EXCLUSIVE:New Retailer Payment Terms Hurting Cash Flow Claims Supplier
Buddy Technology the manufacturer of LIFX lighting products claims that a move by retailers, to change their trading terms is causing “significant” cash flow delays for suppliers who are already facing shipping and manufacturing cost blow outs.
LIFX products are currently sold at JB Hi Fi, The Good Guys and Harvey Norman.
In a brief to the ASX the share listed Company, claims that the move by retailers in Australia, to jack up payment terms has in some cases seen payments by retailers pushed out to 90 days, a move that has resulted in their cash receipts falling by 16% on the prior quarter to $6.6 million.
Buddy Technologies management claimed that retailers including those they supply in Europe, the UK and the USA extended their payment terms between 1 October and 1 January, with customers on 45-day payment terms now being paid in 60 days.
Customers on 60-day payment terms have been pushed out to 90 days.
Facing problems last year that saw the stock suspended from the ASX, the business has been forced to dramatically cut costs with their headcount reduced by 32% and their administration costs slashed by 42% year on year.
Despite the cuts the Company still burnt through a significant amount of the $10M in trade finance they secured last year.
Current assets decreased approximately A$2.9 million quarter-on-quarter and as of 31 December 2021, the Company had used up US$7.9 million of its US$10 million trade and inventory finance facility.
In Q2FY22 the business delivered a 27% increase in customer revenues (to A$8.0 million) over the prior quarter, in line with holiday seasonality and promotional periods, including Halloween, Thanksgiving/Black Friday/Cyber Monday, Christmas and Boxing Day sales.
The business is now “achieving higher margins for their LIFX product range following the restructure of the business, with margins now running at 43.1% which they describe as an “A very significant improvement” from FY21 when they were only achieving a margin of 25.8%.
Despite the margin increase top line revenue were down by A$1.5 million for the quarter.
The Company also admitted that Q3FY22, margins are expected to be lower as the Company “seeks to reduce aged inventory to more appropriate levels”.
They aim to achieve this by investing in major promotional periods such as Amazon Prime Day.
Executives claimed that the impact of the COVID-19 pandemic (and specifically the “Omicron” variant) continues to be felt by the business, “although not currently from the supply chain, but customers’ operational logistics” they claimed.
In 2021, the Company disclosed that it had, in part, circumvented its critical component shortage by way of introducing an alternately-source part to supplement
The first batches of LIFX Colour 800 lights using both component alternatives successfully entered production in 2021 and is due in stores shortly.
Also, in pre-production is a new mid-tier colour downlight for the Australian/NZ market.
As of 31 December 2021, the Company’s cash balance was A$1.3 million, and cash flows from
operating activities during the quarter are summarised below.
● Receipts from customers of A$6.6 million from the sale of LIFX products and
provision of commercial services/products
● Expenditure of A$217k on research and development and web costs for new
products and the Company’s online presence
● Product manufacturing and operating costs for manufacturing LIFX and commercial
products of A$3.0 million
● Advertising & marketing costs of A$520k
● Staff costs totalling A$1.7 million
● Administration and corporate costs of A$386k
● Payment of interest of A$939k
● No government rebates or subsidies for COVID-19 support
● Payment of A$366k for non-recurring costs related to restructuring.
Cash flows from financing activities included:
● A$410k proceeds from borrowings
● Payments of A$641k related to repayment of borrowings and associated borrowings