
or faulty products
y Continued our 5* service level agreement
with drivers to promote excellent customer
service
y Launched our “expert agent” programme
to deliver excellent customer experience
46
AO World PLC Annual Report and Accounts 2023
People
Our AO culture is the most important element in
binding the competencies in our business model
together.
How we have responded
y Continued our Always Listening strategy to
inform our improvement plans
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 Feedback mechanisms including employee
surveys, engagement forums, listening groups
and confidential whistleblowing hotline
y 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
y Flexibility
y Job security
y Tools and resources
y Launched a new welcome event, “We Are AO”,
led by our CEO to provide new AOers with
an experience to understand our mission,
purpose and values, and customer journey
y Launched STAR - Discover Your Best Self
Talent Programme, which is an eight-month
blended learning programme to equip AOers
to successfully grow their career
y Mentor volunteer programme
y Extended Company bonus scheme and
private medical insurance
y Harmonised our Company benefits and
introduced flexible benefits to recognise
differing needs and provide more choice,
which will be rolled out during FY24
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 Continued our health and well-being initiatives
y Continued focus on diversity and inclusion.
Introduced our D&I Strategy in FY23, to close
the gap between our intent and our outcomes.
With particular focus on our attraction and
selection processes and raising awareness of
diversity to break down barriers to inclusion
y Managers providing more opportunity for
group or one-to-one discussions with their
teams that effect change; supported by
manager coaching and development to build
confidence and capability
y Introduced “core hours” between 10.00 am and
4.00 pm for our office-based roles allowing
our people to flex their working patterns over
these times
47
AO World PLC Annual Report and Accounts 2023Strategic Report Engaging with our stakeholders continued
Suppliers
and partners
Our relationships with suppliers and partners
remain 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 to.
How we engage
y Annual “Top to top” (CEO) meetings
to share plans to understand how we
maximise our mutual objectives
y Buying trips to see and understand
product roadmaps and capabilities
Community
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 Support charities and fundraising
initiatives and promotion of sports through
our local sports partnerships
y Encourage employee volunteering
through Make A Difference days
y Promotion of career opportunities with
universities
y Employability forums
y Participation in recycling forums
y Steering and governance meetings with
and events
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
y Growth opportunities
y Explaining their products fully so the
customer always gets the best product
for them
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 to explain our mutual long-term
plans to each other so we align objectives
y Quarterly review sessions with all key
suppliers to ensure plans are working and
aligned
y Improved product information and
recommendations to better explain the
manufacturers’ products
y Worked with suppliers to agree better
processes for dealing with product faults
and issues
y Good relations with the Environment
Agency and bodies such as WEEELABEX
What matters to them/
key topics raised
y Environmental performance
y Procurement decisions
y Investment and community support
y Sustainability initiatives
How we have responded
y Improved our understanding of our
environmental impact through partnering
with Green Jam to produce a robust
assessment of our greenhouse gas
emissions throughout the value chains
y Progressed our sustainability strategy
winning Recycled Product of the Year with
the Volution Group and their fan (which
encompasses our recycled plastics)
y Commenced a five-year sponsorship
deal with Manchester Thunder to raise
the profile of the sport of netball and
continued our partnership with Sale
Sharks and Lancashire Cricket Club
y Regular donation of appliances and
electricals to charities and good causes
y Supported HideOut Youth Zone in East
Manchester and Cheshire Buddies in Crewe
y We’ve seen an increased number of AOers
using Make a Difference days to volunteer
for charities and good causes close to
their heart
y Boosted fundraising efforts through the AO
Smile Foundation’s matched fundraising
programmes
48
AO World PLC Annual Report and Accounts 2023 Shareholders
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 Operating and financial information
y Governance
y Confidence in Directors and management
y Shareholders returns
How we have responded
y Significant strategic realignment to focus
on profitability and cash generation
y Closure of German business unit
y Removed parts of the business that no
longer fit with our priorities
y Proactive communication from Chair
AO World PLC Annual Report and Accounts 2023
49
Strategic 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, whilst 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
with the plastics plant now fully operational and further
enhancements planned for the coming year, driving
efficiencies to our logistics operations, the well-being
of our people and our community outreach projects.
We believe that customers and talent are increasingly
gravitating towards companies that are properly
addressing areas of sustainability and inclusion.
Whilst we are clear on our long-term sustainability plan,
the challenges in FY23 that we’ve covered in this report,
have meant that we have focused on activities that
improve profitability and cash flow. Notwithstanding, we
have made some (albeit limited) progress in this area, as
is covered in the following pages.
Working towards the United Nations
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 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 (as noted
below/opposite).
Material sustainability issues
During the previous financial year, we conducted an in-depth
materiality assessment to identify the topics that are driving
AO’s current and future ESG performance, defining these as risks,
impacts or opportunities.
As a Board, we have reviewed it during the reporting period and
believe that it is still relevant, reflecting ESG-related topics that are
material to our business.
Our approach to materiality
l
a
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e
t
a
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e
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e
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m
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s
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e
L
2
3
5
9
12
1
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
6
8
10
13
2 Carbon (and GHGs)
7
4
3 Diversity and inclusion
4 Customer privacy and
data protection
11
14
5 Supply chain
management
6 Ethical supply chains
7 Internal governance
retention
9 Resource consumption
10 Plastic and packaging
11 Community investment
12 Transparency
13 Health and safety
14 Sustainable products
15 Natural material
Least material
External stakeholders
Most material
Key:
Priority topics
Extend action
Table stakes
50
AO World PLC Annual Report and Accounts 2023
Our ESG strategy
Our ESG pillars were derived from the materiality assessment as
follows and remain a key part of our strategy with our long-term
commitments unchanged. Progress over the year is summarised
below and covered in further detail in the following pages:
1 Sustainable
living
2 Fair, equal and
responsible
3 Fit for
the Future
High-level material topic
y Plastics and packaging
y Waste and recycling
y Sustainable products
y Carbon reduction
AO long-term
commitments
y Supporting low-carbon
business and lifestyles
y Promoting circular and
sustainable consumption and
recycling
What have we done
so far in FY23?
y Fleet review, incl. CNG trials
y LED installation
y Waste segregation
y Moved towards more
renewable electricity
y Property efficiencies
y Introduced energy saving tool
on website
High-level material topic
y Talent, retention and
attraction
y Diversity, equality, and
inclusion
y Health and safety
AO long-term
commitments
y Being an equitable and
inclusive business
y Providing safe, decent and
meaningful work across the
value chain
What have we done
so far in FY23?
y Engagement
y H&S e-learning module
y Focus on being brilliant
at basics
y Call centre pay above
minimum wage
y All together D&I programme
y Circular recycling options
SDG goal
SDG goal
High-level material topic
y Data protection / cyber
security
y Internal governance
y Ethical and resilient
supply chains
y Charity
AO long-term
commitments
y Transparent and robust
supplier management
y Supporting and respecting
customers’ rights to shop
safely online
What have we done
so far in FY23?
y Supplier onboarding app
y Data Protection Steering
Committee
y AO Smile initiatives
y MAD days
SDG goal
51
AO World PLC Annual Report and Accounts 2023Strategic Report Sustainable living
Lowering our carbon footprint
Initiatives to improve our own
environmental performance:
Fleet
The transition to a decarbonised fleet is a long-
term strategic priority. Over the last 12 months we
have continued to assess the viability of electric,
CNG and hydrogen home delivery vehicles and
tractor units.
In relation to home delivery vehicles, we installed
four electric vehicle charge points at our Potters
Bar and Heywood depots. We trialled two models
of electric home delivery vehicles but neither
was appropriate for our requirements due to
payload constraints, limited range availability and
wrong chassis and box type. We are exploring the
availability of CNG home delivery vehicles, as a
transitional fuel in the short to medium term whilst
we await further developments in the technology of
electric vehicles; the manufacturers have indicated
that purpose-built electric home delivery vehicles
suitable for our requirements should be available
in the medium term. We will continue to monitor the
market and conduct trials as appropriate.
In relation to tractor units used in our HGV trunking,
neither electric nor hydrogen options are currently
suitable for our requirements. We have purchased
ten CNG units and continue to monitor their
performance. CNG is currently seen as the most
viable option in our transition to a decarbonised
fleet and we are building a business case for a
phased roll out. However, viability is dependent on
the cost of the gas and over FY23 the price of CNG
has been extremely volatile. We are starting to see
this stabilise and will continue to monitor the price
of CNG over the next year. The CO2 saving of a fully
CNG HGV fleet could reduce our GHG emissions by
up to 30% in this area. In FY27 there would be the
opportunity to transition all of our tractors to CNG
as all diesel leases will have ended – a decision on
the viability of CNG will need to be made in advance
and we continue to measure the trial units ahead of
building up a full business case.
We are assessing the viability of longer semi-trailers
(LST), which could add 15% more capacity than our
current mega trailers. The LST are expected to be
compatible with the CNG tractor units. We have
conducted a limited trial with one trailer and intend
to purchase a further LST over the coming months
to conduct further trials. The target is to have this
tested by early 2024 and, if deemed to be a viable
option, have placed an order for the first 20 trailers.
Work to better understand the technology
landscape continues.
Property and facilities
Over 90% of electricity used by our operations
is derived from renewable sources. Where we
source the electricity directly (which occurs at 16
of our 25 sites), over 93% comes from renewable
sources. Of the remaining sites where electricity
supply is managed by the landlord we have been
unable to ascertain details of the supply contracts
and therefore, as a worst case, assume all is
non-renewable. We continue to try to work with
landlords with a view to understanding their energy
procurement and with our own energy provider to
enable us to target 100% renewable energy supply
used by our operations by 2030.
Our head office, all warehouses and most outbases
have, within the last 12 months, been fitted with LED
lighting, which will reduce energy consumption at
these sites.
Other steps taken to reduce energy consumption
at our sites in FY23 include waste segregation,
installing tap sensors at our head office and
optimising air conditioning settings.
Next steps include:
y Exploring the viability of voltage optimisation at
the warehouses
y Installing light/motion sensors across the
outbases
y Installing smart meters
y Assessing benefits of solar panels (for our logistics
property portfolio) and/or wind turbines (at
recycling)
y Progressing with Energy Savings Opportunity
Scheme (ESOS) phase 3
Initiatives to help our customers
FY23 has seen spiralling rises in household energy
prices leading customers to further prioritise
lifetime running costs during their purchasing
decisions. We continue to look at ways we can
support customers who wish to reduce their
environmental impact, or simply reduce the running
costs of the electrical products through buying
premium products with higher energy efficiency
ratings and other sustainability-related features.
The understanding of product emissions related
to the manufacturing of and use of the products
we sell is improving year on year. Working with
key suppliers to record this information and
share with consumers may influence purchasing
decisions. Initiatives currently under way or under
consideration include:
52
AO World PLC Annual Report and Accounts 2023 y seeking ways to extend the life of electrical
products through innovative customer care
offerings and in-house AO repair and recycle
services;
y introducing energy saving tools on ao.com (such
as Youreko), helping customers understand the
real financial benefit of purchasing an energy
efficient appliance;
y including energy saving hints and tips on ao.com
and on CRM emails; and
y highlighting energy efficient products in our CRM
emails.
A large proportion of scope 3 emissions relate to
the usage phase of products sold (as detailed in
the GHG information below) with major domestic
appliances contributing the vast majority of
emissions. Therefore, in the context of driving the
most impact on reducing carbon, meeting changes
in consumer behaviour, improving the efficiency
of the products we sell and helping customers use
them efficiently, is critical and is part of our long-
term strategy.
Promoting circular and
sustainable consumption
and recycling
Unlike many other retailers in our sector, 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.
When appliances are no longer wanted, we continue
to 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.
The following flow map shows the journey of
products after they have been discarded by
consumers and on pages 56 to 59 you can see the
detailed recycling process and plastics refinement
that we have in house to ensure waste streams are
dealt with responsibly and as many materials as
possible are reused in new products.
53
AO World PLC Annual Report and Accounts 2023Strategic Report Sustainable living continued
Our role in more circular product lifecycles
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 whilst 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 product’s 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
54
AO World PLC Annual Report and Accounts 2023 Over six million large domestic appliances have
either been given a new life or recycled on site, with a
little over a million in this financial year.
In the year the throughput of plastic to our recycling
plant grew by 20%, with the output quality of
materials continuously improving. We were able
to demonstrate REACH and RoHS compliance,
and progressed external laboratory testing for
mechanical specifications, taking us a step closer
to our strategic objective of “Closing the Loop”
partnerships with key manufacturers to supply
recycled products to make electrical appliances.
We have continued to develop partnerships with
third parties who can utilise our recycled plastics
in sustainable products including the partnership
with domestic ventilation fan manufacturer Volution
Group. They have utilised plastics recycled from old
fridges collected from customers and processed
at our recycling facility in Telford to manufacture
over 330,000 ventilation fan units (domestic and
commercial).
The fan has won Recycled Product of the Year,
Awards in Excellence in Recycling and Waste
Management (2023, 20th Anniversary), being
made from 100% AO recycled plastics (except the
impeller). Volution has confirmed that the material
moulds well, has passed all stringent mechanical
tests and is visually good. This is a household,
long-life high-value product, and we have been able
to overcome the challenges to deliver consistent
plastics used in a wide range of high-volume
products. The partnership with Volution has shown
that, over a 12-month period, we can consistently
produce the high quality plastics needed for
appliances. Building on the success with Volution,
we continue to collaborate with Beko to develop our
shared vision of increasing the volume of recycled
plastics from old appliances within new appliances.
During FY24 we plan to add an extruder to our
plastics refining facility which will see us able to turn
the recycled plastics into a final product ready for
moulding. This could open up additional markets
for us and/or reduce costs (given all extrusion is
currently undertaken by a third party).
55
AO World PLC Annual Report and Accounts 2023Strategic Report Recycling
Here’s how we recycle fridges, which we believe is one of the
safest, cleanest and most efficient processes in the UK…
Step
1The 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
2The motor is removed using
giant, heavy-duty cutters and
sent away for recycling.
Step
4The 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
5The 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
7What’s left of the fridge’s
remains is sent through four
different filtration systems,
to separate the different
materials from each other.
Step
8Plastics, metals and foam are
sorted into individual storage
containers. These are then
shipped on to be recycled
into other products, maybe
even another fridge.
Step
3The 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
6Nitrogen is used to condense
the gases into liquid so they
can be safely sent away for
disposal elsewhere.
56
AO World PLC Annual Report and Accounts 2023 57
AO World PLC Annual Report and Accounts 2023Strategic Report Recycling continued
Plastics plant – how it works
Step
1We remove large pieces of
plastic, which will require
further shredding, and also
dust/small particles of plastics
that won’t separate.
Step
3We sink off the heavy plastics
using a water/calcium
carbonate solution, and these
go for further processing by a
trusted partner.
Step
4We wash off the calcium
carbonate and, using water,
float off polypropylene for
granulation in a separate
on-site process.
Step
5We dry the plastics which
sank in Step 4 (high impact
polystyrene and acrylonitrile
butadiene styrene), granulate
to create plastic flakes of
consistent size, and remove
any which are outside our size
distribution parameters.
Step
7The plastics are
electrostatically separated:
either being attracted to or
repelled from an electrode
now they are electrically
charged. This creates single
polymer plastics.
58
AO World PLC Annual Report and Accounts 2023 Step
2We wash the material to
remove surface contamination
and prepare the plastics for
density separation.
Step
6We 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
8Every 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
9Our trusted extrusion partner
heats and pushes the melted
plastic flakes (now an individual
polymer such as high impact
polystyrene) 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
10The plastics are sold to
manufacturers of high-quality,
long-life parts and products,
to replace virgin plastics with
an environmentally friendly
alternative.
59
AO World PLC Annual Report and Accounts 2023Strategic Report 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.
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 C of the TCFD Annex “the
Guidance for all sectors”.
Overall, we are partially compliant, as noted in the table
below. This is a highly complex topic and given the challenges
we have faced during the year and our pivot on strategy,
progress in this area has been limited.
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.
Where to find our TCFD recommended disclosures:
Governance
Board’s oversight of
climate-related risks
and opportunities
Summary and cross-reference or
explanation of non-compliance
Next steps
The Board has oversight of material climate-related
risks and opportunities, receiving updates from the
Risk and Audit Committees. However, as covered
below, the Board has yet to set specific targets in
this area and so, therefore, it is deemed only to be
partially compliant in this area.
Continue with Board oversight
and continue to embed within
decision making, making it
a key factor for all decision
making.
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. Please see further at page 62.
Continue assessing climate-
related risks with a holistic
view of the Group’s climate-
related risk landscape
through the risk work
undertaken by business units
and the Risk Management
Committee.
Strategy
Climate-related risks
and opportunities identified
over the short, medium,
and long term
Impact of climate-related
risks and opportunities on
our businesses, strategy,
and financial planning
Resilience of our strategies,
taking into consideration
different climate-related
scenarios, including a 2°C
or lower scenario
60
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. We will keep this under review on a regular basis.
Please see further at pages 62 to 65.
Revisit climate-related risks
and opportunities to ensure
relevant and any new ones
are identified.
Partially compliant – risk and opportunity
assessment performed and integrated in short term
(1–3 years) financial and strategic planning covering
inter-alia products and services, supply chain,
mitigation activities, R&D and access to capital, and
in particular considering fuel sources and energy
price impacts, but longer-term assessment needed to
bring to full compliance.
Climate-related risks
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.
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 three to five years.
AO World PLC Annual Report and Accounts 2023 Risk management
Summary and cross-reference or
explanation of non-compliance
Next steps
Processes for identifying
and assessing climate-
related risks
Continue with our processes
to ensure climate-related
risks are identified and
assessed.
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.
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. Please see further at page 65 and risk
section from page 38.
Process for managing
climate-related risks
All risks are assigned a risk manager, to ensure that
risk is properly managed and mitigated against.
Partially compliant – as per above, with detailed scenario
analysis yet to be undertaken.
Continue with our processes
to ensure climate-related
risks are managed.
Continue with our processes to
ensure climate-related risks are
identified and assessed.
How processes identifying
assessing, and managing
climate-related risks
are integrated into the
organisation’s overall
risk management
Metrics and targets
Metrics used to assess
climate-related risks and
opportunities in line with
our strategy and risk
management processes
Scope 1, Scope 2, and
Scope 3 GHG emissions,
and related risks
Targets used to
manage climate-related
risks and opportunities
and performance
against targets
Partially compliant. Whilst the Board has now set
an over-arching ESG strategy and re-established its
(Scopes 1,2 and 3) baseline (based on our UK Group
only), it has not yet set specific metrics or goals in line
with its strategy to address climate related risks or
opportunities.
Partially compliant. We have reported Scopes 1, 2
and 3 for FY23 and plan to track our emissions in
all scopes going forward. Whilst we reported our
emissions in all scopes in FY21, we did not report on
scope 3 in FY22 given the challenges we faced as a
business last year.
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, nor
has the Board set any specific goals and targets.
Consider setting specific
metrics and goals within the
next three years.
Further analysis to be done
on emissions, related risks
and action plan to reduce
emissions.
Science-based targets to
be considered alongside
any other climate-related
performance targets at the
appropriate time, expected
to be within the next
three years.
61
AO World PLC Annual Report and Accounts 2023Strategic Report Task force on climate-related
financial disclosures (“TCFD”) continued
Governance
The Board has oversight of material climate-related
risks and opportunities, receiving updates from the
Risk and Audit Committees. ESG matters, including
environmental topics, are scheduled agenda items
at least once per year but with the requirement
that all significant matters requiring Board
approval are considered from an environmental
impact perspective as part of its s.172 obligations.
For example, this year the Board considered the
appropriateness of approving the plastics extruder
in the context of aiming to reduce the Group’s
carbon footprint, whilst also promoting its circular
economy strategy.
During FY23 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 44 as to how
management of climate-related risks falls within our
general risk management processes.
Whilst the Board has set an over-arching ESG
strategy it has not yet set specific goals and targets
to address climate-related issues. Over the year and
given the changes to our operations we have, with
the help of a third party, recalculated our Scopes
1,2 and 3 baseline for the UK Group only, from
which we can set specific goals and targets 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 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. Risks raised have been
incorporated into relevant risk registers. Twice per
year, 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 programme
was paused over the year, but business unit
management of climate risks and opportunities
has continued with progress through the relevant
working groups covering key topics and reporting on
risks and progress to the Risk and Audit Committees
and PLC Board.
Strategy
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,
logistics and recycling but based on a Group-wide
assessment.
62
AO World PLC Annual Report and Accounts 2023 Risk
Extended Producer
Responsibility
TCFD
category
Transition
risk (Policy
and Legal)
Reputational
damage due to
failure to act on
sustainability trends
Transition risk
(Reputation)
Time period
of impact
Short/medium
Short/medium
Description of impact
Increasing regulatory
drivers for retailers to take
responsibility for WEEE
take-back and packaging
which could increase
operational complexity
and costs thereby affecting
profits (Retail, Logistics and
Recycling).
Failing to meet the
demands of an increasingly
environmentally conscious
customer base, in terms
of product ranges and
information and services
officer could impact
reputation and result in
a reduction of sales and
market share (Retail).
Potential increased
cost of transitioning
to non-fossil
fuel-based fleet
Transition risk
(Market)
Risks in relation to carbon
reduction policies and
decarbonisation of our
logistics fleet (Logistics and
Recycling).
Medium/Long
Mitigation strategy
We have a working group
established monitoring the
developments in this area. With
our own recycling facility and
in-house logistics we can manage
free take back efficiently. We
are considering building a
further recycling site to expand
our recycling capabilities (see
opportunities below).
We will continue to use our market
insights to respond to consumer
interests. This allows us to adapt
and respond quickly to shifts
in consumer demands, and
as new technologies become
commonplace. We are working
closely with our suppliers to
understand the environmental
impact of their products and their
environmental initiatives and will
promote these accordingly to
customers. We have our in-house
recycling facility and circular
economy strategy (for plastics)
with the aim to sell products that
include our own recycled plastics.
We are focusing on building brand
awareness in this area.
We are investigating alternative
low-carbon fuels and hope to
move to non-fossil fuels in the
medium to long term subject
to development of available
technology and infrastructure.
Impact of carbon
taxes on AO or
its suppliers
Transition
risk (Policy
and Legal)
Medium/Long
Lower profits due to
additional tax levied on AO
directly, or indirectly through
tax on suppliers which is
passed through in increased
product cost.
We are working to understand our
carbon emissions and those in
our supply chain, from which we
can start to plan a reduction in
emissions which should reduce the
extent of taxes.
Physical risks
impacting our site
(e.g. increased
frequency of power
outages, flood
risks, heatwaves)
Physical risks
(Acute and
Chronic)
Increased frequency of power
outages at our Recycling
or Logistics facilities could
impact operations leading to
a loss of sales.
Long
To be considered over time
63
AO World PLC Annual Report and Accounts 2023Strategic Report Task force on climate-related
financial disclosures (“TCFD”) continued
TCFD
category
Physical risks
(Acute and
Chronic)
Description of impact
Time period
of impact
Mitigation strategy
Long
To be considered over time
If drops per route decrease
as a result of such physical
issues, profits would fall (and
sales could be affected if
delivery capacity is affected)
Risk
Physical risks
impacting our ability
to deliver e.g. flood
risk and heat waves
or, conversely,
very cold events
resulting in national
road infrastructure
problems and
therefore impacting
effective logistics
Opportunities
TCFD
category
Description of
opportunity
Time period
of opportunity
Strategy
Transition
opportunity
(Reputation)
Increased sales and lower
costs of acquisition
Short/medium
Increase brand
awareness and
reputation by
demonstrating our
recycling capabilities
and circular economy
strategy
Extended Producer
Responsibility
Transition
opportunity
(Policy
and Legal)
Increased sales (and profits);
lower cost of compliance
Medium
Transition
opportunity
(Market)
Increased ranges and sales
Medium/Long
Diversification of our
product ranges and
product categories
e.g. an increase in
heatwaves leading
to increased demand
for air conditioning
technology (Retail).
We are increasing our
communications to customers,
as well as continuing to develop
the communication of our
strategy and achievements to
all our stakeholders. In the year
ahead we are expanding our
existing plastics refining facility
to include an in-house extrusion
process following which recycled
material can be used more easily
in new products as part of our
circular economy strategy.
With our own recycling facility and
in-house logistics we can manage
free take back efficiently for both
products our retail entity sells
but also for third parties . We are
considering building a further
recycling site to expand our
recycling capabilities.
We continue to build relationships
with suppliers in such categories
whilst monitoring market trends
and consumer behaviour.
64
AO World PLC Annual Report and Accounts 2023 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.
As can be seen, the overall risk and potential
financial impact of climate change on AO increases
with time. The short term is affected by transitional
risks, with physical risks becoming more impactful in
the much longer term. Based on this assessment, we
believe that there is no immediate material financial
risk or threat to our business model, however, this
conclusion may change once full scenario analysis
is undertaken. Further, the areas of highest potential
impact are those which we are already taking action
to address through our working groups.
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. Twice per year, 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 are subject to
the same assessment of likelihood and impact as
discussed in our Risk Management section on pages
38 to 45. All risks are assigned a risk manager, to
ensure that risk is properly mitigated against. Our
Risk and Audit team is supporting the business units
to better identify and assess environmental risks to
ensure these are appropriately managed.
Metrics and targets
We would like to become a net zero carbon business
by 2040 (from our revised 2023 baseline) but
this is not a committed target for which we have
fully planned and budgeted. In meeting this aim
we intend to set our own interim science-based
targets across our Scope 1, 2 and 3 emissions in the
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 to date. During the
year, the Board and Remuneration Committee will
consider the appropriateness of putting in place
climate-related goals, metrics and targets.
65
AO World PLC Annual Report and Accounts 2023Strategic Report Task force on climate-related
financial disclosures (“TCFD”) continued
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 reducing our consumption
appropriately where we can and seek renewable energy
alternatives. We also know that we must consider the impact,
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). This year,
we have partnered with an expert third party, Green Jam, to
calculate our Scope 1, 2 and 3 emissions for the year ended
31 March 2023 and for our UK-only Group. 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.
AO reports on all of the greenhouse gas (“GHG”) emission
sources as required pursuant to The Companies (Directors’
Report) and Limited Liability Partnerships (Energy and
Carbon Report) Regulations 2018, which implement the
Government’s policy on Streamlined Energy and Carbon
Reporting . The methodology used to calculate our GHG
emissions and energy use is the GHG Protocol Corporate
Accounting and Reporting Standard (revised edition) and ISO
14064.
The total calculated Scope 1, 2 and 3 emissions for the
reporting year are shown below.
Scope 1,2 & 3 Greenhouse Gas Emissions1
Year ending 31 March
Scope 1 (direct emissions): Total emissions from
operations and combustion of fuel
Scope 2 (indirect emissions):2 Total emissions from
energy purchased
Market-based
Location-based
Total gross Scope 1 and 2:
Market-based
Location-based
Carbon Intensity ratio:3
Tonnes of CO2e per £m of revenue
Scope 34
Category 1: Purchased goods & services
Category 3: Upstream fuel and energy
Category 5: Waste in operations
Category 7: Commuting
Category 9: Downstream transport
Category 11: Use of sold products
Category 12: End-of-life treatment of sold products
Other Scope 3 emissions
Total gross Scope 3 emissions
Total gross Scope 1,2 and 3 (location) emissions
Energy use kWh (Scope 1 and 2)4
UK
% change
FY23 v FY22
2023 tCO2e
2022 tCO2e
2021 tCO2e
2020 tCO2e
-42%
21,919
38,081
31,958
26,587
-90%
-31%
-46%
-41%
304
2350
22,222
24,268
2,992
3,396
41,073
41,477
1,284
3,411
33,242
35,369
1,697
3,679
28,284
30,266
-29%
21.48
30.32
21.29
28.55
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
445,349
5,344
15
3021
705
1,036,426
34,417
–
1,525,277
1,549,545
–
–
–
–
–
260,044
928,296
14,564
1,202,904
1,238,273
–
–
–
–
–
2023
13,442,795
2022
15,769,141
2021
13,156,641
2020
14,573,240
1
2
3
4
FY20 and FY21 Scope 1, 2 and 3 (where reported) emissions included our emissions in those categories for both the UK and Germany. Figures reported for
FY22 and FY23 relate only to the UK.
Emissions from electricity use, Scope 2, 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, and where no supplier-specific data is held, factors published for
residual emissions.
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 the size of our operation.
Emissions in Scope 3 relating to categories 1 and 12 have been estimated using secondary data (industry average); for category 5 we have used
secondary data and some supplier data and for category 11 we have used primary (product efficiency) and secondary (product lifespan).
5 All calculations across Scope 1–3 use UK Gov GHG emissions factors.
66
AO World PLC Annual Report and Accounts 2023 Understanding our emissions
The total direct and indirect emissions of our
Group during FY23 are estimated to stand at 1.54
million tCO2e.
Scope 1 – The direct emissions of the AO Group
for FY23 were 1.4% of our total emissions. Direct
emissions have reduced significantly over the
reporting period, largely due to a reduction of fleet
activity in the UK. As would be expected, diesel
combustion in our logistics business accounts for
almost all of the Scope 1 emissions with CNG and
natural gas the balance. However, our trial use of
CNG vehicles has avoided a further c.850 tCO2e
compared to diesel – accounting for an estimated
4% reduction in home delivery and trunking
emissions overall.
Scope 2 – The indirect Scope 2 emissions related
to electricity consumption also show a large
reduction on the previous year (31% on location-
based and 90% on market-based) despite only a
15% reduction in energy consumption. The location-
based reduction demonstrates the improvement
in the UK average grid intensity whilst the market-
based reduction reflects the greater transition to
greener generation sources through our energy
provider. As we move into FY24 we are continuing to
right-size our property infrastructure which includes
exiting some properties where electricity is supplied
by the landlord. This will give us greater control
over our total electricity procurement which, as
mentioned above, we are targeting 100% renewable.
Almost half our Scope 2 emissions are generated by
our two recycling sites and we are exploring whether
this usage and the associated costs could be offset
against sustainable initiatives, for example by
installing a wind turbine.
Scope 3 – The indirect emissions in the GHG
inventory dominate our Group emissions, with the
overwhelming majority of Scope 3 emissions linked
to product lifecycle as a result of their manufacture,
use and disposal. The figures in the table above
show an increase in emissions generated in both
the manufacturing and usage phases but we
believe this is due to greater granularity in data
sets which has helped to provide a more robust
assessment of our Scope 3 emissions rather than a
real increase. As noted earlier in our Sustainability
Report supporting customers to understand this
information in greater detail may influence buying
behaviour and therefore reduce product use
emissions. Approximately 2% of our estimated total
emissions derives from the disposal of products but
we try to do the right thing to minimise this through
our in-house reuse and recycling capabilities.
Percentage split of emissions at key product stages of lifespan
Product
manufacture
28%
AO
World
3%
Lifetime use
of product
66%
Disposal of
product
2%
67
AO World PLC Annual Report and Accounts 2023Strategic Report Fair, equal and responsible
Fair, equal and responsible
Our c.3000 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.
Culture and engagement
FY23 has been a challenging time for some AOers
with employees impacted by a reduction in the
number of people we employ as we reduced
overheads. This drove concern on job security
which impacted employee engagement, with
morale being further affected by the cost of living
crisis and, for office-based roles, the return to full-
time office working which will underpin our high-
performance culture.
As we move into FY24 on a sound financial
footing, with clarity on our strategy and our high-
performance culture, we are now starting to benefit
from cohesion across the business following the
re-introduction of our “work from work” strategy. The
clear direction on culture has driven some changes
in personnel but we are all collaborating together
in the way we did pre-Covid, with renewed energy
and ambition setting us up to drive a stronger
performance over the coming years. We recognise
that strong employee engagement which works
best when we are physically together 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. As with prior years, we ran an
engagement survey over the year with questions
covering basic needs, individual and team needs
and personal growth and inclusion together with the
question “How likely is it that you would recommend
AO as a place to work?”. From which our employee
net promoter score (“eNPS”) is derived.
The eNPS score has been mixed over the reporting
period falling to -11 in the first half of the year (for
the reasons mentioned above) but improving to +1
in the second half. Whilst we are not pleased with
the average score of -5 it is understandable in the
circumstances, and it is pleasing that the more
recent result has improved above 0, falling within
the “Good” range. More still, we are encouraged by
a “happiness” score of 7.3/10 which measures “How
happy are you working for AO?”.
The engagement survey completed in November
2022 achieved a completion rate of 73% and,
therefore, represents the views of a significant
proportion of our workforce.
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
our 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 with separate
live Q&A sessions. 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.
We continue to embed our work from work model
and are already seeing marked improvements in
culture over the last few months as AOers spend
more time face to face. Feedback indicates
68
AO World PLC Annual Report and Accounts 2023
that AOers are appreciating the energy and
collaboration that being together in the office
brings.
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.
Talent attraction and retention
The last year has seen unprecedented cost
inflation affecting customer behaviour and volatile
supply chains. Whilst we have seen a levelling of
salaries that businesses are prepared to pay as
markets adjust to a potential recession, the high
number of UK vacancies and low unemployment
means a candidate-driven market continues to
affect availability and retention of people with
critical talents. Retention at AO has weathered this
backdrop and whilst our strategy of a full return to
the office isn’t for everyone, we have seen a positive
annual improvement in retention, returning to
levels not seen since November 2021 with notable
improvements, particularly in Tech.
We continued to evolve our people proposition in line
with the work from work strategy, to give candidates
a compelling reason to join and remain at AO as
they develop a fulfilling career. Our “Hiring The
AO Way” ensures hiring teams remain focused on
hiring for high performance and potential, with our
attraction and selection processes underpinned by
AO’s 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, with candidates meeting
with either the CFO or CEO as a final stage to the
selection process.
As we navigate the challenging attraction
environment, 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
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.
Leadership development has been an emerging
theme to develop skills necessary to lead in a
business that has undergone such a level of change
and transformation. We have invested in situational
leadership skills training, building on our firm belief
that the most effective leaders are those that are
able to adapt their style to the situation and are
competent in two key behaviours: supporting and
directing. This programme will continue into the
next year.
AOers make AO unique, led by the best team
managers. We have continued to extend our
Licence to Manage line manager programme,
which supports our commitment to ensure our line
managers can be their best, focusing on building
collaborative high-performing teams. Our managers
also have ready access to a dedicated Manager
Advice Line and Manager Toolkits with easy to
follow “How Do I” guidance, advice and support to
help them with all those moments that matter, from
hiring to retiring and everything in between.
69
AO World PLC Annual Report and Accounts 2023Strategic Report Fair, equal and responsible continued
To think differently about how to address skills
shortages in Tech, we have partnered with Credersi
to create a bespoke training course for AOers
who, as complete coding beginners, are eager to
learn and develop their career, taking them to fully
trained software developers in 15 months. After an
accelerated eight-week bootcamp, the AOers were
embedded into one of our tech teams to be mentored
towards becoming Junior Software Developers.
To support AOers who are keen to progress their
career we introduced the STAR programme to
support 30 AOers to discover their best self, taking
them on a journey of self-discovery and immersion
in areas of the business they had little exposure to;
developing their skills in data and systems, effective
communication, resilience, personal brand and
exposure to leading a business project.
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. c.80 AOers are currently undertaking an
apprenticeship across c.20 different programmes.
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
offer to include micro-learning 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. With high wage inflation over the period
and recognising the national cost of living crisis, we
looked at how we could support our employees,
particularly those at lower work levels. A mid-year
salary increase for our call centre employees was
granted in November 2022 and a further increase
made in April 2023’s pay review, alongside introducing
a skills-based pay structure, with the opportunity
to earn up to £31,000 per annum within 18 months
for developing into top performers. In our logistics
operations we have increased salaries at a minimum
rate of 4% with some roles seeing increases of more
than double that. We have made a further cost of
living payment to AOers in our Logistics business of
£1000 to those earning £26,000 or less (in addition to
the annual increase).
All AOers received a minimum of 4% increase in
basic pay in April 2023’s pay review.
For well-being support and healthcare benefits the
Help@Hand app offers AOers access to a remote
GP service, mental health support, physiotherapy
and medical second opinions and has proved
popular as an additional service to Lifeworks which
offers 24/7 well-being support and advice, and
access to exclusive cash back and savings on high
street brands.
In our Logistics business we provide the
Simplyhealth cash plan for all AOers who can
claim money back on everyday health treatments
that they pay for such as optician appointments
and glasses, dental treatments, physiotherapy
and podiatry. We also offer the plan with a range
of different cover levels to choose from, all at a
discounted rate, to AOers across other areas of the
business and to make it simple and easy, payments
are deducted straight from payroll.
We’ve improved our holiday benefit to give AOers
more flexibility to have a work-life balance that
works for them by introducing automatic holiday
carry over, extra holiday buying and flexible bank
holidays where AOers can request to “swap” up
to three bank holidays for a day that is more
meaningful for them.
AO’s reward philosophy and principles support an
enhanced reward package for leaders. As such
we have introduced a flexible benefits scheme,
giving leaders choice on benefits and bringing our
leadership reward package more in line with the
market.
We offer an annual Sharesave (SAYE) scheme to all
employees, providing them with the opportunity
to purchase ordinary shares in the Company.
This helps to encourage employee interest in the
performance of the Group. Further, during the year
we granted awards under our restructured Value
Creation Plan which gives all AOers an opportunity
to share in the value created by the Company over
the next five years.
Equity, diversity and inclusion
(“E,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.
During the early part of the year, we continued to
work to make our culture even more inclusive and
develop inclusive leaders through our Advocates
group, and established the “All together” group –
with the aim of bringing our diverse groups together
under one umbrella and having one clear strategy
to drive forward our diversity and inclusion agenda.
This initially gained much traction with agreement
on our overarching strategy and the launch of our
D&I statement:
70
AO World PLC Annual Report and Accounts 2023
AO is for everyone.
We should all feel that we belong.
That’s why we are creating a welcoming
and inclusive place to work.
However, as we progressed through the year
and made the necessary headcount reductions
mentioned elsewhere in this report, we removed
our dedicated resource in this area and strategic
progress since has been limited.
Notwithstanding this, we have continued to raise
awareness of and celebrate diversity through
a variety of initiatives, enabling AOers to have a
contribution to shaping our inclusive culture and feel
safe to share their personal stories and experiences.
Equity, Diversity & Inclusion initiatives in FY23
Gender equality
Celebrated international women’s day with a week’s programme of
events including unconscious bias workshops, confidence building
and inspirational talks from Karen Grieg (Head Coach at Manchester
Thunder) and Jen Mitchell (General Manager at AO Arena)
Working groups for women and menopause
Implemented core hours to give parents and carers, in particular,
more flexible working
Launched information materials to educate, celebrate and provide
support to families of all shapes and sizes
Ethnicity and race
Celebrated religious and cultural holidays such as Ramadan and
Eid, Diwali and Holi to raise awareness of different beliefs
Ran a Fast for Ramadan event where all AOers were encouraged
to join in the fasting
To support AOers whose first language is not English we provided
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
LGBTQ+
We sponsored and participated in Bolton Pride
Disability, neurodiversity,
mental health and
well-being
In conjunction with Pride month, launched materials to help educate
our AOers on the history and language of LGBTQ+
Celebrated Disability Awareness Month
Ran Mental Health Awareness and Well-being sessions, with key
leaders sharing their best tips for managing stress and recharging
batteries
Launched information materials to educate, celebrate and provide
support on neurodiversity
71
AO World PLC Annual Report and Accounts 2023Strategic Report
Fair, equal and responsible continued
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.
Gender representation
and gender pay gap
AO’s 2023 Gender Pay Gap Report highlighted that
our gender pay gap (as at the snapshot date of
5 April 2022) continues to narrow to 1% as does the
overall Group’s median gap which is significantly
below the ONS average of 14.9%. However, our
gender pay gaps (on a median basis) and at
individual entity level are higher, ranging from 5% in
Expert Logistics to just over 30% in AO World – the
listed Company. Here the 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.
In terms of gender representation, Our Logistics and
Recycling businesses are typically male dominated,
each with only 19% 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 strive to improve recruitment
processes to be 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 2022 can be found at www.ao-world.
com./wpcontent/uploads/2023/04/Gender_Pay_
Gap_April_2023.pdf
As at 31 March 2023, whilst our Executive Committee
did not have any female representation, our Senior
Leadership team (which reports directly into our
Executive Committee) was c.31% female (FY22:
26%). The number of female AOers across the whole
business was 30% (FY22: 30%).
Ethnicity
We currently do not report on ethnicity
representation across our workforce. 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, devise an appropriate strategy to
become more ethnically diverse.
72
AO World PLC Annual Report and Accounts 2023 Listing Rules diversity disclosures
In accordance with Listing Rule 9.8.6(R)10, annex 2, we set out our Board diversity data1 as at 31 March 2023 below:
Gender:
Men
Women
Other categories
Not specified/prefer not to say
Ethnicity:
Number
of Board
members
Percentage
of the Board
Number of senior
positions on the Board
(CEO, CFO, SID and Chair)
Number in
Executive
management
Percentage
of Executive
management
6
2
0
0
75%
25%
0
0
3
1
0
0
2
0
0
0
100%
0%
0
0
Number
of Board
members
Percentage
of the Board
Number of senior
positions on the Board
(CEO, CFO, SID and Chair)
Number in
Executive
management
Percentage
of Executive
management
White British or other white (including
minority-white groups)
Mixed/multiple ethnic groups
Asian/Asian British
Black/African/Caribbean/Black British
Other ethnic group, including Arab
Not specified/ prefer not to say
8
0
0
0
0
0
100%
0%
0%
0%
0%
0%
1 Data has been collected by a survey of the Board, conducted by the Company Secretary.
8
0
0
0
0
0
2
0
0
0
0
0
100%
0%
0%
0%
0%
0%
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 working practices, career progression
and promotion opportunities are free from
discrimination or bias; and
y 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 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.
As can be seen above, AO has not met the FCA’s
targets on Board diversity, save that one of
the senior Board positions (i.e. that of Senior
Independent Director) is currently held by a woman.
As described elsewhere in the Annual Report the
Directors recognise the FCA’s diversity targets and
remain supportive of the recommendations of
the Parker and Hampton-Alexander reviews; they
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. In conducting
its search for new Non-Executive Directors during
the year we specifically highlighted to our search
partner that increasing the diversity of the Board,
in all aspects, was an important consideration with
these appointments. Consequently, they were
asked to bring forward shortlists with a significant
representation of female and ethnically diverse
candidates and these candidates comprised all but
one of the recent interviews conducted by our Chair
and Non-Executive Directors. Most importantly
however, we will only appoint candidates who
we judge can contribute strongly to the Board’s
experience and skillset. This will continue to be the
Board’s approach in making any new appointments.
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.
73
AO World PLC Annual Report and Accounts 2023Strategic Report Fair, equal and responsible continued
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 whilst maintaining consistently
high standards. Health, safety and well-being is
always on the agenda at AO and we have multiple
structured ways of communicating health and
safety throughout the 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 KPIs to
monitor the performance in each business unit. This
year we launched our accident incident rate across
the business which provides a more accurate way of
measuring performance.
Maintaining our health and safety accreditations
and management systems allows us to measure our
performance using external benchmarks.
At AO Recycling we have maintained the ISO45001
standard and achieved RoSPA Gold for the fifth year
in a row. At AO Logistics we achieved our second
consecutive RoSPA silver award. We will now start a
strong push towards attempting to achieve the gold
award next year.
By being brilliant at the basics we are confident
that each area will continue to operate safely.
Using these key principles from our Group
Health and Safety Policy will help us achieve our
objectives for the year:
y Providing regular updates for the Board of
Directors on our performance
y Provide regular reports to all stakeholders on the
latest accident incident rates
y Providing all stakeholders with support to manage
the risk in their departments
y Inspecting each operational area of the business
on a risk-based frequency
y Assessing risks across the business and 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
As we move into FY24 the above work will continue
and we are also prioritising improving occupational
health checks, particularly for employees working
in areas where hazardous materials or tasks take
place, to ensure pro-active engagement.
74
AO World PLC Annual Report and Accounts 2023 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
Environmental
Environmental policy
Information necessary to understand
our business and its impact, policy due
diligence and outcomes
Sustainable living, pages 52 to 59
SECR/GHG emissions, pages 66 and 67
Employees
Group employee handbook
Our culture, page 17
Whistleblowing policy
Health and safety policy
Equal opportunities policy
Fair, equal and responsible, pages 68 to 74
Social matters
Modern slavery policy
Data protection policy
Human rights
Modern slavery policy
Code of conduct
Anti-corruption and
bribery
Anti-bribery policy
Principal risks
and impact on the
business
Description of
business model
Non-financial KPIs
Fit for the Future, pages 76 and 77
Risk Report, pages 38 to 44
Our business model, pages 10 and 11
KPIs, pages 2 and 3, and 15
Our policies and procedures are available on our corporate website or from our Company Secretary on request.
75
AO World PLC Annual Report and Accounts 2023Strategic Report Fit for the Future
Ethical and resilient supply chains
Our Modern Slavery statement for the year ended
31 March 2022 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 a 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 continued to review our supplier
onboarding process including the rollout 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.
With the implementation of the FCA’s Consumer
Duty rules on the horizon, we are analysing our
practices and those of our partners to ensure that
we meet or go beyond the required standards;
delivering good outcomes and acting in good faith
for consumers when we look at the types of financial
products and services we promote and the price
and value of them.
Our policies, including cyber security, GDPR,
modern slavery, anti-bribery and treating
customers fairly are supported through stakeholder
training with employee modules included in our
online employee learning hub, which helps to ensure
that these principles are fully understood and are at
the forefront of minds.
Internal governance
Board independence, diversity and
Executive remuneration
Our Corporate Governance Report 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 38 to 45.
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 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 our
online employee learning hub – helping to ensure
that the GDPR principles are fully understood and at
the forefront of our minds. The Data Protection and
Security Committee meets quarterly to oversee our
data protection and information security strategy,
assess risk and monitor market developments. We
continue to invest in this area, particularly in relation
to information security.
76
AO World PLC Annual Report and Accounts 2023 Community and charity
This year has seen us commence our sponsorship
of Manchester Thunder, one of the country’s
leading netball teams. Through this partnership
we are hoping to raise awareness of the sport in
general and the team’s journey to professionalism
and are excited at the prospect of encouraging
young people to take part in the sport. In May
2023, Manchester Thunder broke its club record for
attendance at AO Arena.
More recently, in June we were a principal sponsor
of Soccer Aid for UNICEF at Old Trafford, helping
create a family atmosphere with our thunder sticks
and our Bear mascot present and raising vital funds
for the charity.
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 Foundation. 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 curriculum
has so far reached 50 primary schools across
the North West, with new schools being registered
each term.
At the end of each season, Sale Sharks and AO
host a rugby tournament, where all pupils are
invited. The 2023 tournament saw attendance
from over 300 pupils, appearances from Sale
Sharks men’s and women’s first team players
including England Internationals, Jonny Hill,
Dan du Preez and Raffi Quirke.
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.
These include the Mobile Phones Direct team
clearing a canal path for the Wiltshire Canal Trust,
the logistics team supporting Men in Sheds in
Crewe and the finance team helping to renovate a
children’s adventure playground at the Adventure
Farm Trust in Lancashire. We also offer volunteering
roles related to AO Smile charity partners such
as Onside YouthZones. 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
Bolton office.
Donations
At AO we assess requests and need for product
donation on an individual basis and this year have
made regular donations during the year.
Our teams in Bolton and Crewe supported HideOut
Youth Zone in East Manchester and Cheshire
Buddies in Crewe to provide hundreds of Easter
eggs and Christmas gifts donated by AOers and
supported by the AO Smile Foundation.
AO Smile
We support our people to make a positive
contribution to the wider community. It is important
to us to support what is important to our people,
as a collective and individually. When AOers raise
money for a charity close to their hearts, AO Smile
foundation boosts the money raised by up to 50%
up to £2,000.
During the year, AO Smile has boosted AOers’
fundraising efforts by almost £9,000 for multiple
good causes including Diabetes UK, Proud Trust,
Children in Need and Mind UK. During the year,
AOers donated £26,139 to AO Smile though payroll
giving.
The Company’s Strategic Report is set out on pages
02 to 77 and was approved by the Board on 4 July
2023 and signed on its behalf by:
Julie Finnemore
Company Secretary
4 July 2023
We’re delighted to have secured
sponsorship from such a high-
profile brand as AO. This partnership
cements our vision to ‘be the best
elite netball club in the UK, on and
off court’ and we’re excited to be
associated with AO. I passionately
believe that if we want to realise
our potential as a sport, we need
to bring the biggest brands into
our support and this agreement
represents a major step towards
achieving this goal.”
Manchester Thunder Managing Director,
Debbie Hallas.
77
AO World PLC Annual Report and Accounts 2023Strategic Report Our
Governance
Contents
Chair’s letter and introduction
First impressions
Board of Directors
Corporate Governance Report
Nomination Committee Report
Audit Committee Report
Directors’ Remuneration Report
Directors’ Report
80
82
84
86
96
100
108
130
78
AO World PLC Annual Report and Accounts 2023 I ordered a cooker for my
mother. Delivery and installation
by the engineers was perfect so
was the appliance demonstration.
Removal of the old appliance was
amazingly efficient too. I have
used AO for five years
and I will use you
again for myself and
anyone I know.”
Sophie
79
AO World PLC Annual Report and Accounts 2023Our Governance Chair’s letter and introduction
Driving good corporate governance
to help steer the Company and
achieve its purpose.”
Having served as a Non-Executive Director for over
nine years, Marisa Cassoni has decided to retire and
will not be standing for re-election at the Company’s
forthcoming AGM. The Board wishes Marisa well
for the future and thanks her for her significant
contribution during her time with the Company,
particularly for her influence as Chair of the Audit
Committee and as a member of the Remuneration
and Nomination Committees. Marisa has been
instrumental in maturing the Company’s risk and
control processes, as it has matured into life as a
public company.
This year has been busy for our Board, and the
principal Committees with particular focus on: (a)
conducting a robust review and assessment of the
Group’s strategy, including the strategic review of,
and the decision to close, the German business (b)
overseeing the initiation of the strategic pivot to
focus on cash and project generation, including
simplifying operations and driving operational
efficiencies and overhead reduction, (c) assessing
and supporting the actions undertaken by
management in relation to the capital raise, (d)
overseeing the two appointments made to our
Board and (e) implementing the restructured Value
Creation Plan approved at our 2022 AGM.
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 recent years and it has been clear that the
relationships we have previously built have served us
well. The Sustainability Report (pages 50 to 77) and
our s172 statement (pages 46 to 49) set out in more
detail how the Board has approached this duty.
Over the year the Board has also reviewed the
Company’s progress against its ESG strategy. You
can read more about this work in our Sustainability
Report (pages 50 to 77). As we have reported, we
have not made as much strategic progress in
this area as we would have liked given it has been
necessary to focus on other priorities to protect
shareholder value, however, local actions have
continued, and we hope to be able to build on these
in the year ahead.
Finally, I look forward to meeting shareholders at
our next Annual General Meeting which will be held
at 8.00 am on 27 September 2023 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
AGM@ao.com.
Geoff Cooper
Chair
4 July 2023
Geoff Cooper
Chair
Dear Shareholders
On behalf of the Board, I am pleased to present our
Corporate Governance Report for the year ended
31 March 2023.
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 81.
A key part of my role is to ensure that the Board
works collaboratively with the Executive Committee,
to provide support and guidance and to challenge
management constructively when necessary. This
involves having Directors with the right balance of
skills and diversity of experience and perspective.
During the year, Peter Pritchard and Sarah Venning
were appointed as Non-Executive Directors, to
enhance the Board’s skills. Both Peter and Sarah
have significant and relevant experience which
deepens the Board’s existing skills and knowledge.
They have already made a substantial impact to
the work of the Board and its Committees.
Read more about
our culture on
page 17
Read more about
our pivot to
profitability on
page 32
80
AO World PLC Annual Report and Accounts 2023 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
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 130. Disclosures
required by LR 9.8.6 relating to the Group’s diversity policy are
detailed in the Sustainability: Fair, equal and responsible on
pages 72 and 73 and in the Corporate Governance Report on
pages 97 and 98 and Directors’ biographies and membership
of Board Committees are set out on pages 84 and 85.
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 100 to 106, it has reviewed the
effectiveness of the Company’s system of risk management
and internal controls.
Areas of Code non-compliance:
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 For the early part of the reporting period at least half the
Board, excluding the Chair, did not comprise independent
Non-Executive Directors. This has been rectified following
the appointment of Peter Pritchard and Sarah Venning on
1 October 2022 and 1 November 2022, so now at least half of
the Board, excluding the Chair, comprise independent
Non-Executive Directors.
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 10 and 11
Risk management – pages 38 to 44
Board of Directors – pages 84 and 85
Board leadership and purpose – pages 86 and 87
Shareholder and stakeholder engagement – pages 46 to 49
People and culture – pages 17 to 19
Workforce engagement – page 68
Governance framework – page 86
Board of Directors – pages 84 and 85
Division of responsibilities – page 87
Independence and time commitments – pages 84 and 85
Nomination Committee Report – pages 96 to 99
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 92
Nomination Committee Report – pages 96 to 99
Board skills and experience – page 90
Audit, risk and
internal control
Remuneration
The Audit Committee plays a key role in
monitoring and evaluating our compliance
and risk management processes, providing
independent oversight of our external audit
and internal control programmes, accounting
policies and ensures the Board Reports are fair,
balanced and understandable.
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.
Risk Management Report – pages 38 to 44
Audit Committee Report – pages 100 to 106
Remuneration Committee Report – pages 108 to 129
81
AO World PLC Annual Report and Accounts 2023Our Governance First impressions
Following the appointments of our new Non-Executives and their
inductions, we asked them what their first impressions were of AO.
Here’s what they said:
Peter
Pritchard
Sarah
Venning
The AO culture felt magical,
unique and special.
I found AOers to be kind, passionate,
happy and inspiring, and I could
sense the care and concern about
other people’s lives.
I loved the level of obsession
on customers.”
Everywhere, you feel the focus for
service. The passion for serving
customers well is a distinct advantage
and in my experience, hard to get right
in the way AO has. There is a belief in
doing what is right (make your mum
proud), upholding our promise to
customers and excelling to ensure
customers come back for more.
The people I have met demonstrate
the pride, passion, and determination
to drive change and deliver for the
business.
The rapid refocus and turnaround
of AO is impressive.
I was impressed by our capability
in [recycling] and was surprised by
the lengths we go to in recycling
used appliances.”
82
AO World PLC Annual Report and Accounts 2023 Strengthening the team in 2022
01
Selection criteria
established
Having evaluated the existing
balance of skills, experience
and knowledge already on the
Board, a written description of
the role, capabilities required and
time commitment expected was
prepared. Individuals with relevant
industry and public company
experience which would help to
expand the Board’s existing skill
set were sought to deepen the
effectiveness of the Board. In
setting the criteria, an important
consideration was to increase the
diversity of the Board, in all aspects.
02
Market search
Based on our brief, together with an
external search consultancy, Russell
Reynolds Associates, we conducted a
search using our high-level professional
networks, industry knowledge and
internal research resources to identify
suitable candidates for the roles.
Competency interviews, leadership
questionnaires, culture assessments
and references were then undertaken to
compile a shortlist of individuals.
03
Candidates shortlisted
The Committee reviewed the shortlist
of candidates against its selection
criteria, having regard to each
candidate’s existing commitments to
ensure sufficient time was available to
undertake the role, with advice sought,
as appropriate, from the external search
consultancy. At each stage of refining
the shortlist to a smaller group of
candidates, our intention was to maintain
a significant representation of female
and ethnically diverse candidates, and
these candidates have comprised all but
one of the recent interviews conducted
by our Chair and Non-Executive Directors.
04
Appointment
The recommendations for Peter
and Sarah’s appointments were
based on merit, against objective
criteria and with due regard
for the benefits of diversity on
the Board. Peter and Sarah’s
appointments to the Board were
effective from 1 October 2022 and
1 November 2022 respectively, with
the appropriate announcements
and disclosures made.
05
Induction and site visits
A tailored induction process was
created for Peter and Sarah involving
the collation of relevant Company,
Board and Committee information.
One-to-one meetings were arranged
with key personnel from across the
business and, as our Board meetings
are scheduled to take place at different
locations, Peter and Sarah received
tours at a number of our sites and
therefore experienced AO’s culture
in action.
83
AO World PLC Annual Report and Accounts 2023Our Governance Board of Directors
Geoff Cooper
Non-Executive Chair
John Roberts
Founder and
Chief Executive Officer
Mark Higgins
Chief Financial Officer
Marisa Cassoni
Senior Independent
Non-Executive Director
Committee membership
N
R
Committee membership
None
Committee membership
None
Committee membership
A
N
R
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 Innovator and visionary lead
y Significant market
knowledge and
understanding
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, Card
Factory PLC and Brakes
Group, 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
Appointment to the Board
1 August 2015
Appointment to the Board
5 February 2014
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
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 Former non-executive
director at Ei Group Limited
(formerly known as Ei Group
PLC) and Skipton Group
Holdings Limited
y Panel member of the
Competition and Markets
Authority
y 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 Limited (formerly
known as Galliford Try PLC)
Independent
Yes
Key
A Audit Committee N Nomination Committee R Remuneration Committee
P People Champion
Chair of Committee
84
AO World PLC Annual Report and Accounts 2023 Chris Hopkinson
Non-Executive Director
and People Champion
Shaun McCabe
Non-Executive Director
Peter Pritchard
Non-Executive Director
Sarah Venning
Non-Executive Director
Committee membership
N
P
Committee membership
R A*
Committee membership
A R
Committee membership
None
Appointment to the Board
12 December 2005
Appointment to the Board
24 July 2018
Appointment to the Board
1 October 2022
Appointment to the Board
1 November 2022
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 Significant experience in
digital and IT fields across
retail, hospitality and
transport sectors having
worked previously at John
Lewis Partnership and BAA
y Experience in digital
transformation and
information technology
Significant current
external appointments
Global chief digital officer at
Pret A Manger
Independent
Yes
Relevant skills
and experience
y Significant consumer
and broad operational
experience
y Previous chief executive
officer at Pets at Home
PLC and held other senior
positions at several of
the UK’s best-known
retail brands including
Wilkinson Stores Limited,
Asda/Walmart stores Inc, J
Sainsbury PLC and M&S PLC
Significant current
external appointments
Non-executive director at
Motability Operations Group
PLC and Voff Premium Pet
Food Sweden AB.
Chair at Shiba Bidco S.p.A.
(Arca Planet Italy)
Independent
Yes
Relevant skills
and experience
y ICAEW chartered
accountant with a
strong mix of knowledge
of consumer-focused
businesses and digital
expertise
y Significant international,
finance and general
management experience
y Previous senior positions
held at several online
market leaders including
chief financial officer for
Trainline PLC, international
director at ASOS PLC
and vice president, chief
financial officer for
Amazon Europe
Significant current
external appointments
Chief financial officer for
boohoo group PLC
Independent
Yes
*Interim
85
AO World PLC Annual Report and Accounts 2023Our 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
Committees
Leadership
Team
(Strategic delivery
and long-term
planning)
Trading
Team
(Performance and
operational
delivery)
Management
Team
(Update and
communication
forum)
Audit
See pages
100 to 106
Risk
See pages
38 to 45
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 and CFO. 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 leaders 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
periodically and is focused on the strategic
direction and achievement of the Group’s priorities.
Trading team meetings, led by the Executive
Committee, are held weekly. This team 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 and management team members with
operating responsibility. The Group’s management
team is led by the CFO and comprises our work level
three and above AOers (defined as those who lead,
86
Remuneration
See pages
108 to 129
Nomination
See pages
96 to 99
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 Data Protection and
Information Security (“DPS”), Senior Managers and
Certification Regime (“SM&CR”), and health and
safety and are also formed for specific projects as
required.
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
bi-annually to ensure robust risk management
procedures are implemented and to critically review
the Group’s risk register.
AO World PLC Annual Report and Accounts 2023 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.
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 84 and 85.
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
y Day-to-day running of the Group and effectively implementing the Board’s decisions
y Leading the performance and management of the Group
y Proposing strategies and business plans to the Board
y Providing entrepreneurial leadership of the Company to ensure the delivery of the strategy
agreed by the Board
Chief Financial Officer
Mark Higgins
y 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
Peter Pritchard
Sarah Venning
Designated
Non-Executive Director –
People Champion
Chris Hopkinson
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
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
87
AO World PLC Annual Report and Accounts 2023Our 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 96
to 129.
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.
Committee
Audit
Role and Terms
of Reference
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
Membership required
under Terms of
Reference
Minimum number
of meetings per
year under Terms
of Reference
Committee Report
on pages under
Terms of Reference
Three
100 to 106
At least two
Independent Non-
Executive Directors
(or such number
as is required from
time to time by
the UK Corporate
Governance Code)
Remuneration
Nomination
Responsible for all
elements of the
remuneration of the
Executive Directors and
the Chair, the Company
Secretary and the direct
reports of the CEO
At least two
Independent Non-
Executive Directors
(or such number as
is required from time
to time by the UK
Corporate Governance
Code)
Reviews the structure,
size and composition
of the Board and its
Committees, and
makes appropriate
recommendations to
the Board
At least two members
(or such number as
is required from time
to time by the UK
Corporate Governance
Code) and a majority
shall be Independent
Non-Executive Directors
Three
108 to 129
Two
96 to 99
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
as appropriate. 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 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 to provide adequate time for reading and
to raise any specific queries or questions.
88
AO World PLC Annual Report and Accounts 2023 At each meeting, the Chief Executive Officer
updates the Board on key operational
developments and performance, provides an
overview of the market and other key operational
risks, and highlights the important milestones
reached in the delivery of the Group’s strategic
objectives. The Chief Financial Officer provides
an update on the Group’s financial performance,
banking arrangements, AO’s relationships with
investors and potential investors and shareholder
feedback and analysis. Meeting proceedings and
any unresolved concerns expressed by any Director
are minuted by the Company Secretary who, as
Director of Group Legal, provides the Board with an
update on any legal issues 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 2023
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, and the decision to close the German
business
y Conducted a robust review and assessment of
the Group’s strategy and oversaw the initiation of
the strategic pivot to focus on cash and project
generation including simplifying operations and
driving operational efficiencies and overhead
reduction
y Through, and with, the Remuneration Committee,
supported the design and implementation of the
all-employee Restructured Value Creation Plan,
which supports and incentivises execution of
strategy
y Reviewed the Company’s progress against its ESG
strategy
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 Approved the annual budget, the business plan
for the Group and individual capital expenditure
projects
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 various matters in connection with the
capital raise
y Approval of renewal of the Group’s Revolving
Credit Facility
Governance
y Oversaw the appointment of two new Non-
Executive Directors to the Board
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 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 and annual modern day slavery
statement
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 Data Protection and the IT
security environment
y Undertook a cyber attack simulation exercise to
consider, challenge and test response plans at
Board level (including, legal and regulatory, PR
and comms, and third-party partnerships)
89
AO World PLC Annual Report and Accounts 2023Our Governance Corporate Governance Report continued
Board meeting attendance
The table below summarises the attendance of the Directors during the year ended
31 March 2023.
Board Gender
25%
Director
Geoff Cooper
John Roberts
Mark Higgins
Chris Hopkinson
Marisa Cassoni
Shaun McCabe***
Peter Pritchard*
Sarah Venning**
Meetings
eligible
to attend
12/12
12/12
12/12
11/12
12/12
10/12
5/5
5/5
75%
Male
Female
* Peter Pritchard was appointed to the Board on 1 October 2022.
** Sarah Venning was appointed to the Board on 1 November 2022.
*** Shaun McCabe attended all scheduled meetings but was unable to attend two meetings called at
short notice.
Where Directors are unable to attend meetings, they receive the papers scheduled
for discussion at the relevant meetings, giving them the opportunity to raise any
issues and give any comments to the Chair in advance of the meeting.
Board Role and Independence
1
2
appointed 1 November 2022
appointed 1 October 2022
appointed 24 July 2018
appointed 1 July 2016
appointed 1 August 2015
appointed 5 February 2014
appointed 12 December 2005
appointed 2 August 2005
5
Executive Directors
Independent NEDs including
the Chair
Non-independent NED (Chris
Hopkinson is considered non-
independent in respect of his
Board tenure only)
r
e
p
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o
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e
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V
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a
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a
S
Board Tenure at 31 March 2023
Sarah Venning
Peter Pritchard
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
90
AO World PLC Annual Report and Accounts 2023
Composition, succession
and evaluation
Composition
As at the date of this Annual Report, the Board
comprises eight members: the Chair, two Executive
Directors and five Non-Executive Directors, which
includes the Senior Independent Director. Excluding
the Chair, four Board members (i.e. at least half) are
considered independent in line with the Code. As at
4 February 2023, the Senior Independent Director,
Marisa Cassoni had served a nine-year term
which is a factor that points to her no longer being
independent under the Code. Notwithstanding
this, the Board concluded that Marisa remained
independent because she was capable of
carrying out independent judgement, was able to
appropriately challenge management and was
not unduly influenced by the Executive Committee
or other members of the Board. None of the other
circumstances listed in the Code as potentially
impacting independence applied to Marisa. The
Nomination Committee therefore agreed that
Marisa would remain in her position as chair of the
Audit Committee, a member of the Nomination
and Remunerations Committees, and Senior
Independent Director until the Company’s AGM in
September when she is expected to retire.
Peter Pritchard and Sarah Venning were appointed
to the Board on 1 October 2022 and 1 November
2022 respectively. All other current Directors served
throughout the year. Details of the skills, career
background, Committee membership, tenure and
external appointments of all Directors are set out on
pages and 84 and 85. Further details on the role of
the Chair and members of the Board can be found
on page 87. 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.
During the year, the Nomination Committee defined
the process and brief for the recruitment of three
additional Independent Non-Executive Directors
as we sought to enhance the skill set of the Board,
address areas of Code non-compliance and as part
of succession planning. A specialist third party was
engaged to assist with the search. As a result of the
recruitment process, Peter Pritchard and Sarah
Venning were appointed as Non-Executive Directors
on 1 October 2022 and 1 November 2022 respectively.
Following these appointments, our Board currently
includes two women, representing 25% of its
membership (2022: 17%). We continued to assess
whether any additional Non-Executive expertise
would be beneficial to the Company.
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. In conducting its search for new Non-
Executive Directors during the year we specifically
highlighted to our search partner that increasing
the diversity of the Board, in all aspects, was an
important consideration with these appointments.
Consequently, they were asked to bring forward
shortlists with a significant representation of
female and ethnically diverse candidates and
these candidates comprised all but one of the
recent interviews conducted by our Chair and
Non-Executive Directors. Most importantly, however,
we will only appoint candidates who we judge can
contribute strongly to the Board’s experience
and skill set. This will continue to be the Board’s
approach in making any new appointments.
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 97. 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 page 73. For information on
our procedures concerning the appointment and
replacement of Directors, please see page 97.
For the purposes of assessing compliance with the
Code, the Board considers that Marisa Cassoni,
Shaun McCabe, Peter Pritchard and Sarah Venning
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.
91
AO World PLC Annual Report and Accounts 2023Our Governance Corporate Governance Report continued
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
84 and 85 and the skills matrix on page 90, the
Chair and the Non-Executive Directors collectively
have significant industry and public company
experience, which will support the Company in
executing its strategy.
Directors’ skills and experience
The Board skills and experience matrix above
details some of the key skills and experience that
our Board has identified as particularly valuable
to the effective oversight of the Company and
execution of our strategy.
Induction process
In line with the Code, we ensure that any new
Directors joining the Board receive appropriate
support and are given a comprehensive and tailored
induction programme organised through the
Company Secretary, with each Director’s individual
experience and background taken into account
in developing a programme tailored to their own
requirements. The induction typically includes the
provision of background material on the Company,
one-to-one meetings with the CEO and CFO and
briefings with senior management as appropriate.
Any new Director will also be expected to meet with
major shareholders if required. New Directors also
receive appropriate guidance on key duties as a
Director of a listed company.
Evaluation and effectiveness
The effectiveness and performance of the Board
is vital to our success. The Code requires that
there should be a formal and rigorous annual
evaluation of the performance of the Board, its
Committees, the Chair and individual Directors and
that consideration should be given to conducting
a regular, externally facilitated Board evaluation,
which, for FTSE 350 companies, should be at least
every three years. The Company was not, during
the year, nor is it currently, part of the FTSE 350. Our
last external evaluation was carried out in the year
ended 31 March 2018 and in the last few years the
Board has determined that, given the pace at which
the outlook of the business was changing and the
impact of Covid on the usual workings of the Board,
an external review would have been conducted in
somewhat artificial circumstances and not given
a true reflection of the way in which the Board was
operating. In addition, with the recent appointments
of two additional Non-Executive Directors, the Board
felt it would be appropriate to allow the new Board
composition to settle before conducting an external
review. The Board therefore determined that an
internal review of its effectiveness was, again, more
appropriate for the year ended 31 March 2023.
The internal evaluation was led by the Chair. As
part of this process, one-to-one meetings were
conducted with all Directors and the Company
Secretary who were given the opportunity to
express their views about:
y the performance of the Board and its
Committees, including how the Directors work
together as a whole;
y the balance of skills, experience, independence
and knowledge of the Directors; and
y 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 amongst the Directors about
its effectiveness. Some actions were agreed and will
be progressed over the coming year.
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.
92
AO World PLC Annual Report and Accounts 2023 Directors’ conflicts of interest
Directors have a statutory duty to avoid situations in
which they have or may have interests that conflict
with those of the Company, unless that conflict is
first authorised by the Board. This includes potential
conflicts that may arise when a Director takes up
a position with another company. The Company’s
Articles of Association, which are in line with the
Companies Act 2006, allow the Board to authorise
potential conflicts of interest that may arise and to
impose limits or conditions, as appropriate, when
giving any authorisation. Any decision of the Board
to authorise a conflict of interest is only effective if
it is agreed without the conflicted Director’s voting
or without their votes being counted. In making such
a decision, the Directors must act in a way they
consider in good faith will be most likely to promote
the success of the Company.
The Company has established a procedure for the
appropriate authorisation to be sought prior to
the appointment of any new Director, or prior to a
new conflict arising and for the regular review of
actual or potential conflicts of interest. An Interests
Register records any authorised potential conflicts
and will be reviewed by the Board on a regular basis
to ensure that the procedure is working effectively.
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, other than Marisa Cassoni who is
expected to retire at the 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.
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 Deloitte on
the UK Corporate Reform proposals concerning
internal controls. As part of the Board Evaluation
process, training and development needs are
considered and training courses are arranged,
where appropriate. Directors are encouraged to
be proactive and identify areas where they would
like additional information to ensure that they are
adequately informed about the Group.
The Board confirms that all members have the
requisite knowledge, ability and experience to
perform the functions required of a Director of a UK
premium-listed company.
External directorships
and time commitment
Each Director is expected to attend all meetings
of the Board and of those Committees on which
they serve and is required to be able to devote
sufficient time to the Group’s affairs allowing them
to fulfil their duties effectively as Directors. In
accordance with the Code, full Board approval is
sought prior to a Director accepting an external
appointment to a publicly listed company or other
significant commitment. Prior to the approval of
any external appointments, the Board considers
the time commitment required by Directors to
perform their duties effectively. As part of the
selection process for any new Board candidates,
any significant time commitments are considered
before an appointment is agreed. All Non-Executive
Directors are required to devote sufficient time to
meet their Board responsibilities and demonstrate
commitment to their role.
During the year, Shaun McCabe requested
approval to accept the external directorship
as Chief Financial Officer of boohoo group plc,
stepping down as Chief Financial Officer of
Trainline plc at the same time. The Board assessed
the appointment and was satisfied that the time
commitment required would not prevent Shaun
from performing his 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 AO
Smile Foundation, for which he receives no fees, John
Roberts does not hold any external directorships.
During the year, John Roberts resigned from his
position as a director of OnSide Youth Zones, for
which he received no fees. Mark Higgins holds no
external directorships. Details of the Directors’
significant external directorships can be found on
pages 84 and 85.
93
AO World PLC Annual Report and Accounts 2023Our Governance Corporate Governance Report continued
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 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 Chief Financial Officer. The Investor
Relations function ensures that there is effective
communication with shareholders on matters such
as strategy and, together with the Chief Executive
Officer and Chief Financial Officer, is responsible for
ensuring that the Board understands the views of
major shareholders on such matters.
There is an ongoing programme of dialogue and
meetings between the Executive Directors and
institutional investors, fund managers and analysts.
This includes formal meetings with investors to
discuss interim and final results, and maintaining an
ongoing dialogue with the investment community
through regular contact with existing and
potential shareholders, attendance at investment
conferences and holding investor roadshows
as required. At these meetings, a wide range of
relevant issues, including strategy, performance,
management and governance are discussed
within the constraints of information that has
already been made public. The Investor Relations
function 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 Board composition and independence,
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 and Numis Securities, on the
views of institutional investors on a non-attributed
and attributed basis. Any concerns of major
shareholders would be communicated to the Board
by the Executive Directors. As a matter of routine,
the Board receives regular reports on issues relating
to share price and trading activity, and details of
movements in institutional investor shareholdings.
The Board is also provided with current analyst
opinions and forecasts. All shareholders can access
announcements, investor presentations and the
Annual Report on the Company’s corporate website
(ao-world.com).
Annual General Meeting
The AGM of the Company will take place at 8:00 am
on 27 September 2023 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 25 September 2023 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 AGM@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 88.8% to
99.9%.
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 46 to 49. In setting and
monitoring strategy, the Board is mindful of the
impact that its decisions will have on the Group’s
stakeholders.
94
AO World PLC Annual Report and Accounts 2023 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 and People
Champion, Chris Hopkinson, provides regular
feedback and updates from the Employee Voice
to the Board forum
y The CEO regularly holds intereactive Q&A
sessions which complement the monthly “State of
the Nation” communications forums
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
95
AO World PLC Annual Report and Accounts 2023Our Governance Nomination Committee Report
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. Marisa Cassoni is also deemed
independent. Marisa has served a nine-year term
which is a factor that points to her no longer being
independent under the Code. Notwithstanding
this, the Board concluded that Marisa remained
independent because she was capable of
carrying out independent judgement, was able
to appropriately challenge management and
was not unduly influenced by the Executive
Committee or other members of the Board. None
of the other circumstances listed in the Code as
potentially impacting independence applied to
Marisa. The Nomination Committee therefore
agreed that Marisa would remain in her position
as chair of the Audit Committee, a member of the
Nomination and Remuneration Committees, and
Senior Independent Director until the Company’s
AGM in September when she is expected to retire.
Following Marisa’s retirement, Peter Pritchard
is expected to replace her as a member of the
Nomination Committee. 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 84
and 85.
Geoff Cooper
Chair
Delivering a balanced Board
with the right skills mix.”
I am pleased to introduce the report of the
Nomination Committee for the year ended
31 March 2023. Full details of the Committee
and its activities during the year are given below.
Committee members and meetings attended
y The Group Legal Director and Company
Geoff Cooper
Chris Hopkinson
Marisa Cassoni
Meetings
eligible to
attend
3/3
3/3
3/3
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, the
Group HR Director 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 three 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.
96
AO World PLC Annual Report and Accounts 2023 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 principal 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 an Independent Non-
Executive Director at the end of January 2022, 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. During the year, the
Nomination Committee defined the process
and brief for the recruitment of three additional
Independent Non-Executive Directors as we sought
to enhance the skill set of the Board, address areas
of Code non-compliance and as part of succession
planning. It conducted a skills audit of the current
Board, matched against expected challenges and
requirements, and engaged a specialist third party
to assist with the search; focusing on candidates
with a mixture of PLC Board, Remuneration
Committee, technology, digital and financial skills
and experience with it being stressed to the firm
that the diversity of the Board, in all aspects, was an
important consideration with these appointments.
As a result of the recruitment process, Peter
Pritchard and Sarah Venning were appointed as
Non-Executive Directors on 1 October 2022 and
1 November 2022 respectively. We are continuing
to assess whether any additional Non-Executive
expertise would be beneficial to the Company.
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.
97
AO World PLC Annual Report and Accounts 2023Our Governance Nomination Committee Report continued
The Directors remain supportive of the
recommendations in both the Hampton-Alexander
Review on gender diversity and the Parker Review
on ethnic diversity, together with the new Listing
Rules’ targets, 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. In conducting its search for new Non-
Executive Directors during the year, we specifically
highlighted to our search partner that increasing
the diversity of the Board, in all aspects, was an
important consideration with these appointments.
Consequently, they were asked to bring forward
shortlists with a significant representation of
female and ethnically diverse candidates and
these candidates comprised all but one of the
recent interviews conducted by our Chair and Non-
Executive Directors. Most importantly, we will only
appoint candidates who we judge can contribute
strongly to the Board’s experience and skill set. This
will continue to be the Board’s approach in making
any new appointments.
Female representation on our Board is currently
25% (2022: 17%), and 27% at senior management
level (which comprises our Executive Committee
(none of whom are female) and their direct reports)
(2022: 26%). Currently we have no ethnic diversity
at any of these levels. Accordingly, we do not meet
the diversity targets set out in the Listing Rules but,
as covered above, this will remain an important
consideration in future appointments.
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 68 to 75.
Board effectiveness
Pursuant to the recommendation set out in the
Code, an externally facilitated review of the Board
was considered 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 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 FY23 reporting period but, given the changing
dynamics of the Board, wider business challenges
and the recent appointments of two 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 will consider
conducting an external review once the new Board
composition has settled.
Further details of this year’s internal review and its
results can be found on page 92 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, notwithstanding the
tenure of Marisa Cassoni as covered above. 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, Shaun
McCabe requested, and was granted approval
from the Board, to accept an external directorship
as Chief Financial Officer of boohoo group plc,
stepping down as Chief Financial Officer of Trainline
plc at the same time.
Reappointment of Directors
On the recommendation of the Nomination
Committee and in line with the Code, all currently
appointed Directors will retire at the 2023 AGM and
offer themselves for reappointment, other than
Marisa Cassoni who is expected to retire at the AGM.
The biographical details of the current Directors
can be found on pages 84 and 85. 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.
98
AO World PLC Annual Report and Accounts 2023 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 integration of the two new Independent
Non-Executive Directors and the structure and
composition of the Company’s Committees,
following the retirement of Marisa Cassoni at the
AGM. Senior management succession planning and
strengthening our senior talent pipeline will also
remain under consideration, along with supporting
the business as it continues to build on the work
undertaken to build a more diverse and inclusive
business.
Geoff Cooper
Chair, Nomination Committee
AO World PLC
4 July 2023
I would like to say a big thank
you to the two guys who fitted
it for me. Nothing was too much
trouble and they were so polite and
friendly. They took their time to
explain things to me. I would highly
recommend your company.”
Lee
99
AO World PLC Annual Report and Accounts 2023Our Governance Audit Committee Report
Marisa
Cassoni
Chair, Audit
Committee
Ensuring effective internal
control and risk management,
together with fair, balanced and
understandable reporting.”
On behalf of the Committee, I am pleased to
present this year’s Audit Committee Report for the
year ended 31 March 2023. 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
Peter Pritchard*
Meetings
eligible to
attend
6/6
6/6
3/3
* Peter Pritchard was appointed as an Independent Non-
Executive Director of the Company and a member of the Audit
Committee (and Remuneration Committee) on 1 October 2022.
100
Membership
y During the year, the Audit Committee comprised
a minimum of two Independent Non-Executive
Directors, including for half of the year* 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 84
and 85, 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.
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 (via the Board Committees
page), 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 92. The review for the year
to 31 March 2023 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 are 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 Reviewed the quarterly internal audit reports
together with management responses and
reviewed the progress on required actions to
improve the controls environment.
y Reviewed updates on the changing regulatory
environment, in particular the UK Corporate
Reform proposals concerning internal controls.
AO World PLC Annual Report and Accounts 2023 y Reviewed Internal Audit practices against IIA
International Professional Practices standards.
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.
During the year, the Financial Reporting Council
(“FRC”) carried out a review of the Company’s
Annual Report and Accounts for the year ended
31 March 2022 in accordance with Part 2 of the FRC
Corporate Reporting Review Operating Procedures.
During its review, the FRC noted that the net assets
of the Company at 31 March 2022 were less than
half of its called-up share capital. Under section
656 of the Companies Act 2006 (the “Act”), this
constitutes a “serious loss of capital”. The Company
was asked to explain what steps were taken to call a
general meeting, as required by the Act, to consider
steps to deal with the loss of capital. The Company
described the actions it took to remedy the loss
of capital by way of a share placing and offer
completed in July 2022, which raised £40m before
expenses. In view of the Company’s remediation,
the FRC has taken no further action on this matter.
Other observations were made by the FRC in
relation to enhancing certain disclosures which
management and the Committee have considered
and taken forward, as appropriate, in this year’s
Report.
In the FRC’s correspondence it clarified that
its review was based on the Annual Report and
Accounts for the year ended 31 March 2022 and
did not benefit from detailed knowledge of the
Company’s business or an understanding of
the underlying transactions entered into. It was,
however, conducted by staff of the FRC who had an
understanding of the relevant legal and accounting
framework. The FRC confirmed that it supports
continuous improvement in the quality of corporate
reporting and recognised that those with more
detailed knowledge of the Company’s business,
including the Company’s Audit Committee and
independent auditors, may have recommendations
for future improvement, consideration of which the
FRC would encourage.
The FRC provided no assurance that the Annual
Report and Accounts for the year ended 31 March
2022 were correct in all material respects; the
FRC confirmed that its role was not to verify the
information provided but to consider compliance
with reporting requirements.
The FRC confirmed that its correspondence was
written on the basis that the FRC (which includes its
officers, employees and agents) accepts no liability
for reliance on them by the Company or any third
party, including but not limited to investors
or shareholders.
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 External Auditor and
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 financial reporting and information
systems; and information security and IT controls
framework. Our Risk Management Committee
operates separately (meeting bi-annually 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. 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 38 to 45.
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 its dynamic audit plan which is
aligned to the key risks of the business. 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 are approved by the Committee.
101
AO World PLC Annual Report and Accounts 2023Our Governance Audit Committee Report continued
The Committee concluded, based on the
information received over the year, that the system
of internal control was appropriately monitored and
managed.
The steps taken to simplify the business and
become more efficient have had the effect of
decreasing risk in some areas. However, due to the
organisational structure changes and attrition,
there are some risks, controls and processes
that require clarification of ownership and
responsibilities.
Our Group IT/Tech audits have continued
to highlight some deficiencies in the control
environment, particularly in terms of governance
oversight and risk maturity. However, given that our
Internal Audit proposition in this area has only been
established for less than two years, these issues
are being formally highlighted for the first time. We
have noted a trajectory of improvement activity
and expect to see improvements in the control
environment as we start to revisit our initial audits
in FY24.
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
over the last couple of years by tough trading
conditions. Critical areas have been highlighted by
management as requiring change over the coming
financial years, which is expected to also improve
the clarity and ownership of processes and controls.
Internal Audit effectiveness review
We monitor and assess the role, effectiveness and
independence of the Internal Audit function in the
overall context of the Group’s risk management
systems annually.
Following last year’s External Quality Assessment
and this year’s internal 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 2023 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 2023 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.
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 2023 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 135 of the
Directors’ Report.
102
AO World PLC Annual Report and Accounts 2023 Significant financial statement reporting issues
In reviewing the financial statements with management and the External 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
and contract asset
recoverability in our
Mobile business
AO Mobile – carrying
value of goodwill and
intangible assets
The Company sells product protection plans to customers purchasing electrical
appliances, as agent, for Domestic & General, who administer the plans, collect
money from the customers and pay a commission to the Company for each plan sold.
Commission for sales of product protection plans, for which the Group acts as an agent,
are included within revenue and as a contract asset based on the estimated value of future
commissions receivable over the life of the product protection plan. Revenue is recognised
at the point of sale on the basis that the Group has fulfilled its obligations to the customer
in line with accounting standards relating to revenue recognition. The calculation takes into
consideration the anticipated length of the plan, the historical rate of customer attrition
and any other matters which could affect future attrition and is discounted to reflect the
time value of money but also risks around the recoverability of the receivable balance
attributable to the product protection plans.
In line with normal practice, management has reassessed all the key estimates,
assumptions and judgements used in recognising revenue (which are set out in Notes 4
and 22).
It has prepared a detailed paper setting out the results of this reassessment. The
Committee has reviewed the assumptions, 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. Changes in contractual entitlement, particularly with regard to significant
CPI/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.
Management has prepared a detailed paper setting out the key assumptions used in
recognising revenue (which are set out in Notes 4 and 22. The Committee has reviewed the
judgements and estimates made in this area by management and, following appropriate
challenge, we consider the policy and practice appropriate.
On the acquisition of Mobile Phones Direct Limited (since renamed AO Mobile Limited)
in December 2018, the Group recognised goodwill and intangible assets which at
31 March 2023 had a carrying value of £23.5m. 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 2023, the amount of headroom above the carrying value was £11.9m. 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.
103
AO World PLC Annual Report and Accounts 2023Our Governance Audit Committee Report continued
Going concern and
viability assessments
The Committee reviewed the Group’s going concern
and viability statements as set out on page 45. 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 2026
and recommended to the Board the adoption of
both the going concern and viability statements for
inclusion in this report.
External audit
The Audit Committee has primary responsibility
for leading the process for selecting the External
Auditor and overseeing the relationship and
performance. It is required to make appropriate
recommendations on the appointment,
reappointment and removal of the External
Auditor, through the Board, to the shareholders to
consider at the Company’s AGM. It is also required
to assess the independence of the External Auditor
on an ongoing basis and to negotiate the terms
of engagement, audit fee and to ensure that they
have an appropriate audit plan in place. Following
approval by shareholders at the AGM held on
28 September 2022, KPMG LLP was reappointed as
AO’s External Auditor for the financial year ended
31 March 2023. 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 2022 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 the key controls that the External Auditor relied
on to address any identified risk to audit quality
such as appropriate audit methodologies;
y the findings from internal and external
inspections of the external audit and audit firm;
y whether the original audit plan was met;
y the reports that are brought to the Committee
by the lead audit engagement partner and other
senior members of the audit team;
y the quality of the management responses to
audit queries;
y 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 was 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.
An inspection of the External Auditor’s audit of the
Company for the year ended 31 March 2022 was
undertaken following completion of that audit
by the Financial Reporting Council’s (“FRC”) Audit
Quality Review (“AQR”) team. The inspection of
individual audit engagements by the FRC’s AQR
team is intended to contribute to safeguarding and
promoting improvement in the overall quality of
auditing in the UK. The inspection covered selected
aspects of the audit only, including: the financial
statements audit, the quality of communication
with the Committee and certain matters relating
to planning, completion, ethics and quality control.
The Committee and KPMG LLP have disucssed
the review findings and KPMG LLP have confirmed
that it has captured all of the actions taken to
incorporate identified areas for improvement into its
audit plan for the year ended 31 March 2023.
104
AO World PLC Annual Report and Accounts 2023 External audit partner rotation
On behalf of the Board, the Committee oversees
the relationship with the External Auditor. KPMG was
appointed as Auditor to the Company in July 2016
for the financial year ended 31 March 2017, and was
reappointed at the 2022 AGM. David Neale replaced
the incumbent Audit Partner in September 2020 and
has led the audit for the years ending 31 March 2021,
2022 and 2023.
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.
Reappointment of External Auditor
for the 2024 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 2023 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 £89,700
(2022: £75,000) and £nil (2022: £5,000) in relation to
agreed-upon procedures in relation to the Group’s
covenant reporting pack, and representing c.11%
of the value of the Group audit fee (2022: c.9%).
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.
105
AO World PLC Annual Report and Accounts 2023Our Governance Audit Committee Report continued
Priorities for year ending
31 March 2024
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 continue to focus on
overseeing management’s preparations for the UK
Corporate Reforms. 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
4 July 2023
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 2024.
External Auditor fees
During the financial year, the Group External
Auditor’s fees were £0.8m (2022: £0.8m). The Audit
Committee was satisfied that the level of audit fees
payable in respect of the audit services provided
was 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.
106
AO World PLC Annual Report and Accounts 2023 Our Governance
The delivery personnel were very
friendly, very smiley, they were
helpful with tips or when we installed
our appliances and kept us in the
loop with the delivery. Would happily
use AO again due to the pleasant
experience with the delivery drivers.”
Christopher
AO World PLC Annual Report and Accounts 2023
107
Directors’ Remuneration Report
FY23 highlights
Highlights of the work of the Remuneration
Committee in FY23 and to the date of this
report:
y Considered the restructuring of and
implementation of the Value Creation Plan
2022 (VCP22) which was approved at the
2022 AGM.
y Introduced a flexible benefits scheme for
our Executives and leadership team.
y Reviewed the effectiveness of the Directors’
remuneration policy and considered
the latest guidance on Executive
compensation.
y Determined the levels of vesting for the AO
Incentive Plan FY23 Award.
y Determined the shares to be released
pursuant to the AO Incentive Plan
FY20 Award.
y Considered pay levels for the wider
workforce in light of the cost of living crisis
in the UK.
y Determined the remuneration for FY24 for
our Executive Directors and certain senior
management.
y Set the performance conditions for the AO
Incentive Plan FY24 Award.
y Reviewed the Company’s gender pay gap
report and recommended actions.
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 2023 (FY23).
Looking back
Our Executive Board performed strongly
throughout the year, delivering on the strategy pivot
to turn the Group into a cash generative business
focused on profitable growth, whilst successfully
completing a capital raise and renewing the Group’s
revolving credit facility, putting the business on a
strong financial footing. UK Adjusted EBITDA for
the year was c.£45m (FY22 £22.5m) with adjusted
profit before tax (PBT) of £12.1m (FY22 loss before tax
£10.5m), vastly improving on the prior period. There
has been good strategic progress as we focused on
the UK business, continuing to build our customer
proposition and digital capabilities whilst simplifying
and joining up the remaining business areas better
than ever before. This performance is reflected in
the remuneration earned by our Executives, for
which a high proportion is performance-related
variable pay, as per our policy.
Shaun
McCabe
Interim Chair,
Remuneration
Committee
Ensuring a reward strategy that
supports short and long-term
sustainable performance.”
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 Directors’ remuneration policy (which received
shareholder approval at the 2022 AGM)
y The Annual Report on Remuneration for FY23
(which will be subject to an advisory vote at the
2023 AGM)
108
AO World PLC Annual Report and Accounts 2023 AOIP Award FY23
In terms of variable pay, the Executives were
granted AOIP FY23 Awards where the performance
conditions were set along three sets of deliverables:
1. Financial (output) metrics, focused on profit
before tax and liquidity headroom (30%
weighting each);
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 (10% weighting each).
The financial performance is detailed above and
earlier in this report. The charts below shows the
threshold, target and stretch levels for performance
and the results against these, with the vesting levels
set out respectively.
In relation to the strategic transformation measure,
given the excellent progress made in the pivot in
strategy to focus on a more simplified profitable
and cash generative UK business and resulting
performance both financially and operationally,
the Committee judged that it was appropriate that
the full amount pertaining to this metric, i.e. 20%,
be awarded.
Customer satisfaction, measured via NPS,
has remained strong over the year, averaging
in excess of 80 across our ao.com and
mobilephonesdirect.co.uk platforms which is
considered “Excellent”. This score is market leading
and an excellent achievement by the team during
challenging and difficult consumer markets and
with some of the structural and policy changes
made by the team as they focus on profitable sales.
Accordingly, the Committee has determined that
this performance condition has been met in full.
The employee NPS score has been mixed over the
year falling to -11 in the first half of the year but
improving to +1 in the second half. This is unsurprising
as we continued to right-size the business to reduce
the infrastructure and supporting teams that we
had invested in to capitalise on the rapid growth
initially presented by Covid and also in light of our
economic situation (which culminated in our capital
raise in summer last year). Such overhead reduction
drove concerns around job security impacting
employee morale, with the macroeconomic
uncertainty and the cost of living crisis adding
further pressure. The pivot on strategy has also
been a huge change for our people who historically
have been laser-focused on top line growth. Whilst
we are not pleased with the average score of -5, it
is understandable in the circumstances, and it is
pleasing that the more recent result has improved
above 0, falling within the “Good” range. More still,
we are encouraged by a “happiness” score of 7.3/10
(which measures “How happy are you working for
AO?” whereas ENPS measures “How likely is it that
you would recommend AO as a place to work?”). In
the round, the Committee considers that, despite
the average score of -5 being below the threshold
target, the Group’s performance in this area has
been strong and merits some level of payout. This
is in the context of the strategy pivot undertaken
in the year – whilst being the right decision for the
long-term future of the business, given the nature
of the changes being made, the implementation of
the strategy pivot adversely impacted employee
satisfaction and therefore NPS scores (as expected).
The Committee considers that the Executive
Directors performed strongly with regards to
reaffirming AO’s culture and values and boosting
morale during uncertain times for parts of the
business. Accordingly, the Committee has exercised
its discretion and determined that threshold
performance (25% of this element) has been met.
The Board believes that our culture and our people
are what help make AO stand apart. Rebuilding
this culture – which has suffered from our more
remote working practices during Covid restrictions –
remains a key priority for us as we move forward.
In total, the Committee has awarded 79.3% 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 and the team
over the year. The award value will be settled as
to one-third in cash and two-thirds as a nil-cost
option over shares to vest in 2026 (subject to the
performance underpin and continued employment).
Nil-cost options will also be subject to a further one-
year holding period following vesting.
Average liquidity headroom
16.8 %
UK adjusted PBT
30 %
£31m
£12.1m
£14.5m
Threshold
(7.5%)
£34.5m
Target
(18.75%)
£54.5m
Stretch
(30%)
(£12.2m)
Threshold
(7.5%)
(£2.2m)
Target
(18.75%)
£7.8m
Stretch
(30%)
109
AO World PLC Annual Report and Accounts 2023Our Governance Directors’ Remuneration Report continued
Full details of the cash amount to be paid and
share awards to be issued to our Executive Directors
under the AO Incentive FY23 Award are disclosed on
page 122.
The Committee deems that the payout levels
over the past years show the AOIP functioning as
intended, with the level of payout this year reflecting
the Company’s turnaround performance.
AOIP FY20 Award – release of
conditional deferred shares
Each of John Roberts and Mark Higgins were
granted a conditional deferred share award
pursuant to the FY20 AOIP Award which had a
deferral period spanning FY21 to FY23 inclusive
and which, at the point of grant, had a value of
£430,199 and £325,040 respectively. These awards
were subject to a performance underpin based on
overall business performance (both operational
and strategic) over the vesting period, which was
assessed by the Committee following the end of
FY23. The Remuneration Committee has deemed
that the performance underpin has been met in
full given the transformational progress achieved
over the period and accordingly the share award
should vest in full. The conditional awards have
been amended to nil-cost options and accordingly
nil-cost options over 284,900 and 215,258 shares for
John and Mark will vest in July 2023.
Pension and benefits
During FY23 we introduced a flexible benefits
regime for the Executives and our leadership team,
replacing the provision of their current pension of
non-monetary benefits with a fixed amount (which
equated to 13% and 15% of salary for the CEO and
CFO respectively) which can be used to acquire
benefits as they see fit. Through this mechanism,
leaders can choose the level of their pension
contributions. The flexible benefits programme is
intended to be rolled out to all management levels
during FY24.
The Annual Report on Remuneration (set out on
pages 120 to 129) describes further details on the
remuneration earned by our Executives and the
wider Board and how the policy approved at the
2022 AGM has been implemented in the year under
review. It will be the subject of an advisory vote at the
forthcoming AGM.
Value Creation Plan
During the year, we restructured our all-employee
AO Value Creation Plan (“VCP”) to reflect the
strategy pivot. The plan still targets sustained
profitable high growth measured by the resulting
creation of sustained shareholder value but the
entry point was reset to ensure it met its aims of
incentivising and retaining our people.
In designing the original VCP, the Committee was
mindful of potential inherent risks, and incorporated
a number of safeguards within the plan design.
Those included a phased vesting schedule
over three years to drive long-term sustainable
performance, a dilution cap, a cap on individual
awards of £20m for the Executive Directors, a
robust recovery mechanism (malus and clawback),
and broad discretionary Committee authority for
overriding the formulaic outcome if the Committee
considers that it would not be reflective of the
overall performance of the business over the period.
These features have been retained in the VCP22.
However, in order to fully incentivise and reward
employees from the current share price, the
VCP22 will begin funding at a share price of £1.
In recognition of the reduced threshold target, the
funding rate of the scheme has been significantly
reduced from 10% of the value created above the
threshold to 5.5%. 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 last summer’s 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).
The Committee consulted with shareholders and
we were pleased that the VCP22 was approved by
shareholders at the 2022 AGM with a favourable
vote of 88.9%. Since this approval our Executives
have run workshops for all our employees on
what the VCP22 means for them; it has started to
prove powerful in engaging the broad employee
population effectively on a common stretching
path, creating understanding of value creation
drivers, market mechanics, clarity in understanding
and steering progress and immense pride of being
one team. We would like to thank shareholders for
their engagement and support.
Looking forward
As we look to FY24 and beyond, we have reviewed
our remuneration policy and its effectiveness,
considered corporate governance requirements
and also had regard to the cost of living crisis.
Pay for sustainable performance; our
remuneration policy
Our remuneration policy was approved by
shareholders in September 2022 and has been
in force throughout the year. The Committee has
determined it continues to support sustained value
creation and performance steering along our goals
and stretching targets. The single incentive plan (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.
The Committee continues to believe that the AOIP
works well with the VCP22 to drive short, medium
and long-term sustainable performance and ensure
that the interests of Executives are aligned to that
of shareholders.
110
AO World PLC Annual Report and Accounts 2023 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 consider the use
of discretion to deliver the right outcome for the
business where we deem that appropriate.
Cost of living crisis
Recognising the national cost of living challenge,
we looked at how we could support our employees,
particularly those at lower work levels. A mid-year
salary increase for our call centre employees
was granted in November and a further increase
made in April’s pay review, alongside introducing
a skills-based pay structure, with the opportunity
to earn up to £31,000 per annum within 18 months
for developing into top performers. In our logistics
operations we have increased salaries at a minimum
rate of 4% with some roles seeing increases of more
than double that. We have made a further cost of
living payment of £1000 to those earning £26,000 or
less (in addition to the annual increase).
Approach to remuneration for FY24
Executives
The Remuneration Committee has awarded pay
increases to Executives of 4%, in line with the lowest
rate of increase awarded to the wider workforce, but
below the average increase of c.6%, recognising the
ongoing cost of living crisis which disproportionately
impacts our lower-paid employees. As noted above,
a flexible benefits scheme has been introduced for
our Executives.
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 (70%
weighting);
2. A strategic measure, tied to delivering a new
strategic plan with first steps of execution on UK
growth drivers (10% weighting); and
3. Stakeholder impact measures, focusing on
customers and employees (20% weighting – 10%
each).
Given the progress made in delivering the strategy
pivot over FY23, the Committee is of the view that
the proportion of the AOIP based on financial
performance should be increased to 70% for FY24
(from 60% in FY23). Of this, 50% will be based on
PBT, with the remaining 20% based on liquidity
headroom. The increased focus on PBT relative to
liquidity headroom for FY24 reflects the progress
made on delivering the strategy and the focus on
turning AO into a cash generative business focused
on profitable growth.
We continue to recognise the importance of
ESG and in the context of remuneration have set
“stakeholder” measures encompassing customers
and employees which are aimed at ensuring the
goodwill of the business and driving long-term
sustainability.
The Committee believes these measures provide
the appropriate balance, continuing to drive
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
benchmarked against peers. It was determined (by
the Executives in consultation with the Chair) that
the NED base fee should be increased by £2,000
per year (an increase of 3.6%, below the average
awarded to the wider workforce), with the fee for
chairing the Remuneration Committee reducing
from £20,000 to £15,000 per annum to align with the
fee for the Audit Committee Chair role.
Further details regarding the implementation of our
policy in the year ahead are provided on pages 126
to 129.
Employees
As set out in the Corporate Governance Report,
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 trust this sets out clearly how the Committee has
implemented the existing policy during FY23, the
key features of the policy and how we propose to
implement it in FY24.
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
4 July 2023
111
AO World PLC Annual Report and Accounts 2023Our Governance Directors’ Remuneration Report continued
Policy report
This part of the Directors’ Remuneration Report
sets out the Directors’ remuneration policy for the
Company (the “Policy”) and has been prepared in
accordance with the Companies Act 2006, Schedule
8 of the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008
(as amended) and the UKLA’s Listing Rules. The
Policy has been developed taking into account the
principles of the UK Corporate Governance Code
(the “Code”) as it currently applies.
The Policy was put to a binding shareholder vote at
the 2022 AGM and received support from in excess
of 88% of the votes cast (with the separate vote on
the Value Creation Plan also receiving in excess of
88% of votes cast in favour).
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.
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 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 the
meeting where their specific compensation is being
considered 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 so 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.
112
AO World PLC Annual Report and Accounts 2023 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.
During FY23 we introduced a flexible benefits regime
for the Executive and our leadership team. Through
this mechanism leaders can choose the level of their
pension contributions.
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.
Summary of our
remuneration policy
The table below provides a summary of the key
aspects of the Policy for Executive Directors.
113
AO World PLC Annual Report and Accounts 2023Our Governance Directors’ Remuneration Report continued
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-
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
y To provide an externally
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
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 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 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 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
Maximum
opportunity
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
y Employer’s defined contribution
and/or cash supplement of up to
the rate received by others in the
business
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 To reward the delivery of annual objectives relating to the business strategy
y To retain and motivate all of our employees and drive exceptional
y Through significant deferral into the Company’s shares to align the long-term interests of
value creation over the long term
Executive Directors with those of shareholders
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
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
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
y Deferred share awards will normally be subject to additional performance underpin
price hurdles are provided in the Annual Remuneration Report
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 For Executive Directors the award will vest (to the 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 Following the vesting of deferred shares awards, Executives will normally be required to
y The level of funding of the plan is subject to a maximum dilution of
hold the awards for one further year, bringing the overall period to five years. The shares
5% of the Company’s issued share capital
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 £20m
Framework
used to
assess
performance
y The Committee reviews the salaries of Executive
Directors each year taking due account of all
the factors described in how the salary policy
operates
N/A
114
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
by the Committee
y Financial measures (e.g. EBITDA, revenue, cash flow) will represent the majority (at least
50%) of the award, with any other measures representing the balance
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
share price at each measurement date versus share price hurdles
determined by the Committee. These share price hurdles have been
disclosed in the Annual Remuneration Report
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 macroeconomic factors
AO World PLC Annual Report and Accounts 2023 normally effective on 1 April (increases may
be awarded at different times if considered
appropriate by the Committee)
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
Purpose
and link to
strategy
Operation
calibre Executive Directors with the expertise
competitive benefit whilst
to aid recruitment and retention of high-
and experience to deliver the Company’s
remaining internally
calibre Executive Directors with the expertise
strategy
consistent with percentages of
and experience to deliver the Company’s
y To reflect individual experience and expertise
y To provide a fair and appropriate level of fixed
basic income
contributions
strategy
y To provide an appropriate level
of percentage of in-service fixed
income in retirement
contribution and/or a cash
payment in lieu of pension
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
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
y Through significant deferral into the Company’s shares to align the long-term interests of
value creation over the long term
Executive Directors with those of shareholders
y Normally reviewed annually, with any increase
y Executive Directors may
y Directors are entitled to benefits, including
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
receive an employer’s pension
a car allowance or company car, private
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
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 the 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
y Whilst no monetary maximum has been set,
y Employer’s defined contribution
y As the value of benefits may vary from
annual increases will generally be linked to
and/or cash supplement of up to
year to year depending on the cost to the
those of the average of the wider workforce
the rate received by others in the
Company and the Executive Director’s
business
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 £20m
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
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
N/A
N/A
y Awards are based on performance measures with stretching targets as set and assessed
by the Committee
y Financial measures (e.g. EBITDA, revenue, cash flow) will represent the majority (at least
50%) of the award, with any other measures representing the balance
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 Performance will be assessed based on the three-month average
share price at each measurement date versus share price hurdles
determined by the Committee. These share price hurdles have been
disclosed in the Annual Remuneration Report
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 macroeconomic factors
115
AO World PLC Annual Report and Accounts 2023Our 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;
c. incorporate the right to receive an amount (in
cash or additional shares) equal to the value of
dividends, which would have been paid on the
shares under a share-based award that vest
up to the time of vesting. This amount may be
calculated assuming that the dividends have
been reinvested in the Company’s shares on a
cumulative basis;
d. in respect of the portion of the award granted
in shares, be settled in cash at the Committee’s
discretion (it is intended that this provision would
only be used for Executive Directors where it is not
possible to settle share portion of the award in
shares due to regulatory or legal reasons); and
e. be adjusted in the event of any variation of the
Company’s share capital or any demerger,
delisting, special dividend or other event that may
materially affect the Company’s share price.
The Committee also retains the discretion within
the Policy to adjust performance targets and/
or set different performance measures and
alter weightings if events happen that cause it to
determine that the conditions are unable to fulfil
their original intended purpose.
Choice of performance measures
and approach to target setting
The performance metrics and targets that are
set for the Executive Directors via the AO Incentive
Plan are carefully selected to align closely with the
Company’s strategic plan.
The AO Incentive Plan is determined on the basis
of performance against specific performance
indicators and strategic objectives set annually.
The precise metrics chosen, along with the
weightings of each, may vary in line with the
Company’s evolving strategy from year to year.
The Committee will review the performance
measures and targets each year and vary them
as appropriate to reflect the priorities for the
business in the year ahead.
Where possible, the Committee will disclose the
targets for each of the Executive Directors’ awards in
advance in the Annual Report on Remuneration, but
targets will generally be disclosed retrospectively
where they are considered to be commercially
sensitive. The Committee will review the choice of
performance measures and the appropriateness of
the performance targets prior to each performance
year and will consult with major shareholders in the
event of any significant proposed change.
Challenging targets are set whereby modest
rewards are payable for the delivery of threshold
levels of performance, rising to maximum rewards
for the delivery of substantial out-performance of
our financial and operating plans.
The Policy was amended last year in relation to the
weightings that apply to financial performance
measures against non-financial measures with
financial measures required to comprise at least
50% of the measures whilst giving the Committee
the flexibility to incentivise management to drive
some important 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.
Post-cessation of office
ownership guidelines
Executive Directors are normally 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.
116
AO World PLC Annual Report and Accounts 2023 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, the restructured VCP
implemented during FY23 extends to all current
employees.
The level of performance-related pay varies within
the Group by grade of employee, but in general the
Policy is applied consistently across each grade of
the senior management population.
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
Notice period
Termination payment
Detailed items
12 months from both the Company and incumbent Executive
Directors. Six months for newly appointed Executive Directors
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).
117
AO World PLC Annual Report and Accounts 2023Our Governance Directors’ Remuneration Report continued
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 they had not ceased to be
a Group employee or Director.
The extent to which awards may be satisfied
and deferred share awards may vest in these
circumstances will be determined by the
Committee, taking into account the satisfaction of
any relevant performance or underpin conditions
measured over the original performance period.
Unless the Committee decides otherwise, any
outstanding awards will also be reduced to take into
account the proportion of the performance period
that has elapsed on the individual’s cessation of
office or employment.
However, the Committee retains discretion to allow
awards to be satisfied and deferred share awards
to vest as soon as reasonably practicable after the
individual’s cessation of office or employment. If the
participant ceases to hold office or employment
prior to the satisfaction of an award, the Committee
may also decide to satisfy awards entirely in cash,
rather than delivering a deferred share award to the
Executive Director.
If a participant dies, unless the Board decides
otherwise, their outstanding awards will be satisfied
and deferred share awards will vest as soon as
reasonably practicable after the date of their death
on the basis set out for other “good leavers” above.
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 pro-rated for the
proportion of the performance period completed.
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 2022,
subject to the terms of the plan.
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.
118
AO World PLC Annual Report and Accounts 2023 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.
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 that the Board
considers relevant. In these circumstances, the
Committee may determine that any outstanding
awards are settled in cash.
Non-Executive Directors’ fees
The Non-Executive Directors’ fees policy is described below:
Element
Purpose and link to strategy
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.
To recruit and retain
high-calibre Non-
Executive Directors
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
119
AO World PLC Annual Report and Accounts 2023Our Governance Directors’ Remuneration Report continued
Annual Report on Remuneration
The annual remuneration for FY23 was structured
within the framework of the remuneration policy
adopted by shareholders at the 2022 AGM 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 FY23 (audited)
The audited table below shows the aggregate
emoluments earned by the Directors of the
Company during FY23 being the period 1 April 2022
to 31 March 2023 (or relating to that period in the
case of the AO Incentive Plan) and, for comparison,
the amounts earned during FY22, being the period
1 April 2021 to 31 March 2022 (or relating to that
period in the case of variable remuneration).
Salaries
and fees
£
Benefits/
taxable
expenses
£1
Executive Directors
John Roberts
Mark Higgins
Chair
Geoff Cooper
FY23
FY22
FY23
FY22
FY23
FY22
Non-Executive Directors5
Chris Hopkinson
FY23
FY22
FY23
FY22
FY23
FY22
FY23
FY22
FY23
FY22
FY23
Marisa Cassoni
Shaun McCabe
Peter Pritchard6
Sarah Venning6
Total
Total7
490,795
476,500
370,285
359,500
200,000
200,000
55,000
55,000
80,000
80,000
75,000
55,000
27,500
–
22,917
–
1,321,497
FY22
1,226,000
60,106
19,960
50,288
16,661
–
–
0
0
0
0
0
0
0
0
0
0
110,394
36,621
Pension2
£
4,000
42,885
4,000
32,355
Total
fixed
£
554,901
539,345
424,573
408,516
AOIP
cash3
£
389,200
71,475
293,636
53,925
AOIP
deferred
shares4
£
180,228
–
136,172
149,485
Total
variable
£
569,428
71,475
429,808
203,410
Total
£
1,124,329
610,820
854,381
611,926
–
–
200,000
200,000
–
–
–
–
–
–
200,000
200,000
–
–
–
–
–
–
–
–
–
–
8,000
55,000
55,000
80,000
80,000
75,000
55,000
27,500
–
22,917
–
1,439,891
75,240
1,337,861
–
–
–
–
–
–
–
–
–
–
682,836
125,400
–
–
–
–
–
–
–
–
–
–
316,400
149,485
–
–
–
–
–
–
–
–
–
–
999,236
55,000
55,000
80,000
80,000
75,000
55,000
27,500
–
22,917
–
2,439,127
274,885
1,612,746
1 From 1 September 2022, the Group introduced a flexible benefits scheme
for the Executives and other senior leaders. The total value of the flexible
benefits allowance for the last seven months of FY23 for John Roberts
was £32,767 and for Mark Higgins was £29,976. The allowance has been
calculated based on the costs of the provision of benefits to which they
were entitled (whether they had previously chosen to take that benefit
or not). The percentage increase in the total of benefits and pension
for Mark Higgins for FY23 as against FY22 is predominantly due to the
entitlement to private medical insurance that was not previously taken
up. The remainder of the increase and the increase for John Roberts is
the inflationary cost of providing benefits previously received. Prior to 1
September 2022 (and for FY22) John Roberts’ benefits included medical
cover and a car allowance of £12,000 paid in cash and private fuel and
Mark Higgins’ benefits included a car allowance of £12,000 paid in cash
and private fuel. The benefits amount also comprises an attendance
bonus of £200, which is paid Group-wide to employees with the relevant
attendance.
2 Executive Directors were entitled to Company pension contributions of
9% of gross basic salary for the first five months of FY23 (and for FY22) but
from 1 September 2022 flexible benefits were introduced. However, due to
pension tapering rules, some of the benefit was paid as cash alternative
and is included in the benefits column.
3 Each of John Roberts and Mark Higgins were granted an award under
the AO Incentive Plan of 300% of salary for the performance period
of FY23. Following partial attainment of the performance conditions
79.3% 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 (granted in the form of a nil-cost option). The deferred share
award will be released in July 2026 subject to continued employment
and attainment of the performance underpin based on overall business
performance over the vesting period, following which Executives will be
required to hold awarded nil-cost options for a further year.
4 Each of John Roberts and Mark Higgins were granted a conditional deferred
share award pursuant to the FY20 AOIP Award which had a deferral period
spanning FY21 to FY23 inclusive and which, at the point of grant, had a
value of £430,199 and £325,040 respectively. The conditional awards
have since been amended to be nil-cost options. The Remuneration
Committee has deemed that the performance underpin has been met
in full and accordingly nil-cost options over 284,900 and 215,258 shares
will be vest for John and Mark in July. For the purpose of the single figure
calculations these awards have been valued based on the three-month
average share price to 31 March 2023 of 63.26p. The share price used to
determine the awards in July 2020 was £1.51. None of the value disclosed is
therefore attributable to share price growth and therefore discretion is not
applicable.
For the deferred share value for FY22 reported for Mark Higgins, in the
previous report we used an estimate of 95.35p (being the three-month
average share price to 31 March 2022) and the estimated value of the
deferred shares was £341,250; when the shares were released on 19 August
2022, the actual share price was 40.24p (resulting in an actual value on
vesting of £149,485).
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 in relation
to Company meetings, are classified as taxable benefits by HMRC and as
such are reported here.
6 Peter Pritchard and Sarah Venning were appointed as Non-Executive
Directors from 1 October 2022 and from 1 November 2022, respectively.
Amounts shown in the above table are the pro-rated fees for their tenure.
7 FY22 total figures have been restated to exclude Luisa Delgado who did
not serve in office during FY23. Total remuneration paid to Luisa for FY22
was £63,079.
120
AO World PLC Annual Report and Accounts 2023 Details of variable pay earned
in FY23 (audited)
AO Incentive Plan FY23 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 2023.
The targets for the AO Incentive Plan Award were
weighted towards financial metrics (60%), with
the remaining 40% 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 FY23 AO
Incentive Plan Award.
Measure (weighting)
Average Liquidity Headroom (30%)1
Targets
Threshold
On target
Stretch
UK Adjusted Profit Before Tax (30%)
Threshold
Customer NPS (10%)2
Employee NPS (10%)3
On target
Stretch
Threshold
On target
Stretch
Threshold
On target
Stretch
Business Transformation (20%)
Committee judgement based
on the progress achieved in
relation to the strategic pivot
of the business
% payout
(for this element)
25%
62.5%
100%
25%
62.5%
100%
25%
62.5%
100%
25%
62.5%
100%
£14.5m
£34.5m
£54.5m
(£12.2m)
(£2.2m)
£7.8m
70
75
80
0
15
30
Performance
achieved
Award
£31m
16.8%
£12.1m
30%
83
10%
(5)
2.5%4
20
20%
Total
79.3%
1 Excludes funds raised in the capital raise (from the placing, retail offer and Directors subscriptions) in summer 2022.
2 This is the average NPS figure across ao.com and mobilephonesdirect.co.uk, weighted by revenue.
3 This is the average ENPS figure taken across the two surveys conducted in the year.
4 The Committee exercised its discretion to determine that threshold vesting would be achieved.
Performance against
financial targets
As is covered in the CFO report on page 30,
the Group needed to focus on cash and profit
generation this year and performance has been
pleasing against those targets. The Group has
made profits in excess of the stretch target and
liquidity headroom was just short of the target
level. Accordingly, 46.8% of the award relevant to
financial targets (of the possible 60%) has been met.
Performance against
strategic targets
Customer satisfaction
The Committee is delighted that customer
satisfaction, measured via NPS, has remained
strong over the year and this is particularly so given
some of the policy changes we have introduced
to drive up gross margin which have affected the
customer proposition. For ao.com we have an
average NPS score of 86 and our Mobile Phones
Direct business achieved an average NPS of 69.
This delivered a weighted average NPS of 83.
These scores are market leading and an excellent
achievement by the team during a year where
consumers have been affected by the cost of
living crisis and extraordinary macroeconomic
uncertainty. Accordingly, the Committee has
determined that this performance condition has
been met in full.
Employee NPS
The employee NPS score has been mixed over the
year falling to -11 in the first half of the year but
improving to +1 in the second half. This is unsurprising
as we continued to right-size the business to reduce
the infrastructure and supporting teams that we
had invested in to capitalise on the rapid growth
initially presented by Covid and also in light of our
economic situation (which culminated in our capital
raise in summer last year). Such overhead reduction
drove concerns around job security impacting
employee morale, with the macroeconomic
uncertainty and the cost of living crisis adding
further pressure. The pivot on strategy has also
been a huge change for our people who historically
have been laser-focused on top line growth. Whilst
we are not pleased with the average score of -5 it
is understandable in the circumstances, and it is
pleasing that the more recent result has improved
above 0, falling within the “Good” range. More still,
121
AO World PLC Annual Report and Accounts 2023Our Governance Directors’ Remuneration Report continued
we are encouraged by a “happiness” score of 7.3/10
(which measures “How happy are you working for
AO?” whereas ENPS measures “How likely is it that
you would recommend AO as a place to work?”). In
the round, the Committee considers that, despite
the average score of -5 being below the threshold
target, the Group’s performance in this area has
been strong and merits some level of payout. This
is in the context of the strategy pivot undertaken
in the year – whilst being the right decision for the
long-term future of the business, given the nature
of the changes being made, the implementation of
the strategy pivot adversely impacted employee
satisfaction and therefore NPS scores (as expected).
Despite this, the Committee considers that the
Executive Directors performed strongly with regards
to reaffirming AO’s culture and values and boosting
morale during uncertain times for parts of the
business. Accordingly, the Committee has exercised
its discretion and determined that threshold
performance (25% of this element) has been met.
The Board believes that our culture and our people
are what help make AO stand apart. Rebuilding
this culture – which has suffered from our more
remote working practices during Covid restrictions –
remains a key priority for us as we move forward.
Strategic transformation
The strategic transformation measure was
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 cash generation). This has
entailed a complete shift in mindset for our people
and has meant taking some difficult decisions
on which business opportunities to progress and
which to cut, whilst ensuring that the business is
more joined up than ever. The Committee deems
this has been achieved in full given the operational
simplification achieved during the year and the shift
towards sustainable profit and cash generation (as
demonstrated by financial performance in FY23).
In total, therefore, we have awarded 79.3% of the
maximum award to our Executive Directors.
CEO
CFO
Max opportunity
(% salary) Outcome % max
79.3%
79.3%
300%
300%
Cash award
(1/3rd)1
£389,200
£293,636
Share award
(2/3rd)2
£778,401
£587,272
1 The cash element has been paid following the determination of vesting by the Board.
2 The share award will be granted in July 2023 by way of a nil-cost option which will vest after a period of three years, subject to the
performance of the business until the completion of our financial year ending 31 March 2026 as well as the Executive’s continued
employment. Following vesting, the nil-cost option will be subject to a further one-year holding period.
Percentage change in
remuneration levels
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 2023 and the previous two financial
years 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.
Vesting of shares under the
FY20 AOIP Award
Each of John Roberts and Mark Higgins were
granted a conditional deferred share award
pursuant to the FY20 AOIP Award which had a
deferral period spanning FY21 to FY23 inclusive and
which, at the point of grant, had a value of £430,199
and £325,040 respectively. These awards were
subject to a performance underpin based on overall
business performance over the vesting period, which
was assessed by the Committee following the end
of FY23. The Remuneration Committee has deemed
that the performance underpin has been met in full
and accordingly the share award should vest in full.
The conditional awards have been amended to be
nil-cost options and accordingly nil-cost options
over 284,900 and 215,258 shares for John and Mark
will vest in July. For the purpose of the single figure
calculations, these awards have been valued based
on the three-month average share price to 31 March
2022 of 63.26p. The share price used to determine
the award in July 2019 was £1.51. None of the value
disclosed is therefore attributable to share price
growth and therefore discretion not applicable.
122
AO World PLC Annual Report and Accounts 2023 FY23 vs FY22
FY22 vs FY21
FY21 vs FY20
Taxable
benefits2
2.0%
AOIP cash
element3
445%
10.8%
445%
Salary1
3%
3%
0%
0%
0%
36.6%
0%
0%
0%
0%
8.5%
27.6%
Salary1
2.7%
2.7%
0%
0%
6%
0%
Taxable
benefits2
4.3%
AOIP cash
element3
-84%
Salary1
3%
1.1%
0%
0%
0%
0%
-84%
0%
0%
0%
0%
3%
0%
0%
0%
0%
Taxable
benefits2
-10.8%
-14.3%
0%
0%
0%
0%
AOIP cash
element3
110%
110%
0%
0%
0%
0%
-1.1%
7.4%
221%
4%
-29.9%
102%
0%
0%
0%
0%
8%
John Roberts
Mark Higgins
Geoff Cooper
Chris Hopkinson
Marisa Cassoni3
Shaun McCabe4
Other employees
(AO World PLC)
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 As covered elsewhere in this report, there are no changes to benefit entitlements per se for employees or Executives; however
we have introduced a flexible benefit scheme part way through the year which gives Executives (and senior leaders) a “benefit
allowance” which they can spend on a choice of benefits. The allowance has been calculated based on the costs of the provision
of benefits to which they were entitled (whether they had chosen to take that benefit or not. The percentage increase in the total
of benefits and pension for Mark Higgins for FY23 as against FY22 is predominantly due to the entitlement to private medical
insurance that was not previously taken up. The remainder of the increase and the increase for John Roberts is the inflationary
cost of providing benefits previously received.
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 in a financial year received in cash, compared to the cash element participants in
the AO Incentive Plan are expected to receive relating to the following financial year, in each case excluding Executive Directors.
4 Shaun McCabe’s salary/fee increase reflects him being appointed as interim Chair of the Remuneration Committee from 1 April 2022.
5 Peter Pritchard and Sarah Venning, who joined the Company as Non-Executives during the year, have been excluded from the
table above as there is no comparison to previous years.
Performance graph and pay table
The chart below shows the Company’s Total Shareholder Return (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 2023. 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.
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 01/02/2023
AO World PLC
FTSE 250
123
AO World PLC Annual Report and Accounts 2023Our Governance Directors’ Remuneration Report continued
The table below shows the total remuneration figure for the Chief Executive during the financial years
ended 31 March 2013 to 31 March 2023. 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 total
remuneration figure for FY23 also includes the value of vested nil-cost options under the AOIP (this is the first
year in which such share awards under the AOIP is applicable for the CEO).
1 Total remuneration of CEO
Total remuneration (£’000)1
Annual bonus (% of maximum)
AO Incentive Plan Award
(% of maximum)
PSP vesting (% of maximum)
FY14
537†
0%
–
–
FY15
537†
0%
–
–
FY16
588†
10%
–
–
FY17
575*‡
FY18
781*
10% 37.5%
FY19
551†‡
–
FY20
733†
–
FY21
977†
–
FY22
611†
–
FY23
1,124†
–
–
–
–
–
50.5% 47.8% 97.5%
15% 79.3%
8.59%
–
–
–
–
† John Roberts
* Steve Caunce
‡ Figures calculated for full year pro-rata
Relative importance of the spend on pay
The table below shows the movement in spend on staff costs versus that in distributions to shareholders.
Staff costs1
Distributions to shareholders
% change
-15.7%
No distributions were made to shareholders in FY22 or FY23
FY23
£127.7m
FY222
£151.4m
1
Includes base salaries, social security and pension, but excludes share-based payment charges.
2 Figures are reported based on the continuing Group only and therefore excludes any staff costs in Germany
CEO pay ratio
The table below shows the ratio of the single total figure of remuneration (“STFR”) of the CEO to the
equivalent pay for the 25th, 50th and 75th percentile employees (on a full-time equivalent basis).
Year
FY23
FY22
FY21
FY20
Method
Option A
Option A
Option A
Option A
P25
25th percentile
pay ratio
46:1
P50
50th percentile
pay ratio
39:1
P75
75th percentile
pay ratio
29:1
27:1
46:1
35:1
23:1
37:1
28:1
16:1
26:1
20:1
Notes:
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 FY23 was calculated
and ranked using 2022/23 P60 and P11D data,
employer pension contributions and payments
under the Company share schemes, in line with
the reporting regulations. The total remuneration
for FY23 for the employees identified at P25,
P50 and P75 is £24,430, £28,567, and £39,062
respectively. The base salary in respect of FY23
for the employees identified at P25, P50 and P75 is
£21,630, £23,181 and £37,000 respectively.
3. FY23 payments to the wider employee base
referred to above include the FY22 cash element
of the FY22 AOIP payment, which was paid in
FY23, but for the CEO, we have used the single
total figure value, which includes the FY23 AOIP
cash payment to be paid in early FY24, but which
relates to the FY23 performance.
4. Part-time colleagues’ earnings have been
annualised on a full-time equivalent basis. In-year
joiners’ earnings were also annualised on the
same full-time equivalent basis.
These ratios form part of the information provided
to the Committee on broader employee pay
practices to inform remuneration decisions for
Executive Directors and senior management.
As noted 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 interests.
Given a significant proportion of the CEO’s total
remuneration is variable and linked to the AOIP,
the increase in the pay ratio this year compared to
last is influenced by the AOIP outcome (which has
vested at 79.3% for FY23 vs 15% 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.
124
AO World PLC Annual Report and Accounts 2023 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 2023.
External appointments
No fees were received by Executive Directors for
external appointments during the year ended
31 March 2023.
Directors’ shareholdings and share
interests (audited)
Directors’ shareholdings as at 31 March 2023 are set
out below.
During the year under review no options were
exercised by either of the Executive Directors.
However, for Mark Higgins, conditional awards over
371,484 shares (awarded in July 2019 as part of the
FY19 AOIP Award) were released in August 2022 of
which 179,781 were sold to cover tax liabilities arising
on that award.
There have been no changes to Directors’
shareholdings during the period from 1 April 2023 to
the date of this report.
2 Directors’ shareholdings
Shares held
beneficially
at 31 March 20231
154,274
105,892,224
306,231
24,631,306
63,148
NIL
93,517
NIL
Target
shareholding
guidelines
(% of salary)2
N/A
Target
shareholding
achieved
N/A
200%
200%
N/A
N/A
N/A
N/A
N/A
Yes
No
N/A
N/A
N/A
N/A
N/A
PSP
options3
N/A
43,153
NIL
N/A
N/A
N/A
N/A
N/A
AOIP
options4
N/A
1,033,335
779,810
N/A
N/A
N/A
N/A
N/A
SAYE
options5
N/A
33,962
33,962
N/A
N/A
N/A
N/A
N/A
Geoff Cooper
John Roberts
Mark Higgins
Chris Hopkinson
Marisa Cassoni
Shaun McCabe
Peter Pritchard
Sarah Venning
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 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 vest in July 2023.
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 vest in July 2024 subject to the attainment
of the performance underpin and continued employment
and then be subject to a further one-year holding period.
Conditional awards over 358,435 shares were awarded in July
2022 as part of the AOIP FY22 Award (based on a share price
of £0.40), which will vest in July 2025 subject to the attainment
of the performance underpin and continued employment
and then subject be to a further one-year holding period.
For Mark Higgins, 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 vest in July 2023.
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 vest in July 2024 subject to the attainment
of the performance underpin and continued employment
and then be subject to a further one-year holding period..
Conditional awards over 270,371 shares were awarded in
October 2022 as part of the AOIP FY22 Award (based on
a share price of £0.40), which will be released in July 2025
subject to the attainment of the performance underpin and
continued employment and then be subject to a further
one-year holding period. All AOIP share awards have been
converted to options over the relevant number of shares,
which upon vesting will be capable of being exercised by the
Executives in accordance with scheme rules. All awards from
2021 onwards are subject to a further one-year holding period
following vesting.
Further nil-cost options are expected to be granted to John
Roberts and Mark Higgins in July 2023 as part of the AO
Incentive Plan Award FY23 grant – with a value of £778,401 and
£578,272 at grant respectively, which will be released in July
2026 subject to the attainment of the performance underpin
and continued employment.
5 Each of John Roberts and Mark Higgins cancelled previous
SAYE schemes and on 1 March 2023 entered into a new three-
year SAYE contract, under which options over 33,962 shares
were granted.
125
AO World PLC Annual Report and Accounts 2023Our Governance Directors’ Remuneration Report continued
As previously set out, we see the AOIP as our driver
for sustained short to medium- term achievement,
and the VCP22 for extraordinary performance over
five to seven years. After careful assessment, and
combining technical advice and our judgement, we
believe that the two levels are currently balanced:
AOIP levels are competitive in the light of the
market, and our payout levels over the past years
show it is functioning as intended, with an actual
payout of 79.3% for the very strong performance in
the year ended 31 March 2023, and payouts of 15%
for the year ended 31 March 2022.
Each year, when reviewing overall compensation
packages, we will take into account the VCP
award potential, AOIP awards and base salary
and benefits.
Implementation of remuneration
policy for 2023/2024 (“FY24”)
The Policy can be found on pages 112 to 119 of this
Annual Report.
Salary
The Remuneration Committee has awarded pay
increases to Executives of 4%, in line with the lowest
rate of increase awarded to the wider workforce, but
below the average increase of c.6%. As noted above,
a flexible benefits scheme has been introduced for
our Executives.
Grant of VCP awards
As noted in the annual statement from the Chair of
the Remuneration Committee, we have, during the
year, restructured the Value Creation Plan, which
was approved by shareholders at the 2022 AGM
(the VCP22). The Executive Directors, along with all
employees, will be eligible to participate in the plan.
The VCP22 will begin funding at a share price
of £1 and will then fund at 5.5% of the value
created above this threshold (the “Plan Value”).
On 20 December 2022, awards representing 10%
of the Plan Value were allocated to each of the
two current Executive Directors, with the remaining
80% allocated to current and future employees.
The plan will cease funding on achievement of a
£10.43 share price. The level of funding is subject
to a maximum dilution of 5% of the Company’s
issued share capital.
All awards will normally be delivered in shares and
there is a cap on the aggregate payments to any
individual of £20m.
For Executives, awards vest in three equal tranches
in respect of the financial years ending 31 March
2027, 2028 and 2029, subject to the share price of
the Company measured over the last three months
of each financial year.
For all other employees, awards will vest based
on the three-month average share price of the
Company at 31 March 2027. The Remuneration
Committee retains discretion around the treatment
of awards after year five including the ability to
measure performance at a later date.
The Committee will have absolute discretion on
the vesting of the awards to override the formulaic
outcomes.
The current salaries as at 1 April 2023 (and those as at 1 April 2022) are as follows:
Individual
John Roberts
Mark Higgins
Base salary
at 1 April
2023
Base salary
at 1 April
2022
£510,427
£385,096
£490,795
£370,285
Role
CEO
CFO
%
increase
4%
4%
126
AO World PLC Annual Report and Accounts 2023 Pension and other benefits
During FY23 we introduced a flexible benefits
regime for the Executive and our leadership team.
Through this mechanism leaders can choose the
level of their pension contributions. For FY24, the
total value of flexible benefits for John and Mark
is £67,150 and £57,602 respectively. The allowance
has been calculated based on the FY23 costs of the
provision of benefits to which they were previously
entitled (whether they had chosen to take that
benefit or not) and for FY24 has been increased by
4% (i.e. at the same level as the inflationary increase
on pay). As a percentage of salary John’s benefit
allowance is 13% and Mark’s is 15%. Other members
of the flexible benefit scheme receive a percentage
between 15.5 and 23% depending on legacy
arrangements, but for new entrants will be fixed
at 15.5% of salary. As noted above, it is intended
that the flexible benefits scheme is rolled out to all
management level employees during FY24.
AO Incentive Plan
In respect of FY24, the Executive Directors will have
a maximum award opportunity of 300% of basic
salary. Performance will be measured between
1 April 2023 and 31 March 2024 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 FY24. The remaining two-thirds of the award
will be granted as a nil-cost option over shares.
These options will vest after three years subject
to the Committee’s 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
FY24 AO Incentive Plan Award
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 (70%
weighting);
2. A strategic measure, tied to delivering a new
strategic plan with first steps of execution on UK
growth drivers (10% weighting); and
3. Stakeholder impact measures, focusing on
customers and employees (20% weighting).
We continue to recognise the importance of ESG,
however, given the continued transition of the
business and the focus on driving profitable growth
whilst maintaining appropriate cash resources, 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, further driving transformation,
recognising the importance of key 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.
Given the progress made in delivering the strategy
pivot over FY23, the Committee is of the view that
the proportion of the AOIP based on financial
performance should be increased to 70% for FY24
(from 60% in FY23). Of this, 50% will be based on
PBT, with the remaining 20% based on liquidity
headroom. The increased focus on PBT relative to
liquidity headroom for FY24 reflects the progress
made on delivering the strategy and the focus on
turning AO into a cash generative business focused
on profitable growth.
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. As noted above, the Board
believes that our culture and our people is what
helps make AO stand apart. Rebuilding this culture
– which has suffered from our more remote working
practices during Covid restrictions – remains a key
priority for us as we move forward.
Performance
condition
UK PBT
Weighting
50%
Liquidity headroom
20%
Strategic pivot
Customer NPS
Employee NPS
10%
10%
10%
Group financial
(70%)
Strategic
transformation
non-financial (10%)
Stakeholder
measures
non-financial
(20%)
127
AO World PLC Annual Report and Accounts 2023Our Governance Directors’ Remuneration Report continued
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.
Share ownership requirements
As with prior years, the required share ownership
level for the Executive Directors for FY23 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.
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.
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.
Additionally, for good leavers, AO Incentive Plan
options will typically vest 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
Changes to Non-Executive Director fees for FY24
have been agreed as follows:
Non-Executive Director fees
Chair fee covering all Board duties
Non-Executive Director basic fee
2022/2023
£200,000
2023/2024
£200,000
£55,000
£57,000
% change
0%
3.6%
Supplementary fees to Non-Executive Directors covering additional
Board duties
Audit Committee Chair fee
Remuneration Committee Chair fee
Senior Independent Director fee
£15,000
£20,000
£10,000
£15,000
£15,000
£10,000
0%
-25%
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 2023 for Directors are
shown in the table 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. Marisa Cassoni has
indicated her intention to step down from office at the Company’s AGM in September following reaching a
nine-year term in office.
3 Directors’ service contracts and letters of appointment
Director and
date of service
contract or letter of
appointment
Unexpired term
Marisa Cassoni
31/01/2014
Initial term of three years expired – renewed for successive one-year
periods subject to termination by either party
Geoff Cooper
01/07/2016
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
Notice
period by
Company
(months)
Notice
period by
Director
(months)
Date
joined
Group
3
3
12
3
3
12
3
3
05/02/2014
01/07/2016
12
10/07/2011
3
3
12/12/2005
25/07/2018
12
19/04/2000
128
AO World PLC Annual Report and Accounts 2023 Remuneration Committee
membership
The members of the Committee were, for the
year in question, Shaun McCabe, Marisa Cassoni,
Geoff Cooper and, from 1 October 2022, Peter
Pritchard. Shaun McCabe took the role of Interim
Chair following Luisa’s Delgado’s departure in
January 2022. It is intended that Peter Pritchard
will take the Chair following the AGM, with Shaun
McCabe remaining as a member of the Committee
and Sarah Venning joining the Committee as an
additional member from that point.
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 FY23, there were eight formal meetings of
the Remuneration Committee, including two where
the design of the VCP was discussed. All relevant
committee members attended the meetings,
other than Marisa Cassoni who did not attend the
meetings on the VCP redesign.
The responsibilities of the Committee are set
out in the corporate governance section of the
Annual Report on page 82 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 2023 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 £6,400 plus VAT for
general advice and a further £32,000 for advice
specifically in connection with the restructured VCP.
Shareholder feedback
At the 2022 AGM, the Annual Remuneration Report
for the year ended 31 March 2022 was put to
shareholders by way of an advisory vote and both
the Policy and the Value Creation Plan were put to
shareholders for a binding vote. Votes cast are set
out in the table below.
2022: To approve the Directors’ Remuneration Report
Votes in
favour
No. of shares
472,852,547
2022: To approve the Directors’ remuneration policy
431,426,258
2022: To approve the Value Creation Plan 2022
431,776,581
Votes against
No. of shares
12,866,597
54,291,724
53,875,037
%
97.35
88.82
88.91
Total number
of votes cast
485,720,025
485,720,025
485,720,025
%
2.65
11.18
11.09
Votes
withheld
No. of shares
881
2,043
68,407
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
4 July 2023
129
AO World PLC Annual Report and Accounts 2023Our 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 2023. This report set outs additional statutory information.
2023 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
27 September 2023 at 8.00 am. 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 147 to
190. The Directors do not recommend payment of
a dividend by the Company in respect of the year
ended 31 March 2023.
Issued share capital and control
The Company’s issued share capital comprises
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 2023,
the issued share capital of the Company was
£1,442,302.47, comprising 576,920,989 ordinary
shares of 0.25p each. As at the date of this document
the issued share capital of the Company was
£1,442,302.47 comprising 576,920,989 ordinary
shares of 0.25p each. Shortly following the date of
this document, the Company intends to complete
a listing issue of up to 1,649,459 new ordinary shares
of 0.25p each in the Company to satisfy the release
of share awards under the terms of the Company’s
employee share schemes.
During the year, the Company conducted a capital
raise, raising gross proceeds of c.£41m by the issue
of a) 93,801,251 ordinary shares of 0.25p each on 11
July 2022 to certain institutional investors and (via
PrimaryBid) to certain retail investors; and b) 2,055,301
ordinary shares of 0.25p each on 24 August 2022
to certain Directors to satisfy their subscriptions
for shares in connection with the capital raise.
The aggregate nominal value of these shares
is £234,503.10. The market price of the allotted
securities on the date which the terms of the issue
were fixed (being 6 July 2022) was 0.47p per share.
9,220,166 ordinary shares of 0.25p each were allotted
for cash at a price of 0.43p per share and 86,636,386
ordinary shares of 0.25p each were allotted other
than for cash pursuant to a cashbox structure. In
addition, 1,541,911 ordinary shares of 0.25p each to
satisfy the release of share awards under the terms
of the AO 2018 Incentive Plan (FY19 grant) . Further
details of the issued share capital of the Company,
together with movements in the issued share capital
during the year, can be found in Note 28 to the
financial statements on page 173. All the information
detailed in Note 28 on page 173 forms part of this
Directors’ Report and is incorporated into it by
reference.
Details of employee share schemes are provided
in Note 31 to the financial statements on pages 174
to 175.
At the Annual General Meeting of the Company,
to be held on 27 September 2023, the Directors will
seek authority from shareholders to allot shares
in the capital of the Company up to a maximum
nominal amount of £961,534.98 (384,613,992)
shares (representing approximately 66.6% of the
Company’s issued ordinary share capital)) of which
192,306,996 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 57,692,098 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.
130
AO World PLC Annual Report and Accounts 2023 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 at the meeting
shall be decided on a show of hands unless a poll is
demanded. On a show of hands, every member who
is present in person or by proxy at a general meeting
of the Company shall have one vote. On a poll, every
member who is present in person or by proxy shall
have one vote for every share of which they are a
holder.
Shareholders are also encouraged to vote by
taking advantage of 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. in certificated form, which is not fully paid,
provided that if the share is listed on the Official
List of the UK Listing Authority such refusal does
not prevent dealings in the shares from taking
place on an open and proper basis; or
2. in certificated form (whether fully paid or not)
unless the instrument of transfer (a) is lodged,
duly stamped, at the Office or at such other place
as the Directors may appoint and (except in the
case of a transfer by a financial institution where
a certificate has not been issued in respect of the
share) is accompanied by the certificate for the
share to which it relates and such other evidence
as the Directors may reasonably require to show
the right of the transferor to make the transfer; (b)
is in respect of only one class of share; and (c) is in
favour of not more than four transferees; or
3. in uncertificated form to a person who is to hold it
thereafter in certificated form in any case where
the Company is entitled to refuse (or is excepted
from the requirement) under the Uncertificated
Securities Regulations to register the transfer; or
4. where restrictions are imposed by laws, and
regulations from time to time apply (for example
insider trading laws).
In relation to awards/options under the PSP, ERP,
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 Barclays Bank Plc, HSBC Bank Plc and Natwest
Bank Plc on 5 April 2023, 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
Frasers Group PLC
Camelot Capital Partners
John Roberts1
Pheonix Asset Management Partners
Christopher Hopkinson2
Number of ordinary shares/
voting rights notified or
aware of
Percentage of voting rights
over ordinary shares of
0.25p each
128,067,668
118,459,508
105,892,224
34,251,300
24,631,306
22.2%
20.5%
18.4%
5.9%
4.3%
1
2
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.
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 750,000 ordinary shares held in a pension of which Christopher Hopkinson is one of
the beneficiaries.
131
AO World PLC Annual Report and Accounts 2023Our Governance Directors’ Report continued
Directors
Peter Pritchard and Sarah Venning were appointed to the Board during the Period.
Director
Geoff Cooper
Position
Chair
Served in the year ended 31 March 2023
Served throughout the year
Marisa Cassoni
Senior Independent Non-Executive Director
Served throughout the year
Mark Higgins
Chief Financial Officer
Chris Hopkinson
Non-Executive Director
Shaun McCabe
Independent Non-Executive Director
John Roberts
Founder and Chief Executive Officer
Peter Pritchard
Independent Non-Executive Director
Served throughout the year
Served throughout the year
Served throughout the year
Served throughout the year
Appointed 1 October 2022
Sarah Venning
Independent Non-Executive Director
Appointed 1 November 2022
Their biographical details are set out on pages
84 and 85. Further details relating to Board and
Committee composition are disclosed in the
Corporate Governance Report and Committee
Reports on pages 86 to 129.
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 84 and 85.
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
In April 2023, the Group entered into a new £80m
Revolving Credit Facility which replaced the existing
revolving credit facility and expires in April 2026.
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. In
addition, as part of the Group’s ongoing investment
into our recycling processes, we are constantly
looking at innovating and improving our technology.
Through this investment, additional research and
development expenditure is incurred.
132
AO World PLC Annual Report and Accounts 2023 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 2006 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
Germany, this branch no longer trades but as
at 31 March 2023 remained in existence as we
proceed with winding down all operations.
Independent Auditor
The Company’s Auditor, KPMG LLP, has 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 the 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.
The delivery men were extremely
courteous and helpful and they
provided professional service.
My little grandson was delighted
with his little AO Bear that they
presented to him. Thank you.”
Ann
133
AO World PLC Annual Report and Accounts 2023Our 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 02 to 77
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 02 to 77
Directors’ Report on pages 130 to 135, and the Strategic Report
on pages 02 to 77
Directors’ Remuneration Report on pages 108 to 129
Corporate Governance Report, Audit Committee Report,
Nomination Committee Report and Directors’ Remuneration
Report on pages 80 to 129
Board’s assessment of the Group’s internal
control systems
Corporate Governance Report from page 80, and the Audit
Committee Report on pages 100 to 106
Board of Directors
Community
Corporate governance statement on pages 84 and 85
Strategic Report; Sustainability Report on page 77
Business relationships with suppliers,
customers and others
Strategic Report: How we engage with our stakeholders report on
pages 46 and 49
Directors’ interests
Diversity policy
Employee engagement
Employee involvement
Employees with disabilities
Directors’ Remuneration Report from page 129
Strategic Report: Sustainability Report – Fair, equal and
responsible on pages 70 to 73, and the Nomination Committee
Report on pages 96 to 99
Strategic Report: Engaging with our stakeholders on page 47;
Sustainability Report – Fair, equal and responsible on page 68
Strategic Report: Engaging with our stakeholders on page 47;
Sustainability Report – Fair, equal and responsible on page 68
Strategic Report: Sustainability Report – Fair, equal and
responsible on page 73
Going concern and viability statement
Strategic Report page 45
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 pages 60 to 67
Strategic Report: Sustainability Report pages 66 and 67
Note 33 to Group financial statements on pages 177 to 180
Significant related-party agreements
Note 34 to the consolidated financial statements on page 181
Directors’ responsibility statement
Directors’ responsibility statement on page 135
The Strategic Report comprising pages 02 to 77 and this Directors’ Report comprising pages 130 to 135 have
been approved by the Board and are signed on its behalf by:
Julie Finnemore
Company Secretary
4 July 2023
134
AO World PLC Annual Report and Accounts 2023 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.
In accordance with Disclosure Guidance and
Transparency Rule 4.1.14R, the financial statements
will form part of the annual financial report
prepared using the single electronic reporting
format under the TD ESEF Regulation. The auditor’s
report on these financial statements provides no
assurance over the ESEF format.
Responsibility statement of the
Directors in respect of the Annual
Financial Report
We confirm that to the best of our knowledge:
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
y 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
4 July 2023
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 UK-adopted international
accounting standards and applicable law, and have
elected to prepare the parent Company financial
statements under FRS101 Reduced Disclosure
Framework.
Under company law, the Directors must not approve
the financial statements unless they are satisfied
that they give a true and fair view of the state of
affairs of the Group and parent Company and
of their profit or loss for that period. In preparing
each of the Group and parent Company financial
statements, the Directors are required to:
y select suitable accounting policies and then
apply them consistently;
y make judgements and estimates that are
reasonable and prudent;
y for the Group financial statements, state whether
they have been prepared in accordance with UK-
adopted international accounting standards;
y 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.
135
AO World PLC Annual Report and Accounts 2023Our Governance Our
Results
Contents
Independent Auditor’s Report
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement
of financial position
Consolidated statement
of changes in equity
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
Important information
Glossary
138
147
148
149
150
151
152
183
184
185
191
192
Heading I want to take the
opportunity to give a HUGE
shout out to the impeccable
customer service capabilities
of AO! We’ve recently had a
number of home improvement
projects meaning we’ve ordered
electrical goods from a number
of key electrical stores over the
last two years and thanks to
AO’s top quality customer
service, I now won’t shop for
electricals from anyone else.”
Alice
Heading We were first appointed as auditor by the shareholders on
21 July 2016. The period of total uninterrupted engagement
is for the 7 financial years ended 31 March 2023. We have
fulfilled our ethical responsibilities under, and we remain
independent of the Group in accordance with, UK ethical
requirements including the FRC Ethical Standard as applied
to listed public interest entities. No non-audit services
prohibited by that standard were provided.
Overview
Materiality: Group
financial statements as
a whole
Coverage
Key audit matters
Recurring risks
£2.5m (2022: £2.5m)
0.22% (2022: 0.18%) of Group total
revenue
97% (2022: 99%) of Group total
revenue
vs 2022
Product protection plans
contract asset
Network commissions
contract asset
Recoverability of Mobile
goodwill
Recoverability of parent
Company’s investment in
subsidiaries
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 2023 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 of Changes in Equity and the related notes,
including the accounting policies in note 3 to the financial
statements and note 1 to the company financial statements.
In our opinion:
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 2023 and of the Group’s loss for the year
then ended;
y the Group financial statements have been properly
prepared in accordance with UK-adopted international
accounting standards;
y the parent Company financial statements have been
properly prepared in accordance with UK accounting
standards, including FRS 101 Reduced Disclosure
Framework; and
y 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.
138
AO World PLC Annual Report and Accounts 2023 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.
The risk
Our response
Product protection
plans contract asset
£93.1 million contract asset;
2022: £90.7 million)
Refer to page 103 (Audit
Committee Report)
Page 153 (Accounting Policy)
Page 159 (Key sources of
estimation uncertainty)
and page 168 (Financial
Disclosures – contract asset)
Subjective estimate
The contract asset recognised is
based on the value of commissions
due over the expected life of the
plans. This involves the use of a
complex model. The inputs into
that model, such as the life of the
plans, accelerated drop off and
future plan profitability are based
on forecast performance and are
subjective estimates which require
judgement.
The effect of these matters is that,
as part of our risk assessment,
we determined that the product
protection plans contract asset
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.
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
complexity involved in the data
transfer from the third party and
onwards into the model.
Calculation error
The model used to calculate the
variable consideration is complex
and open to the possibility of
arithmetical error.
Our procedures included:
y 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 by
comparing the historical assumption applied to
actual cancellations.
y Sensitivity analysis: We performed sensitivity
analysis on judgemental assumptions relating to
future plan profitability and point of accelerated
drop off and challenged the plausibility and
severity of those sensitivities performed.
y Our sector experience: We challenged the
assumptions made such as life of the plans,
accelerated drop off and expected future plan
profitability based on our knowledge of the
business and the Group, considering factors
occurring in the macroeconomic environment.
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, both
in the year and post year end.
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
the data that is ultimately used within 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 and tested
the model for arthimetical errors.
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 calculation 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 to be acceptable (2022:
acceptable).
139
AO World PLC Annual Report and Accounts 2023Our Financials Independent Auditor’s Report continued
to the members of AO World PLC
The risk
Our response
Network commissions
contract asset
£81.4 million contract asset;
2022: £83.4 million)
Refer to page 103 (Audit
Committee Report)
Page 153 (Accounting Policy)
Page 159 (Key sources of
estimation uncertainty)
and page 168 (Financial
Disclosures – contract asset)
Subjective estimate
The contract asset recognised is
based on the value of commissions
due over the expected life of
mobile phone network contracts.
The inputs into the model used
to calculate the asset value,
such as number of customer
disconnections, and monthly
expected cash receipts are based
on forecast performance and are
subjective estimates which require
judgement.
The effect of these matters is that,
as part of our risk assessment, we
determined that the contract asset
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.
The financial statements (note 22)
disclose the sensitivities estimated
by the Group.
Our procedures included:
y Our sector experience: We challenged the
assumptions made such as future clawback
of upfront revenues, the number of customer
disconnections and monthly expected cash
receipts by comparing to actual historical
experience, taking into account our knowledge of
the business.
y Sensitivity analysis: We performed sensitivity
analysis on judgemental assumptions as
described above and we challenged the
plausibility and severity of these sensitivities by
comparing the result to third party trends, taking
into account our knowledge of the business.
y Historical comparisons: We evaluated the
historical accuracy of the model with reference to
actual data e.g. monthly cash receipts received
per network against expected cash receipts.
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 calculation 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 network
commissions contract asset to be acceptable
(2022: acceptable).
140
AO World PLC Annual Report and Accounts 2023 Recoverability of
Mobile goodwill
Mobile goodwill (£14.7 million;
2022: £14.7 million)
Refer to page 103 (Audit
Committee Report)
Page 155 (Accounting Policy)
Page 160 (Other areas of
estimation uncertainty)
and page 164 (Financial
Disclosures)
The risk
Our response
Subjective estimate
The goodwill arising on the
acquisition of MobilePhonesDirect
(“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 a
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.
The financial statements (note 16)
disclose the sensitivity estimated
by the Group.
Our procedures included:
y Historical comparison: We assessed the
reasonableness of the cash flow forecasts
by considering the historical accuracy of
management’s previous budgets and forecasts;
y Benchmarking assumptions: We evaluated the
Group’s assumptions included within the value in
use calculation by comparing key assumptions
such as projected revenue and EBITDA margin 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.
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 amount of Mobile goodwill to
be acceptable (2022: acceptable).
141
AO World PLC Annual Report and Accounts 2023Our Financials Independent Auditor’s Report continued
to the members of AO World PLC
Recoverability of parent
Company’s investments
in subsidiaries
Investment in subsidiaries
(£42.7 million; 2022: £87.8
million)
Refer to page 185
(Accounting Policy) and
(Financial Disclosures)
The risk
Our response
Low risk, high value The carrying
amount of the parent Company’s
investments in subsidiaries
represents 57% (2022: 70%) of the
Company’s total assets.
The recoverability of investments
is not at high risk of significant
misstatement or subject to
significant judgement. However, due
to the materiality in the context
of the parent Company financial
statements, it is considered to be
the area of greatest significance in
relation to our audit of the parent
Company.
The recoverability of debtors due
from Group entities was considered
a risk in the previous year given
the performance of the German
business. However following the
closure of the entity during the
year, 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.
Our procedures included:
y Tests of detail: We compared the carrying
amount of 100% of investments with the relevant
subsidiaries’ draft balance sheets to identify
whether their net assets, being an approximation
of their minimum recoverable amount, were in
excess of their carrying amount and assessed
whether those subsidiaries have historically been
profit-making.
y Assessing subsidiary audits: We considered the
results of the audit work on those subsidiaries’
results and net assets.
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 multiple of the subsidiaries’ current
trading profit.
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 Company’s conclusion that there is no
impairment of its investments in subsidiaries to be
acceptable. (2022: acceptable).
We continue to perform procedures over going concern as summarised in section 4 of this report. However, following the closure
of the German operations during the year and the refinancing completed post year end, we have not assessed this as one
of the most significant risks in our current year audit and, therefore, it is not separately identified as a key audit matter in our
report this year.
142
AO World PLC Annual Report and Accounts 2023 3. Our application of materiality and an
overview of the scope of our audit
Materiality for the Group financial statements as a whole
was set at £2.5m (2022: £2.5m), determined with reference to
a benchmark of Group total revenue, of which it represents
0.21% (2022: 0.16%).
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 and then closed operations in overseas territories
and invested in brand development. This, together with the
impact of both COVID and recent 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 £0.7m (2022: £1.3m), determined
with reference to a benchmark of total assets, of which it
represents 0.9% (2022: 1.0%).
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% (2022: 75%) of
materiality for the financial statements as a whole, which
equates to £1.875m (2022: £1.875m) for the Group and
£0.525m (2022 : £0.975m) for the parent Company. We
applied this percentage in our determination of performance
materiality because we did not identify any factors indicating
an elevated level of risk.
We agreed to report to the Audit Committee any corrected
or uncorrected identified misstatements exceeding £125,000
(2022: £125,000), in addition to other identified misstatements
that warranted reporting on qualitative grounds.
Of the Group’s 12 (2022: 13) reporting components, we
subjected 4 (2022: 7) to full scope audits for group purposes,
all of which, including the audit of the parent Company,
were performed by the group audit team. The components
within the scope of our work accounted for the percentages
illustrated below.
The remaining 3% (2022: 1%) of total Group revenue, 4%
(2022: 1%) of Group profit before tax and 7% (2022: 0%) of
total Group assets is represented by 8 (2022: 6) reporting
components, none of which individually represented more
than 3.3% (2022: 2.3%) of any of total Group revenue, Group
profit before tax or total Group assets. For the residual
components, we performed analysis at an aggregated
group level to re-examine our assessment that there were no
significant risks of material misstatement within these.
The scope of the audit work performed was predominately
substantive as we placed limited reliance upon the Group’s
internal control over financial reporting.
Revenue
£1,138.5m (2022: £1,557.3m)
Group Materiality
£2.5m (2022: £2.5m)
Group total revenue
Group total profits and
losses that made up the
Group loss before tax
£2.5m
Whole financial statements
materiality (2022: £2.5m)
£1.875m
Whole financial statements
performance materiality
(2022: £1.875m)
£2.3m
Range of materiality at 4
components (£0.7m-£2.3m)
(2022: £0.5m - £2.3m)
Group total revenues
Group materiality
£0.125m
Misstatements reported
to the audit committee
(2022: £0.125m)
97%
(2022: 99%)
97
99
Group total assets
93%
(2022: 100%)
93
100
96%
(2022: 99%)
96
99
Full scope for Group
audit purposes 2022
Full scope for Group
audit purposes 2021
Residual components
143
AO World PLC Annual Report and Accounts 2023Our 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 Company or to cease their operations, and as
they have concluded that the Group’s and the Company’s
financial position means that this is realistic. They have
also concluded that there are no material uncertainties
that could have cast significant doubt over their ability to
continue as a going concern for at least a year from the date
of approval of the financial statements (“the going concern
period”).
We used our knowledge of the Group, its industry, and the
general economic environment to identify the inherent risks
to its business model and analysed how those risks might
affect the Group’s and Company’s financial resources or
ability to continue operations over the going concern period.
The risk that we considered most likely to adversely affect
the Group’s and Company’s available financial resources and/
or metrics relevant to debt covenants over this period was
the general macroeconomic environment and expected cost
inflationary pressures.
We considered whether this risk could plausibly affect the
liquidity or covenant compliance in the going concern period
by comparing severe, but plausible downside scenarios
that could arise from the risk against the level of available
financial resources and covenants indicated by the Group’s
financial forecasts.
Our procedures also included:
y Inspecting confirmation from the lender of the level of
committed financing, and the associated covenant
requirements.
y Critically assessing assumptions in base case and
downside scenarios relevant to liquidity and covenant
metrics, in particular in relation to the current economic
environment by comparing to historical trends and
considering knowledge of the Group’s plans based on
approved budgets and our knowledge of the Group and the
sector in which it operates.
y Assessing whether downside scenarios applied mutually
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 3 to the financial
statements on the use of the going concern basis of
accounting with no material uncertainties that may cast
significant doubt over the Group and Company’s use of
that basis for the going concern period, and we found the
going concern disclosure in note 3 to be acceptable; and
y the related statement under the Listing Rules set out on
pages 45 and 46 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,
including the Value Creation Plan, Performance Share Plan
and the AO Sharesave scheme.
y Using analytical procedures to identify any unusual or
unexpected relationships.
consistent and severe assumptions in aggregate, using our
assessment of the possible range of each key assumption
and our knowledge of inter-dependencies.
We communicated identified fraud risks throughout the
audit team and remained alert to any indications of fraud
throughout the audit.
As required by auditing standards, and taking into account
possible pressures to meet profit targets and performance
incentives, we perform procedures to address the risk of
management override of controls in particular;
y the risk that Group and component management may be
in a position to make inappropriate accounting entries; and
y the risk of bias in accounting estimates and judgements
such as the carrying value of the contract assets
On this audit we do not believe there is a fraud risk related to
other revenue streams recognition because there is limited
opportunity to commit fraud and no material judgements or
estimation involved in the balance.
y Comparing past budgets to actual results to assess the
Directors’ track record of budgeting accurately.
y Considering whether the going concern disclosure in note
3 to the financial statements gives a full and accurate
description of the Directors’ assessment of going concern,
including the identified risks, dependencies and related
sensitivities. We assessed the completeness of the going
concern disclosure.
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
144
AO World PLC Annual Report and Accounts 2023 We did not identify any additional fraud risks. Further detail in
respect of the carrying value of the contract assets is set out
in the key audit matters disclosures in section 2 of this reoprt.
We performed procedures including:
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.
y Identifying journal entries and other adjustments to
test for all full scope components based on risk criteria
and comparing the identified entries to supporting
documentation. These included those posted with
unexpected account combinations.
y Assessing whether judgements made in making accounting
estimates are indicative of a potential bias.
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.
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 in our opinion the information given in those reports
for the financial year is consistent with the financial
statements; and
y 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.
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.
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.
Whilst the Group is subject to many other laws and
regulations, we did not identify any others where the
consequences of noncompliance alone could have a
material effect on amounts or disclosures in the financial
statements. For the “serious loss of capital” matter disclosed
on page 101 we assessed the disclosures in note 28 against
evidence of share capital transactions that have occurred.
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
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 145 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;
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.
145
AO World PLC Annual Report and Accounts 2023Our Financials
Independent Auditor’s Report continued
to the members of AO World PLC
We are also required to review the viability assessment, set
out on page 45 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 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;
y 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
y 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 the 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. We have nothing
to report in this respect.
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
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page
135, 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.
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
y we have not received all the information and explanations
4 July 2023
we require for our audit.
We have nothing to report in these respects.
146
AO World PLC Annual Report and Accounts 2023 Consolidated income statement
For the year ended 31 March 2023
Revenue
Cost of sales
Gross profit
Administrative expenses
Other operating income
Operating profit/ (loss)
Finance income
Finance costs
Profit/ (loss) before tax
Tax (charge)/ credit
Profit/ (loss) after tax for the period from continuing operations
Loss for the period from discontinued operations
Loss after tax for the year
Profit/ (loss) for the year attributable to:
Owners of the Company
Non-controlling interests
Earnings/ (loss) per share from continuing operations (pence)
Basic earnings/ (loss) per share
Diluted earnings/ (loss) per share
Loss per share from continuing and discontinued operations (pence)
Basic loss per share
Diluted loss per share
2022
£m
Restated
(See note 35)
1,368.3
(1,104.9)
263.4
(272.7)
2023
£m
1,138.5
(900.3)
238.2
(226.4)
0.7
12.5
2.9
(7.8)
7.6
(1.2)
6.4
(8.8)
(2.4)
(2.6)
0.2
(2.4)
1.13
1.10
(0.48)
(0.47)
1.8
(7.5)
2.6
(5.6)
(10.5)
7.2
(3.3)
(26.8)
(30.1)
(30.4)
0.3
(30.1)
(0.75)
(0.75)
(6.33)
(6.33)
Note
5, 6
6,8
7,8
8
8
11
12
13
35
29
15
15
15
15
147
AO World PLC Annual Report and Accounts 2023Our Financials Consolidated statement of comprehensive income
For the year ended 31 March 2023
Loss for the year
Items that may subsequently be recycled to income statement
Exchange differences on translation of foreign operations
Total comprehensive loss for the year
Total comprehensive profit/ (loss) for the year attributable to:
Owners of the Company
Non-controlling interests
Total comprehensive profit/ (loss) attributable to owners of the parent arising from:
Continuing operations
Discontinued operations
2023
£m
(2.4)
(6.4)
(8.8)
(9.0)
0.2
(8.8)
6.2
(15.2)
(9.0)
2022
£m
(30.1)
1.0
(29.1)
(29.4)
0.3
(29.1)
(3.6)
(25.8)
(29.4)
148
AO World PLC Annual Report and Accounts 2023 Consolidated statement of financial position
As at 31 March 2023
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
Provisions
Total liabilities
Net assets
Equity attributable to owners of the parent
Share capital
Share premium account
Other reserves
Retained losses
Total
Non-controlling interest
Total equity
Note
16
17
18
18
22
20
21
22
24
23
25
26
27
23
26
27
28
28
30
29
2023
£m
28.2
9.6
20.9
69.4
93.3
8.3
229.7
73.1
137.8
0.6
19.1
230.6
460.3
(249.5)
(10.0)
(17.8)
(1.2)
(278.5)
(47.9)
(4.8)
(67.5)
(3.8)
(76.1)
(354.6)
105.7
1.4
108.2
59.4
(63.3)
105.7
–
105.7
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 147 to 182 were approved by the Board of Directors
and authorised for issue on 4 July 2023. They were signed on its behalf by:
John Roberts
CEO
AO World PLC
Mark Higgins
CFO
AO World PLC
149
AO World PLC Annual Report and Accounts 2023Our Financials Consolidated statement of changes in equity
As at 31 March 2023
Investment
in own
shares
£m
Share
premium
account
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
Other reserves
Share-based
payments
reserve
£m
Translation
reserve
£m
Other
reserve
£m
Retained
losses
£m
Total
£m
Non-
controlling
interest
£m
Total
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
104.3
22.2
0.5
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
104.4
22.2
0.5
–
–
–
–
3.8
37.0
–
–
–
–
–
–
–
–
–
–
–
–
9.6
–
5.0
–
–
(2.7)
11.8
–
5.5
–
–
–
(1.9)
(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
(2.6)
(2.6)
0.2
(2.4)
–
–
–
–
(3.3)
–
–
–
(6.4)
–
–
–
5.5
(2.0)
39.1
–
–
–
5.5
39.1
(6.4)
(6.4)
–
–
(3.3)
0.8
(2.5)
–
1.9
–
–
–
108.2
59.2
0.5
15.5
(9.4)
(6.3)
(63.3) 105.7
– 105.7
Share
capital
£m
1.2
–
–
–
–
–
1.2
–
–
0.2
–
–
–
1.4
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
(Loss)/ Profit for
the period
Share-based
payment charge
(net of tax)
Issue of shares
(net of expenses)
Foreign currency
loss arising on
consolidation
Acquisition of
minority interest
Movement
between reserves
Balance at
31 March 2023
150
AO World PLC Annual Report and Accounts 2023 Consolidated statement of cash flows
For the year ended 31 March 2023
Note
35
17, 18
11
12
31
27
Cash flows from operating activities
Profit/ (loss) for the year in continuing operations
Net cash used in operating activities in discontinued operations
Adjustments for:
Depreciation and amortisation
Loss on disposal of property, plant and equipment
Finance income
Finance costs
Taxation charge/ (credit)
Share-based payment charge
Increase in provisions
Operating cash flows before movement in working capital
Decrease in inventories
Decrease/ (increase) in trade and other receivables
Decrease in trade and other payables
Total movement in working capital
Taxation refunded
Cash generated from/ (used in) operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Acquisition costs relating to right of use assets
Acquisition of property, plant and equipment
Acquisition of intangible assets
Net cash generated from/ (used in) investing activities by discontinued operations
35
Cash generated from/ (used) in investing activities
Cash flows from financing activities
Proceeds from issue of ordinary share capital
Share issue costs
Acquisition of non-controlling interests
(Repayment of)/ New borrowings
Interest paid on borrowings
Interest paid on lease liabilities
Repayment of lease liabilities
Net cash used in financing activities by discontinued operations
Net cash (used in)/ generated from financing activities
Net decrease in cash
Exchange loss on cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
25
12
12
35
24
2023
£m
6.4
(8.8)
29.0
0.9
(2.9)
7.8
1.2
5.3
2.7
41.6
9.0
14.7
(43.0)
(19.4)
2.2
24.4
0.1
–
(2.1)
(0.1)
9.8
7.7
41.1
(2.0)
(2.5)
(35.0)
(3.5)
(4.2)
(17.7)
(8.6)
(32.3)
(0.3)
(0.1)
19.5
19.1
2022
£m
Restated
(See note 35)
(3.3)
(7.3)
28.5
0.4
(2.6)
5.6
(7.2)
5.8
0.5
20.4
33.0
(10.8)
(96.7)
(74.5)
1.7
(52.4)
–
(1.0)
(7.5)
(1.0)
(0.1)
(9.6)
0.1
-
–
45.0
(1.6)
(4.3)
(21.2)
(3.6)
14.4
(47.6)
–
67.1
19.5
151
AO World PLC Annual Report and Accounts 2023Our Financials
Notes to the consolidated financial statements
For the year ended 31 March 2023
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 191. The
nature of the Group’s operations and its principal activities
are set out in Note 19 and in the Strategic Report on pages
2 to 77.
These financial statements are presented in pounds sterling
(£m) as that is the currency of the primary economic
environment in which the Group operates.
During the year, the Group made the decision to close its
German business, which has been treated and presented
as a discontinued operation in the year ended 31 March 2023
which includes restating comparatives (see note 35
for further details).
2. Adoption of new and revised standards
The accounting policies set out in Note 3 have been applied in
preparing these financial statements.
The following standards, interpretations and amendments,
issued by the International Accounting Standards Board
(“IASB”) effective for the period ended 31 March 2023, are
relevant to the Group but have had no material impact on the
Group’s Financial Statements:
y Amendments to IAS 37 and IAS 16
y Amendments to References to the Conceptual Framework
in IFRS 3
y Annual improvements to IFRS standards 2018–2020
New accounting standards in issue but not yet
effective
The following UK-adopted IFRSs have been issued but have
not been applied by the Group in these consolidated financial
statements. Their adoption is not expected to have a material
effect on the financial statements unless otherwise indicated:
y IFRS 17 Insurance Contracts, Amendments to IFRS 17 and
Initial Application of IFRS 17 and IFRS 9 – Comparative
Information (effective date 1 January 2023).
y Amendments to IAS 1 Presentation of Financial Statements:
Classification of Liabilities as Current or Non-current
and Classification of Liabilities as Current or Non-current
(effective date to be confirmed).
y Amendments to IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors to introduce a new
definition for accounting estimates (effective date
1 January 2023 ).
y Amendments to IAS 1 Presentation of Financial Statements
and IFRS Practice Statements 2 Making Materiality
Judgements (effective date 1 January 2023).
y Amendments to IAS 12 Income Taxes – Deferred Tax Related
to Assets and Liabilities Arising from a Single Transaction
(effective date 1 January 2023).
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 income statement as
incurred. All intercompany balances and transactions have
been eliminated in full.
The present-access method was used to value the AO
Recycling Limited non-controlling interest in the prior period.
Under this method the non-controlling interest continued
to be recognised because the non-controlling shareholders
still had 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 was recognised at the proportionate share
of the acquired net assets. Subsequent to acquisition, the
carrying amount of non-controlling interest equalled 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. In the current year, the Company
exercised its final call option to acquire the remaining shares
in AO Recycling Limited from its founders and accordingly, AO
Recycling Limited is now a wholly owned subsidiary.
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 38 to 44.
Notwithstanding net current liabilities of £47.9m as at 31
March 2023 and a cash outflow of £0.3m in the year ended
31 March 2023, the financial statements have been prepared
on a going concern basis which the Directors consider to be
appropriate for the following reasons:
152
AO World PLC Annual Report and Accounts 2023 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 renewed in April 2023
to now expire in April 2026). At 30 June 2023, total liquidity
amounted to £62.8m.
The Directors have prepared base and sensitised cash flow
forecasts for the Group covering the period to 31 March 2025
(“the going concern period”) which indicate that the Group will
remain compliant with its covenants and will have sufficient
funds through its existing cash balances and availability of
funds from its revolving credit facility to meet its liabilities as
they fall due for that period. 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 also run these in combination. These
primarily include:
y Negative growth in FY24 and in the subsequent periods to
account for how the overall electrical online market could be
impacted by the continuing macro-economic factors such
as inflation, consumer confidence, interest rate increases;
y Changes in margin including the impact of any changes in
the Group’s policy with regard to charging;
y The impact of a change in product protection plan
cancellations as a result of a macroeconomic event e.g.,
continued interest rate increases, utilising data seen where
other events have happened (e.g., Covid outbreak, initial
cost of living crisis); and
y Changes in other revenue including the impact of a
reduction in logistics third-party income.
Under these severe but plausible downside scenarios the
Group continues to demonstrate headroom on its banking
facilities and remains compliant with its quarterly covenants
which are interest cover (Adjusted EBITDA being at least
4x net finance costs) and leverage (Net debt to be no more
than 2.5x EBITDA). The likelihood of a breach of covenants
is considered remote and hence headroom against its
covenants has not been disclosed.
In addition, the Directors have considered mitigating actions
including limiting discretionary spend and managing working
capital should there be any pressure on headroom. These
would provide additional headroom but have not been
built into the going concern forecast. 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 one main website: ao.com – 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.
It is the Group’s policy to sell its products to the end customer
with a right of return within 30 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.
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”).
153
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2023
3. Significant accounting policies continued
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.
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 and service.
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 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.,
Finance costs are recognised in the consolidated income
statement in the period to which they occur.
Finance costs principally comprise:
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; and
y Financing costs of raising debt and ongoing utilisation/non-
utilisation fees.
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.
154
AO World PLC Annual Report and Accounts 2023 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 long-term growth
prevalent in a particular market as well as short and medium-
term business plans. The Directors draw upon experience as
well as external resources in making these judgements.
Goodwill and intangible assets
Goodwill represents the excess of the total consideration
transferred for an acquired entity, over the net of the
acquisition date amounts of the identifiable assets acquired
and liabilities assumed. Goodwill is stated at cost. Goodwill is
allocated to CGUs and is not amortised but is tested annually
for impairment.
Other intangible assets are stated at cost less accumulated
amortisation. Amortisation is charged to the consolidated
income statement in administrative expenses on the basis
stated below over the estimated useful lives of each asset.
The estimated useful lives are as follows:
Asset class
Domain names
Software
Amortisation method and rate
5 years straight-line
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.
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 Land) less their residual values over their useful
lives on the following bases:
Asset class
Depreciation method and rate
Land and buildings
25 years straight-line (excluding Land)
Property alterations
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
15% reducing balance or 3 to 5 years
straight line
Freehold land is not depreciated.
The estimated useful lives, residual values and depreciation
method are reviewed at the end of each reporting year, with
the effect of any changes in estimate accounted for on a
prospective basis.
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected to
arise from the continued use of the asset. The gain or loss arising
on the disposal of an asset is determined as the difference
between the sales proceeds and the carrying amount of the
asset and is recognised in the income statement.
Right of use assets and liabilities
The Group has applied IFRS 16 in these financial statements.
The two capitalisation exemptions proposed by the standard
– lease contracts with a lease term of less than 12 months and
lease contracts for which the underlying asset has a low value
(on acquisition);
– have been taken by the Company. The payments for such
leases are recognised in the income statement on a straight-
line basis over the lease term.
AO World PLC as a lessee
At inception, the Group assesses whether a contract is or
contains a lease. This assessment involves the exercise of
judgement about whether it depends on a specified asset,
whether the Group obtains substantially all the economic
benefits from the use of that asset and whether the Group has
the right to direct the use of the asset.
The Group recognises a right of use (“ROU”) asset and a lease
liability at the lease commencement date. The ROU asset
is initially measured based on the present value of lease
payments plus any initial direct costs incurred and the costs
of obligations to refurbish the asset, less any incentives
received. The ROU asset is subsequently depreciated using
the straight-line method over the shorter of the lease term
or the useful life of the underlying asset. In addition, the
ROU asset is subject to testing for impairment if there is any
indication of impairment.
The lease liability is initially measured at the present value of
the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease
or, if that rate cannot be readily determined, the Groups
incremental borrowing rate. The Group 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 Group has classified the principal portion
of lease payments, as well as the interest portion, within
financing activities. Lease payments for short-term leases,
lease payments for leases of low-value assets and variable
lease payments not included in the measurement of the lease
liability are classified as cash flows from operating activities.
155
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2023
3. Significant accounting policies continued
The Group has elected to disclose its lease liabilities split by
those which ownership transfers to the Group at the end of
the lease (“Owned asset lease liabilities”) and are disclosed
within the Property Plant and Equipment table in note 18,
and those leases which are rental agreements and where
ownership does not transfer to the Group at the end of the
lease as Right of use asset lease liabilities which are disclosed
within the Right of use assets table. 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.
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.
Any leases, where the expected lease life is expected to be
reduced or ended, are adjusted once the Group is satisfied
that the change or event has occurred.
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 Group is an intermediate lessor, it accounts for its
interests in the head lease and the sublease separately. It
assesses the lease classification of a sublease with reference
to the right of use asset arising from the head lease, not with
reference to the underlying asset. If a head lease is a short-
term lease, then it classifies the sublease as an operating
lease. The Group recognises lease payments received under
operating leases as income on a straight-line basis over the
lease term as other operating income. The Group has classified
cash flows from operating leases as operating activities.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost comprises direct purchase cost net of rebates. Net
realisable value represents the estimated selling price less
all estimated and directly attributable costs of selling and
distribution. Net realisable value includes, where necessary,
provisions for slow-moving and damaged inventory.
Contract assets
Contract assets arising from sale of product protection
plans and network contracts are recognised in line with the
revenue recognition policies for commission revenue and
are disclosed as a contract asset within trade and other
receivables.
It represents the right to consideration in exchange for the
service provided at the balance sheet date in relation to
revenue recognised for the commissions. While the revenue
is recognised at the point of sale, the cash receipts, which
reduce the contract asset, are received over time.
As the consideration is receivable over time but is conditional
on the behaviour of customers post provision of the service,
it is classified as a contract asset under IFRS 15 rather than a
receivable under IFRS 9.
Financial instruments
Financial assets and financial liabilities are recognised
in the Group’s statement of financial position when the
Group becomes a party to the contractual provisions of the
instrument.
Financial assets and liabilities
Financial assets and liabilities comprise trade and other
receivables (excluding contract assets), cash and cash
equivalents, loans and borrowings, trade and other payables,
and call and put options.
Trade and other receivables
(excluding contract assets)
Trade and other receivables are recognised initially at fair
value. Subsequent to initial recognition they are measured at
amortised cost using the effective interest method, less any
allowance for expected credit losses.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank, in hand,
on demand deposits and cash in transit.
Trade and other payables
Trade and other payables are recognised initially at fair
value. Subsequent to initial recognition, they are measured
at amortised cost using the effective interest method.
Contract liabilities
Contract liabilities are initially recognised within creditors
as payments on account and cashback liabilities at fair
value. Subsequent to initial recognition they are measured at
amortised cost.
Financial liabilities and equity components
Debt and equity instruments are classified as either financial
liabilities or as equity in accordance with the substance of
the contractual arrangement and in conjunction with the
application of IFRSs. Financial instruments issued by the
Group are treated as equity only to the extent that they meet
the following two conditions:
a. they include no contractual obligations upon the
Company (or Group as the case may be) to deliver cash
or other financial assets or to exchange financial assets
or financial liabilities with another party under conditions
that are potentially unfavourable to the Company (or
Group); and
b. where the instrument will or may be settled in the
Company’s own equity instruments, it is either a non-
derivative that includes no obligation to deliver a variable
number of the Company’s own equity instruments or is a
derivative that will be settled by the Company exchanging
a fixed amount of cash or other financial assets for a fixed
number of its own equity instruments.
To the extent that this definition is not met, the proceeds
of issue are classified as a financial liability. Where the
instrument so classified takes the legal form of the
Company’s own shares, the amounts presented in these
financial statements for called-up share capital and share
premium account exclude amounts in relation to those shares.
156
AO World PLC Annual Report and Accounts 2023 Call and put options
In the prior period, the fair value of the call and put options
(arising on the acquisition of AO Recycling Limited) was based
upon an independent valuation at the year end using the Monte
Carlo model. These were applied to the Company only accounts
and, for the call option only, in the consolidated accounts.
For consolidation purposes, the Group used the gross liability
method as per IAS 32 for valuing the put option, which
equated to an estimate of the amount payable over the life of
the option based on discounted future cash flows.
During the current year, the Company exercised its final
call option to acquire the remaining shares in AO Recycling
Limited, and accordingly it is now a wholly owned subsidiary.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event,
it is probable that the Group will be required to settle that
obligation and a reliable estimate can be made of the
amount of the obligation.
The amount recognised as a provision is the best estimate of
the consideration required to settle the present obligation at
the statement of financial position date, taking into account
the risks and uncertainties surrounding the obligation. The
estimated cash outflow is discounted to net present value.
Taxation
Tax on the profit or loss for the year comprises current and
deferred tax. Tax is recognised in the income statement
except to the extent that it relates to items recognised
directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable or receivable on the
taxable income or loss for the year, using tax rates enacted or
substantively enacted at the statement of financial position
date, and any adjustment for items of income or expense
that are taxable or deductible in other years or that are never
taxable or deductible.
Research and development credits are accounted for in
accordance with IAS 20. 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, and presented net on the
balance sheet, 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.
Where there has been a change to an award during the period
which constitutes a modification for IFRS 2 purposes, the
fair value of both the original award and the new award will
be valued at the date the modification takes effect. The fair
value of the original award (measured at the original grant
date) will be recognised over the original vesting period as a
minimum and any incremental increase to the fair value of
the new award will be recognised over the period from the
modification date to the vesting date of the new award.
157
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2023
3. Significant accounting policies continued
At each statement of financial position date before vesting,
the cumulative expense is calculated, representing the extent
to which the vesting period has expired and management’s
best estimate of the achievement or otherwise of service
and non-market vesting conditions and of the number of
equity instruments that will ultimately vest or, in the case of
cancelled options in the AO Sharesave Scheme, be treated as
vesting as described above.
The movement in cumulative expense since the previous
statement of financial position date is recognised in the
consolidated income statement with a corresponding
entry in equity. On vesting, amounts held in the share-based
payments reserves are transferred to retained losses.
Employee benefit trust
The Group operates an employee benefit trust (“EBT”). Own
shares held by the EBT are treated as Treasury shares on
consolidation and are shown as a reduction in equity in the
statement of financial position.
Foreign currency translation
The individual financial statements of each Group company
are presented in the currency of the primary economic
environment in which it operates (its functional currency).
For the purpose of the consolidated financial statements,
the results and financial position of each Group company
are expressed in pounds sterling, which is the presentational
currency of the Group and its consolidated financial
statements.
The trading results and cash flows of overseas subsidiaries
are translated at the average monthly exchange rates
during the period. The statement of financial position of each
overseas subsidiary is translated at year-end exchange rates
with the exception of equity balances, which are translated
at historic rates. The resulting exchange differences are
recognised in a separate translation reserve within equity and
are reported in other comprehensive income.
Transactions denominated in foreign currencies are
translated into the functional currency at the exchange
rates prevailing on the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies
are retranslated into functional currency at the rates of
exchange at the reporting date. Exchange differences on
monetary items are recognised in the income statement.
Intra-Group loans are translated at the year-end exchange
rate with the resulting exchange differences recognised within
interest.
Alternative performance measures
The Group tracks a number of alternative performance
measures in managing its business. These are not defined
or specified under the requirements of IFRS because they
exclude amounts that are included in, or include amounts
that are excluded from, the most directly comparable
measure calculated and presented in accordance with
IFRS, or are calculated using financial measures that are
not calculated in accordance with IFRS. The Group believes
that these alternative performance measures, which are
not considered to be a substitute for, or superior to, IFRS
measures, provide stakeholders with additional helpful
information on the performance of the business. These
alternative performance measures are consistent with how
the business performance is planned and reported within the
internal management reporting to the Board. Some of these
alternative performance measures are also used for the
purpose of setting 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 items in the current year are as follows:
y Following the Group’s change of strategy to focus on
the UK business, the Group started a simplification of
its operations which has included exiting various loss-
making parts of the business including the trial with Tesco,
simplifying the organisational structure and associated
contracts and exiting surplus properties. As a consequence,
the Group has recognised an expense of £4.5m relating to
the restructuring which, due to its size and nature, has been
added back in arriving at Adjusted EBITDA.
The Adjusting Item in the prior year was as follows:
y Due to the continued losses in the German business, the
Group undertook a strategic review during the prior year.
Legal advice and other costs of the review totalled £0.9m
during the year and given the nature of these costs, they
were added back in arriving at Adjusted EBITDA. All other
charges arising as a result of the review, principally relating
to the impairment of assets in the German business, were
included in the result for that business which is shown as a
discontinued operation in these financial statements (see
Note 35).
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.
158
AO World PLC Annual Report and Accounts 2023 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 disclose those
areas of critical accounting judgement and key sources of
estimation uncertainty that carry a significant risk of causing
material adjustment to the carrying value of assets and
liabilities within the next 12 months.
As a result of macro-economic factors in recent years, the
Directors consider that the revenue recognition in respect
of commission for product protection plans and network
connections include significant areas of accounting
estimation. The Directors have applied the variable
consideration guidance in IFRS 15 and as a result of revenue
restrictions do not believe there is a significant risk of a
material downward adjustment. Revenue has been restricted
to ensure that it is only recognised when it is highly probable
and therefore subsequently, there could be a material reversal
of restrictions.
The information below sets out the estimates and judgements
used in recognising revenue in these two areas.
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 the contractual agreed margins;
y the number of live plans;
y the discount rate;
y the estimated length of the plan;
y the estimated historic rate of attrition; and
y 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 FY21 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 estimations in relation to plan
cancellations which has resulted in a £1.7m reversal of
previously recognised revenue. 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 2023 was
£93.1m (2022: £90.7m). The rate used to discount the revenue
for the FY23 cohort is 5.45% (2022: 3.54%). The weighted
average of discount rates used in the years prior to FY23 was
3.91% (2022: 4.12%).
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) 2.86% (2022: 0.53%);
y The length of contract entered into by the consumer (12 – 24
months) and the resulting 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 (c2%).
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
159
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2023
4. Key sources of estimation uncertainty
continued
and any additional churn expected as a result of recent price
increases announced and applied by the MNOs, 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 once customers reach
out-of-contract periods. This has resulted in a restriction
of revenue in FY23, compared to the prior methodology, of
£2.9m. In addition, as a result of the increase in commission
rates driven by the significant increase in inflation, previously
restricted revenue of £4.4m has been recognised in FY23.
Other small refinements have been made which have had
an immaterial impact on the revenue recognised. The total
revenue restricted at 31 March 2023 is £8.7m.
The commission receivable balance as at 31 March 2023 was
£81.3m (2022: £83.4m). The rate used to discount the current
year revenue is 2.83% (2022: 0.53%).
Other areas of estimation uncertainty
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 2023 these
amounted to £23.5m.
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 and the long-term growth
rate to be applied beyond this three-year period.
Whilst at 31 March 2023 the Directors have concluded that the
carrying value of the intangibles and goodwill is appropriate,
significant 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.
Recoverability of deferred tax asset
At 31 March 2023, the Group has UK tax losses of £26.1m and
accordingly has recognised a deferred tax asset of £6.5m in
relation to these losses.
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 affected the post Covid
trading period had been the prime reason for the result in
FY22. Since then, and following the closure of the German
business, the Group has changed its strategy to focus on
profit and cash generation. The results in the second half
of FY23 reflect the measures taken to reduce costs and
improve margin despite the ongoing impacts of the cost
of living squeeze and difficult macro-economic conditions
which have restricted growth. The business therefore expects
this profitability to continue 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 an area of accounting
judgement.
5. Revenue
The table below shows the Group’s revenue by 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
Product revenue
Service revenue
Commission revenue
Third-party logistics revenue
Recycling revenue
2022
£m
Restated
(See note 35)
1,114.4
50.3
156.8
22.7
24.1
2023
£m
874.8
56.2
156.4
27.6
23.6
1,138.5
1,368.3
Details of the revenue in each category are set out in note 3.
6. Segmental analysis
In the periods prior to the current period, the Group had 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. Following the decision in June 2022
to close the German operations (which are now treated as
discontinued (see note 35)), the UK operation is now the only
reportable segment.
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 UK operations now
form three reportable segments after considering the
threshold guidance in IFRS 8, being retail, logistics and
recycling.
160
AO World PLC Annual Report and Accounts 2023 6. Segmental analysis continued
However, having consideration for the economic characteristics of each of these segments including the nature of products
and services, the type of customer and methods used to distribute product, the Chief Operating Decision Maker has concluded
that the majority of the Group’s business is retail related and has determined it is appropriate to aggregate these segments
into one reportable segment.
7. Administrative expenses
Marketing and advertising expenses
Warehousing expenses
Other administrative expenses
8. Operating profit/ (loss) for the year
Operating profit/ (loss) 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)
Restructuring costs
2022
£m
Restated
(See note 35)
46.1
69.6
157.0
272.7
2023
£m
38.0
59.8
128.6
226.4
2022
£m
Restated
(See note 35)
5.1
3.0
16.7
3.8
0.3
968.8
157.2
(0.3)
(1.4)
0.9
2023
£m
6.6
1.9
18.0
2.6
0.2
799.9
133.0
(0.7)
–
4.5
Adjusting items of £4.5m are included in the income statement as administrative expenses (2022: administrative expenses).
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 the audit of the Company’s subsidiaries
and interim financial statements
Total Auditor’s remuneration
2023
£m
0.1
0.7
0.8
2022
£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 106. No services were provided on a contingent fee basis. Non-audit fees of £89,700 were incurred in relation to
the review of the interim financial statements (2022: £75,000) and £nil in relation to agreed upon procedures in relation to the
Group’s covenant reporting pack (2022: £5,000).
161
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2023
10. Staff numbers and costs
The average monthly number of employees (including Directors) was:
Sales, marketing and distribution
Directors (Executive and Non-Executive)
The number of employees at 31 March 2023 was 2,921.
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
Unwind of discounting on non-current contract assets
12. Finance costs
Interest on lease liabilities
Interest on bank loans
Other finance costs
13. Tax
Corporation tax on continuing operations
Current year
Adjustments in respect of prior years
Deferred tax on continuing operations (see Note 20)
Current year
Adjustments in respect of prior years
Total tax charge/ (credit) on continuing operations
2022
Number
Restated
(See note 23)
3,967
7
3,974
2023
Number
3,366
7
3,373
2022
£m
Restated
(See note 35)
132.6
13.1
5.7
5.8
157.2
2022
£m
2.6
2.6
2022
£m
Restated
(See note 35)
4.3
0.6
0.7
5.6
2023
£m
110.4
12.4
4.9
5.3
133.0
2023
£m
2.9
2.9
2023
£m
4.2
2.3
1.2
7.8
2022
£m
Restated
(See note 35)
2023
£m
0.3
0.2
0.5
0.1
0.6
0.7
1.2
(0.6)
–
(0.6)
(5.9)
(0.6)
(6.5)
(7.2)
The expected corporation tax charge for the year is calculated at the UK corporation tax rate of 19% (2022: 19%) on the profit/
(loss) before tax for the year.
162
AO World PLC Annual Report and Accounts 2023 The charge/ (credit) for the year can be reconciled to the profit/ (loss) in the statement of comprehensive income as follows:
Year ended 31 March
Profit/ (loss) before tax on continuing operations
Tax at the UK corporation tax rate of 19% (2022: 19%)
Ineligible expenses
Impact of difference in current and deferred tax rates
Income not taxable
Group relief claimed from discontinued operations (see below)
Share-based payments
Prior period adjustments
Tax charge/ (credit) for the year
2022
£m
Restated
(See note 35)
(10.5)
2023
£m
7.6
1.5
0.2
(0.7)
–
(1.6)
1.0
0.8
1.2
(2.0)
0.2
(1.2)
(0.1)
(4.7)
1.7
(0.9)
(7.2)
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 is reflected in the deferred tax asset as at 31 March 2023.
The Group have offset a proportion of its German losses against profits arising within the UK continuing operations, in the
relevant overlapping period, through its registered branch structure in Germany.
14. Dividends
The Directors do not propose a dividend for the year ended 31 March 2023 (2022: £nil).
15. Earnings/ (loss) per share
The calculation of the basic and diluted (loss)/ earnings per share is based on the following data:
Profit/ (loss) attributable to Owners of the Parent Company from continuing operations
Loss attributable to Owners of the Parent Company from discontinued operations
2022
£m
Restated
See note 35
(3.6)
(26.8)
(30.4)
2023
£m
6.2
(8.8)
(2.6)
Number of shares
Weighted average shares in issue for the purposes of basic earnings/ (loss )per share
Potentially dilutive shares
Weighted average number of diluted ordinary shares
548,947,969
478,558,948
15,509,762
7,028,898
564,457,731
485,587,846
Earnings/ (loss) per share from continuing operations (pence per share)
Basic earnings/ (loss) per share
Diluted earnings/ (loss) per share
Loss per share from continuing and discontinued operations (pence per share)
Basic loss per share
Diluted loss per share
1.13
1.10
(0.48)
(0.47)
(0.75)
(0.75)
(6.33)
(6.33)
In the prior year, the diluted loss per share has been restricted to the basic loss per share to prevent having an anti-dilutive
effect.
163
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2023
16. Goodwill
Carrying value at 31 March 2022 and at 31 March 2023
£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 2023, goodwill acquired through UK business combinations (excluding Mobile Phones Direct Limited) was allocated
to the UK cash-generating unit (“CGU”) which is part of 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 2023. 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. The final year cash flow is used to calculate a terminal value and is based
on an estimated growth rate of 1%. This rate does not exceed the average long term growth rate for the market.
Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money
and the risks specific to this CGU. In arriving at the appropriate discount rate to use, we adjust the CGU’s post-tax weighted
average cost of capital 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 13.1% (2022: 9.7%).
The key assumptions, which take account of historic trends, upon which management has 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 (“MPD”) 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 19.2% (2022: 14.8%).
The total recoverable amount for this CGU group is greater than its carrying value by £11.9m in management’s base case.
The main assumptions underlying the value in use calculation is revenue where growth is forecast at c3% per annum and
EBITDA margin, which has been impacted by higher levels of inflation for recent cohorts, and is assumed to be c5%.
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. The final year cash flow is used to calculate a terminal value and includes an estimated long term
growth rate of 3% per annum which does not exceed the average long term growth rate for the market. Management believes
that the key assumptions are revenue and EBITDA margin. If there was no revenue growth post FY26 (ie the period beyond the
three-year strategic plan), then this would have an impact of (£6.9m) on the amount of headroom.
The sensitivities analysed demonstrate that it would require a total reduction in revenue over the three year strategic plan of
£68.8m (c15% of total revenue over the three years), or a total reduction in EBITDA over the three year strategic plan of £4.2m
(c19% of total EBITDA over the three years) with, in both cases, a continued reduction into perpetuity to eliminate the headroom
on the recoverable amount. This is without considering any mitigating actions.
Management believes that based on the range of possible outcomes noted above and given the value in use is significantly
higher than the carrying value, there is no current impairment.
164
AO World PLC Annual Report and Accounts 2023 17. Other intangible assets
Cost
At 31 March 2021
Additions
Disposals
At 31 March 2022
Additions
Disposals
At 31 March 2023
Amortisation
At 31 March 2021
Charge for the year
Disposals
At 31 March 2022
Charge for the year
Disposals
At 31 March 2023
Carrying amount
At 31 March 2023
At 31 March 2022
Domain
names
£m
Software
£m
Marketing
related
assets
£m
Customer
lists
£m
1.5
–
(0.3)
1.2
–
–
1.2
1.1
0.1
–
1.2
–
–
1.2
–
–
7.3
1.0
(0.5)
7.8
0.1
(1.5)
6.4
3.7
2.2
(0.2)
5.7
1.0
(1.4)
5.3
1.1
2.1
14.8
–
–
14.8
–
–
14.8
3.4
1.5
–
4.9
1.5
–
6.4
8.4
9.9
0.4
–
–
0.4
–
–
0.4
0.2
0.1
–
0.2
0.1
–
0.3
0.2
0.2
Amortisation is charged to administrative costs in the consolidated income statement.
18. Property, plant and equipment
Owned assets
Cost
At 31 March 2021
Additions
Disposals
Exchange differences
At 31 March 2022
Additions
Disposals
Exchange differences
At 31 March 2023
Accumulated depreciation
At 31 March 2021
Charge for the year
Impairment
Disposals
At 31 March 2022
Charge for the year
Disposals
At 31 March 2023
Carrying amount
At 31 March 2023
At 31 March 2022
Land and
buildings
£m
Property
alterations
£m
Fixtures,
fittings,
plant and
machinery
£m
Motor
vehicles
£m
Computer
and office
equipment
£m
Assets held
for
rental
purposes
£m
5.5
0.3
–
–
5.8
–
(4.8)
0.1
1.1
1.4
0.5
–
–
1.9
0.3
(2.1)
0.1
1.0
3.9
15.3
2.5
(0.8)
–
17.0
0.2
(2.6)
–
14.9
7.8
1.7
–
(0.7)
8.8
2.1
(0.8)
10.1
5.9
8.2
21.3
2.9
(0.4)
–
23.8
1.2
(3.6)
–
21.5
8.2
3.2
–
(0.2)
11.2
3.0
(2.7)
11.6
10.1
12.6
16.4
1.7
–
(0.1)
18.0
0.5
(1.8)
–
16.7
10.6
2.3
–
–
12.9
1.7
(1.8)
12.9
3.8
5.1
11.6
1.8
–
–
13.4
0.5
(1.0)
–
13.0
9.5
1.0
0.2
–
10.7
1.6
(0.9)
11.4
1.6
2.7
0.4
0.1
(0.1)
–
0.3
–
(0.3)
–
–
0.1
0.1
–
(0.1)
0.1
0.1
(0.2)
–
–
0.2
Total
£m
24.0
1.0
(0.8)
24.2
0.1
(1.5)
22.8
8.4
3.8
(0.2)
12.0
2.6
(1.4)
13.2
9.6
12.2
Total
£m
70.5
9.3
(1.4)
(0.1)
78.3
2.4
(14.0)
0.2
67.0
37.6
8.8
0.2
(1.0)
45.6
8.8
(8.5)
46.0
20.9
32.7
165
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2023
18. Property, plant and equipment continued
At 31 March 2023, the net carrying amount of plant and machinery, historically recognised as finance lease assets prior to
the introduction of IFRS 16, included in the owned assets table was £6.0m (2022: £7.8m). As disclosed in Note 24, the Group
has elected to disclose its leases split by the nature that they relate to. This is to give the user of these Financial Statements
additional information that the Directors believe will be useful to the reader’s understanding of the business.
Right of use assets recognised are reflected in the following asset classes:
Right of use assets
Cost
At 31 March 2021
Additions
Disposals
Exchange differences
At 31 March 2022
Additions
Disposals
At 31 March 2023
Accumulated depreciation
At 31 March 2021
Charge for the year
Impairment
Disposals
At 31 March 2022
Charge for the year
Disposals
At 31 March 2023
Carrying amount
At 31 March 2023
At 31 March 2022
Land and
buildings
£m
Motor
vehicles
£m
Computer
equipment
£m
93.6
28.6
(6.8)
(0.1)
115.3
4.1
(23.0)
96.3
38.2
11.0
0.2
(0.7)
48.7
11.2
(14.8)
45.1
52.2
66.6
34.5
16.3
(7.8)
–
43.0
6.7
(17.8)
32.0
16.0
8.4
5.7
(6.8)
23.3
7.3
(16.7)
13.9
18.1
19.7
1.0
–
–
–
1.0
–
(0.2)
0.8
0.6
0.2
–
–
0.8
0.1
(0.2)
0.8
–
0.2
Total
£m
129.1
44.9
(14.6)
(0.1)
159.3
10.8
(41.0)
129.1
54.8
19.6
5.9
(7.4)
72.8
18.6
(31.7)
59.7
69.4
86.6
The expense relating to short-term leases and low value assets included within the Income Statement amounted to
£0.5m (2022: £2.4m).
At 31 March 2023, the Group was not committed to any leases which had not yet commenced (2022: nil).
166
AO World PLC Annual Report and Accounts 2023 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 2023.
Name of subsidiary
AO Retail Limited
Expert Logistics Ltd
Worry Free Limited
Elekdirect Limited
Principal place of
business
United Kingdom
Class of shares held
Ordinary
United Kingdom
United Kingdom
Ordinary
Ordinary
United Kingdom
Ordinary
Appliances Online Ltd
United Kingdom
Ordinary
AO Deutschland Limited
Germany
Ordinary
AO Ltd
AO.BE SA
AO Recycling Limited
WEEE Collect It Limited
WEEE Re-use It Limited
United Kingdom
Ordinary
Belgium
Ordinary
United Kingdom
Ordinary
United Kingdom
Ordinary
United Kingdom
Ordinary
Electrical Appliance Outlet Limited United Kingdom
Ordinary
Mobile Phones Direct Limited
United Kingdom
Ordinary
AO Mobile 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
United Kingdom
Ordinary
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Proportion of ownership
interests and voting
rights held by AO World
PLC
100%†
100%†
100%
100%
100%
100%‡
100%
99.99%*
100%
100%**
100%**
100%
100%
100%†
100%
100%
100%
100%
100%
100%
100%
100%
100%
Principal activity
Retail
Logistics and transport
Holding company
Retail
Holding company
Non trading (see note 35)
Holding company
Dormant
WEEE recycling
Dormant
Dormant
Retail
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
All companies within the Group are registered at the same address disclosed on page 191 apart from AO.BE SA who are
registered at:
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%).
167
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2023
20. Deferred tax
Deferred tax is recognised by the Group as shown in the table below:
Share
options
£m
2.4
Accelerated
depreciation
£m
1.4
Short-term
timing
difference
£m
0.4
Intangible
fixed assets
£m
(2.3)
Transitional
relief on
IFRS 16
adoption
£m
0.8
Losses and
unused tax
relief
£m
0.7
(0.8)
(0.9)
0.7
(0.1)
0.7
(0.3)
–
1.1
0.3
1.3
0.1
–
0.5
0.4
0.9
(0.2)
–
(2.5)
0.3
(2.2)
–
–
0.8
(0.2)
0.6
7.7
–
8.4
(1.4)
7.0
Total
£m
3.4
6.5
(0.9)
9.0
(0.7)
8.3
At 31 March 2021
(Debit)/credit to income
statement
Debit to reserves
At 31 March 2022
(Debit)/credit to income
statement
At 31 March 2023
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the
asset can be utilised.
The Group continues to recognise a net deferred tax asset of £8.3m, of which £6.7m relates to the deferred tax asset on UK tax
losses brought forward. UK tax losses brought forward have been utilised against the current period tax profit, and the business
expects to be profitable in the future and has assessed that continuing to utilise the losses is probable. As such, the asset
continues to be recognised.
The Group has an unrecognised deferred tax asset of £0.1m (2022: £1.0m) in respect of unused losses carried forward.
21. Inventories
Finished goods
2023
£m
73.1
2022
£m
97.0
Included within inventories are stock provisions of £0.6m (2022: £2.2m which included £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
2023
£m
21.6
174.4
34.9
0.2
231.1
2023
£m
93.3
137.8
231.1
2022
£m
25.8
174.1
50.0
12.2
262.1
2022
£m
92.4
169.7
262.1
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.
168
AO World PLC Annual Report and Accounts 2023 The reconciliation of opening and closing balances for contract assets is shown below:
Balance brought forward
Revenue recognised *
Cash received
Revisions to estimates
Unwind of discounting
Balance carried forward
2023
£m
174.1
148.7
(154.0)
2.7
2.9
174.4
2022
£m
172.2
145.9
(151.0)
4.4
2.6
174.1
* Revenue recognised is gross, that is, excluding the deduction of cashback payments, which are deducted from revenue in the Income Statement but are
shown as contract liabilities in the Statement of Financial Position.
Included in the contract asset balance in relation to product
protection plans at 31 March 2022 was an amount of £1.7m in
relation to variable consideration recognised as revenue up
to that date which has reversed in the year ended 31 March
2023. This is included in the revisions to estimates above.
Included in the contract asset balance in relation to Network
Commissions at 31 March 2022 was an amount of £4.4m in
relation to previously constrained revenue which has now
been recognised in the year ended 31 March 2023. 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 2023 an amount of £8.7m has been
constrained in relation to revenue recognised in relation to
Network Commissions.
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 the contractually agreed margins, which differ for each
individual product covered by the plan as is included in the
agreement with D&G;
y the number of live plans based on information provided
by D&G;
y the discount rate for plans sold in the year using external
market data – 5.45% (2022: 3.54%);
y 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 for the previous 8 years
to form an estimate of the cancellation rates to use by
month going forward (range of 0% to 9.0% 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 14 years from c.3.1m plans that have been
sold. Of these, c.1.08m are live. Applying all the information
above, management calculates 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 ensure this continues to reflect the
best estimate of expected future trends. As set out in Note
4, the Directors do not believe there is a significant risk of a
downward 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 entitlement (increase) or decrease
by 10%
Impact on
contract asset
and revenue
£m
(1.8)
2.0
(2.0)/2.0
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.
169
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2023
22. Trade and other receivables continued
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 further 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.
The key inputs to management’s base case model are:
y revenue share percentage, i.e. the percentage of the
consumer’s spend (to the MNO) to which the Group is
entitled;
y the discount rate using external market data – 2.83%
(2022: 0.53%);
y the length of contract entered into by the consumer
(12 – 24 months) and the resulting estimated 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 input is 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 calculates 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 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. As set out in
Note 4, the Directors do not believe there is a significant risk of
a downward material adjustment to the revenue recognised
in relation to these plans over the next 12 months given the
variable revenue constraints applied, albeit there could be a
material upward adjustment.
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% decrease/ (increase) in expected
cancellations – in contract
20% decrease/ (increase) in expected
cancellations at month 24 – OOC
Impact on contract
asset and revenue
£m
2.0/ (2.0)
1.4/ (1.4)
Cancellations - in contract
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 for
customers with exit barriers in place.
Cancellations - out of contract (“OOC”)
This sensitivity focuses on the period beyond month 24 when
customers can exit contracts without penalty. During the
year, management restricted £2.9m in revenue related to the
assumed collection of commissions once customers reach
out of contract periods due to heightened uncertainty of
future cancellation rates in the recent inflationary economic
environment. This equates to c40% of customers exiting
their contract at month 24. The sensitivity reflects what may
happen if more or fewer consumers cancel at month 24.
Prepayments and accrued income
At 31 March 2023, there is £14.4m (2022: £19.0m) included in
prepayments and accrued income in relation to volume
rebates receivable. The amounts are largely coterminous
and are mainly agreed in the month after recognition.
At 31 May 2023, the balance outstanding was £2.7m
(30 June 2022: £3.3m).
170
AO World PLC Annual Report and Accounts 2023 23. Trade and other payables
Trade payables
Accruals
Contract liabilities
Deferred income
Other payables
2023
£m
163.4
19.4
37.2
14.2
20.3
254.3
2022
£m
205.0
28.9
44.1
18.1
24.2
320.3
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases is 51 days (2022: 47 days). Contract liabilities includes payments on account from
Mobile Network Operators where there is no right of set off with the contract asset within the mobile business.
Trade and other payables are classified as:
Current liabilities
Long-term liabilities
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 funds/ (debt) (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
2023
£m
249.5
4.8
254.3
2023
£m
19.1
(10.0)
(1.9)
(3.6)
3.6
(15.8)
(63.9)
(76.1)
2022
£m
313.9
6.4
320.3
2022
£m
19.5
(45.0)
(2.0)
(5.3)
(32.8)
(18.3)
(83.0)
(134.1)
Whilst not required by IAS 1 Presentation of Financial Statements, the Group has elected to disclose its lease liabilities split by
those which ownership transfers to the Group at the end of the lease (“Owned asset lease liabilities”) and are disclosed within
the Property Plant and Equipment table in note 18, and those leases which are rental agreements and where ownership does
not transfer to the Group at the end of the lease as Right of use asset lease liabilities which are disclosed within the Right of use
assets table. 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:
Balance at 1 April 2022
Changes from financing cash flows
Payment of interest
Repayment of lease liabilities
Repayment of borrowings
Repayment of lease liabilities by discontinued operations
Total changes from financing cash flows
Other changes
New lease liabilities
Reassessment of lease term
Interest expense
Exchange differences
Total other changes
Balance at 31 March 2023
Reassessment of lease terms relate to leases the Group have exited during the period.
Borrowings
£m
45.0
(2.3)
–
(35.0)
–
(37.3)
–
–
2.3
–
2.3
10.0
Lease
liabilities
£m
108.6
(4.2)
(17.7)
–
(8.3)
(30.2)
11.0
(8.2)
4.2
(0.1)
6.9
85.3
171
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2023
24. Net debt continued
Balance at 1 April 2021
Changes from financing cash flows
Payment of interest
Repayment of lease liabilities
New borrowings*
Repayment of lease liabilities by discontinued operations
Total changes from financing cash flows
Other changes
New lease liabilities
Reassessment of lease term
Interest expense
Total other changes
Balance at 31 March 2022
Lease
liabilities
£m
Restated
(see note 35)
Borrowings
£m
–
95.3
(0.6)
–
45.0
–
44.4
–
–
0.6
0.6
45.0
(4.3)
(21.2)
–
(3.1)
(28.6)
45.4
(7.8)
4.3
41.8
108.6
* In the prior period, the movement arising from new borrowings was presented within “Other changes”. This should have been presented as a change in
financing cash flows and as such the comparative analysis has been restated. There is no impact of this to the overall movement or closing balance of
financial liabilities or cash flow presentation.
25. Borrowings
Secured borrowing at amortised cost
Drawdowns on Revolving Credit Facility
Amount due for settlement within 12 months
2023
£m
10.0
10.0
2022
£m
45.0
45.0
On 6 April 2023, the Group entered into a new £80m Revolving Credit Facility which replaced the existing revolving credit facility
and expires in April 2026. The total amount drawn at 31 March 2023 on the existing facility was £10.2m and represented £10.0m
of cash drawings plus £0.2m of letters of credit (2022: £45.0m cash drawings and £4.9m of letters of credit).
26. Lease liabilities
Amounts payable under lease liabilities:
Within one year
Within one to two years
Within two to three years
Within three to four years
Within four to five years
Greater than five years
Amounts payable under lease liabilities:
Within one year
Within one to two years
Within two to three years
Within three to four years
Within four to five years
Greater than five years
172
Minimum lease payments
2023
£m
21.6
20.7
15.8
11.7
8.5
20.6
99.1
2022
£m
24.6
25.2
23.3
17.8
11.6
24.1
126.5
Present value of minimum
lease payments
2023
£m
17.8
17.5
13.7
10.2
7.4
18.7
85.3
2022
£m
20.3
20.9
19.8
15.2
9.2
23.1
108.6
AO World PLC Annual Report and Accounts 2023 27. Provisions
Provisions
Provisions are classified as:
Current liabilities
Non-current liabilities
2023
£m
5.0
2023
£m
1.2
3.8
5.0
On 18 August 2022, the Company issued 1,541,911 shares
to satisfy options granted in July 2018 under the AO 2018
Incentive Plan (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 2023, the number of shares held by the EBT
was 520,212 (2022: 711,041).
29. Non-controlling interest
2022
£m
2.9
2022
£m
0.4
2.5
2.9
Balance at 1 April
Share of (profit)/ loss for the year
Acquisition of minority interest
Balance at 31 March
2023
£m
1.0
(0.2)
(0.8)
–
2022
£m
1.3
(0.3)
–
1.0
In the prior year, the non-controlling interest relates to 18.4%
of the share capital of AO Recycling Limited (formerly known
as The Recycling Group Limited) which, at the time, was not
wholly owned by AO World PLC.
During the year ended 31 March 2023, the Company exercised
its final call option to acquire the remaining shares in AO
Recycling Limited from its founders for consideration of
£2.5m and accordingly, AO Recycling Limited is now a wholly
owned subsidiary.
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.
In the year, the difference between the nominal value and
fair value of the shares issued as part of the Capital Raise of
£37.0m has been taken to the merger reserve. See note 28.
The capital redemption reserve arose as a result of the
redemption of ordinary and preference shares in the year
ended 31 March 2012 and 2014 respectively.
The other reserve arose on the acquisition of AO Recycling
Limited and relates to the difference between the gross
and fair valuation of the put option. The movement in the
year relates to the acquisition of the remaining shares in AO
Recycling Limited..
The provisions all relate to restructuring and dilapidations
and the movement in the year is shown below:
Restructuring
provision
£m
Dilapidations
provision
£m
At 31 March 2022
Provisions created
in the year
Utilised in the year
At 31 March 2023
–
3.7
(2.9)
0.8
2.9
2.3
(1.0)
4.2
Total
£m
2.9
6.0
(3.9)
5.0
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. The restructuring provision relates to the
simplification of operations in the year as discussed in note 3.
28. Share capital, investment in own
shares and share premium
Number
of shares
m
479.4
95.9
1.5
576.9
Share
capital
£m
Share
premium
£m
1.2
0.2
–
1.4
104.4
3.8
–
108.2
At 1 April 2022
Share placing
Share issue
At 31 March 2023
On 11 July 2022, the Company completed a Capital Raise
through the issue of 95,856,552 new ordinary shares of 0.25p
each in the Company raising net proceeds of £39.1m.
9,220,166 of these shares were subscribed for via a retail
offering resulting in the movement in the share premium
account.
The remaining shares were issued by the Company in
consideration for the transfer of 100% of the issued share
capital of a wholly owned subsidiary, Project Coral (Jersey)
Limited. As a consequence, the Company has applied the
guidance in section 612 of the Companies Act with regard to
merger relief and the difference between the nominal value of
the shares and their fair value has been taken to the merger
reserve (see note 30).
173
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2023
31. Share-based payments
Performance Share Plan
The table below summarises the amounts recognised in the
income statement during the year.
the performance criteria for the year ended 31 March 2023.
The vesting date for the conditional shares is July 2026.
The fair value was determined to be the share price at grant
date of £0.436.
AO 2018 Incentive Plan
AO 2019 Incentive Plan
AO 2020 Incentive Plan
AO 2021 Incentive Plan
AO 2022 Incentive Plan
Value Creation Plan (“VCP”)
Sharesave scheme
Total share scheme charge
2023
£m
2022
£m
–
0.7
1.0
0.1
0.5
1.9
1.1
5.3
0.4
0.5
1.2
0.1
–
2.1
1.5
5.8
The details regarding each of the schemes are as follows:
Schemes vesting in the current year
During the year, the conditional deferred shares under the AO
2018 Incentive Plan vested. The number of shares vesting was
1,541,911.
AO 2019 Incentive Plan
The 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.
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
2023, was 1,442,764.
AO 2020 Incentive Plan
The 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.
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
2023, was 1,694,095.
AO 2021 Incentive Plan
The 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.
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
2023, was 1,390,566.
AO 2022 Incentive Plan
On 8 November 2022, the Company adopted the AO 2022
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
Thirty per cent of the awards are subject to a Group average
liquidity headroom performance condition for the year
ended 31 March 2023 as shown below:
Average liquidity headroom for the
performance period
Below £14.5m
£14.5m (Threshold)
£34.5m (Target)
£54.5m or higher (Stretch)
Extent to which
performance
condition satisfied
0%
25%
62.5%
100%
Thirty per cent of the awards are subject to a Group Profit
before tax performance condition for the year ended
31 March 2023 as shown below:
Group PBT for the performance period
Below £(10.5)m
£(10.5)m (Threshold)
£(2.2)m (Target)
£6.1m or higher (Stretch)
Extent to which
performance
condition satisfied
0%
25%
62.5%
100%
Ten per cent of the awards are subject to a Group weighted
average customer NPS performance condition for the year
ended 31 March 2023 as shown below:
Group weighted average customer NPS
for the performance period
Below +70
+70 (Threshold)
+75 (Target)
+80 or higher (Stretch)
Extent to which
performance
condition satisfied
0%
25%
62.5%
100%
Ten per cent of the awards are subject to a Group Employee
NPS performance condition/strategic target for the year
ended 31 March 2023 as shown below:
Group average Employee NPS for the
performance period
Below 0
0 (Threshold)
+15 (Target)
+30 or higher (Stretch)
Extent to which
performance
condition satisfied
0%
25%
62.5%
100%
Twenty per cent of the awards are subject to a strategic
target linked to the pivot to profit and cash for the year
ended 31 March 2023.
The Remuneration Committee of the Board determines the
extent to which this target has been met.
The number of awards made were 10,216,240 and based on
the performance criteria achieved, and subject to continued
employment, the number of conditional shares relating to the
scheme at 31 March 2023 is 7,522,779.
174
AO World PLC Annual Report and Accounts 2023 Value Creation Plan (“VCP”)
In the year ended 31 March 2021, the Group launched the value
Creation Plan (“VCP”) which was aimed at incentivising and
rewarding exceptional performance and retaining the talented
team whilst driving exceptional value for shareholders.
The VCP resulted in conditional awards being granted to
Executives and Employees which would vest at the end of
measurement periods subject to the participants remaining in
employment and meeting certain performance conditions.
The measurement dates were 31 March 2025 to 31 March
2027 with the awards based on the increase in market
capitalisation over an initial hurdle of £2.5bn up to a maximum
of £6bn. The maximum payout to the Executives was £60m.
At 31 March 2022, the number of conditional awards relating
to Executives was 3 with 163,776 awarded to employees. The
charge to the income statement in the year ended 31 March
2022 was £2.1m based on the initial fair value of the awards.
As noted in the Annual Report and Accounts for the year
ended 31 March 2022, the VCP was significantly underwater
(as the share price for anything to vest was £5.23).
Consequently a proposal was presented to shareholders at
the Annual General Meeting to restructure the original VCP
and commence a new VCP. This was approved and the new
VCP commenced on 15 December 2022.
The principal features of the new VCP are as follows:
Executive Awards
There are 2 Executive units which vest in equal tranches
as shown in the table below. The initial hurdle share price
is £1 (equivalent to a market capitalisation of £575m). Any
excess above £575m is measured at 1.1% of the excess upto a
maximum of £4.2bn. The maximum amount which can vest for
Executive awards is £20m per Executive.
The fair value on inception (which has been calculated using
the Black Scholes model) and the main assumptions used in
arriving at the fair value of each unit are as follows:
Number of units
Fair value per unit
Market cap at grant date
Dividend yield
Expected term
Risk-free rate
Volatility
31 March
2027
2
151,889
£322.2m
0%
31 March
2028
2
176,637
£322.2m
0%
31 March
2029
2
194,716
£322.2m
0%
4.29 years
5.29 years
6.29 years
3.13%
50%
3.13%
50%
3.13%
50%
At the date of the replacement, the fair values of the original awards were £1,278, £3,267 and £8,872 respectively.
175
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2023
31. Share-based payments continued
Employee Awards
There are a maximum of 1,766,880 Employee units which vest in a single tranche on 31 March 2027. To the extent that the
Company’s share price increases between 31 March 2027 and the second and third measurement dates of 31 March 2028 and
31 March 2029, at the Board’s discretion, the further incremental value will be delivered on the awards in line with the following
table which also shows the fair value on inception (which has been calculated on a Monte Carlo valuation basis) and the main
assumptions used in arriving at the fair value of each unit are as follows:
Max number of units
Fair value per unit
Market cap at grant date
Hurdle
Cap
Dividend yield
Expected term
Risk-free rate
Volatility
31 March
2027
1,766,880
£2.11
31 March
2028
1,766,880
£1.03
31 March
2029
1,766,880
£0.96
£322.2m
£322.2m
£322.2m
£575m
£6.0bn
0%
£575m
£6.0bn
0%
£575m
£6.0bn
0%
4.29 years
5.29 years
6.29 years
3.13%
50%
3.13%
50%
3.13%
50%
At the date of the replacement, the fair values of the original awards were £0.02, £0.10 and £0.24 respectively.
A condition of the grant of the new VCP awards is that participants must waive any rights they may be entitled to in respect of
Awards made under the original VCP. In line with IFRS 2, where the awards are a replacement for awards which existed under the
old VCP, the award is treated as a modification.
This requires the original grant date fair value expense for the original scheme to continue to be recognised over the original
vesting period and the incremental fair value expense (being the difference between the fair value of the new scheme and the
fair value of the old one) being recognised over the period from modification/replacement until the end of the new vesting
date. The hurdles between which the Executive and Employee awards participate in the old scheme have been recalculated by
reference to the number of Executives who still held awards and the number of shares in issue at the modification date.
Any new awards, e.g., to employees who commenced employment after the last awards were made under the old VCP, are
treated as new awards at the new fair value and the charge spread over the period from award to the new vesting date.
As a consequence, the charge to the income statement for the year ended 31 March 2023 was £1.8m.
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.
2023
No. of
options
6,046,594
5,452,718
(4,829,808)
(246,839)
6,422,665
2023
WAEP (£)*
0.96
0.53
0.90
1.01
0.63
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
During the year ended 31 March 2023, options were granted on 22 December 2022. For the shares outstanding at 31 March
2023, the remaining weighted average contractual life is 2.50 years (2022: 2.17 years). The weighted average fair value of options
granted during the year was £0.53 per share.
176
AO World PLC Annual Report and Accounts 2023 The following table gives the assumptions made during the year ended 31 March 2023:
For options granted on
Risk-free rate
Expected volatility
Expected dividend yield
Option life
1 Feb
2019
0.79%
46.5%
0.00%
3 years
22 Jan
2020
0.79%
46.5%
0.00%
25 Jan
2021
0.79%
46.5%
0.00%
3 years
3 years
23 Dec
2021
0.58%
45.0%
0.00%
3 years
22 Dec
2022
3.58%
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 £5.4m (2022: £6.8m).
Contributions totalling £0.6m (2022: £0.8m) were payable at the end of the year and are included in accruals.
33. Financial instruments
a) Fair values of financial instruments
Receivables and payables
For receivables and payables classified as financial assets and liabilities in accordance with IAS 32, fair value is estimated to
be equivalent to book value. These values are shown in Notes 22 and 23, respectively. The categories of financial assets and
liabilities and their related accounting policy are set out in Note 3.
Cash and cash equivalents
The fair value of cash and cash equivalents is estimated as its carrying amount.
Call and put option
The fair value of the call and put options (arising on the acquisition of AO Recycling Limited in 2016) are based upon an
independent valuation at the year end using the Monte Carlo model.
The carrying value of the put option is based on an estimate of the likely amount payable over the life of the option based on
discounted future cash flows.
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.
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
2023
Carrying
amount
£m
2023
Fair value
£m
2022
Carrying
amount
£m
2022
Fair value
£m
19.1
21.6
35.1
75.8
(163.4)
(76.9)
(10.0)
(85.3)
(335.6)
(259.8)
19.1
21.6
35.1
75.8
(163.4)
(76.9)
(10.0)
(85.3)
(335.6)
(259.8)
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)
177
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2023
33. Financial instruments continued
The table below shows the movement in valuation for both the call and put option during the year.
Call option
At 31 March 2022
Change in valuation
At 31 March 2023
Put option
At 31 March 2022
Change in valuation
At 31 March 2023
£m
–
–
–
£m
–
–
–
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 was subject to certain performance conditions,
mainly EBITDA performance. During the year, the Company exercised its final call option to acquire the remaining shares in AO
Recycling Limited from its founders for consideration of £2.4m. Accordingly, AO Recycling is now a wholly owned subsidiary.
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 and 31 March 2023
Financial liabilities
Put option to acquire non-controlling interest
At 31 March 2022 and 31 March 2023
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
–
–
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
–
–
Total
£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.
178
AO World PLC Annual Report and Accounts 2023 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
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 2023
Not past due
Past due 0–30 days
Past due 31–120 days
More than 120 days
At 31 March 2022
2023
£m
21.6
21.6
Gross
£m
Impairment
£m
18.3
1.6
0.9
1.4
22.2
18.4
4.9
1.2
2.0
26.5
–
–
(0.1)
(0.5)
(0.6)
–
–
–
(0.7)
(0.7)
2022
£m
25.8
25.8
Net
£m
18.3
1.6
0.8
0.9
21.6
18.4
4.9
1.2
1.3
25.8
The current year includes an impairment charge of £0.6m (2022: £0.7m) to trade receivables. Contract assets are also assessed
for credit risk. Total contract assets at 31 March 2023 were £175.5m (2022: £174.1m). 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:
Non-derivative financial liabilities
Trade and other payables
Bank loans
Lease liabilities
At 31 March 2023
Carrying
amount
£m
Contractual
cash flows
£m
240.1
10.0
85.3
335.4
240.1
10.0
99.1
349.2
Within
1 year
£m
235.3
10.0
21.6
267.3
Between
1 and 5
years
£m
Between
5 and 10
years
£m
4.8
–
56.7
61.5
–
–
20.6
20.6
179
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2023
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
2023
£m
5.5
10.0
15.5
2022
£m
7.2
45.0
52.2
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 £0.8m.
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 25) and equity of the Group. The Group is
not subject to any externally imposed capital requirements. In addition, as set out in Note 25, the Group has access to an £80m
Revolving Credit Facility which expires in April 2026.
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 previously undertook transactions denominated in foreign currencies; consequently, exposure to exchange rate
fluctuations arose. However given the closure of the Germany operations, the Directors no longer deem foreign currency a
material risk.
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, being intercompany loan balances held with AO
Deutschland Limited which is now a discontinued operation.
180
AO World PLC Annual Report and Accounts 2023 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 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
2023
£m
3.6
2.3
–
2022
£m
5.6
3.1
–
Emoluments relate to cash remuneration paid to the directors of the Company, and its subsidiaries, during the year.
Awards granted under a long term incentive plan in the above table relates to the maximum potential share award granted to
directors under the AO Incentive Plan for the performance period of FY23. Following partial attainment of the performance
conditions, 79.3% of the award has vested (2022: 15% of the AO Incentive Plan for the performance period of FY22) and is
payable in the form of a deferred share award. The deferred share award will be released in July 2026 subject to continued
employment and attainment of the performance underpin based on overall business performance over the vesting period,
following which Executives will be required to hold awarded shares for a further year.
In addition, the directors were granted a conditional deferred share award pursuant to the FY20 AOIP Award which had a
deferral period spanning FY21 to FY23 inclusive. The Remuneration Committee has deemed that the performance underpin has
been met in full and accordingly 867,231 shares will be issued to the directors in July 2023. Based on the three-month average
share price to 31 March 2023 of 63.26p these have a total value of £0.5m. (2022: 819,450 shares issued in July 2022 pursuant to
the FY19 AOIP Award with a value of £0.4m based on a share price of 43.13p)
Further information about the remuneration of individual Board Directors is provided in the audited part of the Directors’
Remuneration Report on pages 108 to 129.
35. Discontinued operations
On 9 June 2022, it was announced that the Group had taken the decision to close its German business as a result of its
continued losses. The website was closed on 1 July 2022 and in August, AO Deutschland completed the final deliveries on behalf
of its third party customers. The majority of German employees have now left the business and we have now materially exited
from the Company’s property portfolio.
The German business is clearly distinguishable from the rest of the Group and its numbers have been reported separately
as an operating segment in previous periods. Therefore, it meets the definition of a component of an entity and in line with
IFRS 5 “Non-current assets held for sale and discontinued operations”, the business has been treated and presented as a
discontinued operation in the year ended 31 March 2023 which includes restating comparatives to present Germany as such.
The tables below show the results of the German operation for the relevant reporting periods:
Revenue
Cost of sales
Gross (loss)/ profit
Administrative expenses and other operating income
Operating loss
Finance income
Finance costs
Loss before tax
Taxation charge
Loss after tax
Gain/ (loss) on remeasurement of assets
Loss after tax of discontinued operations
2023
£m
36.2
(40.4)
(4.2)
(13.5)
(17.7)
6.4
–
(11.3)
(0.1)
(11.4)
2.6
(8.8)
2022
£m
189.0
(183.0)
6.0
(23.5)
(17.5 )
–
(1.9)
(19.4)
(0.1)
(19.5)
(7.3)
(26.8)
The gain/ (loss) on the remeasurement of assets arose following the decision to close the business in June 2022. The balance
sheet at 31 March 2022 reflected the Directors’ initial view of the impact on assets held based on information available at
that date. As the closure proceeded during the year, and leases were exited, this gave rise to a £2.6m reversal of previous
impairments during the period.
Basic loss per share from discontinued operations is 1.61p (2022: 5.58p loss per share). Diluted loss per share from discontinued
operations is 1.56p (2022: restricted to basic loss per share of 5.58p to prevent having an anti-dilutive effect).
181
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the consolidated financial statements continued
For the year ended 31 March 2023
35. Discontinued operations continued
The table below summarises the cashflows of the German operation for the relevant reporting periods:
Cash flows from operating activities in discontinued operations
Loss for the year
Adjustments for:
Depreciation and amortisation
Gain on disposal of property, plant and equipment
Impairment of assets
Finance (income)/ costs
Taxation charge
(Decrease)/ increase in provisions
Operating cash flows before movement in working capital
Movement in working capital balances
Cash used in operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Acquisition of property, plant and equipment
Cash generated from/ (used in) investing activities
Cash flows from financing activities
Interest paid on borrowings
Repayment of lease liabilities
Net cash used in financing activities
2023
£m
(8.8)
0.9
(4.5)
–
(6.4)
0.1
(0.7)
(19.4)
10.6
(8.8)
9.8
–
9.8
(0.3)
(8.3)
(8.6)
2022
£m
(26.8)
3.6
(0.1)
7.2
1.8
0.1
0.1
(14.0)
6.7
(7.3)
–
(0.1)
(0.1)
(0.6)
(3.1)
(3.6)
182
AO World PLC Annual Report and Accounts 2023
Company statement of financial position
As at 31 March 2023
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 liabilities
Provisions
Net current liabilities
Non-current liabilities
Lease liabilities
Derivative financial liability
Provisions
Total liabilities
Net assets/ (liabilities)
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
11
10
12
11
13
13
13
2023
£m
0.5
1.9
7.0
42.7
17.1
1.1
70.4
0.4
2.7
1.2
4.3
74.7
(61.8)
(1.2)
(0.8)
(63.8)
(59.5)
(7.2)
–
(0.7)
(7.9)
(71.7)
3.0
1.4
108.2
59.2
0.5
15.4
0.4
(182.1)
3.0
2022
£m
1.0
3.0
8.7
87.8
18.3
1.0
119.8
0.9
2.7
2.1
5.7
125.5
(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)
AO World PLC reported a loss after tax for the year ended 31 March 2023 of £37.4m (2022: £136.6m loss) which includes dividends
received of £17.0m (2022: £49.5m).
The financial statements of AO World PLC, registered number 05525751, were approved by the Board of Directors and
authorised for issue on 4 July 2023. They were signed on its behalf by:
John Roberts
CEO
AO World PLC
Mark Higgins
CFO
AO World PLC
183
AO World PLC Annual Report and Accounts 2023Our Financials Company statement of changes in equity
As at 31 March 2023
Share
capital
£
Share
premium
account
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
Share-based
payments
reserve
£m
Other
reserve
£m
Retained
losses
£m
1.2
104.3
22.2
0.5
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
1.2
104.4
22.2
0.5
–
–
3.8
–
–
–
37.0
–
–
–
–
–
–
–
0.2
–
1.4
9.3
–
5.3
–
(2.7)
11.9
–
5.3
–
(1.9)
0.4
–
–
–
–
0.4
–
–
–
–
(10.8)
(136.6)
–
–
2.7
–
(2.0)
1.9
(144.7)
(37.4)
(4.1)
(37.4)
Total
£m
127.1
(136.6)
5.3
0.1
–
5.3
39.1
–
3.0
108.2
59.2
0.5
15.4
0.4
(182.1)
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
Loss for the year
Share-based
payments charge
(net of tax)
Issue of shares
(net of expenses)
Movement between
reserves
Balance at
31 March 2023
184
AO World PLC Annual Report and Accounts 2023
Notes to the Company financial statements
For the year ended 31 March 2023
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 2022 / 2021
Additions
Disposals
Group share-based payments
At 31 March 2023 / 2022
Impairment
At 31 March 2022 / 2021
Charge in the year
At 31 March 2023 / 2022
Carrying amount
At 31 March 2023 / 2022
2023
£m
88.4
39.7
(87.3)
2.5
43.3
0.6
–
0.6
2022
£m
85.4
–
–
3.0
88.4
–
0.6
0.6
42.7
87.8
The Company has made capital contributions to its
subsidiaries of £2.5m (2022: £3.0m) in relation to the
allocation of share-based payment charges.
In July 2022, the Company acquired, on its incorporation, the
whole of the ordinary and redeemable preference share capital
of Project Coral (Jersey) Limited. The acquisition was part of
the process relating to the placing of AO World PLC shares (see
note 13 of the Company accounts). Total consideration, which
was via an intercompany loan, was £37.3m.
In November 2022, the Company acquired the remaining
18.4% of shares in AO Recycling Limited (formerly
“The Recycling Group Limited”) for consideration of £2.5m.
AO Recycling Limited is now a wholly owned subsidiary.
On 22 December 2022, following the successful placing
referred to above, Project Coral (Jersey) Limited redeemed
the preference shares held by AO World PLC at their carrying
value of £37.3m. Following the redemption, Project Coral
(Jersey) Limited was placed into liquidation.
On 15 February 2023, BERE Limited, a wholly owned
subsidiary, fully redeemed the preference shares held by
AO World PLC at their carrying value of £50m. Following the
redemption, BERE Limited was placed into liquidation.
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 UK-adopted 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.
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 152.
185
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the Company financial statements continued
For the year ended 31 March 2023
4. Intangible assets
Cost
At 31 March 2023 and 2022
Amortisation
At 31 March 2022
Charge for the year
At 31 March 2023
Carrying amount
At 31 March 2023
At 31 March 2022
Domain
names
£m
Software
£m
Total
£m
1.0
1.0
–
1.0
–
–
3.4
2.4
0.5
2.9
0.5
1.0
4.4
3.4
0.5
3.9
0.5
1.0
Amortisation is charged to administrative costs in the income statement.
5. Property, plant and equipment and right of use assets
Cost
At 31 March 2022
Additions
Disposals
At 31 March 2023
Accumulated depreciation
At 31 March 2022
Charge for the year
At 31 March 2023
Carrying amount
At 31 March 2023
At 31 March 2022
The carrying value of right of use assets is analysed as follows:
Right of use assets
Land and buildings
Motor vehicles
Computer
and
office
equipment
£m
Leasehold
improvements
£m
Total
£m
Right of use
assets
£m
3.8
0.8
–
4.6
2.6
1.0
3.6
1.0
1.2
3.9
–
(0.1)
3.8
2.1
0.6
2.8
1.0
1.8
7.7
0.8
(0.1)
8.4
4.7
1.6
6.4
1.9
3.0
2023
£m
6.5
0.5
7.0
12.9
0.4
–
13.3
4.2
2.1
6.3
7.0
8.7
2022
£m
8.3
0.4
8.7
186
AO World PLC Annual Report and Accounts 2023 6. Subsidiaries
Details of the Company’s subsidiaries at 31 March 2023 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
United Kingdom
Ordinary
Mobile Phones Direct
Limited
AO Mobile Limited
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
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
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%†
100%
100%
100%
100%‡
100%
99.99%*
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
Non trading
Holding company
Dormant
WEEE recycling
Dormant
Dormant
Retail
Dormant
Retail
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
* 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%).
All companies within the Group are registered at the same address disclosed on page 191 apart from AO.BE SA who are
registered at:
AO.BE SA
Naamloze Vennootschap Esplanade
Heysel 1
Bus 94
1020
Brussels
187
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the Company financial statements continued
For the year ended 31 March 2023
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 2021
(Debit)/ Credit to income statement
Debit to reserves
Deferred tax asset at 31 March 2022
(Debit)/ Credit to income statement
Deferred tax asset at 31 March 2023
Share
options
£m
Losses and
unused tax
£m
Transitional
relief
£m
Other timing
difference
£m
1.5
(0.5)
(0.5)
0.5
(0.1)
0.5
–
0.2
–
0.2
0.1
0.3
0.2
–
–
0.2
–
0.2
0.2
(0.1)
–
0.1
–
0.1
Total
£m
2.0
(0.4)
(0.5)
1.0
–
1.1
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 (2022: £nil).
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
2023
£m
17.1
2.2
0.5
19.8
2023
£m
17.1
2.7
19.8
Amounts owed by Group undertakings are payable after more than one year. All other trade and other receivables are
receivable in less than one year.
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.
2023
£m
1.4
4.5
0.6
55.3
61.8
2022
£m
18.3
1.6
1.1
21.0
2022
£m
18.3
2.7
21.0
2022
£m
1.5
5.3
0.9
113.0
120.7
188
AO World PLC Annual Report and Accounts 2023 10. Lease Liabilities
Secured borrowing at amortised cost
Lease liabilities
Amount due for settlement:
Within one year
Within one to two years
Within two to three years
Within three to four years
Within four to five years
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
Interest charge
Total other changes
At 31 March 2023
11. Provisions
Provisions are classified as:
Current liabilities
Non-current liabilities
The movement in the year is shown below:
At 31 March 2022
Provisions created in the year
Utilised in the year
At 31 March 2023
2023
£m
2022
£m
8.4
1.2
1.1
1.0
1.0
1.1
3.0
8.4
2023
£m
0.8
0.7
1.5
Dilapidations
provision
£m
Restructuring
provision
£m
–
0.7
–
0.7
–
2.0
(1.2)
0.8
8.9
1.2
0.7
1.0
1.0
1.0
4.1
8.9
Leases
£m
8.9
(1.0)
(0.4)
(1.4)
0.5
0.4
0.9
8.4
2022
£m
–
–
–
Total
£m
–
2.7
(1.2)
1.5
The dilapidations provision is created for leases where the Company 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. The restructuring provision relates to the simplification of
operations in the year as discussed in note 3 to the consolidated financial statements.
189
AO World PLC Annual Report and Accounts 2023Our Financials Notes to the Company financial statements continued
For the year ended 31 March 2023
12. 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 2022
Change in valuation
At 31 March 2022 and at 31 March 2023
Put option
At 31 March 2021
Change in valuation
At 31 March 2022
Change in valuation
At 31 March 2023
£m
–
–
–
£m
(0.1)
0.1
–
–
–
In the year, the Company exercised its final call option to acquire the remaining shares in AO Recycling Limited from its
founders and accordingly, AO Recycling Limited is now a wholly owned subsidiary.
13. Share capital and share premium
At 31 March 2022
Share placing
Share issue
At 31 March 2023
Number
of shares
m
479.5
95.9
1.5
576.9
Share
capital
£m
Share
premium
£m
1.2
0.2
–
1.4
104.4
3.8
–
108.2
Merger
reserve
£m
22.2
37.0
–
59.2
On 18 August 2022, the Company issued 1,541,911 shares to satisfy options granted in July 2018 under the AO 2018 Incentive Plan
(see Note 31 of the consolidated financial statements).
During the year, the Company completed a Capital raise through the issue of 95,856,552 new ordinary shares of 0.25p each in
the Company raising net proceeds of £39.1m. The shares were issued by the Company in consideration for the transfer of 100%
of the issued share capital of the cash box company. As a consequence, the Company has applied the guidance in section 612
of the Companies Act with regard to merger relief and the difference of £37.0m between the nominal value of the shares and
their fair value has been taken to the merger reserve.
14. Share-based payments
The Company recognised total expenses of £2.5m (2022: £2.5m) 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.
190
AO World PLC Annual Report and Accounts 2023 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
Jefferies International Limited
100 Bishopsgate
London
EC2N 4JL
Numis Securities Limited
45 Gresham Street
London
EC2V 7BF
Independent Auditor
KPMG LLP
1 St Peter’s Square
Manchester
M2 3AE
Bankers
Barclays Bank plc
3 Hardman Street
Manchester M3 3AX
HSBC Bank plc
Landmark
St Peters Square
Manchester M1 4BP
National Westminster Bank plc
250 Bishopsgate
London
ECM 4AA
Registrar
Link Group
Central Square
29 Wellington Street
Leeds
LS1 4DL
By phone: +44 (0) 371 664 0300
(calls are charged at the standard geographic
rate and will vary by provider. Calls outside the
United Kingdom will be 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: linkgroup.com
Email: shareholderenquiries@linkgroup.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 (https://ww2.linkgroup.eu/share-deal) or by telephone
(+44 (0) 371 664 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.
191
AO World PLC Annual Report and Accounts 2023Our 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
Adjusting items means the items as set out on page 158
FY20, FY21, FY22 and FY23 mean the financial year of the
Company ended 31 March 2020, 31 March 2021, 31 March 2022
and 31 March 2023 respectively and FY24 means the current
financial year ending 31 March 2024
AGM means the Group’s Annual General Meeting
An AOer means one of our amazing employees
AOIP means The AO Incentive Plan, a form of LTIP
AO World, AO or the Group means AO World PLC and its
subsidiary undertakings
GAAP means Generally Accepted Accounting Practice
GHG means greenhouse gas
IAS means International Accounting Standards
IFRS means International Financial Reporting Standards
IPO means the Group’s Initial Public Offering in March 2014
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
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
NED means Non-Executive Director
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
CRM means customer relationship management
SDA means small domestic appliances
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
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
TCFD means Task force on climate-related financial
disclosures
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-delivery.com
ao-outlet.co.uk
ao-recycling.com
mobilephonesdirect.co.uk
elekdirect.co.uk
Corporate
ao-world.com
192
AO World PLC Annual Report and Accounts 2023 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 an FSC® Recycled paper,
post-consumer waste paper. This reduces waste sent to landfill, greenhouse gas emissions,
as well as the amount of water and energy consumed.
made from
AO World PLC
AO, 5A The Parklands
Lostock
Bolton BL6 4SD
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