EML Payments (ASX: EML) (OTCPK: EMCHF) shares are up 32% this morning. EML shares are up on the back of the full year results. Which show, amazingly, a net loss greater than total gross revenue. Which is some going really. The secret to this is that there’s a non-cash write off of the Irish card business. Well, such things do need to be done, adjusting capital values on the books to what the real world value of the business actually is.
Now, it’s true, we are cynics, and given that we’ve got an interim CEO here we might suspect just a little bit of kitchensinking. If things are going to be bad then do all - absolutely all and more - of the bad things in the early days of being the new CEO. That can all be blamed on the predecessor and returns during the period of the new CEO look rather good as they rise from the bottom. Even, some of the non-cash write offs might make it back onto the balance sheet at some future date as values are “recalculated”. But that would be very cynical to think that way.
The actual results: “Record revenue of $254.2 million exceeding guidance Group underlying EBITDA of $37.1 million1 exceeding guidance Net loss after tax of $284.8 million inclusive of after tax impairment recognition of $258.9 million in relation to PFS Group and Sentenial Group Cash balance as at 30 June 2023 of $71.4 million”
Now there’s always a little art to reading corporate announcements. One we should use here. Note what is not said about actual underlying, before non-cash write off, profits.
EML Payments share price from Google Finance
But we can work that out for ourselves. Forget EBITDA because that’s too manipulable by those who wish to manipulate it. Also, it doesn’t cover the costs of borrowings - something pretty important in the scheme of things. What’s the actual net loss from the operating business then? Well, we’ve the total net loss of $284 million, the non-cash write off of $259 million and so the net loss in real money terms is $25 million.
OK, that’s not actually right, the treatment of tax and so on is more complicated than that. But this is why we’ve not been told what the underlying operating loss is - because it’s still a loss despite record revenues. Which does mean that EML Payments has problems other than just that Irish card business.
As we said, there’s an art to reading these corporate announcements. This is all explained deeper into the accounts but what’s down there and not in the headlines is exactly the bit management doesn’t want you to think about.
