Wirecard (WDI GR) ... 'Skin in the Game'?

Tuesday 6th December 2016

No sooner had I finished writing the post below, than I was alerted to yet another range of alarming concerns being raised regarding Wirecard (WDI GR). Whereas originally, there was the:

FT (here, here, here, here, here, here, here, here, here, and here),
J Capital Research,
then Zatarra Research & Investigations

THIS time, an unnamed author has meticulously pieced together a whole range of information. It is fascinating stuff.

This follows on from the engrossing article published a few weeks back in Reuters:
How a British town became a hub for online porn and poker

As for me, I have written on Wirecard before (see here), focusing on its acquisition of the Indian, GI Retail business.

This post will likely be another of a series of further posts looking at Wirecard.

In the spirit of openness, I am short Wirecard. Wirecard is my biggest short position since Globo (GBO LN). In fact, my confidence has persuaded me to make it my biggest short ever. Time will tell if this is mere swagger. However, my money is where my mouth is which is not altogether clear for others, and so on that subject I present these observations below ...

Director Purchases

I've written on Director purchases before: see here - Director purchases and sometimes lazy longs.

By and large, investors like management with stakes in the companies they run. The thinking goes, that with 'skin in the game', any weakness in the share price is felt not just by the investors but also by management. Hence, interests are closer aligned, and there's few better signals to get an investor's fists pumping than seeing a Director dip his/her hand in their pocket to hoover up some stock. 

Usually this simple reasoning is valid. Usually. 

Aside from the example of Connaught in the link above, more recent examples of where this reasoning has gone wrong include:

• Rob Terry, the former Chairman of Quindell (now Watchstone Group Plc WTG LN) and his use of the services of Equities First Holdings (EFH); and 
• Konstantinos Papadimitrako, the former CEO to the fraud, Globo Plc (see concerns raised here). 

In Rob Terry's case, he initially led market participants to believe that he'd pledged some of his Quindell stock as collateral to an outfit called Equities First Holdings (EFH) in exchange for cash that he then intended to use to buy further Quindell shares. Most of Quindell's shareholders rejoiced at this gearing up. However, in the event, while Mr Terry bought a few shares, he bought nowhere near as much in value as the cash amount he received when pledging his stock for the loan. Mr Terry then withdrew from any further dealings with EFH, kept the majority of the cash from the pledging of his stock, and as soon as he stepped down from Quindell's board, he sold a load more stock into the market. 

In the example of Papadimitrako, he merely dumped as much of his c. 18% stake in Globo as was possible in the months leading up to Globo's bankruptcy. This selling was concealed from Globo's hapless shareholders as Papadimitrako simply didn't report his selling until the days after he came clean on the falsification of Globo's financials. All told, Papadimitrako probably pocketed at least £12 Million through selling stock and not declaring it until it was too late. 

There are other examples, but in each case of the three given above, Connaught, Quindell, and Globo, despite flags being raised well in advance of each company's downfall, longs were seemingly always comforted by the management's 'skin in the game'.

Purchases by Wirecard's Management

According to Bloomberg, through his German company, MB Beteiligungsgesellschaft mbH (MB B), Markus Braun, Wirecard's CEO, is Wirecard's third largest shareholder. Bloomberg shows that MB B holds 7% of Wirecard's stock at the latest count, not far behind the institutions, Jupiter Investment Management and Alken Asset Management; the No. 1 and No. 2 shareholders respectively. The other major holdings can be seen in the table below: 

Major holdings in Wirecard AG
Source: Bloomberg

Bloomberg also has a feature which shows the timing of Markus Braun's sales and purchases through his German company, MB B. The data goes back to at least mid 2008. Red is sales, green represents purchases. This can be seen in graphical form below:

Sales and purchases by MB Beteiligungsgesellschaft mbH (MB B - Markus Braun's German company)
Source: Bloomberg

The timing, volume and closing price on the date of transaction of those MB B sales and purchases is shown by Bloomberg in tabular form below:

Sales and purchases by MB Beteiligungsgesellschaft mbH (MB B - Markus Braun's German company)
Source: Bloomberg

This information makes for some interesting number crunching. Word of warning, I'm assuming Bloomberg data is an accurate source and also that I've not made any inadvertent errors in my maths, so please do double check with your own Panasonic scientific calculators. 

Ok. Here goes ...

The Number Crunching

On my maths using Bloomberg's data, since July 2008, Markus Braun has purchased 1,365,000 shares in Wirecard through his German company, MB B. 

Again on my maths using Bloomberg's data, since July 2008, Markus Braun has sold 1,414,050 shares in Wirecard through his German company MB B. 

However, with the exception of the 50,000 shares and a further 150,000 shares, which MB B acquired in 2008, the remaining 1,165,000 were purchased after MB B sold 1,414,050 shares in 2012.

At the closing prices listed by Bloomberg in the table above (which does not necessarily mean the actual prices realized but might be a ball park figure):

• The purchases in 2008 would have cost MB B, c. €1 Million. This is by no means small change. 
• The subsequent sales in 2012 would have brought to MB B, proceeds of c. €24.2 Million. A material win. 
• The subsequent purchases from 2015 onward, would have cost MB B, c. €45.4 Million. A significant outlay. 

Now, of course there is some rounding error here and there is no guarantee that sales and purchase proceeds and costs would be made exactly at the closing prices listed above. But ball park figure wise, it would seem possible that MB B has hauled in c. €24.2 Million in share sale proceeds and spent c. €46.4 Million in purchasing shares in Wirecard. A net expenditure of c. €22.1 Million on Wirecard stock by MB B since 2008. Wirecard's shareholders must surely be pumping their fists at the results of that number crunching. 

So what is the source of that net c. €22.1 Million spent on Wirecard shares?

Perhaps Markus Braun is very well paid? 

According to Wirecard's 2015 annual report, Markus Braun received total remuneration payments (including benefits) of c. €2.4 Million (2014: c. €1.8 Million). 

According to Bloomberg's data and on the same basis as used above, MB B spent c. €26.6 Million on Wirecard share purchases in 2016, and c. €18.8 Million on Wirecard share purchases in 2015. 

So even though MB B hauled in c. €24.2 Million in proceeds from share sales in 2012, it would appear that MB B's net purchases of c. €22.1 Million dwarfs Markus Braun's annual pay. 

Perhaps there's another source?

It would seem that the annual balance sheets for Markus Braun's German company, MB Beteiligungsgesellschaft mbH (MB B) are filed at the German Company Register: www.bundesanzeiger.de

Unfortunately, the most recently available balance sheet for MB B is as of 31 December 2014. Nonetheless, this bears what some may find to be interesting information. Here is that balance sheet in German - and then a google translation (which I have assumed is accurate) into English - below:

Balance sheet of MB Beteiligungsgesellschaft mbH to 31 December 2014
Source: www.bundesanzeiger.de

Balance sheet of MB Beteiligungsgesellschaft mbH to 31 December 2014 - Google translation into English
Source: www.bundesanzeiger.de

According to the MB B filings, as of 31 December 2014, the company held:

• c. €31.9 Million in financial assets, up from c. €7.0 Million in 2013. It may be worth noting that after the sale of 1,414,050 shares in 2012, that according to data on Bloomberg, the first of MB B's share re-purchases didn't occur until May 2015. This entry may possibly represent MB B's other holdings of Wirecard stock at the time, although one would have thought the market value to be higher than c. €31.9 Million.  
• c. €28.9 Million in receivables and other assets, up from c. €22.7 Million in 2013. 
• c. €0.7 Million in cash and cash equivalents, down from c. €7.3 Million in 2013. 
• c. €25.1 Million in liabilities, up from c. €31 Thousand in 2013. 

Further down the balance sheet of MB B, there are some notes corresponding to the balance sheet items. Here are the notes in German - and then a Google translation into English (which I have assumed is accurate) - below:

Notes to the balance sheet of MB Beteiligungsgesellschaft mbH to 31 December 2014
Source: www.bundesanzeiger.de

Notes to the balance sheet of MB Beteiligungsgesellschaft mbH to 31 December 2014 - Google translation into English
Source: www.bundesanzeiger.de

As shown above, these notes appear to show that as of 31 December 2014, MB B held receivables due from its shareholders, which presumably is Markus Braun, of c. €28.4 Million.

The notes also appear to re-highlight that MB B had c. €25.1 Million in liabilities.

Unfortunately there is no further information on the balance sheet items so it is not possible to conclude:

1. Why Markus Braun appeared to owe MB B c. €28.4 Million in 2014, nor what it related to?
2. If the c. €25.1 Million was a debt item, and if so, WHO had MB B borrowed the c. €25.1 Million from and was any security provided had it been a debt?

Although there is scant detail, one explanation - from the notes to the balance sheet - may be that MB B borrowed c. €25.1 Million from an unknown party and has sent some or all of the monies and more to Markus Braun. There are of course alternative explanations as to the funding of Markus Braun's share purchases. For example, he may simply be incredibly rich or there may be tax advantages to this arrangement. But whether this answers why Markus Braun possibly owes MB B the monies he did in 2014 and who MB B possibly borrowed from in 2014 is unclear.

And another thing

As far as I can tell, Markus Braun is not a member of the Board of Management or Supervisory Board of Wirecard Bank. In light of the above, I found that interesting.  

Wirecard Bank - Board of Management and Supervisory Board
Source: www.bundesanzeiger.de

Wirecard Bank - Board of Management and Supervisory Board - Google translation into English
Source: www.bundesanzeiger.de

I am short Wirecard.

Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in the public domain and where required the source of information is referenced to for verification. While every effort has been made to ensure the veracity of any information contained within this blog, the author accepts no responsibility for the accuracy of any information contained within this blog or for the sources of information which may be referred to. Readers are responsible for their own actions and interpretation of the information contained within this blog. 

Globo (GBO) ... two and a bit reasons ...

... why the cash might not be there. 

Wednesday 28th October 2015

As the ceramic dust settles from the self inflicted smashing of plates over the heads of Globo shareholders, the last straws are being clutched at. Does the company have all that €47 million of net cash it reported in its interims to 30th June 2015?

I very much doubt it and here's two and bit reasons why ...

Firstly, we know that the former CEO, Mr Costis Papadimitrakopoulos "Costis", fessed up at the weekend. Although not before flogging as much of his Globo stock as was humanly possible in the weeks leading up to that. All told he is reported to have sold c. 42 million shares outright in the weeks leading up to Thursday 22nd October 2015, and pledged 10 million shares as collateral for a loan.  

Volume data would suggest that a large chunk of Costis' stock was dumped on Tuesday 20th and Wednesday 21st October 2015, immediately following Tom Winnifrith's fireworks at Globo bearcast at Shareprophets.com on that Tuesday, and the call he received on the Wednesday from the FT's, Dan McCrum (that Globo timeline in full).

The volume data also suggests that the other big sales came in the days and weeks prior and before rumours of the killer Quintessential Capital Management report began. 

Globo trade volume data
Source: Bloomberg

If so, then it looks likely that the catalyst prompting Costis to begin his dumping of stock was the failure of the $180 million high yield bond issue, finally revealed as cancelled, also on Wednesday 21st October 2015. This had been dragging on since June last and so its impending failure had been a long time coming. 

One possible reason Costis began selling may have been his knowledge that a failure to raise a further and far larger debt would leave the company insolvent due to the cash balance also having been misrepresented and falsified.

That's one theory

A second reason there may be no cash is from an inspection of the group's balance sheet and the receivables, payables and debt held by its subsidiaries and associates. 

Below is the group's assets and liabilities to 30th June 2015

Globo assets and shareholders' equity
Source: Globo interims

Globo liabilities
Source: Globo interims

The group claims €104 million in cash and cash equivalents.

Also in the assets section is €55 million in trade receivables, €5 million of other receivables and €35 million in other current assets. 

Within its liabilities, the group reported €57 million in borrowings, €9 million in trade and other payables and a further €10 million in other liabilities. 

Without doubt the debt is definitely real, leaving the reported €47 million in net cash. What is less likely is, given the reported falsification of data, that the trade receivables, other receivables and other current assets are entirely real or ever likely to be recovered. 

However, by contrast, I would imagine that a large portion of the liabilities (excluding debt) are very real. Ex-debt and tax, the remaining liabilities come to c. €19 million. 

Here is the balance sheet of  Globo's divested associate, Globo Technologies, to 31st December 2014.

Globo Technologies balance sheet
Source: Globo Technologies

This shows, that Globo Technologies had a total €27 million in borrowings. As it is an associate, Globo Technologies debt will not have been consolidated into Globo's accounts. But there is possibly some risk that the debt is fully secured against Globo Plc or that Globo Plc is on the hook for at least 49% of it.   

Another factor to consider is that historically all facilities provided by banks have been secured against receivables, and it was never quite understandable what the statement "In addition, the Group has also secured major customer contracts in exchange for 60-70% of the contract value." ever meant.

Historically borrowings were secured
Source: Globo 2012 annual report

Further, the 2014 annual report highlights that "When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate."

So are there any legal obligations?

Investment in associate
Source: Globo 2014 annual report

And another thing

As we now know, Globo has(d) a partnership with Metis SA. Indeed, in its report, QCM reckoned on Metis being one of the satellite companies to Globo.

Metis partnership with Globo
Source: www.metis-net.com/en-GB/our-partners/

According to Metis' website, Pyramis is/was a customer of Metis.

Pyramis is a Greek based kitchen sink manufacturer of all things.

I say is/was, as rather perversely, up until Friday 23rd October 2015, Pyramis seemingly was a customer of Metis. The Pyramis logo has mysteriously disappeared since Globo announced its financial irregularities. It is also the only customer to have seemingly disappeared from Metis' webstite.

Now why would that be?

Now you see it!

Metis SA customer list including Pyramis
Source: Wayback machine snapshot from 23rd October 2015

Now you don't!

Metis SA customer list no longer including Pyramis
Source: www.metis-net.com from 28th October 2015

The Pyramis website shares the same server as Altanet and indeed, bottom right of the Pyramis website is a link to Altanet's, Altab2x logo, which directs you to the Altanet website.

Pyramis website "Powered by altaB2x"
Source: www.pyramis.gr

Pyramis website "Powered by altaB2x"
Source: www.pyramis.gr

So Pyramis has some sort of relationship with Alanet.

As it happens, Altanet also designed a number of the Globo subsidiary websites.

Altanet's design of Globo's subsidiary, Profitel's website
Source: www.altanet.gr

It would appear that Altanet is a customer to Globo and vice versa.

Altanet partnership with Globo
Source: www.altanet.gr

Altanet strategic partnership with Globo
Source: www.altanet.gr

So Metis is a customer/reseller/partner of Globo's.

Pyramis is/was a customer of Metis; mysteriously this relationship seems to have ended in recent days.

Pyramis is also a customer of Altanet.

Altanet is a client of Globo and Globo is a client of Altanet.

It's all rather incestuous and circular.

Incidentally, a Mr. Nikolaos A. Bakatselou is the CEO of the fore-mentioned, Greek based, kitchen sink manufacturer, Pyramis.

Pyramis Group board
Source: www.pyramisgroup.com

He is also on the board of the Greek based, Attica Bank.

Attica Bank board
Source: www.atticabank.gr

That's the bit I found interesting.

Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in the public domain and where required the source of information is referenced to for verification. While every effort has been made to ensure the veracity of any information contained within this blog, the author accepts no responsibility for the accuracy of any information contained within this blog or for the sources of information which may be referred to. Readers are responsible for their own actions and interpretation of the information contained within this blog. 

Globo (GBO) ... finally, all is revealed

Monday 26th October 2015

"Falsification of data and misrepresentation of the Company's financial situation."

Who'd have thunk it?: Globo thread 

CEO gone.

CFO gone. 

COO's palm to forehead ... thwack ... and suspended. 

CEO sold as much of his stock as possible. 

Joint broker, Canaccord resigned with immediate effect. 

Major questions for Grant Thornton the auditor and RBC Capital Markets the Nomad.

And who bought the CEO's 42 million shares? 

GBO - it's all over
Source: Bloomberg

Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in the public domain and where required the source of information is referenced to for verification. While every effort has been made to ensure the veracity of any information contained within this blog, the author accepts no responsibility for the accuracy of any information contained within this blog or for the sources of information which may be referred to. Readers are responsible for their own actions and interpretation of the information contained within this blog. 

Globo (GBO) ... a few piccies redux

Monday 27th July 2015

Back in October 2013, I posted a few charts on Globo (GBO, mkt cap £172m), the AIM listed software company currently seeking to raise c. $180 million by way of high yield debt. 

Here they are updated. I am short GBO. 

Source: Globo annual reports

The above chart and immediately below chart highlights the group's net cash received by way of share and debt issuance during the period 2007-14. It does not include the further $180 million the group is currently seeking to raise by way of a high yield bond. 

Source: Globo annual reports

Source: Globo annual reports

Source: Globo annual reports

Source: Globo annual reports

Source: Globo annual reports

Source: Globo annual reports

Source: Globo annual reports

Source: Globo annual reports

Source: Globo annual reports

Bonus charts

And here are the bonus charts on Globo Technologies ...

As a reminder, in December 2012, GBO sold 51% of its subsidiary, Globo Technologies (GT), to a company called, Zipersi Consulting, owned by GT’s management team. GT was sold for €11.2 million, although the sale was principally financed by the vendor, Globo, with deferred consideration due.

One may well ask why GBO elected to sell 51% of its stake in GT? If the business was bad, then why not sell all of it? If it was a good business, then why sell it at all, or even as much as 51%? Especially on preferential financing terms to the management team buyers?  

Nonetheless since December 2012 ...

Source: Globo Technologies annual reports

GT's 2014 trade receivables and revenue recognised under IAS 11 is now equivalent to 109% of revenue. This is up from 64% in 2012.

Source: Globo Technologies annual reports

Meanwhile, GT's net debt has ballooned from €0.780 million in 2012, to €20.036 million in 2014. 

Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in the public domain and where required the source of information is referenced to for verification. While every effort has been made to ensure the veracity of any information contained within this blog, the author accepts no responsibility for the accuracy of any information contained within this blog or for the sources of information which may be referred to. Readers are responsible for their own actions and interpretation of the information contained within this blog. 

Globo (GBO) ... a peek at the Greek

Wednesday 16th July 2014

• Globo (GBO) divested 51% of its Greek operation, Globo Technologies (GT), in Dec 2012.
• GBO values GT at c. €23.7 million.
• 57% of GT’s net book value appears to be related to capitalised intangibles/software.
• 17% of GT’s net book value appears to be trade receivables over one year past due.
• GT’s revenue declined by 29% in 2013.
• GT's software related revenue fell by €14.480 million or by 75% in 2013. 
• GBO's Enterprise and Mobile software project revenues rose by €17.781 million in 2013.
• GT reported a €12.529 million cash outflow in 2013, largely on intangible/software items. 
• GT’s net debt has risen to €13.731 million in 2013 (2012: €0.780 million).
• GT trade receivables and revenue recognised under IAS 11 is 101% of 2013 revenue.
• 36% of GT’s trade receivables are over one year past due.
• GT has not reported positive operating cash flow for two consecutive years.
• GT's 2013 free cash flow was negative c. €12.867 million. 
• GT is held on GBO’s balance sheet with a value of €11.625 million (2012: €10.464 million).
• GT's management still owe GBO €9.7 million.
• I am short GBO.

Globo’s (GBO) 49% stake in Globo Technologies S.A. (GT) is held on Globo’s balance sheet with a value of €11.625 million as “Investments in an Associate”, while €9.700 million is due from GT's management as “Proceeds from disposal of a subsidiary”. A total of €21.325 million is attributable to GT, which is just over 15% of GBO’s net asset value for 2013. Other than an update from September 2013, little has been heard of GT since GBO’s Greek operation was divested on 3 December 2012.

Globo 2013 accounts: Investment in Associate

Globo 2013 accounts: Proceeds due from Globo Technologies

GBO sold 51% of its subsidiary, Globo Technologies (GT), to a company called, Zipersi Consulting, owned by GT’s management team. GT was sold for €11.2 million. This was deferred consideration. In fact the payment schedule seemed particularly favourable, with only €2.0 million of the deferred consideration due over the first two years and €9.2 million due from December 2014, through to a final instalment of €3.7 million due in December 2016.

In addition to the preferential financing terms, according to GBO's 2012 annual report, in note 15, while an initial €400,000 was received by GBO as a first receipt of consideration due from GT's management team, it would also appear that €7,061,000 in cash and cash equivalents went to GT. This resulted in a net cash outflow on disposal of GT, of €6,661,000. This is an altogether odd flow of cash for a disposal. Usually one would imagine that the cash flows from the acquirer to the vendor and not the other way around, albeit with an understanding that it flows back over the years to come.

Net cash outflow upon disposal from Globo to Globo Technologies
Source: Globo 2012 annual report

Flow of cash from Globo to Globo Technologies
and anticipated deferred consideration schedule from GT's management team
Source: Globo 2012 annual report 

One may ask why GBO elected to sell 51% of its stake in GT? If the business was bad, then why not sell all of it? If it was a good business, then why sell it at all, or even as much as 51%? Especially on preferential financing terms to the management team buyers?  

The upshot of all this was partly aesthetic in that a boat load of receivables prior recorded on GBO’s balance sheet, were replaced by a relatively anodyne “Investment in associate” and “Proceeds due”. Indeed this was alluded to in the accompanying divestment announcement:

“In addition, the exclusion of assets and liabilities (including debt) from the Group’s balance sheet will provide significant additional visibility to the investor community on the Group’s international operations and financial performance.”

Globo updated the market on 23 September 2013, as to its own and GT’s performance. At that time, GBO’s CFO, Mr Dimitris Gryparis stated:

“The divested company Globo Technologies S.A. is out-performing expectations and trading ahead of forecasts. For the six months ended 30 June 2013, its revenue increased by 233% to €13.64 million (H1 2012: €4.09 million). It has a pipeline of public and private sector contracts of more than €10 million to the end of the year.

Profit after tax reached €1.49 million, with that attributable to the Globo Group, as a 49% shareholder, being €0.7 million.”

GT’s 2013 full year accounts can be found here. They highlight that revenue in the full 2013 year was €25.224 million, down from €35.701 million in 2012. There are several things to note here:

1. This is a dramatic year on year decline in revenue. Revenue fell by 29%.
2. If, as GBO’s CFO highlights, GT achieved €13.64 million of revenue in H1 2013, as against €4.09 million for H1 2012, then this means that GT’s H2 2012 revenue would have been €31.611 million. This would imply that while GT’s H1 2013 revenue may have been 233% higher as compared to H1 2012, that H1 2013 revenue was 57% lower than revenue achieved in H2 2012. Further, at €11.584 million, H2 2013 revenue would be 63% lower than H2 2012 revenue. See GT's revenue trends as implied by Globo statements and GT's 2013 accounts in the chart below.  
3. GT's revenue decline was attributable in the main to a €14.480 million fall in software applications revenue. This fell from €19.209 million in 2012 to €4.729 million in 2013. A drop of 75%. Incidentally, in the same year, GBO's Enterprise mobility licences & subscriptions and Mobile software projects business lines were going great guns. They grew revenue a combined €17.781 million in 2013. As highlighted further down, while GT's software related revenue plummeted, its cash outflows on capitalised software related items went considerably higher. Why was this when revenues were falling so sharply? 

Revenue of Globo Technologies as implied by Globo statements and Globo Technologies accounts
Source: Globo, Globo Technologies annual reports

The quality of GT’s revenues is also worth considering. GT’s accounts highlight that revenue rose and fell as follows in the chart below during 2010 to 2013:

Globo Technologies revenue: 2010 to 2013
Source: Globo Technologies annual reports

GT’s trade receivables were as follows during 2010 to 2013, highlighted in the chart below:

Globo Technologies trade receivables: 2010 to 2013
Source: Globo Technologies annual reports

GT’s revenue recognised under IAS 11, which is essentially revenue recognised under long-term contracts and the corresponding cash due, was as follows during 2010 to 2013 as highlighted in the chart below:

Globo Technologies revenue recognised under IAS 11: 2010 to 2013
Source: Globo Technologies annual reports

And finally, adding trade receivables and revenue recognised under IAS 11 together and contrasting this with reported revenue during 2010 to 2013 was as highlighted in the chart below:

Globo Technologies revenue, trade receivables and revenue recognised under IAS 11: 2010 to 2013
Source: Globo Technologies annual reports

GT’s 2013 trade receivables and revenue recognised under IAS 11 is equivalent to 101% of revenue in 2013. This was up from 64% in 2012. 

Having established that GT’s revenue was equivalent to 101% of its trade receivables and revenue recognised under IAS 11, now what about the quality of those trade receivables?

Trade receivables were reported as €15.770 million in 2012. Of these, €1.365 million was reported as being above 360 days overdue. Hence in 2012, 9% trade receivables were over a year past due.

By 2013, trade receivables were reported as €12.363 million. Of these, €4.402 million were reported as being above 360 days overdue. Thus in 2013, 36% of trade receivables were over a year past due.

English translation of Globo Technologies ageing of trade receivables
Source: Globo Technologies 2013 annual report

Greek original of Globo Technologies ageing of trade receivables
Source: Globo Technologies 2013 annual report

Percentage of Globo Technologies trade receivables over 360 days past due
Source: Globo Technologies annual report

So we have now established that GT’s trade receivables and revenue recognised under IAS 11 was equivalent to 101% of revenue in 2013 and that 36% of its trade receivables were over a year past due. I reckon this to be an alarming deterioration in the quality of revenue and corresponding cash flows.

Of course in the spirit of openness, it is worth highlighting that:

1. While 2013 revenue experienced an outright decline of 29% YOY;
2. and that this (101%) was more than all reflected in trade receivables and revenue recognised under IAS 11;
3. and that 36% of these trade receivables were more than a year past due;
4. that GT’s operating profit actually improved (!!!) by 144% to €5.980 million in 2013 from €2.453 million in 2012.

But also worth highlighting is that GT’s net debt increased from €0.780 million in 2012, to €13.731 million in 2013, as illustrated in the chart below, and indicated in the company's balance sheet. This was primarily driven by an increase in long term debt from €0.953 million in 2012 to €15.533 million in 2013. The extra debt was seemingly needed to fund GT's considerable rise in capitalised software related cash outflows.

Globo Technologies net debt
Source: Globo Technologies annual reports

English translation of Globo Technologies 2013 balance sheet
Source: Globo Technologies 2013 annual report

Greek original of Globo Technologies 2013 balance sheet
Source: Globo Technologies 2013 annual report

GT’s cash flow statement highlights that it spent a fair wodge of cash on the purchase of tangible and intangible assets in 2013. GT’s cash flow statement highlights that there was a €12.529 million outflow related to the purchase of tangible and intangible assets in 2013, up from €6.050 million in 2012. The bulk if not all of this appears to have gone on "Δικαιώματα βιομηχανικής ιδιοκτησίας", which is translated as being "Industrial property rights". As this falls in the intangible assets section, I presume this means some sort of software related licensing or development. 

So while GT’s net assets were reported to have risen to €25.853 million in 2013, from €22.617 million in 2012, this was more than driven by an increase in reported intangible/software assets to €14.679 million in 2013, from €3.362 million in 2012. I.e., of GT’s 2013 net assets of €25.853 million, 57% (€14.679 million) is in the main, "Industrial property rights" or software related licensing or development. 

... Oh and whilst on GT's net book value, do not forget that of €12.363 million in trade receivables in GT’s net assets, 36% are over a year past due, hence 17% of GT's net assets is actually trade receivables over a year old.

... And also recall that software application related revenues fell by €14.480 million in 2013, while seemingly c. €11.047 million in software related expenditure was capitalised in 2013.  

English translation of Globo Technologies 2013 cash flow statement
Source: Globo Technologies 2013 annual report

Globo Technologies cash flow statement
Source: Globo Technologies 2013 annual report

Why is this important? It’s important because having been 51% disposed of, seemingly to eradicate unappealing trade receivables, GT is now booked on GBO’s balance sheet with an implied value of €23.7 million. This is almost GT's net book value (NBV), a book value of which 57% (2012: 16%) is comprised of software related development or licensing. A further 17% (2012: 6%) of GT's NBV is attributable to trade receivables which are over a year past due. Further, GBO has marginally increased its valuation on a company where revenue fell by 29% in 2013, and over 100% of that revenue is reflected in trade receivables plus revenue recognised under IAS 11. Further still, while software related revenues plummeted in 2013, software related cash outflows sky-rocketed. In the meantime, GBO's Enterprise and Mobile software business experienced strong revenue growth. In terms of cash flow, GT hasn't generated positive operating cash for two years running. Free cash flow was negative €12.256 million in 2013. GT's net debt has ballooned. And GT's management still owes GBO €9.7 million!

What would Mr Mostafa Khder say about all this?

Mr Mostafa Khder, reviewer of Globo's GO!Enterprise app
Source: Google Play

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