Just six months after undertaking a leadership transition to install a leading digital payment executive Mark Healy at the helm of Novatti Group (ASX: NOV), the Melbourne-based fintech has a clear line of sight to positive cash flow having undertaken an internal restructure.
Novatti has strategically positioned itself to achieve its ambitious cash flow positive target, as revealed in its December quarter report which was highlighted by a 10% reduction in expenses without sacrificing revenue. The internal streamlining was also supported by divesting non-core assets, and securing external funding for pivotal projects.
Mark Healy, Novatti CEO, expressed satisfaction with the progress made during the second quarter of FY24, emphasising the company’s commitment to simplifying its business portfolio.
“We are now deep into the simplification of Novatti’s business, completing an internal organisational restructure, streamlining the sales process, and establishing a three-year, 70%+ margin target,” said Healy.
A notable achievement during the quarter was the divestment of Novatti’s stake in Reckon Limited, resulting in a $7 million reduction in debt. This strategic move not only provided Novatti with greater flexibility but also allowed it to execute a strategic review, potentially leading to further divestments. Importantly, Novatti retained a commercial partnership with Reckon, having onboarded over 300 customers, and recently securing an API integration for access to Reckon’s larger customer base.
Novatti’s external funding initiatives for key growth projects, including the International Bank of Australia (IBOA) and AUDD stablecoin, showcase the company’s forward-thinking approach. The Series A round for IBOA, which has currently raised $950k from external investors, positions IBOA to meet ongoing compliance requirements and progress towards regulatory approval for a full banking licence. Meanwhile, AUDD’s successful pre-seed funding round, increased to $600k to meet investor demand, has made the stablecoin self-funding, eliminating an operational cost for Novatti whilst it retains the optionality of a capital return from this digital innovation.
In addition to these strategic moves, Novatti aims to further optimise its financial position by implementing a substantial cost reduction program in Q3 FY24. Approximately $4 million in annual savings have already been identified, aligning these reductions with the timeline for the Company’s positive cash flow target set for mid-2024.
Novatti reported a robust quarterly sales revenue of $10.7 million, just a marginal decrease on the $10.8m generated in the September quarter, while reducing Group expenses by $800k to $7.2m, a 10% reduction over the same period.
Furthermore, the core Payments AU/NZ business strengthened against Novatti’s 70%+ three-year margin target, with a quarterly margin increase of 11% year-on-year.
Novatti’s strategic review continues, aiming to identify non-core activities that may not align with long-term strategic goals. The Company anticipates that this review will lead to further optimisation and divestment across its business, ultimately strengthening its financial position throughout 2024. With a clear line of sight to positive cash flow and a proactive approach to growth initiatives, Novatti stands poised for continued success in the evolving fintech landscape.
“We want to increasingly align these expense reductions with the timing for our positive cash flow positive target and therefore, we will now use Q3 to implement a substantial cost reduction program, with approx. $4m in annual savings already identified,” added Healy.
“This focus in Q3 will be coupled with a capital raising of up to $5.5m, continuing Novatti’s work on optimising financing of key initiatives,” added Healy.
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