REG - AO World plc - INTERIM RESULTS
26/11/2024 07:00
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RNS Number : 5879N AO World plc 26 November 2024
26 November 2024
AO WORLD PLC
INTERIM RESULTS FOR THE 6 MONTHS ENDED 30 SEPTEMBER 2024
STRONG B2C REVENUE GROWTH OF 13% AND ADJUSTED PBT GROWTH OF 30%
FULL YEAR GUIDANCE UPGRADED AGAIN
AO World PLC ("the Group" or "AO"), the UK's most trusted electrical retailer,
today announces its unaudited financial results(1) for the six months ended 30
September 2024 ("HY25").
The period saw continued delivery of strong revenue, profit and cash
generation growth.
£m(1) HY25 HY24 Mvmt
Total revenue 512 482 6%
B2C Retail revenue(2) 382 339 13%
Operating profit 16 15 11%
Adjusted profit before tax (3) 17 13 30%
Basic earnings per share (EPS) (p) 1.94 1.64 18%
Free cashflow(4) 14 3 320%
Net funds (5) 38 16 147%
Financial highlights
· Adjusted profit before tax and EPS continue to grow faster than
revenue, as planned.
· Continued progress on profit performance - adjusted profit before
tax of £17m, up £4m or 30% YoY, delivering a PBT margin of 3.3% (HY24:
2.7%).
· Gross Margin growth to 24.4% (HY24: 23.5%) driven by continued
efficiency savings, which have more than offset inflationary pressures and the
impact of reduced basket value in the retail business as a result of lower
market product pricing.
· B2C Retail revenue growth of 13% despite a tough market over the
summer because of lower product pricing and weaker demand for cooling
products. Overall group revenue growth of 6% reflected reductions in B2B(2)
and mobile as we rebase towards profitability.
· Free cashflow of £14m (HY24: £3m) driven by strong operating
performance and efficient working capital management. Revolving Credit
Facility increased and extended with the total facility increasing from £80m
to £120m and now expiring in October 2028.
Operational highlights
· Continued momentum in building our Five Star member base, with our
first two year members now renewed. We continue to invest in Five Star and
give our members even more reasons to shop with us across all categories.
· Our third-party warehousing solution for small products went live
in April. This will improve our unit economics enabling us to offer a wider
range of products and, in turn, give our customers, particularly Five Star
members, even more reasons to buy from us.
· Customer satisfaction scores remain outstanding: Trustpilot (6)
reviews have grown to over 600,000 averaging 4.8 out of 5 stars - further
cementing AO as the UK's most trusted electrical retailer.
· musicMagpie acquisition will augment our capability and value capture
in the mobile and consumer technology categories as well as improving our ESG
credentials.
· Post period end, renewed network agreement with Three, and
extended our Domestic & General agreement in relation to the sale and
promotion of product protection plans to December 2033.
· Significant progress made in mobile, with improved margins and
acquisition costs but overall market down year on year.
· Further capex investment in our Recycling facility including the
addition of an extruder to the plastics plant which will both increase our
in-house capability to refine the plastic output and is critical to our
ambition of creating new fridges from old ones.
· Our focus on cost continues and during the period we have
delivered improved unit economics for warehousing small items. This has
enabled us to expand our range of products and give Five Star members more
opportunities to buy.
Outlook
Current year guidance is:
· Adjusted profit before tax(3) upgraded to between £39m and
£44m.
· Group revenue of £1.09bn to £1.13bn with growth >10% in B2C
Retail
· Capex of c£11m
Following the Budget in October 2024, our estimate of the annual impact is an
additional c£4m of direct costs but, including indirect costs where the
impact remains to be seen, this will likely be more than £8m. We will work
hard to mitigate the impact of this to overall profitability.
AO's Founder and Chief Executive, John Roberts, said:
"I'm delighted to report another successful six months for AO during which our
main B2C Retail business has returned to double digit growth alongside making
more progress towards our medium-term ambition of delivering a PBT margin of
over 5%.
"We've had a Morecambe and Wise summer sales period; all the right volumes
just not in the right categories. The wet summer weather meant we sold fewer
fridges and air conditioning units and more tumble driers than we had planned.
Overall, our team did a fantastic job to play this out as a satisfying score
draw.
"We also made good progress beyond our core MDA category, and I'm very
encouraged with how our customers and members are responding to our improved
range and value proposition in newer categories.
"Our laser focus on costs and efficiency remains which ensures, as planned,
that profit grew faster than sales on the growth we've delivered.
"Reflecting our truly world class customer service, AO.com has now surpassed
600,000 Trustpilot reviews with an overall score of 4.8 out of 5. We're also
giving our members even more reasons to shop with us.
"None of this has happened by accident and I'm grateful to the entire AO team,
our suppliers and partners for their continued support and hard work.
"We're now well into peak trading with customers responding positively to the
thousands of unbeatable deals we're offering for the Black Friday period"
Enquiries
AO World PLC Tel: +44(0)1204 672 400
John Roberts, Founder & CEO ir@ao.com (mailto:ir@ao.com)
Mark Higgins, CFO
Sodali & Co Tel: +44(0) 20 7250 1446
Rob Greening ao@sodali.com (mailto:ao@sodali.com)
Russ Lynch
Maria Sizyakova
Webcast details
An in-person results presentation and Q&A will be held for analysts and
investors at 09:00 GMT with registration opening at 08:30 GMT today, 26
November 2024 at our Hatton Garden office. Advance registration, prior to
arrival, is required by emailing ao@sodali.com (mailto:ao@sodali.com) . A
playback of the presentation will be available on AO World's corporate website
at www.ao-world.com (http://www.ao-world.com/) shortly afterwards.
About AO
AO World PLC, headquartered in Bolton and listed on the London Stock
Exchange, is the UK's most trusted major electrical retailer, with a mission
to be the destination for electricals. Our strategy is to create value by
offering our customers brilliant customer service and making AO the
destination for everything they need, in the simplest and easiest way, when
buying electricals. We offer major and small domestic appliances and a
growing range of mobile phones, AV, consumer electricals and laptops. We also
provide ancillary services such as the installation of new and collection of
old products and offer product protection plans and customer finance. AO
Business serves the B2B market in the UK, providing electricals and
installation services at scale. AO also has a WEEE (Waste Electrical and
Electronic Equipment) processing facility, ensuring customers' electronic
waste is dealt with responsibly.
______________________________
(1) Unless otherwise stated all numbers relate to the continuing operations of
the Group and therefore exclude the impact of Germany.
(2) B2C (business-to-consumer) Retail revenue relates to products and services
purchased by B2C customers through the retail websites (including membership
fees and revenue attributable to protection plans sold with the products).
B2B (business-to-business) Retail revenue relates to products and services
purchased by B2B customers and also includes funding for marketing services
provided to suppliers. See note 2 for further information.
(3) Adjusted profit before tax is calculated by adding back or deducting
adjusting items to Profit before tax. Adjusting items are those items that the
Group excludes in order to present a further measure of the Group's
performance. Each of these costs are considered to be significant in nature
and/ or quantum or are consistent with items treated as adjusting in prior
periods.
(4) Free cashflow is defined as the movement in cash and cash equivalents in
the year excluding the cost of funding the EBT to acquire shares in the
company.
(5) Net funds is defined as cash less borrowings less owned asset lease
liabilities but excluding right of use asset lease liabilities. Net funds
includes any cash held in Germany.
(6) Trustpilot score sourced from their website October 2024.
(7) Total electricals market data from GfK, for the 12 months to 30 September
2024. AO's value is from company data, net value.
Cautionary statement
This announcement may contain 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.
FINANCIAL REVIEW
Unless otherwise stated, the below relates to continuing operations in the UK
only.
Revenue
£m 6 months ended 6 months ended %
30 September 2024 30 September 2023 change
(re-presented see note 2)
B2C Retail revenue 381.8 338.6 12.8%
B2B Retail revenue 59.9 67.5 (11.2%)
Mobile revenue 44.5 51.0 (12.7%)
Third-party logistics revenue 14.1 13.2 6.5%
Recycling revenue 11.8 11.4 3.9%
512.1 481.7 6.3%
For the six months ended 30 September 2024, Group revenue increased by 6.3% to
£512.1m (HY24: £481.7m).
B2C Retail revenue
B2C Retail revenue comprises products and services purchased by B2C customers
through the retail websites, including membership fees and revenue
attributable to protection plans sold with the product. This revenue stream
has increased 12.8% YoY as we continue to expand our range and capitalise on
the growth of our membership and finance bases. Our MDA market share(7) has
increased to 16.4% (HY24: 15.8%) despite the total MDA market seeing a
decrease of 1% in value terms against the comparable period.
B2B Retail revenue
B2B Retail revenue comprises product and service revenue purchased by a
business customer. The planned decrease in this revenue stream is a
consequence of our disciplined minimum profit return hurdles.
Mobile revenue
Mobile revenue includes all commissions generated by network connections in
our Mobile business. As we entered 2024, we began re-engineering the business
in partnership with the Mobile Network Operators (MNOs) to remove
dysfunctionality and return this category to profitability. We also acquired
the websites buymobiles.net and affordablemobiles.co.uk. Whilst this change in
approach to trading has delivered significant improvements YoY in unit gross
margin and acquisition costs, the past six months of trading, despite the
addition of extra sales channels, has seen revenue in our mobile business
decline by 12.7%. The bigger than forecast decline in the Contract Handset
Market of c11.4% means there is still some work to do to return to
profitability, and the headroom in recoverability of goodwill is obviously
very small.
Third-Party Logistics revenue
Our expertise in complex two-person delivery is highly valued in our industry,
and we undertake a number of deliveries on behalf of Third-Party clients in
the UK. Revenue in this area grew by 6.5% and delivers incremental
profitability. We will continue to optimise this revenue opportunity to
leverage our operational gearing, without it distracting from our core
business.
Recycling revenue
Recycling revenue has increased slightly to £11.8m for the period. Although
volumes processed have increased, this has been partly offset by a reduction
in output material prices due to commodity market pricing.
Gross margin
6 months ended 6 months ended % change
£m 30 September 2024 30 September 2023
Gross profit 125.0 113.0 10.6%
Gross margin 24.4% 23.5% +0.9 ppts
Gross profit, including product margins, services and delivery costs,
increased by 10.6% to £125.0m (HY24: £113.0m) delivering an increase in
gross margin to 24.4%. Gross margin has been negatively impacted by
inflationary pressures and during the period we have seen retail prices fall
slightly, despite increasing market volumes which has resulted in a reduction
in average basket revenue. However, these margin pressures have been more than
offset by the continued drive in efficiency wins across the operation and are
further supported by our strong relationships with suppliers. We continue to
focus on making sure every sale is profitable. We have outsourced logistics
for small items to third parties, acknowledging that this is the best way to
continue to grow this category profitably. The change in approach to selling
in our mobile business (as noted above) has contributed further to the strong
growth in gross margin.
Selling, General & Administrative Expenses ("SG&A")
£m 6 months ended 6 months ended % change
30 September 2024 30 September 2023
Advertising and marketing 19.7 17.4 13.6%
% of revenue 3.8% 3.6%
Warehousing 28.6 25.5 12.3%
% of revenue 5.6% 5.3%
Other admin 59.5 56.0 6.2%
% of revenue 11.6% 11.6%
Adjusting items 0.9 - -
% of revenue 0.2% -
Administrative expenses 108.6 98.9 9.8%
% of revenue 21.2% 20.5%
Whilst our focus on cost control has ensured the components of the SG&A
cost base remain broadly flat, inflationary pressures, primarily relating to
wages and rent, have driven an increase in the pound cost with total spend for
the period being £108.6m (HY24: £98.9m).
Most of our advertising and marketing costs occur within our Retail and Mobile
businesses. Mobile acquisition expenditure has reduced in cash terms as we
look to deliver on our revised approach to our business model, focusing on the
customer proposition with traditional network contract connections for our
network partners. In the Retail business we have reduced traditional TV
advertising expenditure to focus on new routes to market to drive brand
awareness, including out of home advertising and video on demand.
Warehousing as a percentage of sales has increased to 5.6% (HY24: 5.3%) with
an increase in costs of £3.1m to £28.6m (HY24: £25.5m). Despite efficiency
savings across our warehousing operations, these have been offset by an
increase in rent costs along with significant inflationary increases in wages.
Other admin, which includes staff and office costs, has stayed consistent YoY
at 11.6% of revenue and increased on a cost basis by £3.5m to £59.5m (HY24:
£56.0m). As previously noted, we expected inflationary pressures across the
business which we have mitigated as far as possible.
Operating Profit and Adjusted Profit before tax
Operating profit for the period was £16.4m (HY24: £14.7m), for the reasons
explained above.
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.
Adjusted profit before tax
Adjusted profit before tax "Adjusted PBT" is calculated by adding back or
deducting Adjusting items to Profit Before Tax. Adjusting items are those
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 of 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 reconciliation of statutory Profit Before Tax to Adjusted PBT is as
follows:
£m 6 months ended 6 months ended % change
30 September 2024 30 September 2023
Profit Before Tax 16.2 13.2 23.1%
Adjusting items 0.9 - NM%
Adjusted PBT 17.1 13.2 29.5%
% of revenue 3.3% 2.7%
Adjusting items
Post period end, on 2 October 2024, the Group announced that it had agreed the
terms of a recommended cash acquisition of the whole of the issued and to be
issued share capital of musicMagpie PLC ("MM") at 9.07p per share valuing the
share capital of MM at c.£9,982,105 on a fully diluted basis. The FCA has
given its approval in relation to the proposed acquisition of control and on
20 November 2024 the acquisition was approved by MM shareholders. The
acquisition is still subject to certain conditions including sanction of the
Court, with a hearing scheduled for the 10 December 2024, and delivery of the
related Court Order to the Registrar of Companies.
Costs incurred during the period in relation to this transaction total £0.9m
and due to their one-off nature have been treated as adjusting items in
arriving at Adjusted Profit before Tax.
There were no adjusting items in the six months ended 30 September 2023.
Taxation
The tax charge is recognised based on management's best estimate of the
weighted-average annual corporation tax rate expected for the full financial
year multiplied by the pre-tax results of the interim reporting period. The
Group's tax charge for the period is £5.1m (2023: £3.8m) as a result of the
expected effective tax rate for the year of 30.14%.
Retained profit and earnings per share
Retained profit for the period was £11.2m (2023: £9.4m).
Basic earnings per share was 1.94p (2023: 1.64p) and diluted earnings per
share was 1.86p (2023: 1.59p).
The calculations for earnings per share are shown in the table below:
£m 6 months 6 months ended Year
30 September
ended
ended
2023
30 September 31 March
2024 2024
Earnings attributable to owners of the parent company from continuing 11.1 9.4 24.7
operations
Earnings attributable to owners of the parent company from discontinued 0.1 - -
operations
Earnings attributable to owners of the parent company 11.2 9.4 24.7
Number of shares
Basic weighted average number of ordinary shares 574,835,160 576,827,866 577,184,050
Potentially dilutive shares options 23,167,283 16,924,982 21,058,825
Diluted weighted average number of ordinary shares 598,002,443 593,752,848 598,242,875
Earnings per share (in pence) from continuing operations
Basic earnings per share 1.94 1.64 4.29
Diluted earnings per share 1.86 1.59 4.14
Earnings per share (in pence) from continuing and discontinued operations
Basic earnings per share 1.95 1.64 4.29
Diluted earnings per share 1.88 1.59 4.14
Cash resources, cash flow and Total net debt
At 30 September 2024, the Group's available liquidity, being Cash and cash
equivalents plus amounts undrawn on its Revolving Credit Facility, was
£123.0m (31 March 2024: £116.4m). At 30 September 2024, the Group had
£79.9m available on its facility. The amount utilised represents £0.1m of
guarantees and letters of credit.
During the period, the Group generated a cash inflow of £3.0m (30 September
2023: £3.3m inflow) as set out in the table below:
£m 30 September 2024 30 September 2023
UK Germany Total UK Germany Total
Cashflow from operating activities 33.9 (0.1) 33.8 28.5 (0.6) 27.9
Cashflow from investing activities (6.3) - (6.3) (4.1) - (4.1)
Cashflow from financing activities (excluding purchase of shares by EBT) (13.4) - (13.4) (20.5) - (20.5)
Free cashflow 14.2 (0.1) 14.1 3.9 (0.6) 3.3
Purchase of shares by EBT (11.1) - (11.1) - - -
Cash movement in the year 3.1 (0.1) 3.0 3.9 (0.6) 3.3
Cashflow from UK operating activities £33.9m inflow (30 September 2023:
£28.5m inflow)
This cash inflow is principally as a result of the improved operating
performance in the period and an improvement in working capital.
The Group's working capital is set out in the table below:
As at 30 September 2024 31 March 2024
£m
UK Germany Total UK Germany Total
Inventories 92.6 - 92.6 79.5 - 79.5
Trade and other receivables 208.5 - 208.5 205.1 - 205.1
Trade and other payables (247.9) - (247.9) (228.0) (0.1) (228.1)
Net working capital 53.2 - 53.2 56.6 (0.1) 56.5
Inventories increased in the period by £13m driven by investment in
availability across both the core MDA range and broadening the depth of other
categories. The increase was also impacted by our Mobile business due to the
timing of the iPhone16 launch as well as a broadening of products and
accessories ahead of peak trading season. Inventory days were 44 days at 30
September 2024 (31 March 2024: 43 days).
Trade and other receivables increased by £3m in the period with the usual
build of supplier income and overhead prepayments being partly offset by a
reduction in contract assets, particularly in Mobile due to lower connection
volumes
Trade and other payables increased by £20m largely as a result of the
inventory build noted above and an increase in deferred income due to the
timing of deliveries and the increase in our membership base. This was partly
offset by reduced connections in Mobile impacting advance payments received
from the MNO's. Creditor days at 30 September 2024 were 54 (31 March 2024: 55
days) reflecting continued support from our supplier base.
Cashflow from UK investing activities £6.3m outflow (2023: £4.1m outflow)
Cash capital expenditure in the year of £6.8m principally related to the
continued refresh of delivery vehicles in Logistics and further investment in
our Recycling activities with additions including an extruder for the Plastics
business to drive further efficiencies and routes to market.
Cashflow from UK financing activities (excluding purchase of own shares by
EBT) £13.4m outflow (2023: £20.5m)
This cash outflow principally related to lease repayments of £10.8m (2023:
£9.4m) and interest paid of £2.5m (2023: £3.6m) The prior years movement
also included a net repayment of borrowings of £7.9m.
Other cashflows
The purchase, in the market, by the Company's EBT of shares in the Company
amounted to £11.1m (2023: £nil) including fees.
As a result of the above movements, net funds and Total net debt were as
follows:
30 September 31
2024 March 2024
£m £m
Cash and cash equivalents 43.1 40.1
Borrowings - Repayable within one year (0.2) (0.2)
Borrowings - Repayable after one year (1.8) (1.9)
Owned asset lease liabilities - Repayable within one year (0.9) (1.6)
Owned assets lease liabilities - Repayable after one year end (1.7) (2.0)
Net funds (excluding leases relating to right of use assets) 38.4 34.4
Right of use asset lease liabilities - Repayable within one year (15.9) (15.4)
Right of use asset lease liabilities - Repayable after one year (40.4) (49.8)
Net debt (17.9) (30.8)
Borrowings of £2.0m (March 2024: £2.1m) relate to a mortgage entered into
during the prior year which was used to partly fund the acquisition of one of
the Group's recycling sites.
Owned assets lease liabilities reduced by £1.0m in the period as a result of
capital repayments.
Right of use asset lease liabilities decreased by £8.8m to £56.3m (March
2024: £65.1m) principally reflecting capital repayments of £9.9m offset
partly by revisions to lease terms as a consequence of rent reviews and the
decision to exit one of the Group's properties at its break clause (£0.5m).
New leases in the period amounted to £1.6m mainly relating to vehicles.
On 8 October 2024, the group amended and extended its Revolving Credit
Facility with the total facility increasing from £80m to £120m. This expires
in October 2028.
John Roberts Mark Higgins
Founder and Chief Executive Officer Chief Financial Officer
CONDENSED CONSOLIDATED INCOME STATEMENT
For the 6 months ended 30 September 2024
£m Note 6 months ended Year
6 months 30 September 2023 ended
ended 31 March
30 September 2024 2024
Revenue 2 512.1 481.7 1,039.3
Cost of sales (387.2) (368.7) (796.0)
Gross profit 125.0 113.0 243.3
Administrative expenses (108.6) (98.9) (207.7)
Other operating income - 0.6 0.6
Operating profit 16.4 14.7 36.2
Finance income 2.4 2.0 4.5
Finance costs (2.5) (3.5) (6.4)
Profit before tax 16.2 13.2 34.3
Taxation (5.1) (3.8) (9.6)
Profit after tax for the period from continuing operations 11. 1 9.4 24.7
Result for the period from discontinued operations 0.1 - -
Profit for the period 11.2 9.4 24.7
Earnings per share (pence) from continuing operations
Basic earnings per share 1.94 1.64 4.29
Diluted earnings per share 1.86 1.59 4.14
Earnings per share (pence) from continuing and discontinued operations
Basic earnings per share 1.95 1.64 4.29
Diluted earnings per share 1.88 1.59 4.14
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 6 months ended 30 September 2024
£m Year ended
6 months ended 30 September 2024 6 months ended 30 September 2023 31 March 2024
Profit for the period 11.2 9.4 24.7
Total comprehensive profit for the period 11.2 9.4 24.7
Total comprehensive profit attributable to owners of the parent arising from:
Continuing operations 11.1 9.4 24.7
Discontinued operations 0.1 - -
11.2 9.4 24.7
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 September 2024
£m Note 30 September 31 March
30 September 2023 2024
2024
Non-current assets
Goodwill 3 28.2 28.2 28.2
Other intangible assets 8.5 8.3 9.6
Property, plant and equipment 23.7 21.7 20.1
Right of use assets 48.8 61.1 56.2
Trade and other receivables 4 92.8 89.5 90.0
Deferred tax asset 2.5 5.9 2.9
204.5 214.7 207.1
Current assets
Inventories 92.6 68.4 79.5
Trade and other receivables 4 115.7 133.0 115.1
Corporation tax receivable - 1.3 -
Cash and cash equivalents 8 43.1 22.4 40.1
251.5 225.1 234.7
Total assets 456.0 439.8 441.8
Current liabilities
Trade and other payables 5 (245.8) (236.8) (225.6)
Borrowings 6 (0.2) (0.2) (0.2)
Lease liabilities 6 (16.9) (17.0) (16.9)
Corporation tax payable (0.8) - (0.6)
Provisions (0.8) (0.5) (0.6)
(264.6) (254.5) (243.9)
Net current liabilities (13.1) (29.4) (9.1)
Non-current liabilities
Trade and other payables 5 (2.1) (2.9) (2.5)
Borrowings 6 (1.8) (2.0) (1.9)
Lease liabilities 6 (42.1) (58.0) (51.9)
Provisions (3.6) (3.7) (3.9)
(49.6) (66.6) (60.1)
Total liabilities (314.3) (321.0) (304.0)
Net assets 141.7 118.7 137.8
Equity attributable to owners of the parent
Share capital 7 1.5 1.4 1.4
Share premium account 7 108.5 108.5 108.5
Investment in own shares 7 (11.1) - -
Other reserves 66.7 61.0 64.4
Retained losses (23.8) (52.2) (36.5)
Total equity 141.7 118.7 137.8
CONDENSED CONSOLIDATED STATEMENT OF CHANGE IN EQUITY
At 30 September 2024
Other reserves
Share capital Share premium account Investment in own shares Merger reserve Capital redemption reserve Share-based payment reserve Translation reserve Other reserve Retained losses Total
£m £m £m £m £m £m £m £m £m £m
Balance at 1 April 2024 1.4 108.5 - 59.2 0.5 20.4 (9.4) (6.3) (36.5) 137.8
Profit for the period - - - - - - - - 11.2 11.2
Issue of share capital 0.1 - - - - - - - - 0.1
Share-based payments charge - - - - - 3.7 - - - 3.7
(net of tax)
Purchase of shares by EBT - - (11.1) - - - - - - (11.1)
Movement between reserves - - - - - (1.4) - - 1.4 -
Balance at 30 September 2024 1.5 108.5 (11.1) 59.2 0.5 22.7 (9.4) (6.3) (23.8) 141.7
At 30 September 2023
Other reserves
Share capital Share premium account Investment in own shares Merger reserve Capital redemption reserve Share-based payment reserve Translation reserve Other reserve Retained losses Total
£m £m £m £m £m £m £m £m £m £m
Balance at 1 April 2023 1.4 108.2 - 59.2 0.5 15.5 (9.4) (6.3) (63.3) 105.7
Profit for the period - - - - - - - - 9.4 9.4
Issue of share capital - 0.3 - - - - - - - 0.3
Share-based payments charge - - - - - 3.3 - - - 3.3
(net of tax)
Movement between reserves - - - - - (1.7) - - 1.7 -
Balance at 30 September 2023 1.4 108.5 - 59.2 0.5 17.1 (9.4) (6.3) (52.2) 118.7
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the 6 months ended 30 September 2024
6 months ended 30 6 months ended 30 September 2023 Year ended
September 2024 31 March 2024
£m
Cash flows from operating activities
Profit for the period in continuing operations 11.1 9.4 24.7
Net cash used in operating activities in discontinued operations (0.1) (0.6) (0.5)
Adjustments for:
Depreciation and amortisation 12.5 12.3 24.3
Profit on disposal of property, plant and (0.1) (0.1) (0.1)
equipment
Finance income (2.4) (2.0) (4.5)
Finance costs 2.5 3.5 6.4
Taxation 5.1 3.8 9.6
Share-based payment charge 3.5 3.2 6.7
Decrease in provisions - (0.8) (0.6)
Operating cash flows before movement in working capital 32.2 28.7 66.0
(Increase)/ decrease in inventories (13.1) 4.7 (6.4)
(Increase)/ decrease in trade and other (2.0) 9.9 28.8
receivables
Increase/ (decrease) in trade and other 20.1 (14.1) (25.6)
payables
Net movement in working capital 5.0 0.5 (3.2)
Taxation paid (3.4) (1.3) (1.2)
Cash generated from operating activities 33.8 27.9 61.6
Cash flows from investing activities
Interest received 0.4 - 0.7
Acquisition costs relating to right of use - - (0.1)
assets
Acquisition of property, plant and equipment (6.8) (4.1) (5.8)
Acquisition of intangible assets - - (2.4)
Cash used in investing activities (6.3) (4.1) (7.6)
Cash flows from financing activities
Proceeds from issue of ordinary share capital - 0.3 0.3
Purchase of shares by EBT including transaction costs (11.1) - -
Proceeds from new borrowings - 2.2 2.2
Repayment of borrowings (0.1) (10.0) (10.1)
Financing costs paid on borrowings (0.8) (1.6) (3.1)
Finance costs paid on lease liabilities (1.7) (2.0) (3.8)
Repayment of lease liabilities (10.8) (9.4) (18.4)
Net cash used in financing activities of - - (0.1)
discontinued operations
Net cash used in financing activities (24.5) (20.5) (33.0)
Net increase in cash and cash equivalents 3.0 3.3 21.0
Cash and cash equivalents at beginning of period 40.1 19.1 19.1
Cash and cash equivalents at end of period (see note 8) 43.1 22.4 40.1
NOTES TO THE FINANCIAL INFORMATION
1. Basis of preparation
The interim financial information was approved by the Board on 25 November
2024. The financial information for the 6 months ended 30 September 2024 has
been reviewed by the Group's external auditor. Their report is included within
this announcement. The financial information for the year ended 31 March 2024
is based on information in the audited financial statements for that period
which are available online at https://www.ao-w
(https://www.ao-world.com/investor-centre/) orld.com/investor-centre/.
The comparative figures for the year ended 31 March 2024 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 2024 has been delivered to the Registrar of Companies. The auditors have
reported on those accounts and 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.
This condensed set of financial statements has been prepared in accordance
with IAS 34 Interim Financial Reporting under UK-adopted international
accounting standards. The annual financial statements of the Group for the
year ending 31 March 2025 will be prepared in accordance with UK-adopted
international accounting standards. As required by the Disclosure Guidance and
Transparency Rules of the Financial Conduct Authority, the condensed set of
financial statements has been prepared applying the accounting policies,
judgements and presentation that were applied in the preparation of the
Company's published consolidated financial statements for the year ended 31
March 2024.
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.
Going concern
Notwithstanding net current liabilities of £13.1m as at 30 September 2024,
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 £120m revolving credit facility (which
was amended and extended in October 2024 to now expire in October 2028).
The Directors have prepared base and sensitised cashflow forecasts for the
Group for a period of 12 months from the expected approval of the interim
financial statements ("the going concern period") which indicated that the
Group would remain compliant with its covenants and would 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 took account of current trading, management's view on
future performance and their assessment of the impact of market uncertainty
and volatility as well as applying sensitivity analysis for severe but
plausible downsides to the base case.
Under the severe but plausible downside scenarios the Group continues to
demonstrate headroom against its banking facilities and remains compliant with
its covenant requirements. Consequently, the Directors are confident that the
Group and Company will continue to have sufficient funds to continue to meet
its liabilities as they fall due for at least 12 months from the date of
approval of these interim financial statements and therefore have prepared the
interim financial statements on a going concern basis.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, the Directors are
required to make judgements, estimates and assumptions about the carrying
amounts of assets and liabilities that are not readily apparent from other
sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant and are
reviewed on an ongoing basis.
Actual results could differ from these estimates and any subsequent changes
are accounted for with an effect on income at the time such updated
information becomes available.
Accounting standards require the Directors to 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 impairment of intangibles and goodwill and revenue recognition in respect
of commission for product protection plans and network connections include
significant areas of accounting estimation.
With regard to revenue recognition in respect of commission for product
protection plans and network connections, 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 these
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:
• the contractual agreed margins;
• the number of live plans;
• the discount rate;
• the estimated length of the plan;
• the estimate of profit share relating to the scheme;
• the estimated rate of attrition based on historic data;
and
• the estimated overall performance of the scheme.
Commission receivable also depends for certain transactions on customer
behaviour after the point of sale. Assumptions are therefore required,
particularly in relation to levels of customer attrition within the contract
period, expected levels of customer spend, and customer behaviour beyond the
initial contract period. Such assumptions are based on extensive historical
evidence, and adjustment to the amount of revenue recognised is made for the
risk of potential changes in customer behaviour, but they are nonetheless
inherently uncertain.
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 the valuation of
plans which has resulted in £1.5m of previously recognised revenue which has
now been reversed in the period ended 30 September 2024.
The commission receivable balance as at 30 September 2024 was £98.3m (31
March 2024: £96.5m). The rate used to discount the revenue for the FY25
cohort is 5.79% (2024: 5.85%). The weighted average of discount rates used in
the years prior to FY25 was 4.73% (2023: 4.34%).
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:
· The contractually agreed revenue share percentage - the
percentage of the consumer's spend (to MNOs) to which the Group is entitled;
· The discount rate using external market data (including risk free
rate and counter party credit risk) 4.18% (2024: 4.49%);
· 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 and any additional churn expected as a
result of recent price increases announced and applied by the MNOs, for which
a restriction 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 valuation of
connections which has resulted in £1.4m of previously constrained revenue
which has now been recognised in the period ended 30 September 2024.
In line with the requirements of IFRS 15, the Group only recognises revenue to
the extent that it's highly probable that a significant reversal in the amount
of cumulative revenue will not occur when the uncertainty associated with its
variable consideration is subsequently resolved. This constraint results in
potential revenue of £2.7m being restricted at 30 September 2024 (31 March
2024: £3.2m).
Whilst there is estimation uncertainty in valuing the contract asset,
reasonably possible changes in assumptions are not expected to result in
material changes to the valuation of the asset in the next financial year.
The commission receivable balance as at 30 September 2024 was £55.5m (31
March 2024: £63.1m). The rate used to discount the current year revenue is
4.18% (2024: 4.49%).
Impairment of intangible assets and goodwill - Mobile CGU
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 30
September 2024 these amounted to £20.9m.
In February 2024, the Group acquired further intangibles assets mainly related
to the websites and domains of affordablemobiles.co.uk and buymobiles.net
(together referred to as "Affordable Mobiles") totalling £2.3m which at 30
September 2024 amounted to £2.0m.
As required by IAS 36, goodwill is subject to an impairment review on an
annual basis, or more frequently where indicators of impairment exist. The
Group has considered if indicators of impairment exist with regard to a number
of factors, including the decline in the overall Mobile post pay market,
changes in inflation and interest rates and general uncertainty in the wider
macroeconomic environment.
Management concluded that some of these factors are indicators of impairment
and consequently, an update of the impairment review was undertaken per IAS 36
using the value in use ('VIU') method.
As a result of the impairment review, no impairment has been recognised in the
six-month period to 30 September 2024. The review shows that headroom above
the carrying value remains minimal (as was the case at 31 March 2024). Further
details on the sensitivities and key assumptions are included in note 3.
2. Revenue
During the period, management have considered whether the disaggregation of
revenue continues to appropriately reflect the ongoing nature of the Group's
business and how it is managed. Having taken account of the nature, amount,
timing and cashflows from the different parts of the business, management
believe that a disaggregation which splits revenue based on where the revenue
is generated rather than the product is more appropriate and provides greater
clarity to the users of the financial statements. This re-presentation does
not have any impact on the segmental analysis as set out in the Group's Annual
Report and Accounts for the year ended 31 March 2024.
The table below shows the Group's revenue by each major business area.
£m 6 months 6 months Year
ended 30 September 2024 ended 30 September 2023 ended 31
(represented) March 2024
(represented)
B2C Retail revenue 381.8 338.6 751.8
B2B Retail revenue 59.9 67.5 130.5
Mobile revenue 44.5 51.0 106.3
Third-party logistics revenue 14.1 13.2 27.6
Recycling revenue 11.8 11.4 23.1
512.1 481.7 1,039.3
B2C Retail revenue - relates to products and services purchased by B2C
customers through the retail websites (including membership fees and revenue
attributable to protection plans sold with the products). All revenue is
recognised when performance obligations are met, which are typically at the
point of delivery with the exception of membership fees (which are recognised
over the membership period) and some product protection plans (that are
sometimes sold after the product has been delivered).
B2B Retail revenue - relates to products and services purchased by B2B
customers and also includes funding for marketing services provided to
suppliers. All revenue is recorded once performance obligations are met such
as at the point of delivery or on finalisation of marketing and promotional
campaigns, and most customers pay on credit terms.
Mobile revenue - relates to revenue received primarily as commission from the
Mobile Network Operators ("MNO's") for our service, as agent, of introducing
connections to their networks (including the delivery of the handset to the
end customer). Revenue is recognised when performance obligations are met,
which is typically at the point of sale for the majority of this revenue
stream.
Third-party logistics revenue - relates to the provision of third-party
logistics services to a number of customers. Revenue is recognised when
performance obligations are met being on completion of the delivery or service
with customers paying on credit terms.
Recycling revenue - relates to revenue from the recycling of used electrical
products. Revenue is recognised when performance obligations are met which is
typically on delivery, with customers paying on credit terms.
3. Goodwill
£m
Carrying value at 30 September 2024 and 30 September 2023 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 30 September 2024, goodwill acquired through UK business combinations
(excluding Mobile Phones Direct Limited) was allocated to the UK (excluding
Mobile) cash-generating unit ("CGU").
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 2024. The
recoverable amount of the CGU was determined based on the value in use
calculations. Management do not believe that any reasonable possible
sensitivity would result in any impairment to this goodwill.
During the six months ended 30 September 2024, there have been no significant
changes in the assumptions or performance of the related businesses which
would indicate an impairment test is required at 30 September 2024.
AO Mobile - £14.7m
At 30 September 2024, the goodwill allocated to the Mobile cash generating
unit ("CGU") was £14.7m (2023: £14.7m). In addition to goodwill, at 30
September 2024 other intangibles assets relating to this CGU were £8.3m
(2023: £7.8m.)
The Group performed its annual impairment test as at 31 March 2024 which
showed there was headroom against the carrying value of £1.3m in managements
base case and that a range of sensitivities against this base case could
result in a material impairment to the carrying value. However, having
considered the base case and the sensitivities, management concluded there was
no impairment.
As set out in the trading review, during the six months ended 30 September
2024, despite significant improvements in unit gross margin and control over
costs, revenue in the business declined broadly in line with the reduction in
the Contract Handset market. Management have concluded that this continued
downturn in the market is a trigger for an impairment review and as such have
performed an exercise using the value in use methodology in line with that
used at year end to assess the carrying value
The key assumptions in the forecast cashflows are:
· Revenue growth beyond FY25 of 2%;
· Working capital will normalise in the second half of FY25
resulting in a cash inflow of £10.7m;
· Gross margin increases by 2 percentage points in the second half
of FY25 and remain at the resultant margin throughout the remainder of the
forecast period;
· Cost inflation and cost savings of between +2% and -3% based on
expectations for inflation, managements estimate of product price changes
based on industry knowledge and reductions in brand spend
A pre-tax discount rate of 12.7% has been applied to the cash flows based on
the capital structure of an equivalent business and reflecting market risk and
volatility due to current macro- economic uncertainty.
As a result, using the base case, the value in use exceeds the carrying value
by £0.8m at 30 September 2024 and management have therefore concluded that no
impairment exists at that date.
Management however remain cognisant that relatively small changes in any of
the assumptions used, which could be driven by the end customer behaviour with
the Mobile Network Operators, could give rise to an impairment in the carrying
value and have considered this by applying sensitivities as follows:
Key assumption Sensitivity applied Headroom/(impairment)
Revenue growth No growth beyond FY25 (£2.0m)
Working capital Initiatives to unwind working capital in the second half of FY25 do not (£9.6m)
materialise
Gross margin beyond FY25 Gross margin reduces/ increases by 1 percentage point (£11.7m)/ £13.4m
Cost inflation Increase/Decrease of 1% in total costs (£10.4m)/ £12.0m
Pre-tax discount rate Increase/Decrease of 1% (£4.5m)/ £7.7m
4. Trade and other receivables
£m 30 September 2024 30 September 2023 31 March 2024
Trade receivables 18.2 20.2 17.7
Contract assets 153.8 165.1 159.6
Prepayments and accrued income 36.5 37.2 27.9
208.5 222.5 205.1
The trade and other receivables are classified as:
£m 30 September 30 September 2023 31 March 2024
2024
Non-current assets 92.8 89.5 90.0
Current assets 115.7 133.0 115.1
208.5 222.5 205.1
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.
The reconciliation of opening and closing balances for contract assets is
shown below:
£m 30 September 30 September 2023 31 March
2024 2024
Balance brought forward 159.6 174.4 174.4
Revenue recognised 54.6 51.3 120.8
Cash received (62.3) (65.8) (139.6)
Revisions to estimates (0.1) 3.2 0.2
Unwind of discounting 2.0 2.0 3.8
Balance carried forward 153.8 165.1 159.6
Included in the contract asset above in relation to product protection plans
at 31 March 2024, was an amount of £1.5m in relation to variable
consideration recognised as revenue up to that date which has reversed in the
period ended 30 September 2024 and is included in the "Revisions to estimates"
above. Also included is previously constrained revenue of £1.4m in relation
to network commissions which has now been recognised in the period ended 30
September 2024.
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. Customer contracts with the MNOs are
ordinarily for a duration of 24 months. Management assess each half year, the
expected tenure of the live contracts based primarily on cancellations and
cash collection. As a consequence, in line with the requirements of IFRS 15,
the Group only recognises revenue to the extent that it's highly probable that
a significant reversal in the amount of cumulative revenue will not occur when
the uncertainty associated with its variable consideration is subsequently
resolved. This constraint results in potential revenue of £2.7m being
restricted at 30 September 2024 (31 March 2024: £3.2m).
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. It also receives a share of
the overall profitability of the scheme. A discounted cash flow methodology is
used to measure the estimated value of the revenue and contract assets in the
month of sale of the relevant plan, by estimating all future cash flows that
will be received from D&G and discounting these based on the expected
timing of receipt. Subsequently, the contract asset is measured at the present
value of the estimated future cash flows. The key inputs into the model which
forms the base case for management's considerations are:
· the contractually agreed margins, which differ for each
individual product covered by the plan as is included in the agreement with
D&G;
· the number of live plans based on information provided by
D&G;
· the discount rate for plans sold in the year using external
market data - 5.79% (2024: 5.85%);
· the estimate of profit share relating to the scheme as a whole
based on information provided by D&G;
· historic rate of customer attrition that uses actual cancellation
data for each month for the previous 6 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
· the estimated length of the plan based on historical data plus
external assessments of the potential life of products (5 to 17 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 17 years from c.3.5m plans that have
been sold. Of these, c.1.1m 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 earlier, 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 Impact on contract asset and revenue
£m
Cancellations (increase) or decrease by 2% (1.6)/ 1.6
Profit share entitlement (increase) or decrease in claims cost by 5% (0.7)/ 1.1
Cancellations
The number of cancellations and therefore the cancellation rate can fluctuate
based on a number of factors. These include macroeconomic changes such as
unemployment and cost of living. The impact of reasonable potential changes is
shown in the sensitivities above.
Profit share
The profit share attaching to the overall scheme is dependent on factors such
as the price of the plan, the cost and incidence 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. The
above sensitivity considers what any reasonable change in claims cost 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:
· revenue share percentage, i.e. the percentage of the consumer's
spend (to the MNO) to which the Group is entitled;
· the discount rate using external market data - 4.18% (2024:
4.49%);
· 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 1, 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.
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 Impact on contract asset and revenue
£m
2% decrease/ (increase) in expected cancellations 1.1/ (1.1)
Cancellations
The number of cancellations and, therefore, the cancellation rate, can
fluctuate based on a number of factors. These include macroeconomic changes
e.g., unemployment, interest rates and inflation. The impact of reasonable
potential changes is shown in the sensitivities above.
5. Trade and other payables
£m 30 September 2024 30 September 2023 31 March 2024
Trade payables 159.3 149.5 145.3
Accruals 28.8 25.7 20.9
Advanced payments on account 23.7 32.0 29.8
Deferred income 22.2 16.1 17.9
Other payables 13.9 16.4 14.2
247.9 239.7 228.1
Advanced payments on account includes payments on account from Mobile Network
Operators where there is no right of set off with the contract asset within
the mobile business.
The trade and other payables are classified as:
£m 30 September 30 September 2023 31 March 2024
2024
Current liabilities 245.8 236.8 225.6
Long-term liabilities 2.1 2.9 2.5
247.9 239.7 228.1
6. Net funds/ (debt) and movement in financial liabilities
30 September 30 September 31 March
2023
£m 2024 2024
Cash and cash equivalents 43.1 22.4 40.1
Borrowings - Repayable within one year (0.2) (0.2) (0.2)
Borrowings - Repayable after one year (1.8) (2.0) (1.9)
Owned asset lease liabilities - (0.9) (1.8) (1.6)
Repayable within one year
Owned asset lease liabilities - (1.7) (2.8) (2.0)
Repayable after one year
Net funds 38.4 15.6 34.4
(excluding leases relating to right of use assets)
Right of use asset lease liabilities - (15.9) (15.2) (15.4)
Repayable within one year
Right of use asset lease liabilities - (40.4) (55.2) (49.8)
Repayable after one year
Net debt (17.9) (54.8) (30.8)
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 of the Group financial statements, 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 in the Group financial statements. This
is to give additional information that the Directors feel will be useful to
the understanding of the business.
The movement in financial liabilities in the period ending 30 September 2024
was as follows:
£m Borrowings Lease
Liabilities
Balance at 1 April 2024 2.1 68.8
Changes from financing cash flows
Repayment of borrowings (0.1) -
Repayment of lease liabilities - (10.8)
Payment of interest (0.1) (1.7)
Total changes from financing cash flows (0.2) (12.5)
Other changes
New leases - 4.6
Interest expense 0.1 1.7
Reassessment of lease terms - (3.6)
Total other changes 0.1 2.8
Balance at 30 September 2024 2.0 59.0
£m Borrowings Lease
Liabilities
Balance at 1 April 2023 10.0 85.3
Changes from financing cash flows
New Borrowings 2.2 -
Repayment of borrowings (10.0) -
Repayment of lease liabilities - (9.4)
Payment of interest (0.8) (2.0)
Total changes from financing cash flows (8.6) (11.4)
Other changes
New leases - 0.9
Interest expense 0.8 2.0
Reassessment of lease terms - (1.8)
Total other changes 0.8 1.1
Balance at 30 September 2023 2.2 75.0
7. Share capital, share premium and investment in own shares
Number Share Share Investment in own shares
of shares capital premium £m
m £m £m
At 1 April 2024 578.6 1.4 108.5 -
Share issue 1.7 0.1 - -
Share purchase - - - (11.1)
At 30 September 2024 580.3 1.5 108.5 (11.1)
On 8 July 2024, the Company issued 1,733,027 shares to satisfy options granted
in July 2020 under the FY21 AO Incentive plan. The shares were acquired and
are held in the Company's Employee Benefit Trust ("EBT"), at nominal values,
and the EBT transfers to the participants as they are exercised.
On 1 and 2 August 2024, the Company's EBT also purchased 8,882,350 and 434,602
respectively, of the Company's ordinary shares at market value. Consideration
paid was £11.1m, which includes transaction costs of £0.2m. Shares held by
the EBT will be used to satisfy options under the Group's share schemes.
8,882,350 of the shares were purchased at market value (117.3p per share and
total consideration of £10.4m) from John Roberts, Sally Roberts and Chris
Hopkinson who are considered related parties. There were no outstanding
balances with these related parties as at 30 September 2024.
Number Share Share Investment in own shares
of shares capital premium £m
m £m £m
At 1 April 2023 576.9 1.4 108.2 -
Share issue 1.6 - 0.3 -
At 30 September 2023 578.6 1.4 108.5 -
8. Post balance sheet events
MusicMagpie
Post period end, on 2 October 2024, the Group announced that it had agreed the
terms of a recommended cash acquisition of the whole of the issued and to be
issued share capital of musicMagpie PLC ("MM") at 9.07p per share valuing the
share capital of MM at c.£9,982,105 on a fully diluted basis. The FCA has
given its approval in relation to the proposed acquisition of control and on
20 November 2024 the acquisition was approved by MM shareholders. The
acquisition is still subject to certain conditions including sanction of the
Court, with a hearing scheduled for the 10 December 2024, and delivery of the
related Court Order to the Registrar of Companies .
Costs incurred during the period in relation to this transaction total £0.9m
and are treated as adjusting items. £15.0m of the Group's cash and cash
equivalents is held in reserve and has been ringfenced for the proposed
acquisition. These funds are not available to utilise within the Group.
Revolving Credit Facility
On 8 October 2024, the group amended and extended its Revolving Credit
Facility with the total facility increasing from £80m to £120m. This expires
in October 2028.
9. 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 2024.
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 43-47 inclusive of the
Annual Report and Accounts 2024 which can be found at www.ao-world.com
(http://www.ao-world.com) :
· Risks relating to our culture and people.
· Risk relating to IT systems resilience, cyber security and
agility.
· Risks relating to compliance failures or to changes in laws and
regulations, in particular Data protection and privacy legislation, the basis
upon which the Group offers and sells product protection plans and driver
employment status.
· Risks of business interruption.
· Risks relating to the UK electricals market encompassing a challenging
macro-economic environment and competitive conditions.
· Risks relating to our key commercial relationships and supply
chain.
· Risks relating to our funding and liquidity.
· Risks in relation to significant accounting matters including revenue
recognition and contract asset recoverability in relation to product
protection plans, revenue recognition and contract asset recoverability in
relation to network commissions and the carrying value of goodwill and
intangible assets arising on the acquisition of AO Mobile Ltd .
· Emerging risks in relation to the consultation on cold calling,
extended producer responsibilities, the Government's proposed changes to
employment rights, the transitional risks of climate change and the emerging
opportunities/risks relating to Artificial Intelligence.
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 for use in the
UK;
· 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 Mark Higgins
CEO CFO
25 November 2024 25 November 2024
INDEPENDENT REVIEW REPORT TO AO WORLD PLC
Conclusion
We have been engaged by AO World Plc ("the Company") to review the condensed
set of financial statements in the half-yearly financial report for the six
months ended 30 September 2024 which comprises the 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.
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 2024 is not prepared,
in all material respects, in accordance with IAS 34 Interim Financial
Reporting as adopted for use in the UK and the Disclosure Guidance and
Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the
UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued 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. We read the other
information contained in the half-yearly financial report and consider whether
it contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) 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.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the Group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Group will continue in operation.
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 UK-adopted international accounting standards.
The directors are responsible for preparing the condensed set of financial
statements included in the half-yearly financial report in accordance with IAS
34 as adopted for use in the UK.
In preparing the condensed set of financial statements, the directors are
responsible for assessing the Group'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 the directors either intend to
liquidate the Group or to cease operations, or have no realistic alternative
but to do so.
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. Our conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit procedures, as
described in the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
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 DTR of 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.
Roger Nixon
for and on behalf of KPMG LLP
Chartered Accountants
1 St. Peter's Square
Manchester
M2 3AE
25 November 2024
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