Humm says BNPL unit unprofitable and backs $320m sale to Latitude Financial

The non-bank lender reveals its buy now, pay later business is unprofitable and urged investors to back its $320m sale to Latitude Financial.

Humm has revealed its buy now, pay later business is currently unprofitable and urged investors to back its $320m sale to Latitude Financial. Picture: Supplied

In an extraordinary move to try and seal the sale of its consumer finance unit to Latitude Financial, Humm has warned shareholders that the unit is currently unprofitable.

In a statement to the ASX, the majority of the Humm board, excluding director and significant shareholder Andrew Abercrombie, said the unaudited results of the buy now, pay later unit, “has not been profitable’ in the four months to April 30 after accounting adjustments.

“This is a materially lower result than for the comparable period last year,” the company said in a statement on Monday.

The once-hot BNPL industry has suffered a catastrophic fall from shareholder grace all around the world in recent years. While consumer usage of this method of credit has surged, so too have bad debts and fears the industry will soon face a much tougher regulation.

Margin erosion and increased competition are creating significant challenges for the sector, said Humm chairman Christine Christian, who warned the tough conditions in the period to April 30 would continue.

“We are being really transparent,” Ms Christian told The Australian. “The entire sector has been impacted in recent times so this is about making sure shareholders have the best information around our performance.”

Humm shareholders are set to vote on the takeover of the consumer finance division on June 23.

In the current period, “the headwinds will continue,” Ms Christian said. “Rising interest rates, a broader sell off in tech. All these things are playing into a sector that’s enduring significant change and competition.”

Earlier this month, Humm released the explanatory booklet and independent expert’s report recommending shareholder accept the takeover bid.

Latitude announced its takeover offer of 150 million Latitude shares and $35m in cash in January against a challenging backdrop for other players in the fintech and personal lending.

Market conditions have worsened since the takeover was announced, with inflation and interest rates both rising.

A majority of Humm directors have recommended the sale.

One director, Andrew Abercrombie, who holds 20 per cent of Humm’s shares, has recommended voting against the proposal., described the offer as “highway robbery,” and shrugged off the company‘s warnings today about the unprofitability of the unit.

“The underlying performance of the business is solid,” said Mr Abercrombie. “This is a dud deal for shareholders, as it stands, and should be rejected outright.”

“Plus about 70 per cent of Latitude is owned by private equity, who after six difficult years will be sprinting for the exit door,” Mr Abercrombie added.

Despite the headwinds in the BNPL sector, it is continuing to attract global financial companies such as Apple Pay and PayPal.

Consumers have piled into buy now, pay later products, in the US spending five times the 2019 figure to $US100bn in 2021, according to Cornerstone Advisors.

Investors also jumped on board in the early stages of the cycle as they realised the potential of credit-style products that faced few, if any, of the normal credit card regulations.

Humm shares were up 3.4 per cent at 76c on the ASX late Monday.