Cashwerkz confronts a cash flow crisis

John Kavanagh
Term deposit and cash management marketplace Cashwerkz suffered heavy losses and cash outflows during the December half and will have to raise capital to meet its commitments.

The company incurred a loss of A$3.6 million during the six months to December, following a loss of $7.3 million in the 2018/19 year.

Net operating cash outflow was $2.8 million. The company has cash and cash equivalents of $2.3 million remaining.

The financial report says: "The ability of the group to continue as a going concern is principally dependent upon receiving additional funding support and managing cash flow in line with available funds.

"The group has prepared a cash flow forecast on the basis of further capital funding and indicates that provided this funding can be secured, the group will have sufficient cash flows to meet all commitments and working capital requirements for the 12 month period from the date of signing this financial report."

The company's auditor, Nexia Australia, reviewed the financial report but did not conduct an audit. Accordingly, it did not express an audit opinion.

The company's problems appear to have been caused by an ambitious expansion program. According to the cash flow statement, receipts from customers in the December half were $526,058.

Over the same period payments to suppliers and employees were $3.4 million. Employment expenses alone were $1.9 million.

Cashwerkz was launched in 2016 as an investment platform allowing institutional and retail investors to switch between term deposit providers without having to verify their identity each time they move their accounts.

Trustees Australia acquired Cashwerkz in August 2017. Two established Trustees Australia businesses, fixed income brokerage Rim Securities and advisory service Redgate Asset Management, were bundled together with Cashwerkz following the merger. The group was renamed Cashwerkz.

In January last year the company announced expansion plans, including a big expansion of financial institutions on the platform, new distribution channels and the addition of at-call accounts to the service offering.

By September, it was clear things were not going to plan. Chief executive Hector Ortiz was relegated to head of sales. John Nantes, a non-executive director of Cashwerkz, became group executive chair.

The former chair Michael Hackett became executive chair of the Cashwerkz subsidiary Trustees Australia Ltd.

Ortiz has not been replaced yet.

The latest financial report says, by way of explanation: "The extension of the sales pipeline has impacted the conversion of new revenue streams. Executing the expanded pipeline is the group's main priority in 2020."

Cashwerkz has $1.08 billion of what it calls "active balances" on its platform. Balances appear to have grown strongly up to early 2019 and then plateaued. The platform suffered outflows in the June and September quarters as term deposit rates fell, before making a relatively modest recovery in the December quarter.

Strong growth in account openings also levelled off through last year.