FNG Exclusive… FNG has learned via regulatory filings made in Germany that social trading focused online broker NAGA Group AG (ETR:N4G) has taken steps to finalize some of its accounting issues, which have prevented the company from filing finalized financial statements for 2021 and 2022 year-to-date.

The Hamburg based, CySEC licensed NAGA has also confirmed that it has successfully implemented a series of cost cutting measures, which should help the company operate in an EBITDA positive manner in the coming months. NAGA has seen its share price drop by about 85% from near the €9 level toward the end of 2021, to €1.34 currently.

First, to the accounting issues.

NAGA stated in the filings that it has had to revise its revenue and earnings figures for the 2021 financial year reported earlier in the ad hoc announcement of July 19, 2022. The key reason for the revision are changes in the assessments of the auditors regarding the scope of capitalizable expenses for customer acquisition, which were already a focus of the audit in the previous year.

Due to omissions by the auditors during the 2020 annual audit, they came to the conclusion when they re-examined the facts as part of the 2021 annual audit that a significant part of the expenses for customer acquisition capitalized by the company as intangible assets in so-called “affiliate marketing” cannot be capitalized according to the IFRS accounting rules.

Effectively, the company’s Revenues for 2021 were restated to €52.9 million (from an earlier indication of about €55 million), still more than double 2020’s €24.3 million. Due to the expensing of previously capitalized customer acquisition costs, as noted above, NAGA will report negative EBITDA of -€4.2 million for 2021. (2020 EBITDA has also been revised slightly downward, from €6.6 million to €4.5 million).

Management indicated that audited financial statements will be published on the company’s website in the second half of September 2022. The delays were mainly caused by the complexity of the tests, adjustments and resource bottlenecks on the test side. NAGA also stated to regulators that its cooperation with Ernst & Young will end and that a new auditor for the 2022 financial year will be proposed for election at the upcoming 2022 Annual General Meeting.

Regarding cost control, NAGA management reported that since the end of the second quarter of 2022 they have been actively working on reducing group costs, with monthly cost reductions of more than 15% already achieved. By the end of the current year, the monthly costs will be reduced by around 25 to 30% compared to the last 12 months. At the same time, the company said that its focus on optimizing marketing spend is paying off. Around 50,000 registrations were registered in the last two months. The cost per customer has improved by over 40% and shows another “positive trend”.

NAGA CEO Ben Bilski stated:

“The market situation has changed drastically. Where the focus was on revenue growth nine months ago, profitability and cash flow are the new core KPIs, particularly in growth and technology stocks.

NAGA has invested heavily in expansion and technology, delivering triple-digit percentage growth in recent years. The narrative is now changing and we will focus on turning cash EBITDA positive while still showing solid growth. This will take a few months. We have managed to develop one of the most modern broker platforms, a regulated crypto exchange and a comprehensive payment app. Now it’s about efficient customer growth and scaling. We are firmly convinced of our business model and will successfully follow this path.”

NAGA also stated that its new crypto card program will start on September 7. Leading banking-as-a-service provider Contis by Solaris and NAGA Pay are launching a VISA-approved card program that enables users to spend both fiat and cryptocurrency at the point of sale in real-time. Later this week on September 7, the NAGA Pay app will activate the “Pay with crypto” feature in the app stores for all customers.

Ben Bilski added:

“With our ‘Pay with cryptocurrency’ feature, our users can choose at any time which currency – whether euro or cryptocurrency – they want to use to pay at the checkout or online. The entire transaction happens in real-time and is automatically carried out in the background by our EU-regulated crypto exchange NAGAX. Over 50 cryptocurrencies are supported and can be paid in and out directly in the NAGA Pay app via the blockchain. Contis’ buffer solution also offers the feature that compensates in real time with cryptocurrencies if a user does not have enough money in their account to pay. Thus there is complete flexibility and the user can set at any time which cryptocurrencies are to be used for payment.”