AO World seeks to retain credit after insurer removes cover

AO World results

AO World has attempted to reassure the stock market over its financial health after investors were spooked by the decision of a credit insurer to cut cover for some suppliers of the online white goods retailer.

Shares in the troubled company tumbled as much as 19.2 per cent in early trading after the move by the insurer Atradius raised fears about AO’s liquidity.

The sell-off forced AO to issue an announcement to the stock exchange in the afternoon in which it insisted that its finances remained in line with its board’s expectations. This failed to soothe investors’ nerves, however, and the shares fell 12¼p, or 18.2 per cent, to 55½p, the lowest in more than two years.

A withdrawal of credit insurance can deal a big blow to a retailer. Suppliers use insurance to offset the risk that customers that buy on credit might collapse before paying for their orders. When credit insurance is cut, suppliers typically respond by asking customers to settle their bills upfront instead, which puts pressure on a buyer’s cash position.

It was reported by The Sunday Times that Atradius, which is one of the biggest credit insurers, had cut cover for suppliers of AO, stoking investor concerns that the retailer’s finances might become strained by demands to pay suppliers immediately.

AO confirmed yesterday that it had become aware that a third-party credit insurer of some of its suppliers had “rebased their cover in May 2022 with respect to AO, reflecting post-Covid sales levels”.

It added: “This was a reduction from the heightened levels that had been in place and required through the period of the pandemic. To date this rebased cover has had no effect on AO’s liquidity position.” It said that it still had “full access” to an £80 million loan facility and was looking at ways to “strengthen its balance sheet”.

Even so the stock market sell-off deals a further blow to AO, which has now suffered a 47 per cent drop in its share price this year after a series of setbacks.

AO, which is based in Bolton, was founded 22 years ago by John Roberts, its chief executive and a former kitchen salesman, who started the business as part of a £1 bet in a pub. It has since grown to become a leading online retailer of white goods and smaller appliances such as microwaves. It joined the London Stock Exchange in 2014.

Its life as a public company has not always been smooth. Its 285p-a-share flotation eight years ago put a £1.2 billion valuation on the business, which was considered frothy by some in the market given that its annual pre-tax profits in 2013 had amounted to only £8.7 million. Its shares initially rose but they soon fell back and for years languished below their initial public offering price.

The stock enjoyed a revival during the coronavirus pandemic, when the company was buoyed by a boom in online shopping. Its shares peaked at 429p but this upturn proved short-lived.

Crunches in global supply chains and soaring inflation are hitting the business, which has sounded three profit warnings in the space of six months, the last of which was at the end of April. That was when AO also revealed that it was delaying the publication of its annual results for the year to the end of March. It has yet to set a date for the release of its figures.

In a further sign of the pressure on the company, AO announced on June 9 that it was closing its business in Germany, a market it entered shortly after its flotation but which it struggled to crack. The decline in share price has left it with a market valuation of less than £270 million.