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Asos looks to bolster finances to progress turnaround plan

26th May 2023 10:15

(Alliance News) - Asos PLC announced fundraising plans in a bid to help its turnaround, confirming the suspicions of one City broker.

The online fashion retailer placed a total of 17.9 million shares at 418.1 pence each. The funds raised will go towards its new agenda, which is designed to return Asos to sustainable profit and cash generation by the second half of this year.

It was a move that Shore Capital Markets "anticipated".

Back in October, Asos announced the turnaround plan. It committed to improving inventory management, reducing its costs and reinforcing its leadership team. The plan was one of Jose Calamonte's first acts as chief executive.

Shore predicted that Asos would need to go cap in hand to investors in order to help get the ball rolling, however.

"Asos has taken decisive actions to bolster its financial performance, including reducing its reliance on unprofitable brands, streamlining operations in less lucrative markets, and strategically targeting unprofitable customer segments. While there have been some encouraging signs, such as heightened sales for their flagship brand, Topshop, and improved gross margins, the laser focus on immediate profitability risks stifling future growth prospects. With the ongoing restructuring and cost-saving initiatives, it had become increasingly apparent that Asos required additional capital infusion to ensure its long-term viability. This need has now materialised," Shore analysts commented.

In addition, Asos announced plans to boost its balance sheet through a new long-term GBP275 million financing facility.

Asos has entered into a GBP200 million senior term loan and a GBP75 million super senior revolving facility with specialist lender Bantry Bay Capital Ltd through to April 2026, which will replace the existing GBP350 million revolving credit facility which was due to expire in November 2024.

Earlier in May, the company reported a markedly weaker half-year financial outcome, though it said its turnaround plan is progressing.

Asos, which said it is "prioritising order economics over top-line", explained it is committed to ending the financial year with a better inventory position.

For the six months to February 28, revenue declined by 8.2% to GBP1.84 billion from GBP2.00 billion a year earlier. Its pretax loss widened to GBP290.9 million from GBP15.8 million a year ago.

The outcome reflects "both deliberate actions on capital allocation to improve profitability and a challenging trading backdrop".

Asos shares traded 1.0% lower at 414.00p each in London on Friday morning.

By Eric Cunha, Alliance News news editor

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