AO. Ao World Plc

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 March 2024

NOTES TO THE FINANCIAL INFORMATION

1.   Basis of preparation

This financial information has been prepared and approved by the Directors in accordance with UK adopted International Accounting Standards ("UK adopted IFRS").

Whilst the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2024 or 2023 but is derived from those accounts. Statutory accounts for 2023 have been delivered to the Registrar of Companies and those for 2024 will be delivered following the Company's Annual General Meeting. The auditor has reported on those accounts; the report was unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under section 498(2) or (3) Companies Act 2006.

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.

Discontinued Operations

Following the closure of the German operations in the previous year, the German operations are treated as a discontinued activity under IFRS5 and the results and cashflows are therefore shown separately on the face of each of the primary statements.  Further details are included in note 12.

Adoption of new and revised standards

The accounting policies set out in Note 3 of the Group financial statements have been applied in preparing this financial information.

New accounting standards in issue but not yet effective

New standards and interpretations that are in issue but not yet effective are listed below:

·     Amendments to IAS 1, Non-current liabilities with Covenants and Classification of Liabilities as Current or Non-current (effective date 1 January 2024).

·     Amendments to IFRS 16, Lease Liability in a Sale and Leaseback (effective date 1 January 2024).

·    Amendments to IAS 7 and IFRS7, Supplier Finance Arrangements (effective date 1 January 2024).

·     Amendments to IAS 21, Lack of Exchangeability (effective date 1 January 2025- not yet adopted by the UK Endorsement Board).

·   IFRS 18 Presentation and Disclosures in Financial Statements (effective date 1 January 2027- not yet adopted by the UK Endorsement Board).

The Group continues to monitor the potential impact of other new standards and interpretations which may be endorsed and require adoption by the Group in future reporting periods. The Group does not consider that any other standards, amendments or interpretations issued by the IASB, but not yet applicable, will have a significant impact on the financial statements.

Going concern

Notwithstanding net current liabilities of £9.1m as at 31 March 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 £80m Revolving Credit Facility (which, following agreement with the lenders in March 2024,  maturity has now been extended by one year to April 2027).

The Directors have prepared base and sensitised cash flow forecasts for the Group for a period of 12 months from the expected approval of the financial statements ("the going concern period") which indicate that the Group will remain compliant with its covenants and will have sufficient funds through its existing cash balances and availability of funds from its Revolving Credit Facility to meet its liabilities as they fall due for that period. The forecasts take account of current trading, management's view on future performance and their assessment of the impact of market uncertainty and volatility.

In assessing the going concern basis, the Directors have taken into account severe but plausible downsides to sensitise its base case and have also run these in combination. These primarily include:

•  Restricting growth in FY25 and in the subsequent periods to account for how the overall electrical online market could be impacted by the continuing macro-economic factors such as inflation, consumer confidence, interest rate increases;

•   Changes in margin including the impact of any changes in the Group's policy with regard to charging;

• The impact of a change in product protection plan cancellations as a result of a macroeconomic event e.g., continued interest rate increases, utilising data seen where other events have happened (e.g., Covid outbreak, initial cost of living crisis); and

•   Changes in other revenue including the impact of a reduction in logistics third-party income.

Under these severe but plausible downside scenarios the Group continues to demonstrate headroom on its banking facilities and remains compliant with its quarterly covenants which are  interest cover (Adjusted EBITDA being at least 4x net finance costs) and leverage (Net debt to be no more than 2.5x EBITDA). The likelihood of a breach of covenants is considered remote and hence headroom against its covenants has not been disclosed.

In addition, the Directors have considered mitigating actions including limiting discretionary spend and managing working capital should there be any pressure on headroom. These would provide additional headroom but have not been built into the going concern forecast. Consequently, the Directors are confident that the Group and Company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis.

Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are set out in Note 3 of the Group financial statements, 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 £2.8m of previously recognised revenue which has now been reversed in the year ended 31 March 2024.

The commission receivable balance as at 31 March 2024 was £96.5m (2023: £93.1m). The rate used to discount the revenue for the FY24 cohort is 5.85% (2023: 5.45%). The weighted average of discount rates used in the years prior to FY24 was 4.34% (2023: 3.91%).

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) 4.49% (2023: 2.86%);

•        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 (c7%).

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 a £3.0m of previously constrained revenue which has now been recognised in the year ended 31 March 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 £3.2m being restricted at 31 March 2024 (31 March 2023: £8.7m).

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 31 March 2024 was £63.1m (2023: £81.3m). The rate used to discount the current year revenue is 4.49% (2023: 2.83%).

Impairment of intangible assets and goodwill

As part of the acquisition of Mobile Phones Direct Limited in 2018, the Group recognised amounts totalling £16.3m in relation to the valuation of the intangible assets and £14.7m in relation to residual goodwill. At 31 March 2024 these amounted to £21.8m.

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 31 March 2024 amounted to £2.2m (see note 8 for consideration of Cash Generating Units)

Intangible assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is reviewed for impairment on an annual basis. When a review for impairment is conducted, the recoverable amount is determined based on the higher of value in use and fair value less costs to sell. The value in use method requires the Group to determine appropriate assumptions (which are sources of estimation uncertainty) in relation to the cash flow projections over the three-year strategic plan period and the long-term growth rate to be applied beyond this three-year period.

Whilst at 31 March 2024 the Directors have concluded that the carrying value of the intangibles and goodwill is appropriate, significant changes in any of these assumptions, which could be driven by the end customer behaviour with the Mobile Network Operators, could give rise to an impairment in the carrying value which is outlined in note 8.

2.   Revenue

The table below shows the Group's revenue by major business area. Revenue recognition for each area is outlined in Note 3 of the Group financial statements.

3.   Segmental analysis

Operating segments are determined by the internal reporting regularly provided to the Group's Chief Operating Decision Maker. The Chief Operating Decision Maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Directors.

In the periods prior to FY23, the Group had two reportable segments; online retailing of domestic appliances and ancillary services to customers in the UK, and online retailing of domestic appliances and ancillary services to customers in Germany. Following the decision in June 2022 to close the German operations (which are now treated as discontinued (see note 8)), the UK operation is now the only reportable segment.

4.   Finance income

5.   Finance costs

6.   Taxation

The expected corporation tax charge for the year is calculated at the UK corporation tax rate of 25% (2023: 19%) on the profit before tax for the year.

The charge for the year can be reconciled to the profit in the statement of comprehensive income as follows:

Pillar Two legislation has been enacted in the UK to introduce the multinational top-up tax and domestic top-up tax to accounting periods beginning on or after 31 December 2023. The legislation will be effective for the Group's financial year beginning 1 April 2024. The Group has performed an assessment of the Group's potential exposure to Pillar Two income taxes.

Based on the assessment performed on the latest financial information for the year ended 31 March 2024, and forecast information for periods to 31 March 2027, the Pillar Two effective tax rates in all jurisdictions in which the Group operates are expected to be above 15%. Therefore, the Group does not expect a potential exposure to Pillar Two top-up taxes.

7.   Earnings/ (loss) per share

The calculation of the basic and diluted (loss)/ earnings per share is based on the following data:

8.   Goodwill

Goodwill relates to purchase of Expert Logistics Limited, the purchase by DRL Holdings Limited (now AO World PLC) of DRL Limited (now AO Retail Limited), the acquisition of AO Recycling Limited (formerly The Recycling Group Limited) and the acquisition of Mobile Phones Direct Limited (now AO Mobile Limited) by AO Limited.

Impairment of goodwill

UK CGU - £13.5m

At 31 March 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 has been determined based on the value in use calculations. The Group prepares cash flow forecasts derived from the most recent financial budget and financial plan for three years. The final year cash flow is used to calculate a terminal value and is based on an estimated growth rate of 1%. This rate does not exceed the average long term growth rate for the market.

Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to this CGU. In arriving at the appropriate discount rate to use, we adjust the CGU's post-tax weighted average cost of capital to reflect the impact of risks and tax effects specific to the cash flows. The weighted average pre-tax discount rate we used was approximately 11.9% (2023: 13.1%).

The key assumptions, which take account of historic trends, upon which management has based their cash flow projections are sales growth rates, selling prices and product margin.

Management do not believe that any reasonable possible sensitivity would result in any impairment to this goodwill.

Mobile Phones Direct Limited - £14.7m

At 31 March 2024, the goodwill allocated to the Mobile cash generating unit ("CGU") was £14.7m (2023: £14.7m). In addition to goodwill, at 31 March 2024 other intangibles assets relating to this CGU were £9.3m (2023: £7.8m.)

Included in the intangible assets noted above are the websites and domains of affordablemobiles.co.uk and buymobiles.net and other intangible assets (together referred to as "Affordable Mobiles") which the Group acquired in the year. Management believed this acquisition was an appropriate event to reassess the Mobile CGU. After considering a number of factors such as; whether cash inflows are independently generated, the transactions flow of the new websites, the monitoring of operations and overall management responsibilities, management have concluded that Affordable Mobiles should be included in the Mobile CGU  and as such, at 31 March 2024 the assessment of the carrying value of the Mobile CGU includes the assets acquired during the year.

During the period, the Group has seen a significant reduction in demand for new connections, partly driven by the exceptional inflationary increases applied by the networks. With the results of the mobile business partly reliant on volume related targets, competition in the mobile market for a smaller number of connections has had a material adverse effect on the results compared to management's expectations. Consequently, management have assessed the recoverable amount of the CGU using a value in use model. This has been based on management's Board approved, risk adjusted, forecast cashflows for the business up to FY29 with the final year being the basis for a perpetuity calculation using a long term growth rate of 2%.

Following the acquisition of affordablemobiles.co.uk and buymobiles.net, as well as the rebase of the business strategy to focus on profitable connections rather than volumes (as set out in the Chief Financial Officer's Review on page 33), the key assumptions for the first year of the forecast (year ending 31 March 2025) are considered to be:

·      Revenue growth of 35%;

·      Gross margin increase of 10 percentage points; and

·      The normalisation of working capital during FY25 resulting in a cash inflow of £7.1m

Key assumptions applied within the remaining forecast period (FY26-29) are:

·      Revenue growth of 2% on FY25 assumed levels; and

·   Cost inflation and cost saving of between +3% and -3% based on expectations for inflation, management's estimate of product price changes based on industry knowledge and reductions in brand spend.

A pre-tax discount rate of 12.4% 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.

The total recoverable amount of the CGU is greater than it's carrying value by £1.3m in managements base case and therefore no impairment is required. However, given the minimal amount of headroom at 31 March 2024, reasonably plausible changes in assumptions could lead to a material impairment in the future as demonstrated below:

9.   Trade and other receivables

The trade and other receivables are classified as:

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:

Included in the contract asset above in relation to product protection plans at 31 March 2023, was an amount of £(2.8)m in relation to variable consideration recognised as revenue up to that date which has reversed in the year ended 31 March 2024. This arose as a result of the cost of claims being higher than forecast, principally as a result of continued high inflation and is included in the "Revisions to estimates" above. Also included is previously constrained revenue of £3.0m in relation to network commissions (out of contract revenue) which has now been recognised in the year ended 31 March 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 £3.2m being restricted at 31 March 2024 (31 March 2023: £8.7m).

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 - 5.85% (2023: 5.45%);

·    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 16 years).

The last two inputs are estimated based on extensive historical evidence obtained from our own records and from D&G. The Group has accumulated historical empirical data over the last 15 years from c.3.4m plans that have been sold. Of these, c.1.09m are live. Applying all the information above, management calculates their initial estimate of commission receivable. Consideration is then given to other factors outside of the historical data noted above that could impact the valuation. This primarily considers the reliance on historical data as this assumes that current and future experience will follow past trends. There is, therefore, a risk that changes in consumer behaviour could reduce or increase the total cash flows ultimately realised over the forecast period. Management makes a regular assessment of the data and assumptions with a detailed review at half year and full year to ensure this continues to reflect the best estimate of expected future trends. As set out in Note 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. 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.

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.

Backstop

Management apply an acceleration of cancellations beyond the anticipated life of certain products upto a backstop which is currently based on the oldest actual plans in existence. Currently no revenue is recognised beyond that date. The sensitivity applied shows what the impact to the calculation of estimated future revenue would be if the backstop was extended a further year (given a small number of plans have now reached the current backstop) or alternatively the backstop was tightened as there are a relatively lower number of plans which are approaching the backstop.

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 - 4.49% (2023: 2.83%);

•    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.

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.

10.  Trade and other payables

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 55 days (2023: 51 days).

Contract liabilities includes payments on account from Mobile Network Operators where there is no right of set off with the contract asset within the mobile business.

Trade and other payables are classified as:

11.  Net debt and movement in financial liabilities

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.

Movement in financial liabilities in the year was as follows:

Reassessment of lease terms relate to leases the Group have exited during the period. On 14 July, AO Recycling Limited a wholly owned subsidiary, acquired the land and building at its Halesfield site for £3.5m. This was partly funded by a ten year commercial mortgage of £2.2m which is shown as New borrowings in the reconciliation above.

12.  Discontinued Operations

Following the closure of the Group's German business in the previous period, the business has been treated and presented as a discontinued operation in the year ended 31 March 2024. The tables below show the results of the German operation for the relevant reporting periods:

Basic loss per share from discontinued operations is 0.00p (2023: 1.61p loss per share). Diluted loss per share from discontinued operations is 0.00p (2023: 1.56p loss per share).

The table below summarises the cashflows of the German operation for the relevant reporting periods: