Exclusive: NAGA Group posts €37 million loss in 2022
FNG Exclusive… FNG has learned that Hamburg based, social trading focused Retail FX and CFDs broker NAGA Group AG (ETR:N4G) has filed its 2022 financial statements following a lengthy delay, providing more insight into the company’s operations, and the extent of some of its troubles.
We expect the company to make a formal announcement shortly regarding its 2022 financials, and (possibly soon) its first half of 2023 results which have also not yet been released.
NAGA’s delayed 2022 results
NAGA Group, whose shares are listed listed on the Frankfurt Stock Exchange in the over-the-counter market in the “Basic Board” segment, had not formally filed financial results since its Half-Year Report 2022 until now, following a restatement of 2021 results and a decision to part ways with auditor Ernst & Young in September 2022, as was also reported exclusively at the time here at FNG. (MSW GmbH in Berlin was hired to replace E&Y as auditor). However the company has released periodic summaries of quarterly revenues, EBITDA, and certain other information during 2023.
NAGA noted that technical problems in the accounting recording of transactions with cryptocurrencies took significantly more time than expected, and thus led to considerable delays in the preparation of its 2022 financial statements and 2023 half-year financial statements. The technical difficulties were mainly related to the setup of software for the accounting recording of transactions in cryptocurrencies.
NAGA’s 2022 results
On the top line, NAGA actually increased its Revenues somewhat in 2022, at €57.6 million versus €52.9 million in 2021. However the growth came at considerable cost with marketing and advertising expenses of €28.3 million eating up almost half (49%) of Revenues. NAGA – which had been making big bets on crypto – also wrote off €15.3 million related to its own NAGA Coin (NGC).
The company also had ramped up Development expenses in 2022 (€6.7 million versus €3.5 million in 2021), Personnel expenses (€10.7 million vs €8.0 million), and other operating expenses (€12.0 million vs €8.0 million). When all was totaled, NAGA Group posted a loss of €37.0 million in 2022, up from a €10.8 million loss the previous year.
The losses led NAGA to borrow money in early 2023 in the form of an $8.2 million 6-month convertible loan note issue, which NAGA has already had to refinance by taking out a new 12-month institutional loan last month to help repay the old debt coming due.
NAGA geographical results
From NAGA’s core brokerage business which represents the vast majority of its Revenues, about 90% were generated from customers in the EU in 2022 – up from a more balanced 54% in 2021. And 43% are attributable to customers in Germany.
NAGA merger with another broker
Back in January 2023, we had reported that in NAGA Group was in serious discussions on a merger with a “multi-country brokerage firm.” The merger was reportedly subject to due diligence and (at the time) expected to close in Q4 2023, subject to regulatory approvals and certain other conditions. NAGA’s new filing now calls it a “possible strategic transaction with a multinational brokerage company, possibly in the form of a merger of the two companies.”
NAGA Group ownership
As of December 31, 2022, NAGA Group founder and current CIO Ben Bilski owns 2.945 million shares or 5.4% of outstanding. CEO Michael Mylonas holds 3.051 million shares (5.6%). Former board member Christian Angermayer owns 800,000 shares (1.5%).
However the largest shareholder in NAGA is China based Fosun Fintech Holdings (HK) Ltd., which exercises a “controlling influence” over NAGA Group AG due to its equity interest of 34% in the company, a voting agreement, and Fosun’s representation on the Supervisory Board by Deputy Chairman Qiang Liu. Fosun is thus considered a related party of NAGA Group AG.
Since January 1, 2023, Fosun has exercised “significant influence” over NAGA Group AG. NAGA is included in the consolidated financial statements of Fosun International Ltd. The ultimate controlling shareholder of Fosun is Guo Guangchang. Guo Guangchang is Chairman and co-founder of Fosun International Limited, and a representative of the 12th Chinese People’s Political Consultative Conference. According to Forbes he was listed as the 50th richest person in China (2019) with a net worth of $6.5 billion, and is sometimes referred to as “China’s Warren Buffett.”
NAGA Outlook for 2023
For the fiscal year 2023, the NAGA Group Executive Board said that it is planning for declining Group sales, which will be more than compensated for by improved efficiency in marketing and sales. The focus will no longer be on aggressive sales growth, but on generating stable and reliable profits. Under the premise of significant cost reductions, the earnings figures are to be visibly improved.
From what the company has released in quarterly financial summaries during 2023, that statement would seem to be correct. NAGA quarterly Revenues have dropped below €10 million in Q2 and Q3 of 2023, but the company’s cost cutting efforts have resulted in positive EBITDA of €4.2 million for the first nine months of 2023.
On the cost cutting side, the main savings seem to be coming from a drastic drop in marketing outlay, which totaled just €4 million in the first nine months of 2023 versus (as noted above) more than €28 million for all of 2022. NAGA’s average net acquisition cost per new account improved drastically, decreasing from €1,269 in the first nine months of 2022 to just €181 for the same period in 2023.
NAGA’s increased international focus
While NAGA was dependent on the EU for 90% of its brokerage Revenues in 2022 (with nearly half of that coming from Germany, as per above), the company said that the license granted in 2022 in the Seychelles for NAGA Capital will enable the company to grow more outside Europe.
With increasing B2B business, NAGA said it can now offer multiple payment processors, which are essential in many markets such as Latin America or Southeast Asia. NAGA reports it has already been able to build up a lot of customer interest “there”, which can be monetized thanks to the license and the newly available methods.
NAGA stated that the business outside Europe offers strong growth opportunities, as acquisition costs are lower and profitability per customer is significantly higher compared to Europe. In the first half of 2023, NAGA had increased its focus on developing the Group’s infrastructure to provide a framework for success in emerging markets. A focus on acquisition, payment methods, and local regulation will provide the foundation for continued success in the second half of 2023. The presence in Asia, the Middle East, Africa and Latin America will be expanded by leveraging NAGA’s strategic partnerships with proven market leaders in these regions and opening new local offices.
NAGA Group’s 2022 income statement follows: