Short an audit report and short on disclosure: Zip CEO Larry Diamond
Zip Co will close its United Kingdom business, as it tries to rein in costs and achieve its target of profitability by 2024.
The company had already closed its Singapore business and there are likely to be more cuts to overseas operations. The buy now, pay later monoline is undertaking a review of all operations outside Australia and New Zealand.
It is also reviewing all merchant arrangements, with a view to repricing agreements, upwards.
The company outlined its plans yesterday, as it released a very disappointing 2021/22 financial report.
Zip made a loss of A$1.1 billion over the year to June, after losing $743.4 million in the previous year.
Net cash outflow from operating activities was $752.4 million.
Revenue rose by 57 per cent to $620 million but expense growth was much higher. Bad debts and expected credit losses more than doubled to $276 million, despite assurances from the company earlier this year that it was addressing its poor credit management.
The proportion of bad debts written off to total transaction value rose from 1.4 per cent in 2020/21 to 2.6 per cent in the year to June 2022.
Zip recognised a goodwill impairment of $812 million relating to many of its BNPL and consumer credit subsidiaries and associates outside Australia.
Accumulated losses for Zip Co more than doubled over the year to $1.8 billion, which is more than 90 per cent of the issued capital of the company.
A surprising feature of Zip’s full-year financial report was that it was not audited. The notes to the accounts show that all business segments made losses, including an EBTDA loss of $14.2 million and a pre-tax loss of $39.9 million for the Asia Pacific division.
But in the investor presentation material, the APAC division is shown with cash EBTDA of $20.3 million. A note says the cash EBTDA figure is taken from unaudited management accounts. There is no reconciliation of the two numbers.
That’s pretty sloppy reporting from a company that just lost a billion dollars and wants to persuade the market it is heading in the right direction.
Zip chief executive Larry Diamond paid lip service to the company’s “clear focus on a path to profitability” but his real interest appeared to be in spruiking the usual roll call of rising transaction numbers, transaction values, merchant and customer numbers.
Given the company’s financial performance, those numbers are pretty meaningless.