Message From the CEO: FY23
Over the past financial year, FY23, Earlypay’s journey has been marked by significant challenges. Determined to learn as much as we could from the experience, we thoroughly reviewed how we manage risk and service our clients and have made many important changes to strengthen the business for the future. This period provided us with valuable insights that have served as a catalyst for change and growth — leading us into FY24 with a strong sense of optimism and confidence in our potential, processes and people.
Earlypay suffered a shift in Reported Net Profit After Tax (NPAT), from a $13.2 million profit in FY22 to a challenging $7.7 million loss in FY23. This shift was influenced by several factors, most notably the Credit Related Expenses of $22.5m, a substantial increase from the $0.6 million recorded in FY22. The breakdown of these Credit Related Expenses includes $14.9 million, relating to one single large Credit Loss of $10.4m and $4.5m in Recovery Costs.
The substantial Credit Loss stemming from a single client exposure cast a long shadow, demanding introspection and a determined response. It's crucial to acknowledge that within this adversity, we discovered valuable lessons and opportunities for growth. A comprehensive review of our products and operations prompted a series of strategic changes, spanning underwriting, risk management, and organisational structure. These transformative measures were carefully designed to strengthen our defences against outsized credit losses, ensuring a more robust and secure future. While credit losses are a part of the industry we’re in, we are doing everything we can to ensure we never see anything of that magnitude again. For the purposes of presenting the performance of the underlying business, we consider the Credit Related Expenses relating to that single client a “one-off”.
Further dissecting our financials, we wrote-off the carrying value of Trademark Intangibles to better reflect the nature of the current business. This non-cash impairment of Trademark Intangibles amounted to $2.1 million and is also classified as a one-off.
When we consider the Underlying Proforma* figures, excluding the impact of the aforementioned "one-offs," the NPAT is $5.2 million. While this signifies a 61% decrease compared to the $13.6 million recorded in FY22, it’s inclusive of a $7m Credit Impairment Expense, which was $6.4m higher than in FY22 — the changes we’ve made should support this being much lower in FY24.
At the close of FY23, our Net Tangible Assets amounted to $38.7 million, equating to 13.3 cents per share. This metric provides a sense of our company's resilience, despite the challenges faced throughout the financial year.
As we move forward, the FY23 experience is one that will never be forgotten, a chapter that underscores our resilience, adaptability, and commitment to continuous improvement.
* Underlying Proforma is Reported earnings after adding back “one-off” costs including RevRoof Credit loss and recovery costs, and the Trademark Impairment
We are optimistic about Earlypay’s outlook and are confident that the FY24 result will exceed FY23’s underlying proforma earnings supported by the following:
- With a proactive approach to credit risk, we anticipate diminished losses, ensuring stability in our operations.
- Organic growth of invoice and equipment finance.
- Benefits from reduced interest expenses due to the strategic refinancing of our warehouse facilities.
- Operational efficiency, characterised by a lean, efficient cost base.
- Potential inorganic opportunities.
The business is in a strong capital position now, and with the refinancing of the Invoice and Trade warehouse expected to be completed by the end of September, we will have approximately $20m of surplus cash that can be deployed across one or more of our capital management options.
Our capital management review identified a number of potential opportunities to deploy the available funds and improve EPS (and shareholder returns):
- On Market Buy Back – we are pleased to advise that the Company today lodged the relevant forms with ASIC and ASX to undertake an on-market buy-back of up to 28,000,000 shares within the ‘10/12 limit’ as permitted by the Corporations Act. This is highly EPS accretive at and around current share price levels.
- Bolt on acquisitions – we have been considering some small acquisition opportunities in our core invoice financing product. Supported by our strong balance sheet, lower cost of funding and operating leverage, we feel that the Company is in a strong position to acquire businesses that augment our organic growth aspirations. Any potential acquisition is unlikely to be material.
- Repayment of corporate debt – we are considering using our available cash to repay some or all of our Corporate Bonds, which in turn will be EPS accretive.
Based on our expectations for FY24, it is expected that the Company will rebuild retained earnings and be in a position to resume paying ordinary dividends in FY24.
Moving Towards the Future of Earlypay
At the end of FY23, Earlypay stands strong despite the challenges we’ve faced. The introspection and significant change undertaken in FY23 will continue as we strive to improve how we service our clients and referrers while protecting and increasing shareholder value. As we stride into FY24, we do so with confidence, supported by the right processes and people.
I extend my heartfelt gratitude to our clients, dedicated staff, valued investors, trusted referrers, and all our other stakeholders for their continued support. Anticipating the road ahead, we are filled with excitement and confidence in our position that paves the way for our shared success.
If you'd like to learn how Earlypay's Invoice Finance & Equipment Finance can help you boost your working capital to fund growth or keep on top of day-to-day operations of your business, contact Earlypay's helpful team today on 1300 760 205, visit our sign-up form or contact [email protected].