Home Short payment terms AO World plunges for second consecutive session amid fears for its future

AO World plunges for second consecutive session amid fears for its future

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AO World plunges for second consecutive session amid fears for the future of the white goods sector

Shares of AO World slumped for the second straight session as fears grew over its future.

The white goods sector – which sells everything from fridges and washing machines to TVs and computers – came under pressure after insurer Atradius withdrew its credit cover amid the cost of home crisis. life hits sales.

Without credit insurance, AO suppliers require payment up front, rather than spreading the cost over the normal 90-120 day period, further increasing the company’s cash flow worries.

Uh oh: AO World – which sells everything from fridges and washing machines to TVs and computers – came under pressure after insurer Atradius withdrew its credit cover

The company confirmed on Monday that it had become aware that a third-party credit insurer of some of its suppliers had “rebased their coverage in May 2022 from AO, reflecting post-Covid sales levels”.

He tried to reassure investors, saying he had access to an £80million loan facility, but brokers believe the company will have to tap into shareholders’ money to survive.

The update provided little reassurance and shares fell another 15.5%, or 8.65p to 47p yesterday, meaning the stock is down 33% this week.

At the moment, it is not known how much money the company spends on a daily basis.

But analysts at Peel Hunt say there is evidence that deteriorating supplier payment terms are now eating away at ‘working capital’. In March, AO said it had total liquidity of £50m, up from £66m in September.

Analysts said scrapping credit insurance would have sent shockwaves through AO’s investor base, a move that in the past marked the beginning of the end for retailers like Woolworths, HMV , Comet and Toys ‘R’ Us.

The bankruptcies of retailer Debenhams and Sir Philip Green’s Arcadia were also preceded by cuts to the cover that protected their suppliers.

Julie Palmer, a partner at corporate restructuring firm Begbies Traynor, warned that once credit insurance is cut, a business can be gone quickly.

“This situation can escalate quickly,” she said. “They need to nip this in the bud or they will end up with a cash flow squeeze. It becomes a death spiral.

The move caps a rotten period for AO, which issued its third profit warning in six months in April after being pounded by the cost of living crisis.

At the time, the firm also revealed that it was postponing the publication of its annual results for the year to the end of March.

The business experienced a strong pandemic as people sat at home, using their accumulated savings to buy themselves white goods and appliances.

But that recovery proved to be short-lived and since then people have tightened their belts with major spending ending as consumers are squeezed hard by rising energy, fuel and food bills.

Neil Wilson, an analyst at Markets.com, said: “Retail of all kinds is struggling as discretionary spending will be rattled by inflation and dire consumer confidence.”

“Spending on appliances is at its worst level in eight years, people are cutting back on everything but the essentials, so pets, upholstery, appliances are all going to be under pressure.”

Under pressure.  AO chief executive John Roberts (pictured) founded the company in 2000 after a friend bet him £1 in a pub that he would not start his own business

Under pressure.’ AO chief executive John Roberts (pictured) founded the company in 2000 after a friend bet him £1 in a pub that he would not start his own business

The crisis will be the toughest test yet for charismatic CEO John Roberts who founded AO in 2000 after a friend bet him £1 in a pub that he wouldn’t start his own business.

Famous for its excellent customer service, the company has grown rapidly and was listed in London in 2014 with a valuation of £1.2 billion. Roberts still holds a 22% stake.

But the former kitchen salesman, who left school at 17, has never been far from controversy, saying a year after floating that he ‘couldn’t give like a**t’ if managers of funds bought the shares. The company’s market capitalization is now just £267 million.

The company has faced a number of problems since its IPO, including a failed expansion into Germany.

The company pinned its hopes for growth on the country and invested heavily in a fleet of trucks, only to find they were too big to pass under bridges in Germany.

Last month the company announced it would close the German business at a cost of £15million.

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