Capitalising on the evolving financial landscape where the Reserve Bank of Australia is preparing for legislative changes in line with the direction of a cashless economy, digital payments company Novatti Group (ASX: NOV) has reported strengthened results with both revenue growth and expense reduction.
Over the past six months, Novatti has been undertaking a strategic shift towards simplification and integrated payment solutions where digital payments are increasingly replacing cash. So much so, new legislation is set to give the RBA power over digital wallets while legacy payments such as cheques will be abolished by 2030 as a sign of the RBA’s focus on digital payments cannibalising cash usage.
Novatti’s CEO, Mark Healy, highlighted the company’s progress in the September quarter, emphasising its strategic direction to target the AU/NZ market where digital wallet adoption is rapidly making cash redundant.
“Novatti used Q1 of FY24 to continue the implementation of its new strategy, simplifying the business with a focus on building an integrated payments proposition and enhancing gross margins,” said Healy.
“We continued to see broader growth in demand across the economy for the services that Novatti provides.”
One of the significant achievements of this strategy is the creation of an integrated Payments AU/NZ division, allowing Novatti’s clients to engage multiple Novatti payment services through one account.
This restructuring has already boosted product margins within the Payments AU/NZ division, increasing them to 45% in the September quarter, up from 40% in the prior quarter.
The positive impact of Novatti’s new strategy extends beyond payment processing with Novatti reporting a quarterly revenue growth to $10.8 million, which represented 6% QoQ growth. Critically, the quarter also reflected a decrease in Novatti’s expenses which represented 74% of revenue, down from 90% in the July quarters as part of Healy’s focus towards reining in cash consumption.
Novatti’s commitment to simplification extends to a group-wide business review to streamline business activities and align them with strategic objectives. This process is expected to lead to further improvements in financial results.
Amidst growing demand for Novatti’s services, Healy sees opportunities in an economy transitioning towards digital payments. “We believe this presents an opportunity for businesses to unlock efficiencies through digital payments, with Novatti being well placed to provide multiple products to customers,” said Healy.
Novatti has not shied away from making necessary personnel changes, welcoming several external hires to accelerate the execution of the new strategy. Among the key appointments are the Executive General Manager, Head of Business Development, and Head of Marketing for Payments AU/NZ, who will oversee a unified commercial function and operating model across various product lines.
Additionally, Novatti strengthened its business relationship with cloud-based accounting and business software provider Reckon (ASX: RKN), of which Novatti holds a 19.9% strategic stake. This investment returned a $563k fully-franked cash dividend while also being appointed as the exclusive Acquiring partner for Reckon’s annual conference in Sydney which was attended by their largest users who gained insight into how they can improve their own businesses by utilising Reckon-Novatti payment solutions.
In terms of cash flow, Novatti reported improving performance, with operating cash consumption decreasing to $3.4 million in Q1 FY24, reflecting a $0.7 million reduction from Q4 FY23 as the Company eyes positive operating cash flow.
As Australia continues to shift away from cash and towards digital payments, Novatti stands at the forefront of this transition, offering integrated payment solutions that meet the evolving needs of businesses and consumers alike. With its strategic reset and commitment to efficiency, Novatti is well-positioned to thrive in an increasingly digital financial landscape.
Trading Desk Assistant at Emerald Financial
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