TIDMAO.
RNS Number : 7639P
AO World plc
22 November 2016
AO WORLD PLC
INTERIM RESULTS FOR THE 6 MONTHSED 30 SEPTEMBER 2016
AO delivers strong growth in sales and profits and strategic
progress
AO World plc ("the Group" or "AO"), a leading European online
electrical retailer, today announces its unaudited interim
financial results for the six months ended 30 September 2016.
Financial Highlights(1)
-- Total revenue for the period increased by 22.9% to GBP324.7m
(2015: GBP264.3m) as both UK and Europe growth continued.
o AO website sales(2) for the UK(3) up 20.8% to GBP259.4m (2015:
GBP214.9m), with total UK revenue up 18.7% to GBP295.1m (2015:
GBP248.7m).
o Europe(4) revenue for the period increased by 66.9% to
EUR36.2m (2015: EUR21.7m) (in sterling 2016: GBP29.6m; 2015:
GBP15.6m).
-- Group Adjusted EBITDA of GBP1.5m (2015: GBP4.5m loss).
o UK Adjusted EBITDA(5) of GBP13.1m (2015: GBP5.1m) is driven by
improved gross margin and brand awareness which consequently
reduced acquisition costs.
o Europe Adjusted EBITDA losses of EUR14.2m (2015: EUR13.3m) as
we build scale (in Sterling 2016: GBP11.6m loss; 2015: GBP9.6m
loss).
-- In line with our expansion strategy we have continued to
invest in Germany and the Netherlands. Such investment (together
with non-cash share based payment charges) results in a statutory
Group operating loss of GBP2.8m (down from an GBP8.9m loss in
2015).
-- Group cash at 30 September 2016 was GBP32.4m (2015: GBP35.6m).
-- Basic earnings per share of 0.11p (2015: 1.58p loss)
primarily arising from foreign exchange gains GBP4.3m from
inter-group funding. Reversing such foreign exchange gains gives
adjusted loss per share of 0.92p (2015: 1.71p loss). (6)
Operational Highlights
-- New 35,000 sq. metre Regional Distribution Centre in Bergheim
now fully operational, serving Germany and the Netherlands.
-- Successful launches of new categories: audio-visual ("A/V")
in Germany and computing in the UK in October 2016.
-- Overall brand awareness continues to grow and repeat business
metrics improve further, helping us grow new and loyal customers we
attract.
-- Customer service remains exceptional with NPS(7) in all
territories remaining in excess of 80.
John Roberts, Chief Executive Officer, said:
"AO has made a great start to the year, with Group revenue and
profits growing well as we continue to deliver on our long-term
strategy. We have made progress in our mission to become the best
electrical retailer in Europe, cementing our operations in Europe
with the opening of our distribution centre in Germany and
launching new categories for customers in both the UK and Europe.
Bringing our AO customers computing in the UK and A/V in Germany
has been exciting and these are the natural next steps for us to
take in the electricals market. We're retailing these categories
the "AO Way," offering a simply better customer experience,
executed brilliantly by a brand and team that customers and
suppliers trust. "
Outlook
Looking ahead, while the economy clearly faces some uncertainty
and the sterling softening during the year is likely to provide
some pricing pressure, our strong first half performance sets us up
well for the rest of the year, with our strengthening brand,
excellent customer proposition and dedication to amazing service.
We have been planning for Black Friday since last November; we have
some great deals for customers and our teams are ready to deliver
to our unwavering high standards.
Across our business we are on track with progress against our
long-term strategic goals. At this mid-way point in the year we
maintain our previous full year Group guidance(8) , with the
continued momentum in the UK balanced with the continued investment
in Europe. We remain confident that the opportunity for AO in
Europe is huge and that the market dynamics are shifting in our
favour as customers continue to move online. Against that backdrop
we are well placed to deliver sustainable long-term growth.
Webcast details
A results presentation hosted by John Roberts, Steve Caunce and
Mark Higgins for analysts and investors will be held today, 22
November 2016 at 9:00am (GMT) at Jefferies Hoare Govett, Vintners
Place, 68 Upper Thames St. London, EC4V 3BJ. Please register your
attendance in advance with Tulchan Communications using the contact
details below.
A webcast of the presentation will be available to watch live
and later in the day at www.AO.com/corporate where the results
presentation slides can also be viewed.(9)
For further information, please contact:
AO World plc Tel: +44(0) 1204
Mark Higgins 672403
ir@ao.com
Tulchan Communications Tel: +44(0) 20
Susanna Voyle 7353 4200
Michelle Clarke ao@tulchangroup.com
______________________________
(1) The highlights are for the 6 month period ended 30 September
2016 and the comparative 2015 period. Certain financial data have
been rounded. As a result of this rounding, the totals of data
presented in this document may vary slightly from the actual
arithmetic totals of such data.
(2) This includes AO.com and the UK AO-branded eBay shop.
(3) UK is defined by the Group as entities operating within the
United Kingdom. (It excludes AO Deutschland Limited which is a
company registered in England but operates in Germany and therefore
is included in the Europe segment).
(4) Europe is defined by the Group as entities operating within
the European Union but excluding the UK.
(5) Adjusted EBITDA is defined by the Group as profit/(loss)
before tax, depreciation, amortisation, net finance income and
"adjustments". Adjustments is defined by the Group as set-up costs
relating to overseas expansion and share-based payment
charges/credits attributable to exceptional LTIP awards which the
Board considers one-off in nature.
(6) Please refer to the Earnings Per Share paragraph on page 10
of this announcement for further information.
(7) NPS is defined by the Group as Net Promoter Score which is
an industry measure of customer loyalty and satisfaction.
(8) Our previous guidance for Group Revenue (using the exchange
rate applicable at the time) was GBP700.3m-GBP735.9m with Group
Adjusted EBITDA of GBP2.4m losses to GBP4.7m for the full year.
(9) The content of the AO.com website should not be considered
to form a part of or be incorporated into this announcement.
Cautionary statement
This announcement contains certain forward-looking statements
(including beliefs or opinions) with respect to the operations,
performance and financial condition of the Group. These statements
are made in good faith and are based on current expectations or
beliefs, as well as assumptions about future events. By their
nature, future events and circumstances can cause results and
developments to differ materially from those anticipated. Except as
is required by the Listing Rules, Disclosure Guidance and
Transparency Rules and applicable laws, no undertaking is given to
update the forward-looking statements contained in this document,
whether as a result of new information, future events or otherwise.
Nothing in this document should be construed as a profit forecast
or an invitation to deal in the securities of the Company. This
announcement has been prepared for the Group as a whole and
therefore gives greater emphasis to those matters which are
significant to AO World plc and its subsidiary undertakings when
viewed as a whole.
PERFORMANCE AT A GLANCE
Summary Results(1)
6 months ended 30 September 30 September Change
(GBPm) 2016 2015
----------------------- -------------------------- ------------------------- ----------------------------------
UK Europe(2) Total UK Europe Total UK Europe Total
----------------------- ------ ---------- ------ ------ -------- ------- --------- ---------- ---------
Income Statement
----------------------- ------ ---------- ------ ------ -------- ------- --------- ---------- -----------
AO website
sales 259.4 29.6 289.0 214.9 15.6 230.5 20.8% 89.5% 25.4%
Third-party
website sales 22.9 - 22.9 26.3 - 26.3 (13.1%) n/a (13.1%)
Third-party
logistics
services 12.8 - 12.8 7.5 - 7.5 69.8% n/a 69.8%
----------------------- ------ ---------- ------ ------ -------- ------- --------- ---------- -----------
Revenue 295.1 29.6 324.7 248.7 15.6 264.3 18.7% 89.5% 22.9%
----------------------- ------ ---------- ------ ------ -------- ------- --------- ---------- -----------
Adjusted EBITDA(3) 13.1 (11.6) 1.5 5.1 (9.6) (4.5) 154.5% 21.2% (127.5%)
----------------------- ------ ---------- ------ ------ -------- ------- --------- ---------- -----------
Adjusted EBITDA
margin(4) 4.4% (39.3%) 0.4% 2.0% (61.4%) (1.7%) +2.3ppts +22.1ppts +2.1ppts
----------------------- ------ ---------- ------ ------ -------- ------- --------- ---------- -----------
Adjusted operating
profit/(loss)(5) 11.1 (12.2) (1.1) 3.1 (9.8) (6.8) 256.3% 23.2% (81.7%)
----------------------- ------ ---------- ------ ------ -------- ------- --------- ---------- -----------
Adjustments(6)
Share-based
payment charge
attributable
to exceptional
LTIP awards (1.3) - (1.3) (1.2) - (1.2) 4.6% n/a 4.6%
Europe set-up
costs(7) (0.4) - (0.4) (0.6) (0.3) (0.9) (30.0%) n/a (58.4%)
Operating
profit/(loss) 9.4 (12.2) (2.8) 1.3 (10.2) (8.9) 598.1% 19.0% (67.5%)
----------------------- ------ ---------- ------ ------ -------- ------- --------- ---------- -----------
Earnings /(loss)
per share
----------------------- ------ ---------- ------ ------ -------- ------- --------- ---------- -----------
Basic earnings/(loss)
per share
(pence) 0.11 (1.58) (106.8%)
----------------------- ------ ---------- ------ ------ -------- ------- --------- ---------- -----------
Diluted
earnings/(loss)
per share
(pence) 0.11 (1.58) (106.6%)
----------------------- ------ ---------- ------ ------ -------- ------- --------- ---------- -----------
Cash flow
----------------------- ------ ---------- ------ ------ -------- ------- --------- ---------- -----------
Cash generated
/(absorbed)
from operating
activities 3.6 (0.2) 3.4 (7.4) 2.6 (4.7) (149.1%) n/a (170.9%)
----------------------- ------ ---------- ------ ------ -------- ------- --------- ---------- -----------
Cash generated/
(absorbed)
from operating
activities
before intercompany
funding(9) 15.7 (8.0) 7.7 3.9 (9.4) (5.5) 298.6% (14.7%) (240.5%)
----------------------- ------ ---------- ------ ------ -------- ------- --------- ---------- -----------
Period end
net funds/(debt)
position(10) 24.5 (3.2) 21.3 29.7 (0.1) 29.6 (17.3%) 4324.1% (28.1%)
----------------------- ------ ---------- ------ ------ -------- ------- --------- ---------- -----------
______________________________
(1) Certain financial data have been rounded.
As a result of this rounding, the totals of data
presented in this document may vary slightly from
the actual arithmetic totals of such data.
(2) Europe is defined by the Group as entities
operating within Europe but excluding the UK and
also includes exploratory costs in other European
territories).
(3) Adjusted EBITDA is defined by the Group as
profit/(loss) before tax, depreciation, amortisation,
net finance income, adjustments.
(4) Adjusted EBITDA margin is defined by the Group
as Adjusted EBITDA divided by revenue.
(5) Adjusted operating profit/(loss) is defined
by the Group as profit/(loss) before tax, net
finance income, "adjustments" and after depreciation
and amortisation.
(6) Adjustments is defined by the Group as set-up
costs relating to overseas expansion and share-based
payment charges or credit attributable to exceptional
LTIP awards which the board considers one-off
in nature.
(7) Relates to Europe set-up costs incurred by
Group entities in the UK and Europe.
(8) Share-based payment charges attributable to
exceptional LTIP awards which the board considers
one-off in nature.
(9) This eliminates the intercompany funding provided
by the UK to Europe.
(10) Net funds/(debt) are defined as cash and
cash equivalents less borrowings.
BUSINESS REVIEW
Over the reporting period we have made further significant
strategic and operational progress. Our growth strategy centres on
our customers, our categories and the countries in which we
operate, all underpinned by our culture and brand.
UK
Brand & Culture
Over the period we have continued to grow overall brand
awareness and develop our brand strategy.
Whilst it was previously apparent that AO was predominantly
known for selling white goods we have now started to focus on
educating consumers about the broader range of categories we sell.
We have refined our TV adverts to illustrate the strong customer
testimonials we experience and have undertaken advertising
campaigns in tandem with our manufacturers to drive awareness of
both AO and our suppliers' brands. We have also sought to target
those audiences where our sales profile is under-indexed, in
particular in Greater London and amongst male shoppers. Further, we
have explored new advertising channels including radio, both
national and local, together with print media through some press
advertising, billboards, tube advertising and other large
formats.
This investment has improved our brand awareness over the period
(including spontaneous awareness, prompted awareness and
spontaneous purchase intent) and this strong customer advocacy
together with manufacturer endorsement gives us an increasingly
strong competitive advantage.
Our customer acquisition costs have fallen during the period as
we refined our online advertising strategy, improved our SEO
(search engine optimisation) rankings and benefited from branded
traffic following our improved brand awareness.
Our culture remains our greatest asset and we have continued to
sustain and nurture this key strength. To achieve our goal we need
to be the best for our people, and our employee engagement and
development is fundamental to the growth of the brand, and
ultimately, to the Group. Our emerging talent schemes, such as our
Future and Star Programmes, Apprenticeship Scheme and Duke of
Edinburgh scheme continue, each under the sponsorship of a member
of our Group Executive Team as we look to nurture and develop the
employees who will help our brand to continue to flourish.
Customers
Delivering an excellent customer proposition remains paramount
to our success. We continue to offer unbeatable prices, a huge
range and availability, smart web content and, of course, amazing
service as we strive to make the AO Way, the better way to buy
electricals.
Our Net Promoter Score (an industry measure of customer loyalty
and satisfaction) has again been maintained at its consistently
high level of over 80 and our UK Trustpilot score was an excellent
9.5 at the period end. Shortly after the period end we were awarded
2(nd) place by Which? in their Best Online Retailer category,
losing out narrowly on 1(st) place to a retailer in a different
category, but importantly improving on our score from last
year.
We have added two additional outbases to our UK logistics
infrastructure over the reporting period, one in Slough and the
other in Dundee. This will help ensure resilience in our delivery
network and maintain market leading product availability for
customers, whilst reducing stem mileage and improving efficiencies
in our logistics division. We have invested further in our digital
content team, which is now 40+ strong, and produces innovative and
essential content, continuing with our goal to be the destination
for information. Our customer labs, which take in feedback from
real customers testing the ease and effectiveness of our site
continue and we also launched our app "MyAO." Initially this
provides "track your order" functionality and we will look to
develop this further to provide transactional capability and to tie
into "My Account" - launched last year.
Customer metrics remain healthy: repeat purchase and new order
levels grew significantly during the six months to 30 September
2016 giving us an increasing customer base to leverage for future
growth.
Categories
We recently launched our computing category in the UK with all
parts of the business working well over the past 12 months to
deliver a joined up customer journey. We believe we can transform
the way this category is currently purchased, overcoming the
difficulties and frustrations some customers have when buying a
computer. Our aim is to make the shopping journey as easy as
possible, to demystify often complex jargon in product
specifications and give the category the AO proposition and service
that it deserves. This means our offering is feature-led and we
have developed a "Help me Choose" tool to help customers find the
product that's right for them. Hardware and software brands have
supported our refreshing take on the category and we have been able
to leverage investments made in our web content, IT teams and
products teams to add the category seamlessly to ao.com.
Operationally, we have acquired new skills as the category is
stocked and distributed utilising drop-ship vendor methodology
which has required investment in back-end systems and amendments to
our existing procedures and processes. This investment will reap
rewards as we launch future category roll-outs.
Early trading in computing is encouraging and this should start
to build as we begin to invest in attracting traffic to the
category on the site. There is still much work to do as we expand
the range and add peripherals, software and service plans into the
mix, but we are confident in our ability to be able to retail the
category successfully and profitably.
Our major domestic appliance ("MDA") category continues to grow,
with more opportunities yet to be exploited in the built-in market
and plans are in place to develop this subset of MDA. Further
progress has been made with small domestic appliances ("SDA") and
A/V with good relationships formed with new supplier brands and
further product lines coming to our range. We have also made
significant progress with product margin in both MDA and A/V,
reflecting our increased importance as a channel to market for the
leading brands.
Exploration of further categories continues.
EUROPE
We are continuing to drive our Europe operation as fast as we
can with controlled growth. Our new countries are travelling the
same journey that our UK operation experienced although we expect
to go faster as we accumulate experience. Our strategy across
Europe is identical to the UK as we focus on our customer
proposition, categories, culture and brand.
Customers in Germany and the Netherlands are enjoying our
proposition and, with their credit cards, are voting for the AO
Way. We are enjoying good feedback in both Germany and the
Netherlands with NPS scores in both these territories remaining
outstanding at around 90 and Trustpilot scores at over 9.
Promisingly, we are already seeing repeat business come
through.
Our brand new regional distribution centre in Bergheim, which
serves Germany and the Netherlands, is now fully operational. With
35,000m(2) of warehouse space, the RDC allows us to improve product
availability for our customers. The RDC comprises a head office
allowing the retail and logistics divisions to become more
cohesive, drive efficiencies and promote a consistent AO culture.
We have partnered with Rhenus, a third party logistics firm, to
better serve customers in outlying areas whilst also reducing
delivery costs, and we continue to work to ensure that their
service meets our high expectations. To improve the customer
proposition further we are also exploring how best to introduce
premium installations and hope to provide this service before the
end of the calendar year. Our warranty product has not resonated
that well with the German consumer who have traditionally bought a
pay-up-front warranty product. Together with Domestic and General
we are looking to develop a product more suitable for the German
consumer as we move into FY18.
Promotional activity over the period has been limited during our
transition to Bergheim as planned (and as explained at our full
year results), with no TV exposure from April to October.
Accordingly there has been little growth in brand awareness.
However, as we look to drive sales through the second half of the
year, activity will ramp up, with our customer adverts being
screened on TV alongside some print media advertising.
Category development has continued with the launch of A/V on
ao.de early October. We now sell TVs, home cinema equipment,
satellite receivers and Blu-ray players and early sales are
promising. Our work in the category continues as we explore the
opportunities with audio products and we look to build our SDA
range adding small kitchen appliances to the floor-care range
already available. We are making inroads with the MDA manufacturers
and have seen improvements in product margin and an increase in
marketing support.
The building blocks of our European operation are now in place,
the trajectory of progress with manufacturers is good and we have
recently appointed a German national retail director to lead the
retail team. Accordingly, we now expect this segment to enter
profitability in 2020. We expect this to be achieved on revenue of
c.EUR250m and we need to continue to improve our product margin to
a mature state and leverage our cost base through growth.
We are well positioned on our journey and look forward to
capitalising on the opportunities before us.
FINANCIAL REVIEW
Revenue
For the 6 months ended 30 September 2016 total Group revenue
increased by 22.9% to GBP324.7m (2015: GBP264.3m).
30 September 30 September Change
2016 2015
--------------- -------------------- -------------------- ------------------------
6 months
ended
(GBPm)(1) UK Europe Total UK Europe Total UK Europe Total
--------------- ----- ------ ----- ----- ------ ----- ------- ------ -------
AO website
sales 259.4 29.6 289.0 214.9 15.6 230.5 20.8% 89.5% 25.4%
--------------- ----- ------ ----- ----- ------ ----- ------- ------ -------
Third-party
website sales 22.9 - 22.9 26.3 - 26.3 (13.1%) n/a (13.1%)
--------------- ----- ------ ----- ----- ------ ----- ------- ------ -------
Third-party
logistics
services 12.8 - 12.8 7.5 - 7.5 69.8% n/a 69.8%
--------------- ----- ------ ----- ----- ------ ----- ------- ------ -------
Revenue 295.1 29.6 324.7 248.7 15.6 264.3 18.7% 89.5% 22.9%
--------------- ----- ------ ----- ----- ------ ----- ------- ------ -------
(1) Certain financial data have been rounded. As a result of
this rounding, the totals of data presented in this document may
vary slightly from the actual arithmetic totals of such data.
In the UK segment, revenue growth was mainly attributable to
"AO" branded sales, driven by increased brand awareness and TV
advertising. Third-party logistics revenue also increased year on
year as we benefitted from improved revenue per unit together with
short-term additional volume throughput from one customer which is
now returning to normal levels. As anticipated, revenue from third
party websites has reduced on a like for like basis, continuing the
previous trend, as we focus on growing own brand revenue.
Sales from our German website, AO.de, and also our Netherlands
website AO.nl (totalled revenue of GBP29.6m (2015: GBP15.6m).
Across the Group AO branded website sales now account for 89.0%
of total Group revenue (2015: 87.2%).
Gross margin
30 September 30 September Change
2016 2015
-------------------- -------------------- --------------------- ---------------------------
6 months
ended
(GBPm)
(1) UK Europe Total UK Europe Total UK Europe Total
-------------------- ----- ------ ----- ----- ------- ----- -------- -------- -------
Gross profit/(loss) 66.5 (1.7) 64.8 47.9 (2.2) 45.7 38.7% (23.0%) 41.6%
-------------------- ----- ------ ----- ----- ------- ----- -------- -------- -------
Gross margin 22.5% (5.6%) 20.0% 19.3% (13.9%) 17.3% +3.3ppts +8.3ppts 2.7ppts
-------------------- ----- ------ ----- ----- ------- ----- -------- -------- -------
(1) Certain financial data have been rounded. As a result of
this rounding, the totals of data presented in this document may
vary slightly from the actual arithmetic totals of such data.
Gross profit for the Group grew by 41.6% to GBP64.8m (2015:
GBP45.7m) with gross margin increasing by 2.7ppts to 20.0% for the
reporting period (2015: 17.3%).
In the UK gross margin increased to 22.5% (2015: 19.3%). We have
benefitted from improved supplier product margin in MDA and A/V
reflecting our increased buying power in the market, although more
recently this has seen pressure from supplier price increases
following Brexit and adverse FX movements in their supply
chain.
In Europe the gross loss of GBP1.7m (and a margin of -5.6%)
reflects the early growth nature of the operation with low product
margins and high costs to deliver due to low drop densities (2015:
GBP2.2m loss). However, we have worked to improve the P&L over
the reporting period, optimising product ranges and making headway
with both supplier product margin and delivery efficiencies. The
introduction of the Netherlands business just before the
commencement of the reporting period has also helped leverage the
German infrastructure cost base. As a result, gross loss reduced by
GBP0.5m for the reporting segment year on year and gross margin
improved by 8.3ppts.
Selling, General & Administrative Expenses ("SG&A")
30 September 30 September
2016 2015 Change %
--------------- -------------------- -------------------- ------------------------------
6 months UK Europe Total UK Europe Total UK Europe Total
ended (GBPm)
(1)
--------------- ----- ------ ----- ----- ------ ----- -------- --------- --------
Advertising
and marketing 11.3 2.5 13.8 12.2 3.0 15.2 (6.7%) (15.2%) (8.4%)
--------------- ----- ------ ----- ----- ------ ----- -------- --------- --------
% of revenue 3.8% 8.6% 4.3% 4.9% 19.2% 5.7%
--------------- ----- ------ ----- ----- ------ ----- -------- --------- --------
Warehousing 13.3 1.9 15.2 9.0 0.9 9.9 47.8% 113.4% 53.8%
--------------- ----- ------ ----- ----- ------ ----- -------- --------- --------
% of revenue 4.5% 6.5% 4.7% 3.6% 5.8% 3.7%
--------------- ----- ------ ----- ----- ------ ----- -------- --------- --------
Other admin 31.3 6.0 37.3 23.7 3.8 27.5 32.1% 58.6% 35.8%
--------------- ----- ------ ----- ----- ------ ----- -------- --------- --------
% of revenue 10.6% 20.3% 11.5% 9.5% 24.2% 10.4%
--------------- ----- ------ ----- ----- ------ ----- -------- --------- --------
Adjustments(2) 1.7 - 1.7 1.7 0.3 2.1 (5.5%) n/a (21.2%)
--------------- ----- ------ ----- ----- ------ ----- -------- --------- --------
% of revenue 0.6% - 0.5% 0.7% 2.2% 0.8%
--------------- ----- ------ ----- ----- ------ ----- -------- --------- --------
Administrative
expenses 57.6 10.4 68.0 46.6 8.0 54.6 23.6% 30.4% 24.6%
--------------- ----- ------ ----- ----- ------ ----- -------- --------- --------
% of revenue 19.5% 35.4% 21.0% 18.7% 51.4% 20.7% +0.8ppts -16.0ppts +0.3ppts
--------------- ----- ------ ----- ----- ------ ----- -------- --------- --------
(1) Certain financial data have been rounded. As a result of
this rounding, the totals of data presented in this document may
vary slightly from the actual arithmetic totals of such data.
(2) Adjustments is defined by the Group as set-up costs relating
to overseas expansion and share-based payment charges attributable
to exceptional LTIP awards which the Board considers one-off in
nature.
Total SG&A costs across the Group as a percentage of revenue
was broadly flat year on year.
In the UK, the advertising and marketing cost ratio reduced by
1.1% of revenue year on year reflecting our improved acquisition
strategy and brand strength. The warehousing cost ratio to revenue
increased following the entry into a lease of a second building at
Crewe, in close proximity to our existing NDC, and the opening of
new outbases in Slough and Dundee. Other Admin costs have also
increased as a percentage of revenue with investments being made to
strengthen our trading teams, in particular the engagement of
additional team members with expertise in computing, and also
software and multimedia teams together with increased charges for
share based incentive payments.
In our Europe segment our SG&A cost ratio, as a percentage
of sales, continues to improve as we gain more volume. For the
period these costs represented 35.4% of revenue (2015: 51.4%). This
favourable volume gearing effect also helped to improve our
advertising and marketing costs, with the ratio to sales more than
halving compared to the prior period, further assisted by
reductions in above the line advertising cost in anticipation of
the move to the new Regional DC in Bergheim. Warehousing costs have
increased slightly due to opening of Bergheim, a facility that
gives us huge capacity growth for the future. 'Other admin' costs
have increased following the launch of the AO.nl website. With
Germany in its growth phase, and the addition of the Netherlands in
the reporting period, it is difficult to make meaningful
comparisons but we would expect these costs to continue to be
leveraged by growth as the Europe segment increases in scale.
Adjusted EBITDA
When reviewing profitability, the Directors use an adjusted
measure of EBITDA in order to give a meaningful year on year
comparison.
Group Adjusted EBITDA was GBP1.5m (2015: GBP4.5m loss) after
allowing for GBP11.6m of Europe Adjusted EBITDA losses (2015:
GBP9.6m loss). On a constant currency basis Europe Adjusted EBITDA
losses were EUR14.2m (2015: EUR13.3m).
UK Adjusted EBITDA for the 6 months to 30 September 2016 was
GBP13.1m (2015: GBP5.1m) representing an increase of 154.5% against
the prior year. This increase resulted from an improvement in sales
and gross margin and a reduction in administrative expenses, as
explained above.
Adjustments consist of (1) Europe set-up costs which comprise
strategic post "go-live" costs in the Netherlands and Germany and
our continuing research into further European countries and (2)
share based payments charges that relate to long term incentives
which the Board considers one-off in nature, namely awards made to
senior staff under the Performance Share Plan at the time of the
Company's IPO in 2014 and under the Employee Reward Plan in July
2016. AO sharesave scheme charges and LTIP charges relating to LTIP
awards which are not considered to be one-off in nature are
included in trading numbers.
6 months ended 30 September 30 September
(1) 2016 2015 Change
(GBPm) UK Europe Total UK Europe Total UK Europe Total
------------------------ ----- ------- ----- ---- ------ ----- -------- --------- --------
Operating profit/(loss) 9.4 (12.2) (2.8) 1.3 (10.2) (8.9) 598.1% 19.0% (67.5%)
------------------------ ----- ------- ----- ---- ------ ----- -------- --------- --------
Add adjustments:
Share-based
payment charge
attributable
to exceptional
LTIP award(2) 1.3 - 1.3 1.2 - 1.2 4.6% n/a 4.6%
Europe set-up
costs(3) 0.4 - 0.4 0.6 0.3 0.9 (30.0%) n/a (58.4%)
------------------------ ----- ------- ----- ---- ------ ----- -------- --------- --------
Adjusted operating
profit/(loss) 11.1 (12.2) (1.1) 3.1 (9.8) (6.8) 256.3% 23.2% (81.7%)
------------------------ ----- ------- ----- ---- ------ ----- -------- --------- --------
Add: Depreciation
and amortisation 2.1 0.6 2.7 2.0 0.3 2.3 6.2% 98.4% 16.7%
------------------------ ----- ------- ----- ---- ------ ----- -------- --------- --------
Less: Profit
on disposal (0.1) - (0.1) - - - - - -
------------------------ ----- ------- ----- ---- ------ ----- -------- --------- --------
Adjusted EBITDA 13.1 (11.6) 1.5 5.1 (9.6) (4.5) 154.5% 21.2% (127.5%)
------------------------ ----- ------- ----- ---- ------ ----- -------- --------- --------
Adjusted EBITDA
as -1.7
% of revenue 4.4% (39.3%) 0.4% 2.0% -61.4% % +2.4ppts +22.1ppts +2.1ppts
------------------------ ----- ------- ----- ---- ------ ----- -------- --------- --------
(1) Certain financial data have been rounded. As a result of
this rounding, the totals of data presented in this document may
vary slightly from the actual arithmetic totals of such data.
(2) Certain LTIP awards of a significant magnitude were made to
a number of senior staff under the 2014 Performance Share Plan at
the time of the IPO and also under the 2016 Employee Reward Plan in
July 2016. The Board considers that the magnitude and timing of
these awards are one-off in nature and so add -back any
charge/(credit) in arriving at Adjusted EBITDA.
(3) Europe set-up costs are costs incurred in connection with
our European expansion strategy prior to the "go-live" of that
territory, namely the launch of AO.de and AO.nl and our continuing
research into other further countries along with strategic post
"go-live" costs in Germany and the Netherlands.
Taxation
The tax charge is recognised based on management's best estimate
of the weighted-average annual income tax rate expected for the
full financial year multiplied by the pre-tax income of the interim
reporting period. The Group's tax charge for the period is GBP2.1m
(2015: GBP1.3m credit) as a result of the expected effective tax
rate for the year of 80.2% (2015: 16.8%). The increase in the
annualised effective rate is due to the release of a deferred tax
asset in connection with the 2014 share scheme (GBP0.6m), as well
as the unrecognised deferred tax asset on losses carried forward
(GBP2.3m).
Retained Profit and Earnings/(loss) per share
Retained profit for the period was GBP0.2m (2015: GBP6.7m
loss).
Basic earnings per share was 0.11p (2015: 1.58p loss) and
diluted earnings per share was 0.11p (1.58p loss).
The positive EPS is predominately a reflection of a foreign
exchange gain of GBP4.3m arising from inter-group funding
arrangements.
Basic earnings per share is reconciled to adjusted BEPS (after
excluding the impact of FX differences) of 0.92p loss (2015: 1.71p
loss) as follows.
6 months 6 months
ended ended
30 September 30 September
(GBPm) 2016 2015
--------------------------------------- -------------- --------------
Earnings/(loss)
Earnings/(loss) attributable
to owners of the parent company 0.4 (6.7)
Foreign exchange gains on intra-group
loans (4.3) (0.5)
Adjusted earnings attributable
to owners of the parent company (3.9) (7.2)
--------------------------------------- -------------- --------------
Number of shares
Basic and adjusted weighted
average number of ordinary shares 421,052,631 421,052,631
--------------------------------------- -------------- --------------
Earnings per share (in pence)
Basic earnings/(loss) per share 0.11 (1.58)
Adjusted basic loss per share (0.92) (1.71)
--------------------------------------- -------------- --------------
The foreign exchange gain has arisen as a result of the
significant movement in the exchange rate between Sterling and the
Euro in the period. This has impacted the value of intra-group
loans held in GBP in the European entities giving rise to the
GBP4.3m gain referenced above.
Cash resources and cash flow
At 30 September 2016, the Group's net funds position was
GBP21.3m (2015: GBP29.6m), as cash decreased to GBP32.4m (2015:
GBP35.6m) principally reflecting the trading losses incurred in the
Europe segment over the period and capital expenditure in both
businesses, while total borrowings (comprising asset finance and
equivalent) increased to GBP11.1m from GBP6.0m in 2015. Surplus
cash balances are held with UK-based banks, in line with the Group
Treasury Policy.
As previously reported, the Group has put in place a revolving
credit facility of GBP30m with Lloyds Bank plc and Barclays Bank
plc in order to fund UK working capital movements in future.
The Group's cash inflow from operating activities was GBP3.4m
(2015: GBP4.7m outflow).
Working Capital
30 September
2016 30 September 2015
-------------------- --------------- ----------------------------------------
6 months ended
(1)
(GBPm) UK Europe Total UK Europe Total
-------------------- ------- ------ ------- ------ ------ -------
Inventories 35.0 6.9 41.9 31.5 2.4 33.9
-------------------- ------- ------ ------- ------ ------ -------
As % of COGS 15.3% 22.0% 16.1% 15.7% 13.4% 15.5%
-------------------- ------- ------ ------- ------ ------ -------
Trade and other
receivables 68.9 3.5 72.4 53.3 4.2 57.5
-------------------- ------- ------ ------- ------ ------ -------
As a % of revenue 23.4% 11.6% 22.3% 21.4% 26.7% 21.8%
-------------------- ------- ------ ------- ------ ------ -------
Trade and other
payables (116.3) (8.2) (124.5) (93.6) (6.4) (100.1)
-------------------- ------- ------ ------- ------ ------ -------
As a % of COGS 50.9% 26.1% 47.9% 46.6% 36.2% 45.8%
-------------------- ------- ------ ------- ------ ------ -------
Net working capital (12.4) 2.2 (10.2) (8.8) 0.1 (8.7)
-------------------- ------- ------ ------- ------ ------ -------
Change in net
working capital (3.6) 2.1 (1.5) 0.1 0.5 0.6
-------------------- ------- ------ ------- ------ ------ -------
(1) Certain financial data have been rounded. As a result of
this rounding, the totals of data presented in this document may
vary slightly from the actual arithmetic totals of such data.
At 30 September 2016, the Group had net current liabilities of
GBP16.3m (30 September 2015: net current assets of GBP0.4m)
principally as a result of (i) extended credit terms /working
capital management with the Group's suppliers and (ii) a reduction
in cash which was used to fund losses in the Europe segment. As at
30 September 2016 UK inventories were GBP35.0m (2015: GBP31.5m)
reflecting an increase in sales volumes and an increase in our
stock-holding to support the A/V category which is generally only
bought in bulk loads. As a result, UK average stock days increased
to 30 days (2015: 28 days). Going forward the addition of the
computing category in the UK should not have a material effect on
UK inventory levels as we utilise drop-ship vendor methodology.
UK trade and other receivables (both non-current and current)
were GBP68.9m as at 30 September 2016 (2015: GBP53.3m) reflecting
an increase in accrued income in respect of commissions due on
product protection plans as a result of the higher retail volumes.
UK trade and other payables increased to GBP116.3m (2015: GBP93.6m)
reflecting increased trade and manufacturers continuing to extend
credit on the higher volume of sales.
Capital Expenditure
Total capital expenditure for the six months was GBP6.7m (2015:
GBP3.9m), attributable to further additions to our infrastructure
both in the UK and in Europe.
During the period our Regional DC in Bergheim was completed and
an additional building at Crewe, in close proximity to the existing
NDC in the UK, has been added to our property portfolio. During the
period we have also seen new outbases open at Slough and Dundee in
the UK which will help serve our customers in London and Scotland
respectively, provide better availability and reduce the stem
mileage of the local delivery vehicles. Fit out costs in relation
to these leased assets are included in capital expenditure in the
period. We have also purchased 50 new mega double-decker trailers
as part of our natural replacement programme, and compared to the
previous trailers these give us increased capacity and therefore
greater efficiencies in our trunking.
The Recycling Group Limited, in which we have a 60% equity
stake, has invested in a new solution for the recycling of WEEE
(Waste Electrical and Electronic Equipment) which is currently
being constructed at a new recycling site in Telford and which
should be operational in the next six months. This facility will
secure the recycling of collected products and enables the retail
operation to meet its statutory obligations in this area, whilst
providing a further stream of income.
John Roberts Steve Caunce Mark Higgins
CEO COO CFO
CONDENSED CONSOLIDATED INCOME
STATEMENT
For the 6 months ended 30 September
2016
6 months 6 months Year ended
ended ended 31 March
30 September 30 September 2016
2016 2015 GBPm
Note GBPm GBPm
Revenue 2 324.7 264.3 599.2
Cost of sales (259.9) (218.6) (493.3)
------------------------- ---- -------------- -------------- ------------
Gross profit 64.8 45.7 105.9
Administrative expenses (68.0) (54.6) (116.5)
Other operating income 0.4 - -
------------------------- ---- -------------- -------------- ------------
Operating loss (2.8) (8.9) (10.6)
Finance income 4 5.7 1.0 4.2
Finance costs 5 (0.6) (0.1) (0.3)
------------------------- ---- -------------- -------------- ------------
Profit/(loss) before
tax 2.3 (8.0) (6.7)
Taxation (charge)/credit (2.1) 1.3 0.6
------------------------- ---- -------------- -------------- ------------
Profit/(loss) for
the period 0.2 (6.7) (6.1)
------------------------- ---- -------------- -------------- ------------
Profit/(loss) for
the period
attributable to:
Owners of the parent
company 0.4 (6.7) (6.0)
Non-controlling interest (0.2) - (0.1)
------------------------- ---- -------------- -------------- ------------
0.2 (6.7) (6.1)
------------------------- ---- -------------- -------------- ------------
Earnings/(loss) per
share (pence)
Basic earnings/(loss)
per share 9 0.11 (1.58) (1.44)
Diluted earnings/(loss)
per share 9 0.11 (1.58) (1.44)
------------------------- ---- -------------- -------------- ------------
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 6 months ended 30 September 2016
6 months 6 months
ended 30 ended Year ended
September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
Profit/(loss) for the period 0.2 (6.7) (6.1)
------------------------------------- ----------- ------------- ------------
Items that may be subsequently
recycled to Income Statement
Exchange differences on translation
of foreign operations (3.5) (0.4) (2.5)
------------------------------------- ----------- ------------- ------------
Total comprehensive loss for
the period (3.3) (7.1) (8.6)
------------------------------------- ----------- ------------- ------------
Loss for the period attributable
to:
Owners of the parent company (3.1) (7.1) (8.5)
Non-controlling interest (0.2) - (0.1)
------------------------------------- ----------- ------------- ------------
Total comprehensive loss for
the period (3.3) (7.1) (8.6)
------------------------------------- ----------- ------------- ------------
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 September 2016
At At At
30 September 30 September 31 March
2016 2015 2016
Note GBPm GBPm GBPm
--------------------------------- ---- ------------- ------------- ---------
Non-current assets
Goodwill 13.5 12.2 13.5
Other intangible assets 2.0 2.2 2.1
Property, plant and equipment 23.0 15.1 18.0
Trade and other receivables 7 33.5 25.1 29.5
Derivative financial
asset 0.8 - 0.8
Deferred tax asset 1.8 2.2 1.5
----------------------------------- ---- ------------- ------------- ---------
74.6 56.8 65.4
--------------------------------- ---- ------------- ------------- ---------
Current assets
Inventories 41.9 33.9 34.0
Trade and other receivables 7 38.8 32.4 34.4
Corporation tax receivable - 0.7 0.7
Cash and cash equivalent 10 32.4 35.6 33.4
113.1 102.6 102.5
--------------------------------- ---- ------------- ------------- ---------
Total assets 187.7 159.4 167.9
----------------------------------- ---- ------------- ------------- ---------
Current liabilities
Trade and other payables 8 (124.5) (100.1) (109.0)
Corporation tax payable (2.1) - -
Borrowings 10 (2.8) (2.1) (2.2)
(129.4) (102.2) (111.2)
--------------------------------- ---- ------------- ------------- ---------
Net current (liabilities)/assets (16.3) 0.4 (8.7)
----------------------------------- ---- ------------- ------------- ---------
Non-current liabilities
Borrowings (8.3) (3.9) (5.8)
Derivative financial
liability (2.7) - (2.7)
Provisions (1.5) (0.3) (0.8)
----------------------------------- ---- ------------- ------------- ---------
Total liabilities (141.9) (106.4) (120.5)
----------------------------------- ---- ------------- ------------- ---------
Net assets 45.8 53.0 47.4
----------------------------------- ---- ------------- ------------- ---------
Equity attributable to
owners of the parent
Share capital 1.1 1.1 1.1
Share premium account 55.7 55.7 55.7
Other reserves 2.0 7.6 3.8
Retained losses (11.9) (11.4) (12.3)
----------------------------------- ---- ------------- ------------- ---------
Total 46.9 53.0 48.3
----------------------------------- ---- ------------- ------------- ---------
Non-controlling interest (1.1) - (0.9)
----------------------------------- ---- ------------- ------------- ---------
Total equity 45.8 53.0 47.4
----------------------------------- ---- ------------- ------------- ---------
CONDENSED CONSOLIDATED STATEMENT OF CHANGE IN EQUITY
At 30 September 2016
Other reserves
--------------------------------------------------
Share-
Share Capital based
Share premium Merger redemption payment Translation Other Retained Non-controlling
capital account reserve reserve reserve reserve reserve losses Total interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- ------- ---------- ------- ----------- ------- -------- ----- --------------- -----
Balance at 1
April
2016 1.1 55.7 4.4 0.5 3.1 (2.1) (2.1) (12.3) 48.3 (0.9) 47.4
-------------- ------- ------- ------- ---------- ------- ----------- ------- -------- ----- --------------- -----
Profit/(loss)
for the
period - - - - - - - 0.4 0.4 (0.2) 0.2
Foreign
currency
gains arising
on
consolidation - - - - - (3.5) - - (3.5) - (3.5)
Share-based
payments
charge net of
tax - - - - 1.7 - - - 1.7 - 1.7
Balance at 30
September
2016 1.1 55.7 4.4 0.5 4.8 (5.6) (2.1) (11.9) 46.9 (1.1) 45.8
-------------- ------- ------- ------- ---------- ------- ----------- ------- -------- ----- --------------- -----
Other reserves
---------------------------------------------------
Share-
Share Capital based
Share premium Merger redemption payment Translation Other Retained Non-controlling
capital account reserve reserve reserve reserve reserve losses Total interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- ------- ---------- ------- ----------- -------- -------- ----- --------------- -----
Balance at 1
April
2015 1.1 55.7 4.4 (1.1) 2.8 0.4 - (4.7) 58.6 - 58.6
-------------- ------- ------- ------- ---------- ------- ----------- -------- -------- ----- --------------- -----
Loss for the
period - - - - - - - (6.7) (6.7) - (6.7)
Foreign
currency
gains arising
on
consolidation - - - - - (0.4) - - (0.4) - (0.4)
Share-based
payments
charge net of
tax - - - - 1.5 - - - 1.5 - 1.5
Balance at 30
September
2015 1.1 55.7 4.4 (1.1) 4.3 - - (11.4) 53.0 - 53.0
-------------- ------- ------- ------- ---------- ------- ----------- -------- -------- ----- --------------- -----
Other reserves
---------------------------------------------------
Share-
Share Capital based
Share premium Merger redemption payment Translation Other Retained Non-controlling
capital account reserve reserve reserve reserve reserve losses Total interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------- ------- ---------- ------- ----------- -------- -------- ----- --------------- -------
Balance at 1
April
2015 1.1 55.7 4.4 (1.1) 2.8 0.4 - (4.7) 58.6 - 58.6
---------------- ------- ------- ------- ---------- ------- ----------- -------- -------- ----- --------------- -------
Loss for the
year - - - - - - - (6.0) (6.0) (0.1) (6.1)
Foreign currency
gains arising
on
consolidation - - - - - (2.5) - - (2.5) - (2.5)
Share-based
payments
charge net of
tax - - - - 0.3 - - - 0.3 - 0.3
Put option over
non-controlling
interest - - - - - - (2.1) - (2.1) - (2.1)
Transfer between
reserves - - - 1.6 - - - (1.6) - - -
Acquisition of
subsidiary - - - - - - - - - (0.8) (0.8)
Balance at 31
March 2016 1.1 55.7 4.4 0.5 3.1 (2.1) (2.1) (12.3) 48.3 (0.9) 47.4
---------------- ------- ------- ------- ---------- ------- ----------- -------- -------- ----- --------------- -------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the 6 months ended 30 September 2016
6 months
ended 6 months ended Year ended
30 September 30 September 31 March
2016 2015 2016
GBPm GBPm GBPm
---------------------------------------------- ------------- -------------- ----------
Cash flows from operating activities
Profit/(loss) for the period 0.2 (6.7) (6.1)
Adjustments for:
Depreciation and amortisation 2.7 2.3 4.8
Finance income (5.7) (1.0) (4.2)
Finance costs 0.6 0.1 0.3
Profit on disposal of property,
plant and equipment (0.1) - -
Taxation charge/ (credit) 2.1 (1.3) (0.6)
Share-based payment charge 1.7 1.5 0.2
----------------------------------------------- ------------- -------------- ----------
Net operating cash flows before
movement in working capital 1.5 (5.1) (5.6)
----------------------------------------------- ------------- -------------- ----------
Increase in inventories (7.4) (2.4) (2.4)
Increase in trade and other
receivables (7.5) (12.4) (15.8)
Increase in trade and other
payables 15.3 15.7 20.3
Increase/(decrease) in provisions 0.8 (0.5) -
1.2 0.4 2.1
Taxation repayments 0.7 - -
----------------------------------------------- ------------- -------------- ----------
Net cash from / (used in) operating
activities 3.4 (4.7) (3.5)
----------------------------------------------- ------------- -------------- ----------
Cash flows from investing activities
Interest received 0.1 0.5 0.2
Acquisition of property, plant
and equipment (6.6) (3.6) (6.1)
Acquisition of intangible assets (0.1) (0.3) (0.5)
----------------------------------------------- ------------- -------------- ----------
Net cash used in investing activities (6.6) (3.4) (6.4)
----------------------------------------------- ------------- -------------- ----------
Cash flows from financing activities
Interest paid (0.6) (0.1) (0.3)
New borrowings 4.2 - 0.9
Repayment of borrowings (0.1) - -
Repayment of finance lease liabilities (1.4) (1.1) (2.4)
Net cash from / (used in) financing
activities 2.1 (1.2) (1.8)
----------------------------------------------- ------------- -------------- ----------
Net decrease in cash (1.1) (9.3) (11.7)
Cash and cash equivalents at
beginning of period 33.4 44.9 44.9
----------------------------------------------- ------------- -------------- ----------
Exchange gains on cash & cash
equivalents 0.1 - 0.2
----------------------------------------------- ------------- -------------- ----------
Cash and cash equivalents at
end of period 32.4 35.6 33.4
----------------------------------------------- ------------- -------------- ----------
NOTES TO THE FINANCIAL INFORMATION
1. Basis of preparation
The interim financial information was approved by the Board on
21 November 2016. The financial information for the 6 months ended
30 September 2016 has been reviewed by the Group's external
auditor. Their report is included within this announcement. The
financial information for the 6 months ended 30 September 2015 was
reviewed by the preceding external auditor. The financial
information for the year ended 31 March 2016 is based on
information in the audited financial statements for that period
which are available online at
http://ao.com/corporate/investor-centre.
The comparative figures for the year ended 31 March 2016 are an
abridged version of the Group's full financial statements and,
together with other financial information contained in these
interim results, do not constitute statutory financial statements
of the Group as defined in section 434 of the Companies Act 2006. A
copy of the statutory accounts for the year ended 31 March 2016 has
been delivered to the Registrar of Companies. The preceding auditor
has reported on those accounts: their report was unqualified, did
not draw attention to any matters by way of emphasis and did not
contain a statement under s498(2) or (3) of the Companies Act
2006.
Basis of preparation and accounting policies
The annual financial statements of AO World plc are prepared in
accordance with IFRSs as adopted by the European Union. The
unaudited condensed consolidated set of financial statements
included in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 'Interim
Financial Reporting', as adopted by the European Union. The same
accounting policies, presentation and methods of computation are
followed in the condensed set of interim financial information as
applied in the Group's latest annual audited financial
statements.
Going concern
The Directors have, at the time of approving the interim
financial information, a reasonable expectation that the Company
and the Group have adequate resources to continue in operational
existence for a period not less than 12 months. This takes into
consideration the forecasted cash flow of the Group and the
availability of a GBP30m Revolving Credit Facility. Thus they
continue to adopt the going concern basis of accounting in
preparing the interim financial information.
Significant accounting policies
As required by the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority, the condensed set of financial
statements has been prepared by the Group by applying the same
accounting policies and presentation that were applied in the
preparation of the Group's published consolidated financial
statements as at 31 March 2016.
Critical accounting judgements and estimates
Two of the most critical accounting policies in determining the
financial condition and results of the Group and requiring the
greatest degree of subjective or complex judgements include revenue
recognition of product protection plans and volume rebates.
Revenue recognition of product protection plans
Revenue recognised in respect of commissions receivable over the
lifetime of the plan for the sale of product protection plans is
recognised at fair value, when the Group obtains the right to
consideration as a result of performance of its contractual
obligations (when the plan is sold acting as an agent for a third
party). Revenue in any one period therefore represents the fair
value of the commission due on the plans sold, which management can
estimate reliably based upon the estimated length of the plans and
the historical rate of customer attrition. Reliance on historical
data assumes that current and future experience will follow past
trends. The Directors consider that the quantity and quality of
such historical data available provides an appropriate proxy for
current trends.
Commission receivable for certain transactions depends on
customer behaviour after the point of sale. Assumptions are
therefore required, particularly in relation to levels of customer
default within the contract period, expected levels of customer
spend, and customer behaviour beyond the initial contract period.
Such assumptions are based on extensive historical evidence, and
provision is made for the risk of potential changes in customer
behaviour, but they are nonetheless inherently uncertain. Changes
in estimates recognised as an increase or decrease to revenue may
be made, where for example more reliable information is available,
and any such changes are required to be recognised in the income
statement. The commission receivable balance as at 30 September
2016 was GBP44.1m (2015: GBP32.3m). The discount rate used to
unwind the commission receivable is 4.3% (2015: 5.3%).
Volume rebates
Volume rebates are deducted from cost of sales in line with the
sale of the product to which the rebate is attributable.
Calculation of the volume rebate for the final month of the
financial period includes judgements for expected rebate values.
Volume rebates receivable at 30 September 2016 are GBP10.3m (2015:
GBP9.3m). At 31 October 2016 the balance outstanding was GBP4.7m
(2015: GBP2.3m).
2. Revenue
An analysis of the Group's revenue is as follows:
6 months 6 months
ended 30 ended 30 Year ended
September September 31 March
(GBPm) 2016 2015 2016
------------------------------- ---------- ---------- ----------
Own website sales 289.0 230.5 527.8
Third-party website sales
and trade sales 22.9 26.3 53.6
Third-party logistics services 12.8 7.5 17.8
------------------------------- ---------- ---------- ----------
324.7 264.3 599.2
------------------------------- ---------- ---------- ----------
Revenue split between sale of goods and services:
6 months ended 6 months ended
30 September 30 September Year ended
(GBPm) 2016 2015 31 March2016
--------- ----------------------- ----------------------- -----------------------
UK Europe Total UK Europe Total UK Europe Total
--------- ------ ------- ------ ------ ------- ------ ------ ------- ------
Product
sales 261.9 27.6 289.4 225.0 14.6 239.6 497.6 37.9 535.5
Service
sales 33.2 2.0 35.3 23.7 1.0 24.7 60.9 2.8 63.7
--------- ------ ------- ------ ------ ------- ------ ------ ------- ------
295.1 29.6 324.7 248.7 15.6 264.3 558.5 40.7 559.2
--------- ------ ------- ------ ------ ------- ------ ------ ------- ------
Product sales relate to the sale of electrical products through
our own website and for third parties. Service sales relate to
ancillary services including delivery, connection and
disconnections, product protection plan commission, strategic
marketing and third-party logistics.
3. Segmental analysis
The Group has two reportable segments, online retailing of
domestic appliances to customers in the UK and online retailing of
domestic appliances to customers in Europe (excluding the UK).
Operating segments are determined by the internal reporting
regularly provided to the Group's Chief Operating Decision Maker.
The Chief Operating Decision Maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Executive Directors and has
determined that the primary segmental reporting format of the Group
is geographical by customer location, based on the Group's
management and internal reporting structure
a. Income statement
The following is an analysis of the Group's revenue and results
by reportable segments.
6 months ended 6 months ended Year ended
(GBPm) 30 September 2016 30 September 2015 31 March 2016
--------------------------------------- ------------------------- ------------------------ ------------------------
UK Europe Total UK Europe Total UK Europe Total
--------------------------------------- -------- ------ ------- ------- ------ ------- ------- ------ -------
AO website sales 259.4 29.6 289.0 214.9 15.6 230.5 487.1 40.7 527.8
Third-party website sales 22.9 - 22.9 26.3 - 26.3 53.6 - 53.6
Third-party logistics services 12.8 - 12.8 7.5 - 7.5 17.8 - 17.8
--------------------------------------- -------- ------ ------- ------- ------ ------- ------- ------ -------
Total revenue 295.1 29.6 324.7 248.7 15.6 264.3 558.5 40.7 599.2
--------------------------------------- -------- ------ ------- ------- ------ ------- ------- ------ -------
Cost of sales (228.6) (31.3) (259.9) (200.8) (17.8) (218.6) (447.7) (45.6) (493.3)
--------------------------------------- -------- ------ ------- ------- ------ ------- ------- ------ -------
Gross profit/(loss) 66.5 (1.7) 64.8 47.9 (2.2) 45.7 110.8 (4.9) 105.9
--------------------------------------- -------- ------ ------- ------- ------ ------- ------- ------ -------
Administrative expenses (57.5) (10.5) (68.0) (46.6) (8.0) (54.6) (98.4) (18.1) (116.5)
--------------------------------------- -------- ------ ------- ------- ------ ------- ------- ------ -------
Other operating income 0.4 - 0.4 - - - - - -
--------------------------------------- -------- ------ ------- ------- ------ ------- ------- ------ -------
Operating profit/(loss) 9.4 (12.2) (2.8) 1.3 (10.2) (8.9) 12.4 (23.0) (10.6)
--------------------------------------- -------- ------ ------- ------- ------ ------- ------- ------ -------
Net finance income 0.8 4.3 5.1 0.4 0.5 0.9 1.2 2.7 3.9
--------------------------------------- -------- ------ ------- ------- ------ ------- ------- ------ -------
Profit/(loss) before tax 10.2 (7.9) 2.3 1.7 (9.7) (8.0) 13.6 (20.3) (6.7)
--------------------------------------- -------- ------ ------- ------- ------ ------- ------- ------ -------
Adjusted EBITDA:
Operating profit/(loss) 9.4 (12.2) (2.8) 1.3 (10.2) (8.9) 12.4 (23.0) (10.6)
Depreciation 1.9 0.5 2.4 1.8 0.3 2.1 3.8 0.5 4.3
Amortisation 0.2 0.1 0.3 0.2 - 0.2 0.3 0.2 0.5
Profit on disposal of non-current asset (0.1) - (0.1) - - - - - -
--------------------------------------- -------- ------ ------- ------- ------ ------- ------- ------ -------
EBITDA 11.4 (11.6) (0.2) 3.3 (9.9) (6.6) 16.5 (22.3) (5.8)
--------------------------------------- -------- ------ ------- ------- ------ ------- ------- ------ -------
Share-based payment (credit)/charge
attributable to exceptional LTIP
awards 1.3 - 1.3 1.2 - 1.2 (0.4) - (0.4)
Europe set-up costs 0.4 - 0.4 0.6 0.3 0.9 1.1 1.2 2.3
--------------------------------------- -------- ------ ------- ------- ------ ------- ------- ------ -------
Adjusted EBITDA 13.1 (11.6) 1.5 5.1 (9.6) (4.5) 17.2 (21.1) (3.9)
--------------------------------------- -------- ------ ------- ------- ------ ------- ------- ------ -------
Adjustments:
One of the Group's key performance indictors is Adjusted EBITDA
and each segment is measured by the Chief Operating Decision Maker
on this basis. Adjusted EBITDA is calculated by adding back those
material items of income and expense which, because of the nature
and expected infrequency of events giving rise to them, merit
separate presentation to allow shareholders to better understand
the financial performance of the Group in the period.
The adjustments include:
-- Share-based payment charges attributable to the exceptional
LTIP awards which are considered one-off in nature (all other share
based payment charges as part of the normal course of the business
are not adjusted);
-- Set-up costs of expanding into overseas territories and early
stage strategy costs relating to the overseas territories incurred
in the UK when overseas businesses are in the start-up phase. The
start-up phase is defined by a suite of KPI's determined by
management which are used in the day to day running of the
business.
4. Finance income
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
(GBPm) 2016 2015 2016
--------------------------- -------------- -------------- ----------
Bank interest received 0.1 0.1 0.2
Foreign exchange gains
on intra group loans 4.3 0.5 2.7
Movement in valuation
of put and call option - - 0.2
Unwind of discounting
on long term receivables 1.3 0.4 1.1
--------------------------- -------------- -------------- ----------
5.7 1.0 4.2
--------------------------- -------------- -------------- ----------
5. Finance costs
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
(GBPm) 2016 2015 2016
------------------------- -------------- -------------- ----------
Interest on obligations
under finance leases 0.1 0.1 0.3
Other finance costs 0.5 - -
------------------------- -------------- -------------- ----------
0.6 0.1 0.3
------------------------- -------------- -------------- ----------
6. Capital expenditure and capital commitments
During the period, the Group acquired property, plant and
equipment of GBP6.6m (2015: GBP3.6m) and intangible assets of
GBP0.1m (2015: GBP0.3m).
This primarily relates to a replacement programme for the
Group's trailer fleet in the UK, preparation of the Telford site
for the new recycling plant and the costs of the new Regional
distribution centre in Bergheim, Germany.
At 30 September 2016, the Group had a contractual commitments
for the acquisition of property, plant and equipment amounting to
GBP3.9m.
7. Trade and other receivables
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
(GBPm) 2016 2015 2016
----------------------- -------------- -------------- ----------
Trade receivables 9.3 8.1 9.7
Other receivables:
- Accrued income 44.5 32.4 39.4
- Prepayments 18.4 16.3 14.5
- Other 0.1 0.7 0.3
----------------------- -------------- -------------- ----------
72.3 57.5 63.9
----------------------- -------------- -------------- ----------
The trade and other receivables are classified as:
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
(GBPm) 2016 2015 2016
---------------------- -------------- -------------- ----------
Non-current assets -
Accrued income 33.5 25.1 29.5
Current assets 38.8 32.4 34.4
---------------------- -------------- -------------- ----------
72.3 57.5 63.9
---------------------- -------------- -------------- ----------
8. Trade and other payables
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
(GBPm) 2016 2015 2016
------------------- -------------- -------------- ----------
Trade payables 92.6 62.7 79.3
Other payables:
- Accruals 17.8 24.6 12.9
- Deferred income 8.7 7.4 8.6
- Other 5.4 5.4 8.2
------------------- -------------- -------------- ----------
124.5 100.1 109.0
------------------- -------------- -------------- ----------
9. Earnings/(loss) per share
The calculation of the basic and diluted loss per share is based
on the following data:
6 months 6 months Year ended
ended ended 31 March
30 September 30 September 2016
(GBPm) 2016 2015
Earnings/(loss) for the
purposes of basic and diluted
loss per share being profit/(loss)
for the period 0.4 (6.7) (6.0)
------------------------------------- ------------- ------------- -------------
Number of shares
Basic weighted average
number of ordinary shares
in issue 421,052,631 421,052,631 421,052,631
Potentially dilutive share
options and shares 1,644,977 506,162 369,596
------------------------------------- ------------- ------------- -------------
Weighted average number
of diluted ordinary shares 422,697,608 421,558,793 421,422,227
Earnings/(loss) per share
(pence)
------------------------------------ ------------- ------------- -------------
Basic earnings/(loss) per
share 0.11 (1.58) (1.44)
Diluted earnings per share 0.11 (1.58) (1.44)
------------------------------------- ------------- ------------- -------------
The adjusted loss per share for the period was 0.92p (2015:
1.71p) (see Retained Profit and Earnings/(loss) per share
paragraph).
10. Net Funds
6 months 6 months Year ended
ended ended 31 March
30 September 30 September 2016
(GBPm) 2016 2015
--------------------------- -------------- -------------- -----------
Cash and cash equivalents
at period end 32.4 35.6 33.4
Borrowings - Repayable
within one year (2.8) (2.1) (2.2)
Borrowings - Repayable
after one year (8.3) (3.9) (5.8)
--------------------------- -------------- -------------- -----------
Net funds 21.3 29.6 25.4
--------------------------- -------------- -------------- -----------
Reconciliation of net cash flow to movement in net funds:
6 months 6 months Year
ended ended ended
30 September 30 September 31 March
(GBPm) 2016 2015 2016
----------------------------------------------------------- -------------- -------------- ----------
Net decrease in cash and
cash equivalents (1.1) (9.3) (11.6)
Net increase in debt and
lease financing 1.4 1.0 2.4
New loans in the period (4.2) - (0.9)
Acquired debt on acquisition - - (0.4)
Non cash movements:
* Asset acquired under finance leases (0.1) - (1.9)
* Foreign exchange on cash and cash equivalents 0.1 - (0.1)
(0.2) - -
* Foreign exchange on bank borrowings
----------------------------------------------------------- -------------- -------------- ----------
Movement in net debt (4.1) (8.4) (12.5)
----------------------------------------------------------- -------------- -------------- ----------
Opening net funds 25.4 37.9 37.9
----------------------------------------------------------- -------------- -------------- ----------
Net funds at the period
end 21.3 29.6 25.4
----------------------------------------------------------- -------------- -------------- ----------
On 3 June 2016, AO Limited ("AOL") a wholly owned subsidiary of
AO World Plc entered into an agreement with Lloyds Bank Plc and
Barclays Bank Plc (the "Banks") whereby the Banks have provided a
five-year GBP30m Revolving Credit Facility ("RCF") to AOL and it's
direct subsidiaries AO Retail Limited and Expert Logistics Limited.
The RCF is for general corporate and working capital purposes.
At 30 September 2016 the amount of headroom in the RCF was
GBP25.9m.
11. Share-based payments
On 21 July 2016 the Group issued new options under the Long Term
Incentive Plan (LTIP) and options under the Employee Reward Plan
(ERP) to Directors and key members of staff.
The number of share options awarded under the new LTIP was 3.1m
and 6.5m for the ERP respectively.
The total charge in the Income Statement in relation to LTIP's
was GBP1.5m (2015: GBP1.3m) and SAYE Schemes was GBP0.2m (2015:
GBP0.2m).
12. Financial instruments
As detailed in the Group's most recent annual financial
statements, our principal financial instruments consist of a call
and put option, trade and other receivables, accrued income, cash
and cash equivalents, trade and other payables and borrowings. As
indicated in Note 1, there have been no changes to the accounting
policies for financial instruments, including fair value
measurement, from those disclosed in the Company's Annual Report at
31 March 2016. In addition, there have been no changes to the
categorisation or fair value hierarchy of our financial
instruments. The fair values of cash and cash equivalents, trade
and other receivables, accrued income, and trade and other payables
and borrowings are all deemed to approximate their carrying values
and these can be identified on the face of the Statement of
Financial Position and accompanying notes. The fair value and
carrying values of the put and call options are as disclosed in the
31 March 2016 Annual Report and there have been no movements since
that date.
13. Related party transactions
Trading transactions
The Company is the ultimate parent entity of the Group.
Intercompany transactions with wholly owned subsidiaries have been
excluded from the consolidated figures.
6 months 6 months
ended 30 ended 30 Year ended
September September 31 March
(GBPm) 2016 2015 2016
-------------------- ----------- ----------- -----------
Sale of goods
and services
The Recycling
Group Ltd 0.7 - 0.7
WEEE Re-use It
Limited - - 0.2
Re-Gen (Logistics)
Limited - - 0.2
Purchase of goods
and services
The Recycling
Group Ltd 0.3 - 0.9
Booker Limited - - 0.2
-------------------- ----------- ----------- -----------
Transactions with Directors and key management personnel
During the period the Group issued new share options to
Directors and key members of staff (see note 11).
14. Principal risks and uncertainties
There are a number of potential risks and uncertainties which
could have a material impact on the Group's performance over the
remaining six months of the financial year and could cause actual
results to differ materially from expected or historical results.
The Directors do not consider that the principal risks and
uncertainties have changed materially since the publication of the
Annual Report for the year ended 31 March 2016 save as set out
below.
The principal risks as set out in the Annual Report are
summarised below and further information on these together with
information as to how the Group seeks to mitigate these risks is
set out on pages 22-25 of the Annual Report and Accounts 2016 which
can be found at www.AO.com/corporate:
-- Risks relating to our failure to maintain our culture as we
grow and dependence on members of the Group Executive and Senior
Management Teams.
-- Risks relating to our European expansion.
-- Risks relating to brand recognition and damage.
-- Risk relating to IT systems resilience.
-- Risks of interruption to physical infrastructure.
-- Risks relating to legal and/or regulatory changes.
-- Risks in relation to significant accounting matters including
revenue recognition, debtor recoverability and legal risk in
respect of product protection plans.
The directors are also mindful of the uncertainty in the UK
economy following the outcome of the EU Referendum (Brexit) and the
implications this may have for the Group. Uncertainty in the
economy may reduce consumer confidence and affect demand,
particularly for the more "considered" (as opposed to "distressed")
purchase and may also have an effect on the housing market, to
which our MDA sales bear some correlation. Further whilst all our
product purchases are bought in local currency (minimising the
effects of the weakening of the pound against the Euro and Dollar),
it is possible that the increase in our suppliers' supply chain
costs could be passed on to the Group; indeed we have started to
see some of this with certain manufacturers.
Against such uncertainty we have some comfort that, in the UK,
the vast majority of our sales mix is MDA which tends to be more
resilient to unfavourable economic conditions due to being a
necessity rather than a luxury purchase. We also would expect that
price increases would be passed on to all our competitors and that
ultimately these will be passed on to consumers (at the risk of
reduced demand) and our trading teams are engaging with suppliers
to understand and manage any such repercussions. Importantly, given
our growth model and flexible cost base we are able to adjust
quickly to downturns in demand should this be required.
The Board continues to monitor the risks and uncertainties
associated with Brexit and the potential impact these may have on
the Group's results and financial position in both the short and
longer term.
15. Responsibility statement
Responsibility statement of the directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
-- The condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU
-- The interim management report includes a fair review of the information required by:
(a)DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b)DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
On behalf of the Board
John Roberts Steve Caunce Mark Higgins
CEO COO CFO
21 November 2016
INDEPENDENT REVIEW REPORT TO AO WORLD PLC
Introduction
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2016 which comprises a Condensed
Consolidated Income Statement, Condensed Consolidated Statement of
Comprehensive Income, Condensed Consolidated Statement of Financial
Position, Condensed Consolidated Statement of Changes in Equity,
Condensed Consolidated Statement of Cash Flows and the related
explanatory notes. We have read the other information contained in
the half-yearly financial report and considered whether it contains
any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the Disclosure and Transparency Rules ("the DTR")
of the UK's Financial Conduct Authority ("the UK FCA"). Our review
has been undertaken so that we might state to the company those
matters we are required to state to it in this 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
for our review work, for this report, or for the conclusions we
have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the EU.
The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2016 is not prepared, in all material respects, in
accordance with IAS 34 as adopted by the EU and the DTR of the UK
FCA.
Mick Davies
For and on behalf of KPMG LLP
Chartered Accountants
1 St. Peter's Square
Manchester
M2 3AE
21 November 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR PGGRUGUPQPGG
(END) Dow Jones Newswires
November 22, 2016 02:01 ET (07:01 GMT)
Ao World (LSE:AO.)
Historical Stock Chart
From Mar 2024 to Apr 2024
Ao World (LSE:AO.)
Historical Stock Chart
From Apr 2023 to Apr 2024
