AO shares plummet as insurer cuts cover

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Questions have been raised over AO’s finances after its credit insurer reduced its cover.

AO washing machine

AO has been impacted by a cut in credit cover by Atradius, the credit insurance division of Grupo Catalana Occidente.

Atradius provides credit insurance for AO’s suppliers, protecting them against the risk of the business going bust and leaving orders being made and not paid for.

The news caused AO’s share price to drop this morning, with shares down 12.84% to 59.27p at the time of writing.

It comes after AO issued its third profit warning in a row at the end of April as the business was hit by soaring inflation and supply chain issues.

The retailer also said the cost-of-living crisis had led customers to cancel their warranties, striking another blow to its cashflow position.

AO announced in June that it was scrapping its German business after eight years as its performance had continued to suffer.

Analysts at Numis and Jefferies said that the change in credit insurance is understood to have come from the beginning of May, down from elevated levels during the pandemic, and has no immediate impact on AO’s liquidity.

In a statement today, AO said that its “current financial performance and financial position remain in line with the board’s expectations and the guidance set out in its trading update on 29 April, 2022”.

The retailer confirmed that one of the third-party credit insurers who provides credit insurance to its suppliers rebased their cover in May, reducing the higher levels put in place during the pandemic.

AO said that the cash cost of closing its German business would be in the range of nil to £15m, while it continues to have full access to its £80m revolving credit facility, the term of which runs until April 2024.

The statement also said: “In addition, the company continues to consider and implement a number of ongoing initiatives and further actions to strengthen its balance sheet, while optimising its focus on profit and cash generation against the uncertain macroeconomic conditions in the UK and the continuing global supply chain challenges.”