2014 Full Year Results Presentation
5 June 2014
Disclaimer
This presentation includes statements that are, or may be deemed to be, “forward-looking statements”.
These forward-looking statements can be identified by the use of forward-looking terminology, including
the terms “believe”, “estimates”, “plans”, “projects”, “anticipates”, “expects”, “intends”, “may”, “will”, or
“should” or, in each case, their negative or other variations or comparable terminology. These forwardlooking statements include matters that are not historical facts and include statements regarding the
Company’s intentions, beliefs or current expectations.
Any forward-looking statements in this presentation reflect the Company’s current expectations and
projections about future events. By their nature, forward-looking statements involve a number of risks,
uncertainties and assumptions that could cause actual results or events to differ materially from those
expressed or implied by the forward-looking statements. These risks, uncertainties and assumptions
could adversely affect the outcome and financial effects of the plans and events described herein.
Forward-looking statements contained in this presentation regarding past trends or activities should not
be taken as a representation that such trends or activities will continue in the future. You should not
place undue reliance on forward-looking statements, which speak only as of the date of this
presentation. No representations or warranties are made as to the accuracy of such statements,
estimates or projections.
Please note that the Directors of the Company are, in making this presenation, not seeking
to encourage shareholders to either buy or sell shares in the Company. Shareholders in any doubt about
what action to take are recommended to seek financial advice from an independent financial advisor
authorised by the Financial Services and Markets Act 2000.
2
Today’s Agenda
1
Highlights – John Roberts
2
Operational and Financial Review – Steve Caunce
3
Strategic Overview – John Roberts
4
Summary and Q&A
3
1
Highlights
AO Is On A Mission To…
“Redefine retailing through a
devotion to happiness and
amazing customer service”
5
Highlights
1
Revenue growth of 40.0% to £384.9m (2013: £274.9m)
2
AO Website Sales growth of 45.4% to £287.1m (2013: £197.4m)
3
Adjusted EBITDA for 2014 of £11.2m, up 10.9% (2013: £10.1m)
4
Completed re-branding of principal website to ao.com in August 2013
5
Launched online proposition for TV’s on ao.com on 15 May 2014
6
Listed on London Stock Exchange in March 2014
Well Placed To Deliver On Our Exciting Plans Ahead
6
2
Operational And Financial Review
Financial & Operational Highlights
 Strong top-line growth at 40.0% y-o-y in FY14
Sales Growth
 Growth driven by ao.com, up 45.4% y-o-y
 Gross margin improves by 0.8pps to 19.3%
Operating
Leverage
 Advertising and marketing costs increased to 4.7% of sales (FY13 – 2.6%) following
commencement advertising on television and increase in web traffic from paid channels
 Scale benefits coming through in warehousing and other administration costs
 Commitment to customer service is unwavering – currently c1.5 million facebook likes, and
Winner of 2014 Retail Week Awards for Customer Service Initiative
Sustaining
Culture
 Ranked 4th in 2014 Sunday Times “Best Companies to Work For” (2013 – 4th place also) while
head count continues to grow
 Expanded to new headquarters building - AO Park
8
Summary Income Statement
Year ended 31 March (£m)
2014
20135
Growth
AO website sales
287.1
197.4
45.4%
Third-party website sales
79.3
61.7
28.5%
Third-party logistics services
18.5
15.8
17.1%
384.9
274.9
40.0%
Gross profit
74.2
50.8
46.1%
Gross margin
19.3%
18.5%
Adjusted EBITDA1
11.2
10.1
Adjusted EBITDA margin2
2.9%
3.7%
1
Total Revenue growing by 40.0% compared
to the previous year. Sales driven by ao.com
Revenue
Operating Profit before
exceptional items
Operating (Loss)/Profit
Adjusted EPS3 (p)
which continues to grow strongly through
customer proposition enhancements,
delivering great service and brand investment
2
Gross margin increase due to increased
product margin as well as delivery efficiencies
10.9%
3
Adjusted EBITDA margin fall as expected due
to brand investment and temporary increases
8.2
8.4
(7.2)
8.4
1.50p
1.58p
-2.4%
-5.1%
in customer acquisition costs
4
Exceptional items relate to £15.4m of IPO
costs charged to income statement
5
Notes
1.
2.
3.
4.
5.
Adjusted EPS of 1.50p declines by 5.1%
Adjusted EBITDA is defined by the Group as loss/profit before tax, depreciation, amortisation, net finance costs, fees incurred in relation to IPO, and Share based payments charge.
Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Revenue
Adjusted Earnings Per Share is Basic Earnings Per Share excluding Share based payments charge, exceptional items and their associated tax impact
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
Comparatives numbers in the financial information have been restated for IFRS.
9
Revenue Growth Driven By ao.com Website Sales
Strong Revenue Growth, Focus on AO Website Sales
1
AO Website sales, principally ao.com, are the main
focus of sales growth
2

Revenue for FY14 of £287.1m (FY13: £197.4m)

Representing Y-o-Y revenue growth of 45.4%, now
accounting for 74.6% of Total Revenue
Third Party Website and Trade Sales refers to
£M
300
286.8
250
200
197.4
websites operated for selected third parties and trade
fulfilment
3

Channel increased by 28.5% to £79.3m (FY13:
£61.7m)

Driven by higher volumes for both insurance
replacement clients and branded websites
150
100
79.3
AO delivers products for third parties through its inhouse logistics service

Helps utilise fleet more efficiently

Plan to maintain the Third-Party Logistics Services
contracts
61.7
50
18.5
15.8
0
FY13
AO website sales
Third Party Retail
FY14
Third Party Logistics
10
Volume driven growth, with stable order values
Average Order Value (“AOV”)(2)
# Of Settled Orders (1)
# of Orders
(thousands)
£
400.0
1,200
1,066
356.31
1,000
800
339.32
339.64
FY12
FY13
343.87
300.0
763
FY11
FY14
580
600
Average Products per Order (“PPO”)(3)
426
# of Products
1.21
400
1.20
1.20
1.19
1.19
1.18
1.18
200
1.17
1.17
1.16
0
1.15
FY11
1.
2.
3.
FY12
FY13
FY14
FY11
FY12
FY13
FY14
Total number of orders taken to completion in connection with AO Website Sales and Third-party Website Sales.
The sum of AO Website Sales and Third-party Website Sales divided by total number of orders.
Total number of units sold in connection with AO Website Sales and Third-party Website Sales divided by Number of orders.
11
Incremental Gross Margin Improvement
Key Gross Margin Drivers
Cost of Sales and Gross Margin Development
£m
400
19.3%
350
300
19.5%
19.0%
18.5%
310.7
18.5%
1
Gross Margin increased by 0.8pp from FY13 to FY14
due to

Higher product margin and bulk buying as a result of
stockholding strategy

Delivery fleet efficiency is managed through the
placement of stockless outbases, allocation of driver
resources and optimised delivery route planning
250
18.0%
200
224.1
17.5%
150
17.0%
100
16.5%
50
0
16.0%
2013
Cost of Sales
2014
GP
12
Cost Contribution Analysis
SG&A Expenses
20135 Growth
Year ended 31 March (£m)
2014
Advertising and marketing
18.2
7.1
% of sales
4.7%
2.6%
Warehousing
13.3
9.2
% of sales
3.4%
3.3%
Other Admin
34.5
26.1
% of sales
9.0%
9.5%
Total SG&A
66.0
42.4
155.0%
45.1%
1 Significant Advertising and Marketing spending
increase due to
 Re-establishing search marketing ranking with new
AO.com brand
 Investment in brand and market share via selective
national TV advertising £5.0m
31.9%
55.4%
Evolution of SG&A Expenses as a % of Revenue
2 Warehousing expenses at 3.4% of revenue were
higher as scale efficiencies were offset by cost impact
from introduction of new outbases and roll out of Same
Day Delivery launched in October 2013
20%
17.3%
16%
15.1%
2.4%
12%
2.9%
17.0%
15.4%
2.6%
4.7%
3.3%
3.4%
9.5%
9.0%
FY13
FY14
3.2%
3.2%
8%
4%
9.5%
11.2%
3 Other Administrative expenses increased by 31.9% on
continued build of the cost base driven by increased
volumes and in anticipation of future growth into new
categories and internationally
0%
FY11
FY12
Advertising and Marketing
Warehousing
Other Admin
13
Detailed Income Statement
2014
2014
201355
2013
384.9
274.9
Cost of sales
(310.7)
(224.1)
Gross profit
74.2
50.8
(66.0)
(42.4)
8.2
8.4
(15.4)
-
Operating (loss)/profit
(7.2)
8.4
Net finance costs
(0.3)
(0.2)
(Loss)/profit before tax
(7.5)
8.1
Taxation (charge) on ordinary activities
(2.0)
(1.8)
(Loss/profit for the year
(9.5)
6.3
Year ended
ended 31
31 March
March (£'m)
(£'m)
Year
Revenue
Administrative expenses
Operating profit before exceptional items
Exceptional Items
1
£19.7m, of which £15.4m is charged to
Income Statement with the balance of
£4.3m being charged to Share Premium
account.
2
Operating (loss)/profit
8.4
2.8
1.8
EBITDA
(4.4)
10.1
Add: Exceptional Items
15.4
-
0.2
-
11.2
10.1
Add: Share based payments charge
Adjusted EBITDA
Share based payment charge relates to
LTIP option awards made to senior
(7.2)
Add: Depreciation and amortisation
Tax – The effective tax rate for the year
was 26.8% (2013: 20.9%)
3
Reconciliation of Operating Profit to Adjusted EBITDA
Exceptional Item - Total IPO costs were
managers on IPO.
Note: 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.
14
Operating Cash Flow Statement
Year ended 31 March (£'m)
2014
20135
Cash generated from operating activities
 Adjusted operating cash flow for FY14 was
Adjusted EBITDA
Loss on disposal of fixed asset
Net change in working capital
Change in provisions
Taxation Paid
Cash generated from operating activities
Operating Cash flow conversion
As at year end 31 March (£'m)
11.2
5.0
(0.6)
(1.9)
13.6
121%
10.1
0.3
3.3
(0.8)
(0.7)
12.2
121%
2014
20135
1
£13.6m (2013: £12.2m), with operating cash
flow conversion of 121% of EBITDA (2013:
121%)
 For FY14 the company has generated
cumulative positive change in net working
capital
Net Cash Position
 Net cash position of £48.7m reflects
Cash
Borrowing
Net cash position at year end
55.1
(6.4)
48.7
12.2
(6.8)
5.4
2
receipt of IPO Proceeds of £40.3m being
£60.0m of new shares less £19.7m of
IPO costs
 Borrowing at year end relate to finance
leases
15
Balance Sheet
Year ended 31 March (£'m)
2014
20135
Capital Expenditure
 Gross Capital expenditure for the year was £7.5m
Intangible assets
Property, plant and equipment
Trade and other receivables
Deferred tax asset
Non Current Assets
Inventories
Trade and other receivables
Cash and cash equivalents
Current Assets
Total Assets
Trade and other payables
Current tax liabilities
Borrowings
Provisions
Current Liabilities
Borrowings
Total Liabilities
Share capital
Share premium
Other reserves
Retained earnings
Shareholders' Funds
Equity and Liabilities
12.8
11.4
11.3
0.6
36.1
12.6
6.9
7.9
0.3
27.7
15.9
21.7
55.1
92.6
128.7
8.7
18.9
12.2
39.8
67.6
62.9
1.1
2.0
0.2
66.3
4.4
70.7
44.6
0.8
3.1
0.9
49.3
3.8
53.1
1.0
55.7
3.5
(2.2)
58.0
128.7
0.0
0.0
4.3
10.2
14.5
67.6
1
(2013: £2.9m), relating to the new headquarters
building completed in December and additional
trailers for the trunking fleet.
 Internally funded £3.3m (2013: £1.7m) balance by
finance leases.
Inventories
 Inventories were £15.9m (2013: £8.7m) reflecting an
2
increase in sales volumes and the change in stock
holding policy to hold more stock in order to provide
customers with same-day and next-day delivery
options on an increased number of SKUs.
 As a result average stock days increased to 17 days
(2013: 10 days).
3
Trade and other payables increased to £62.9m (2013:
£44.6m) as manufacturers continued to extend credit
on a higher volume of sales.
16
Customer’s Responding to Raised Brand Profile
TV campaigns and IPO are helping build brand
 Unprompted brand awareness up from 2% in March
2013 to 10% March 2014

Monthly
Sessions
(m)
Conversion
(%)
3.0
5.0%
4.0%
2.0
3.0%
2.0%
1.0
High Quality Customer Feedback
Oct-13
Jul-13
Whilst service efficiencies also continue to improve
0.0%
Apr-13

0.0
Jan-13
Average Net Promoter Score increase to over 80%
(FY13: 74%)
Oct-12

1.0%
Jul-12
2
Total Sessions up 43% on previous year while
average monthly conversion is consistent with
previous year at 3.4% (2013: 3.3%)
Sessions & Conversion Graph FY13-14
Apr-12
1
FY14 Mnthly Sessions
FY13 Mnthly Sessions
Conversion
Reducing Contacts Whilst Improving Customer Service(1)
3
Recognised for excellence in customer service
Percent
Units
100
Increasing Net
Promoter Score
90
1.00
0.80
80
70
0.60
Decreasing
Contacts Per Order
Source: Company data.
(1)
On a score from 1 to 10 those that attributed 9-10 are considered Promoters, those that attributed 7-8 Passives and those that attributed 1-6 Detractors.
NPS (LHS)
CPO (RHS)
Dec-13
Oct-13
Aug-13
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
Jun-12
0.40
Apr-12
60
17
Delivering Best Service
1
2
Additional Three Outbases Added in FY13 (1)
Delivery Proposition Considerably Enhanced
in FY14

Introduction of Same Day Delivery (SDD)

Cut-off time for Next Day Delivery (NDD) time
extended from 10p.m. to midnight

Range available for SDD and NDD extended
to over 3000 SKU’s
Distribution Network extended

Additional Outbases opened in Yaxley
(Aug ‘13), Spennymore (Oct ‘13), and
Exeter (Oct’13)
Deliver to Promise (2)
100.0%
96.0%
3
On Time: Delivering as Promised

AO’s in house logistics service consistently
delivers products as promised, with
average monthly DTP of 98.2% (FY13 –
96.4%) on volumes up by c.40%
92.0%
88.0%
84.0%
80.0%
(1)
(2)
Picture shows Outbase at Spennymore, opened in October 2013
DTP (Deliver to Promise) is the % of deliveries made successfully, on the customer’s chosen delivery date, at the first time of asking – with the desired device or a higher specification device at no extra cost.
18
3
Strategic Update
AO Is On A Mission To…
“Redefine retailing through a
devotion to happiness and
amazing customer service”
20
Maintaining AO Culture is key to continued success
1
Retained 4th Spot in Sunday Times
“Best 100 Companies to Work For”
Award

2
A great achievement while head
count continued to grow to
accommodate additional volume and
bandwidth for category and
international expansion
New Headquarters - AO Park

In the December 2013 completed
move to new 48,550 sq. ft. office
building

Fitted out with loads of cool features staff reaction has been fantastic

Migration of customer centre and IT
infrastructure carried out without
interruption to business
3
AO World Sharesave Scheme Launched April ’14

Well received by staff with c.34% of eligible
employees signing up for the scheme
21
Strategy For Sustainable Growth
Continue to
take UK MDA
market share
and reduce
customer
acquisition
costs
Build on Market-Leading Customer Proposition
Drive Brand Awareness
Broaden the Range of Products and Services in the UK
Further
growth
opportunities
Broaden ao.com into Europe
22
Strategy to drive continued MDA Growth
FY14 Progress
Build on
Market-leading
Proposition
Plans for FY15

Same Day Delivery introduced to majority of
UK postcodes

NDD cut-off time changed from 10 pm to
midnight


Increased range of products available for
SDD/NDD to +3,000 SKU’s


Introduced gas and electric appliance
installation service for selected area



Increase Brand
Awareness

Re-branded from appliancesonline.co.uk to
ao.com in August 2013

Unprompted Brand awareness up from 2%
March 2013 to 10% March 2014

Begun national TV advertising

Re-branding of vehicle fleet

Raised corporate profile through IPO


Deepen website content across a wider
range of appliances
Further Optimise websites for mobile and
tablet purchases
Enhance delivery, installation and removal
services
Utilise customer data analysis to better
understand customer needs
Expand targeted marketing activities to
improve brand awareness and lower cost
per customer acquisition (“CPA”)
Evolve social media content to engage
customers and promote brand awareness
Individualised Customer Experience
˗ Enhance automated email, SMS, display
and website personalisation programmes
˗ Enhance targeted programmes which
highlight products based on browsing and
purchase history and behaviour
23
Expand Range of Products and Services in UK
Premium Install Service launched in certain areas
1
2
3
Installation services for gas and
electric cooking products are now
available in selected areas
Specialist install teams have been
recruited and trained at two of the
outbases
Plan is to extend the service to further
postcodes during FY15
24
Expand Range of Products and Services in UK
AO.com moves into TV Category
1
On 15 May 2014 introduced TV and
related products on ao.com
2
New series of TV ads has been
developed to accompany the launch
3
4
5
Available products include a range of
higher end TV’s and ancillaries
including 3D and Smart TV’s, DVD
players, sound systems, and
associated ancillaries from Samsung,
Sony, Panasonic, Toshiba and LG
ao.com now features video reviews to
highlight and explain the technical
features of the respective TV’s
Installation service is available in
limited post-codes - plan is to extend
the service to further postcodes during
FY15
25
Germany Plans On Track
1
2
Strategic intention is to launch in Germany
in FY15
Initial phase is for launch of MDA available
to customers in all regions in Germany with
a market leading proposition
3
Project plan is in place and on-track; site
has been selected, staff are being
recruited, and suppliers are engaged with
the project
4
Repeating the same UK model
26
Germany logistics
27
4
Summary and Q&A
Outlook
1
The current year has started well with trading in line with our expectation
2
Our plans to broaden our product range in the UK are being implemented ahead of
plan with the launch of TV and home entertainment products in May 14
3
Expansion into Germany is also proceeding well
Well Placed To Deliver On Our Exciting Plans Ahead
29
Q&A
30
Appendix - Definitions
Adjusted EBITDA
Loss/profit before tax, depreciation, amortisation, net finance costs, fees incurred in relation to
IPO, and LTIP costs.
Adjusted EBITDA Margin
Adjusted EBITDA divided by Revenue
Adjusted Earnings Per Share
Basic Earnings Per Share excluding LTIP costs, exceptional items and their associated tax impact
Non Financial KPI’s
Total Sessions
Conversion rate
Number of orders
Average order value
Products per order
Deliver to promise rate
The number of occasions the AO.com website has been visited.
Total number of orders taken to completion in connection with AO Website Sales divided by total
sessions.
Total number of orders taken to completion in connection with AO Website Sales and Third-party
Website Sales.
The sum of AO Website Sales and Third-party Website Sales divided by total number of orders.
Total number of units sold in connection with AO Website Sales and Third-party Website Sales
divided by Number of orders.
Percentage of deliveries made successfully on the customer’s chosen delivery date at the first
time of asking, based on an average of weekly statistics.
31