SME lender flags ‘negative shift’ in borrowings

An ASX-listed business lender has told shareholders that the group has experienced “lower than expected” levels of borrowing among some of its major clients.

Scottish Pacific yesterday provided an update on trading conditions following the completion of the first four months of FY17.

The company advised that it has experienced lower than expected levels of borrowing during the first four months of FY17, predominantly among some of its larger clients, who are borrowing less than expected.

“As a result, this has impacted gross income and hence net revenue is below expectations at this point in the company’s financial year. However, the company’s margins are in line with expectations and costs and bad debt expense are lower than expected,” Scottish Pacific said in a statement.

“Accordingly, the company has decided it is prudent to review its forecasts, assuming borrowing levels (as a percentage of turnover) do not see any uptick during the remainder of FY17. This has resulted in a decline in forecast net revenue of $8.2 million (7.5 per cent).”

The lender, which listed on the ASX earlier this year, now expects to produce pro forma PBIT of $40.7 million and pro forma NPATA of $30.8 million for the year ended 30 June 2017. This compares to a prospectus forecast of $44.9 million pro forma PBIT (down 9.3 per cent) and $31.8 million pro forma NPATA (down 3.1 per cent).

“The month of July 2016 saw a negative shift in client borrowings as a percentage of monthly turnover of approximately 6 percentage points,” Scottish Pacific CEO Peter Langham said.

“While we expected a negative impact in July due to uncertainty created by the Australian federal election, borrowing levels for some of our larger clients have not yet seen a sustained return to previous levels,” he said.

“These lower levels of borrowing appear to be the result of certain dynamics amongst a small number of our larger clients.”

Mr Langham said the group has not seen a general softening in borrowing across its broader client base.

“Importantly, the impacted clients are still active and their borrowing requirements in the future may increase. It is reassuring to note that we have received limit increase requests totalling $57 million from just 11 existing clients in the past four months. More broadly, the volume of new client wins is good and the pipeline remains strong. Client attrition numbers are only slightly higher than expected, with loan value to new clients gained 60 per cent greater than for clients lost.”

Mr Langham said the number of new business enquiries continues to rise and reached record levels in October.

“We continue to invest in growth in the business, in both our core debtor finance and new and evolving businesses, such as bad debt protection, selective invoice finance and trade finance.”

[Related: Scottish Pacific completes ASX listing]

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