A widely touted IPO of digital payday lender Beforepay is likely to attract meticulous scrutiny from investors after the company reported a sharp deterioration in its financial performance for the 12 months to the end of June.
According to annual accounts posted on the company’s website, Beforepay posted a bottom line loss of A$18.6 million last year compared to a loss of $650,000 in 2020.
Beforepay’s accounts show the business is struggling and at an infant stage of development, with top line revenue of only $4.58 million and total costs of more than $20 million.
Moreover, the company reported trade and other receivable assets on its balance sheet worth only $9.7 million at the end of June.
While that was sharply higher than the $148,083 of receivables held at the end of June 2020, Beforepay wrote off more than $5 million worth of receivable assets that it judged were either unrecoverable or expected to become unrecoverable.
That means one-third of the company’s receivables book was either written off or stopped performing during the year.
Such performance numbers would test the mettle of the slickest investment bankers trying to market a new business to investors, and the challenge is made even tougher by the condition of Beforepay’s balance sheet at the end of June.
The balance sheet shows that the company had a net asset deficiency of $13.2 million on June 30 compared to a net asset surplus of $650,000 a year before.
Beforepay’s auditor Simon Hannigan of Ernst & Young highlighted the board’s decision to continue operating as a going concern as a matter of emphasis in his report.
“Without qualifying our conclusion, we draw attention to Note 2 in the financial report which indicates that the Group’s ability to continue as a going concern is dependent on future conditions including the Group’s ability to successfully raise debt or equity capital,” Hannigan stated in his audit report.
“These factors cast doubt over whether the Group will realise its assets and liabilities in the normal course of business and at the amounts stated in the financial report.
“The financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification of liabilities that might be necessary should the Group not continue as a going concern.”
Beforepay’s board, which is chaired by former Westpac chief executive Brian Hartzer, disclosed in notes to the accounts that the company had been seeking to raise $10.7 million through the issue of convertible notes during September.
According to ASIC records accessed by Banking Day this week, the issue appears to have been executed.
However, the fully paid equity in Beforepay has increased by only around $330,000 since June 30.
Hartzer and his fellow directors appear to be relying on the successful execution of a $40 million IPO to help fix the balance sheet of the company.
They referred to future funds raised from the IPO as one of the factors influencing their decision to continue the business as a going concern.
“As at the date of signing of the 30 June 2021 financial report, the Group is seeking to raise approximately $40.0m via an initial public offering in late calendar year 2021,” directors stated in the annual report.
“The directors believe that the funds available from existing cash reserves and debt facilities, combined with those that would become available from the yet to be concluded convertible notes issuance and initial public offering, will provide the Group with sufficient working capital to carry out its stated objectives for at least the next 12 months from the date of signing these financial statements.”