AO World cash call

Online domestic appliances retailer AO World (LON:AO.) has launched a £40m fundraising at 43p a share to reduce its debt pile. PrimaryBid is offering private investors the chance to buy shares in the placing, but the outlook for the company is poor.

The cash call follows the announcement that AO World was pulling out of Germany and that would cost £10m-£15m. This leaves AO World to focus on the UK market. It also removes a cash outflow from this business in future years. Even excluding, the closure costs AO World is expected to lose £23m in 2022-23 and remain loss-making next year.

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Net debt was £32.8m at the end of March 2022, when there were £50m of facilities still available. However, management pointed out that seasonality meant that headroom had subsequently reduced. That is before any Germany closure costs.

Management says that AO World’s core domestic appliance market is resilient. The core business is cash generative, but the overheads of the group mean that the company is loss-making.

There does seem to be a realisation that chasing revenues is no good without making a profit. Reducing overheads and operational efficiency improvements could generate benefits of at least £25m by the year to March 2025.

The share price has declined 1.77p to 45.23p, so it is still well above the placing price. The PrimaryBid retail offer will close when the book building for the placing ends. The minimum subscription is £250.

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