The flash-sales business model almost completely broke down in 2015.
The loss for the group (for 2015) after providing for income tax amounted to approximately $80 million.
The 2014 loss was $67 million.
Quite logically, these losses are unsustainable. If they continue at this level, then sooner or later the company will go under.
Announcements related to companies going into administration, usually come out of left field, and when least expected by most.
You wake up one day and see a notification stating the company has appointed receivers and administrators, and that's it, end of story.
The debt and losses simply mount up so high that this is the only recourse that remains.
Ensogo may survive 2016 with a bit of luck, with administrators possibly then being called in sometime during 2017 if the company sustains another loss in the vicinity of $60 to $80 million.
But as usual, it would be more likely for the administrators to be called in before an annual report is released, so that the insiders can get out first.
It would seem that Ensogo had about $29 million on hand at the end of 2015, so they will need to do a capital raising again this year if the losses are even half of those from last year.
I presume Ensogo will be hoping that VIP Shop step up to the plate and increase their holding from about 10% to 15% during any capital raising, this would give the company a little more breathing space. Let's see what VIP Shop do, they could surprise everyone and exit completely, especially if the losses continue to mount.
It is also a bit troubling when the company can't even seem to string together a coherent sentence in the annual report.
For instance, here is the "excuse" given for the $80 million loss.
(Quote) "The reduction in cash receipts and higher loss before tax, interest, depreciation and amortisation, is attributed to short term impact of the exit of legacy services business".
So what does that gobbledygook mean?
I think what they meant to say is this (something that any high school grammar student should be able to compile).
"The reduction in cash receipts for 2015, and the higher loss before tax, interest, depreciation and amortisation, is attributed to the exit of Ensogo's legacy services business. The impact of this will be short term, and will not extend into 2016."
This lack of executive attention to detail, compounded by the recent 3B announcements fiasco, unfortunately often presents the company in a very unprofessional manner.
Obviously, because of the extensive year-on-year losses, the company had to change tack and try something else. So they now have what is euphemistically termed an open marketplace.
This open marketplace looks similar to other successful implementations of this business model, like Amazon, eBay etc. etc.
This can only be a step in the right direction, and is the best idea they've had in years. When your back is against the wall, it makes good sense to embrace a model that others have had success with. Let's hope that this will contain at least some of the coming losses for 2016.
In conclusion, there is a lot that needs to be cleaned up here if this company is to survive beyond 24 months. Let us hope that an inspiring business professional can join the group, one who has the actual maturity and experience to guide it through the coming period in South East Asia.
Gw
E88 Price at posting:
$1.70 Sentiment: None Disclosure: Held
