AO World EBITDA dropped on 445% in 2016 while Revenue surged on 25.7%

08 Jun 2016 • About AO World ($AO.) • By InTwits

AO World reported FY2016 financial results today. Overall the company's long term financial model is characterised by the following facts:

• AO World doesn't have a profitable business model yet: FY2016 ROIC is -17.8%
• The company operates at negative EBITDA Margin: -1.0%
• EBITDA Margin is quite volatile: -1.0% in FY2016, 0.4% in FY2015, -1.2% in FY2014, 3.7% in FY2013, -0.2% in FY2012
• AO World has low CAPEX intensity: 5 year average CAPEX/Revenue was 0.9%.
• The company has unprofitable business model: ROIC is at -17.8%

Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

AO World ($AO.) key annual financial indicators

mln. £	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	209.4	274.9	384.9	476.7	599.2	25.7%
Gross Profit	34.6	50.8	74.2	87.6	105.9	20.9%
SG&A	36.1	42.4	66.0	89.8	116.5	29.7%
EBITDA	-0.4	10.1	-4.4	1.7	-5.8	-445.4%
Net Income	-1.4	6.3	-9.6	-2.5	-6.0	138.4%
Balance Sheet
Cash	2.9	12.2	55.1	44.9	33.4	-25.7%
Short Term Debt	2.3	3.1	2.0	2.1	2.4	12.6%
Long Term Debt	4.1	3.8	4.4	4.9	5.6	13.2%
Cash flow
Capex	2.5	1.3	2.8	4.4	6.1	38.6%
Ratios
Revenue growth	27.6%	31.3%	40.0%	23.8%	25.7%
EBITDA growth	-109.6%	-2,532.1%	-143.8%	-137.8%	-445.4%
Gross Margin	16.5%	18.5%	19.3%	18.4%	17.7%	-0.7%
EBITDA Margin	-0.2%	3.7%	-1.2%	0.4%	-1.0%	-1.3%
Net Income Margin	-0.7%	2.3%	-2.5%	-0.5%	-1.0%	-0.5%
SG&A, % of revenue	17.3%	15.4%	17.1%	18.8%	19.4%	0.6%
CAPEX, % of revenue	1.2%	0.5%	0.7%	0.9%	1.0%	0.1%
ROIC	-10.3%	46.6%	-17.0%	-3.5%	-17.8%	-14.4%
ROE	-13.6%	54.2%	-26.4%	-4.3%	-11.2%	-6.9%
Net Debt/EBITDA		-0.5x		-22.6x		22.6x

Revenue and profitability

AO World's Revenue jumped on 25.7% in FY2016. Revenue growth was financed by EBITDA margin decline. EBITDA Margin decreased slightly on 1.3 pp from 0.35% to -0.97% in FY2016.

Gross Margin decreased slightly on 0.70 pp from 18.4% to 17.7% in FY2016. SG&A as a % of Revenue increased slightly on 0.61 pp from 18.8% to 19.4% in FY2016.

Net Income marign showed almost no change in FY2016.

Capital expenditures (CAPEX) and working capital investments

AO World's CAPEX/Revenue was 1.0% in FY2016. CAPEX/Revenue increased slightly on 0.53 pp from 0.49% in FY2013 to 1.0% in FY2016. It's average CAPEX/Revenue for the last three years was 0.89%.

Return on investment

The company operates at negative ROIC (-17.85%) and ROE (-11.23%). ROIC dropped on 14.4 pp from -3.5% to -17.8% in FY2016. ROE decreased on 6.9 pp from -4.3% to -11.2% in FY2016.

Leverage (Debt)

Debt level is 0.4x Net Debt / EBITDA and Debt / EBITDA. Net Debt / EBITDA surged on 22.6x from -22.6x to in FY2016. Debt surged on 13.0% in FY2016 while cash dropped on 25.7% in FY2016.

Appendix 1: Peers in General Retailers

Below you can find AO World benchmarking vs. other companies in General Retailers industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %

Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Just Eat ($JE.)				57.7%	51.7%
Signet Jewelers Ltd ($SIG)		6.2%	5.7%	36.3%	14.2%
Caffyns ($78GL)		-3.1%	17.1%	8.9%	10.5%
Entu (Uk) Ltd ($ENTU)	36.5%	4.1%	-3.4%	7.3%
Mysale Group ($MYSL)	96.8%	62.1%	23.4%	5.1%
Median (9 companies)	12.5%	6.2%	3.1%	5.1%	10.5%
AO World ($AO.)		31.3%	40.0%	23.8%	25.7%

Top companies by Gross margin, %

Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Just Eat ($JE.)			89.7%	90.2%	90.6%
7Digital Group ($7DIG)	16.5%	13.9%	59.0%	68.1%
Aa ($AA.)	60.4%	63.9%	64.7%	64.8%	64.3%
Stanley Gibbons Group ($SGI)	43.7%	43.2%		51.5%
French Connection Group ($FCCN)	48.1%	47.9%	47.6%	46.7%	46.3%
Median (10 companies)	32.5%	36.4%	37.5%	41.4%	46.3%
AO World ($AO.)	16.5%	18.5%	19.3%	18.4%	17.7%

Top companies by EBITDA margin, %

Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Aa ($AA.)	35.5%	37.0%	42.2%	37.9%	36.8%
7Digital Group ($7DIG)	-8.4%	-10.9%	-34.2%	24.1%
Just Eat ($JE.)			16.3%	21.0%	25.8%
Signet Jewelers Ltd ($SIG)	16.0%	16.6%	16.2%	12.7%	13.4%
Entu (Uk) Ltd ($ENTU)	7.4%	6.7%	10.3%	8.6%
Median (10 companies)	8.8%	6.7%	7.4%	8.6%	13.4%
AO World ($AO.)	-0.2%	3.7%	-1.2%	0.4%	-1.0%

Top companies by CAPEX/Revenue, %

Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
7Digital Group ($7DIG)	2.2%	0.3%	3.4%	8.2%
Signet Jewelers Ltd ($SIG)	2.6%	3.4%	3.6%	3.8%	3.5%
Aa ($AA.)	2.7%	0.7%	1.0%	3.8%	7.7%
Lotte Shopping Co Ltd ($LOTS)	7.1%	6.5%	6.6%	3.8%
Stanley Gibbons Group ($SGI)	1.0%	1.1%		2.4%
Median (10 companies)	1.6%	1.0%	3.4%	2.4%	2.5%
AO World ($AO.)	1.2%	0.5%	0.7%	0.9%	1.0%

Top companies by ROIC, %

Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Entu (Uk) Ltd ($ENTU)	144.6%	68.6%	134.8%	461.3%
Caffyns ($78GL)	60.8%	15.4%	11.1%	37.3%	10.4%
Aa ($AA.)	138.0%	134.4%	61.1%	34.9%	32.8%
7Digital Group ($7DIG)	-7.7%	-11.3%	-51.2%	22.2%
Signet Jewelers Ltd ($SIG)	21.6%	21.5%	20.4%	15.5%	15.2%
Median (10 companies)	21.4%	12.1%	10.5%	12.3%	10.4%
AO World ($AO.)	-10.3%	46.6%	-17.0%	-3.5%	-17.8%

Top companies by Net Debt / EBITDA

Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Aa ($AA.)	0.6x	-0.0x	7.7x	7.9x	7.8x
Lotte Shopping Co Ltd ($LOTS)	5.1x	4.9x	5.2x	6.7x
Stanley Gibbons Group ($SGI)	-1.1x	-3.0x		2.3x
Signet Jewelers Ltd ($SIG)	-0.8x	-0.5x	-0.3x	1.7x	1.4x
Caffyns ($78GL)	0.5x	2.0x	3.0x	0.7x	2.2x
Median (9 companies)	-0.8x	-0.0x	-0.3x	0.7x	1.8x
AO World ($AO.)		-0.5x		-22.6x

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