Beforepay chair Brian Hartzer
Beforepay chairman Brian Hartzer has moved to douse suggestions that he baulked at putting his signature to the company’s latest full year accounts because he felt uncomfortable with the financial performance of the business.
The digital payday lender, which is now being heavily spruiked by Melbourne brokers for an IPO, revealed in September that it had a net asset deficiency of A$13 million and incurred loan write-offs to more than one third of its receivables book in the 2021 financial year.
E&Y’s audit of the 2021 accounts was completed on 8 September and endorsed by the Beforepay board the same day.
However, Hartzer – who had been in the chair since the first week of July – did not sign the accounts on behalf of his fellow directors – that task was undertaken by non-executive board member, Danny Moss.
Banking Day approached Hartzer on Wednesday seeking an explanation for why he did not sign the full year report on behalf of the board.
“I was appointed chairman in July of 2021, and the board felt it made more sense for the accounts to be signed by a director who had been on the board during the time period covered by the accounts (ie. July 2020-June 2021),” Hartzer told Banking Day in an email.
“So Danny Moss, who is a director and was chair of the board during this
period signed the resolution on behalf of the board.
“I approved the accounts like every other director, and we all share equal liability for that anyway.”
Hartzer also rejected suggestions that he might have been uncomfortable signing the accounts on behalf of the board because of the size of the net asset deficiency and the level of bad debts.
“No, there was nothing that surprised or concerned me,” Hartzer said.
“It’s a young, fast-growing company with improving economics.”
The former Westpac chief executive also said he was “comfortable” with the balance sheet.
“The net asset position reflects the fact that, like many startups, the business was funded in large part from convertible note issues ($27.3m outstanding).
“Under the accounting rules these are currently recorded on the balance sheet as a liability, but convert to equity at the time of the IPO (which generally is what convertible note holders expect to happen).”
Hartzer also downplayed the significance of the bad debt blow out in 2021, which accounted for more than $5 million of the $18.3 million operating loss.
“In terms of the credit write-offs, it is pretty normal in a startup consumer lending business to have relative higher losses at the beginning, which decline over time as the portfolio “seasons”, i.e., as the poor initial credit customers fall away and the book becomes more skewed to “good” credit customers,” he said.
“Plus, credit policies and predictive credit models get better over time.
“This is what Beforepay is currently experiencing, with loss rates continuing to be within expectations and falling steadily - particularly of late.”
Beforepay’s future appears to be hanging on the successful completion of the IPO, which is being managed by Shaw and Partners.
However, the IPO is not guaranteed to complete given the prevailing market sentiment towards loss-making fintechs on the ASX.
Valuations of buy now pay later, consumer credit and other lending startups have been smashed in the last 18 months, with stocks such as Openpay and Splitit now trading at discounts of more than 70 per cent to their 24 month peaks.