Proactive Investors - Asos will likely need to raise cash again in the next two years, but the circumstances in which it returns to the market will depend on the execution of its turnaround plan.
The beleaguered online retailer told investors it raised £75mln by way of placing, as well as confirming a new-long term £275mln financing facility to further strengthen its balance sheet.
In a stock exchange release, the firm said the new capital structure provides “increased flexibility against a challenge macro-economic backdrop.”
Weak balance sheet
Asos (LON:ASOS) had expected cash inflows of between £40mln and £50mln for the full year ahead of its interims two weeks.
The retailer surprised investors when the results were posted, with £100mln in cash outflows, while it also had to repay a £500mln convertible loan note in April 2026 and a £350mln revolving credit facility in November 2024 (which has now been replaced).
Weighed down with huge debt to the tune of £431.7mln, The City was in no doubt Asos would turn to the market.
“Ongoing restructuring and cost-saving initiatives had made it increasingly apparent that Asos required capital infusion to ensure its long-term viability” said Eleonora Dani, retail analyst at Shore Capital.
Is it enough?
Raising eyebrows in some corners of the Square (NYSE:SQ) Mile is the amount.
Although regulations limit the amount any company can raise via a rights issue to 20% of its market cap, there is a sense and feeling among analysts that it won’t be too long until it is ‘asking for more’ Oliver Twist style.
Raising cash twice over a short period of time isn’t a good look and one that could potentially do more damage than good.
Liberum analyst Anubhav Malhotra said in a research note that it would need to turn to market in a “worst-case scenario,” where tough market conditions persist, and it fails to execute its Driving Change strategy.
Jose Antonio Ramos Calamonte outlined four steps to turn the business round in the company's full-year results reported in October.
These comprise renewing its commercial model and improving inventory management; simplifying and reducing its costs profile; ensuring a robust and flexible balance sheet; reinforcing the leadership team and refreshing the culture.
Execution of turnaround
John Stevenson, retail analyst at Peel Hunt, also believes that Asos could turn to the market in 24 months, but under more positive circumstances.
He believes that, based on his company’s predictions of very slim margins, Asos would have £200mln of debt in two years, not an amount that would require a rights issue in his eyes.
In two years’ time, therefore, dependent on a successful turnaround, Asos could well find itself in a position where it is raising cash for growth purposes.
“Growth investment is almost certainly needed to drive its US business and target new territories,” Stevenson added.
Another equity raise seems likely for Asos. Whether it’s another case of bolstering the balance sheet or one to target growth depends entirely on the execution of the turnaround plan.