The 250-million-euro puzzle of the exchange miracle Wirecard
Manager-magazin.de has discovered in the balance sheet of the acclaimed TecDax giant Wirecard an as great as ominous demand position. "All market-aware", the billionaire-heavy payment service provider fights. But that's not true.
A tunnel works according to a simple principle. On the one side it goes in. And on the other again. There may be longer and shorter tunnels, one-lane and multi-lane, those in which the traffic flows smoothly, and those in which he is constantly resting. And yet - the principle is always the same: on the one hand it goes in. And on the other again.
Up to now one had to assume that the balance of the Bavarian payment service provider Wirecard would work like a tunnel. But now researches from manager-magazin.de show: They do not.
Wirecard is the fabled company that, in the past few years, has brought the market capitalization of five and a half billion euros out of nowhere - and is therefore traded on the stock exchange as high as Lufthansa. Measured by the rating, Wirecard is the most successful German founder of the past 25 years behind Zalando. If the company continues its growth path, the rise to the Dax is only a matter of time.
Founded in 1999, the company specializes in a business that lives from the end customer but does not see the end customer - so-called acquiring . An acquirer is a payment service provider that enters the card company on the one hand and the retailer on the other during credit card transactions. This means in concrete terms: if a customer pays by credit card, then the money from Visa or Mastercard does not flow directly to the dealer, but goes first to the acquirer. The money is then passed on to the retailer only with time delay.
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On the balance sheet, this business model has the following implications: The acquirer is facing claims against the credit card companies and liabilities against the dealers. If the flow of payments is initiated, the receivables are transformed into cash, which first goes into the acquirer's books, but eventually goes out again - which also means that the debts are reversed. In accounting, one speaks of "passing items". It is the same principle as the car that drives into the tunnel and goes out again.
How does it look at Wirecard? According to the Group report, Wirecard had € 334 million at the end of 2015 and receivables from the acquiring area of € 334 million and liabilities from the acquiring area of € 334 million. A year earlier the situation was similar. There were receivables of 284 million euros and liabilities of 283 million euros.
In view of the almost identical amounts, it should be obvious that the two positions are directly related to one another - that is, the "receivables from the acquiring area" are grossly modo for the money Wirecard receives from the credit card companies and the "liabilities from The acquiring area "for the money that Wirecard paid to dealers. Especially since Wirecard explicitly emphasized that both the receivables and the liabilities would have "passing character".
But in fact things are completely different
Part 2: The very special story Wirecards
The overwhelming part of "receivables from the acquiring area" is not at all "acquiring" claims in the strict sense. But what is behind it? Are values here that are really different in nature?
Wirecard is the work of two men. One is Markus Braun , 47, a promoted business economist, former KPMG man, since 2002 board member and with a good seven percent of the shares still one of the largest shareholders. People who know him well are brown, short-tipped hair, angular face, crisp hand print, as "intellectually brilliant", but also as "intimidating".
At the DLD, the most prestigious German tech conference, Braun was one of the main sponsors on the podium. For more intimate conversations at the edge of the event, Wirecard had a bar built, dipped in black, a kind of darkroom of the tech scene.
When the Austrian came to the predecessor of Wirecard at the beginning of the millennium, the startup threatened to subside in the wake of the new economy crash. Braun stabilized the company and focused on the great trend theme with which Wirecard earned his money today: the payment traffic on the Internet. In the early years, the customers mainly came from the porn and gambling industries, which is why Wirecard initially attached a scandal. Later, more serious industries such as airlines or retailers were added.
The other important protagonist is Burkhard Ley , a trained banker whose biography has two fluorescent addresses. At the end of the 90s, Ley traded as a director at the Cologne investment bank Sal. Oppenheim. Between 2000 and 2001 he was then CFO of Kirch New Media AG, the startup branch of the filmmaker. After several years as an independent consultant, Ley joined Wirecard in 2006 and translated the growth generated by Braun since then into ever more impressive figures.
At first glance, the story of Wirecard is a New Economy zombies that, because it was early on Megathema e-commerce, mutated into a billion-dollar company. To history of the domiciled in Aschheim near Munich company, however, also means that the company has for years repeatedly sharply criticized for opaque or supposedly unclean balance practices - two years ago in a series of articles of the "Financial Times" blogs "Alphaville" and most recently in Spring 2016 by a self-titled research house called Zatarra.
Its alleged revelation study caused the Wirecard share to break in by one third in the morning. On closer reading, however, it was shown that the supposed analysis was a wild series of windy claims. The stock recovered. And the analysts also cleared Wirecard of all the allegations. The Zatarra chapter, like all the other attacks on Wirecard of past years, ended with a lot of smoke, but without proof of a fire.
All right, then?
Part 3: The puzzle in the wirecard balance
The acquiring can be imagined as a compulsory insurance. Any merchant who wants to offer their customers a credit card requires an acquiring bank, which in case of doubt vouches for its seriousness. Otherwise, credit card companies like Visa and Mastercard would not accept the dealer. For this the acquirer collects a fee and the so-called security retention of the dealer. If a customer purchases an online shop with a credit card for 100 euros, then the money flows as follows:
* The 100 euros are transferred to the acquirer by the credit card company
* The acquirer leads with a few days delay, say, 95 euros to the dealer further
* 1 Euro complains to the Acquirer as a fee for himself, 4 euros he initially considered as a so-called security retention.
* This security deposit will not be returned to the dealer until after the dealer has sent the product to the customer - so if it is clear that there is no reloading. Security is therefore a deposit. If the trader goes broke or he has delivered defective goods, is liable ultimately the Acquirer.
According to Wirecard Bank, Wirecard handles a large part of its transactions within the EU via Wirecard Bank, a wholly owned subsidiary. It should be expected that a considerable portion of the acquiring claims will be recovered. Europe is by far the largest market for Wirecard.
As a matter of fact, at the end of 2015 the "Wirecard Bank" lost just 37.6 million euros, ie only slightly more than one tenth of the Group's volume of 334 million euros. The explanation for this was that the "Wirecard Bank" also had an "excess of liquid funds from the acquiring area" amounting to EUR 281.8 million. This was the money the credit card companies had already surrendered at the balance sheet date - the Wirecard had not yet passed on to the dealers. Certainly the cars, which have already entered the tunnel and have not yet left again.
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But this is where the mystery unfolds: If the Wirecard Bank had huge liabilities to traders as of the balance sheet date, but only small claims against the credit card companies - how can the demands and liabilities at the corporate level be nearly the same? Somewhere in the widespread wirecard group, there must be generous demands, which have a "passing character", but which have no corresponding liabilities. Cars coming from the tunnel without ever going in.
With this puzzle, manager-magazin.de turned to several analysts who evaluated the stock. No one could provide an explanation for the phenomenon. Instead, one with almost sympathetic open-mindedness (and the request to remain anonymous) wrote back: "I am afraid that this is far too profound. Wirecard's reporting is incredibly complex and difficult to see."
Wirecard itself says: Most of the current receivables - or more precisely, around 250 million euros - are so-called rolling security entitlements. "Rolling" means that the old security deposits are always replaced by new ones when they are due. These collateral would be provided by Wirecard companies, which "deal with the acquiring volume via external partners".
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Wirecard does not have its own acquiring license in most jurisdictions outside the EU. As an international corporation, as an international corporation, it is intended to offer acquiring services to its customers - especially online merchants - but not only in Europe, they cooperate with local third-party banks in many countries and use their acquiring license. Wirecard is the driving force in these businesses. However, the payment flows typical for acquiring were running through the accounts of the third bank.
The balance sheet would therefore also have to reflect the actual acquiring receivables and liabilities. Is Wirecards' own enormous claims amounting to 250 million euros due to the fact that the Group deposits additional collateral from its own money, even though the third banks already withhold the security of the dealer? And where is the "transitory character" of the third-party business?
For illustrative purposes, Wirecard is itself the tunnel when acquiring with its own license. When acquiring without license, Wirecard pushes its own money into a foreign tunnel, which calls itself external third bank. But through this tunnel the money does not simply pass through. When everything goes well, back through the original entrance.
Can the shareholders really sell this position as "passing through"? Wirecard says yes. The company usually avoids the concept of "passing through" in accounting and instead uses the undefined "continuous character" form. Intention? "There is no fixed definition in the accounting system for the state of affairs," says Wirecard. "From our point of view, the formulation of" continuous character "describes the facts very well and is shared with our assessor Ernst & Young."
The whole thing could be dismissed as fraud - the 250 million euro would not be so central for the understanding of the entire Blackbox Wirecard. For it makes a big difference whether a considerable part of the own assets is short-term claims against creditworthy world groups like Visa or Mastercard. Or up to 180 days running deposits with some "third bank".
The 250 million euro mystery therefore raises a whole series of question complexes:
Part 4: The reaction spectrum of Wirecard
Firstly , does wirecard investors know that three quarters (ie around 250 million euros of 334 million euros) of receivables from the acquiring sector are "spurious" acquisitions?
The topic is "fully market-aware, of course", Wirecard shares - and calls it "misleading" to speak of "fake" or "improper". In addition, "You must not underestimate the fact that analysts and investors have not explained all claims and liabilities in the last twelve years in which Wirecard conducts this business and are not aware of their character or specificity."
At the end of November, manager-magazin.de asked wirecard to provide research studies that demonstrate this "market awareness". Wirecard then sent excerpts from three studies, in which the phenomenon is actually briefly torn: they were from MM Warburg, Morgan Stanley and a little known company named Olivetree.
What attracted attention: In neither of the three excerpts was there any evidence of the level of "spurious" acquisitions - as well as in about 15 analyst studies, which manager-magazin.de had scourged by means of financial experts in the past weeks.
On another request, Wirecard shortly before Christmas suddenly referred to another Morgan Stanley study published just a few days earlier. And indeed, for the first time, the volume of the "spurious" demands was also quantified. Was the extent at least known to an analyst?
Apparently not long yet. At the beginning of 2016, the same Morgan Stanley man had estimated the demands on "less than 50 million euros" - although it was already 250 million euros at that time. This means that even the investment bank, which is headed by Wirecard as a leading indicator of "market awareness", had apparently no idea of the dimension of the "fake" acquiring requirements a year ago.
Second, who are the third-party banks?
Although these institutions, and above all the money that they are supposed to store, constitute a crucial pillar of the Wirecard balance sheet, Wirecard does not name the name of a single partner bank on several occasions. Instead, the company shares with: "Naturally, partner and confidential contracts are subject to confidentiality, but on our IR / PR page, you'll find hundreds of press releases, including a few partner banks that we've sent you a few." However, this does not clearly show the names of the third-party banks in the acquiring business.
Thirdly, how can the enormous amount of "spurious" acquiring requirements be explained?
Anyone who has ever signed an insurance company knows that the premium to be paid is based on the risk and the potential harm. If, however, Wirecard had deposited "premiums" of € 250 million with third-party banks as of December 31, 2015, it was always the responsibility of the company to assess the risks of the risks - how gigantic then the third banks Handled transaction volumes? The Bavarians are also taciturn with this question.
What is known from official data: The global transaction volume of Wirecard amounted to around 45 billion euro in 2015. A considerable portion of this is due to the Wirecard Bank. It generated commission income from acquiring EUR 202.4 million - 25% of the total commission income of the Group as a whole. At the same time, however, Wirecard Bank recorded only receivables of € 922,000 in acquiring.
In the case of competitors, the breakdowns are in a similar range - roughly one cent per 100 Euro transaction volume. Otherwise the extremely low-margin acquiring business would hardly be profitable. Why, then, does the Group have to provide additional collateral for the transaction volume outside the Wirecard Bank of a quarter of a billion euros?
Wirecard states, "The collateral to be deposited in the acquiring business is not determined by historical default rates within the Wirecard Group, depending on the volume of transaction transactions and the respective branch of business in which a dealer operates. The collateral for the partner banks is not so It is calculated that the expected value is mapped, but that in the case of doubt also a large loss is covered. In the case of hedging, a negative scenario is assumed. "
Part 5: Do the research studies work with the right numbers?
Fourthly, do the research studies work with the right numbers?
Finanzchef Ley has facilitated the work of the analyst for years by providing them with a "clean" cash flow bill from which he "eliminates those items that have only a passing character". One can say it differently: he saves the analysts the view into the tunnel.
Such a "cleanup" is quite common among acquirers. After all, it can help separate the foreign cash (ie the 99 euros, which are actually the dealer's) from their own cash (the 1 euro fee). But what if three-quarters of the "eliminating" demands with a "transitory" character are not alien, but quasi about their own money - would the analyst assessments not then have to follow completely different premises?
Wirecard declares that the definition of the "adjusted" cash flow statement has been closely coordinated with the auditor EY and will, of course, be subject to a detailed audit. The aim of the adjustment is to "smooth out short-term effects, which usually arise between Q4 and Q1 (fourth quarter and first quarter - the editorial staff) by the Christmas and holiday effect described in detail in the annual report."
Do the annual reports tell the whole story? Would not it be in the interest of a listed company to split up the numbers at the most important junction of its balance sheet - simply to throw down claims that are obviously just a little bit off?
Thorsten Grenz, Chairman of the Supervisory Board's "Financial Experts Association", honorary professor at the Kiel University and one of the most renowned German financial experts, says: "It would be at least desirable if the investor could better assess the quality and structure of the receivables Especially when the positions of the receivables are very different. "
It is noteworthy that a large part of the 250 million euro appears to be only in two Wirecard companies, namely the Card Systems Middle East in Dubai and the Wirecard Payment Solutions in Dublin - a search result, which the company as "not in this form Correctly labeled ".
Compared to these two daughters, apart from a few sparse figures in the group balance sheet, there is almost nothing. The companies in Ireland and the Emirates account for about 75 percent of the surplus of the entire Wirecard Group. The company also identifies this as "misleading," indicating that large parts of the business are being transacted through Dublin and Dubai.
Not least thanks to the profits in Dublin and Dubai, Wirecards Ebitda (ie the profit before taxes, interest and depreciation) has been developing with a regularity for as long as the company is going up a ski jumping hill. In 2012, it was 109.3 million euros, 2013 then 126 million euros, 2014 already 172.0 million euros and 2015 finally 227.3 million euros. This trend has continued in 2016. According to the latest provisional figures, it was 307.4 million euros.
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The inflow of cash can not keep pace with the development of the raw profit. In 15 of the 19 most recent quarters, operating cash flow lagged behind Ebitda - although acquirers usually float in the cash, because money always flows into the tunnel before it flows out again.
Does Wirecard possibly have problems to turn its lush accounts receivable into cash?
The company clearly rejects this. It is the normal case that the operating cash flow is lower than the EBITDA because this component does not consider cashrelevante components (such as taxes).
The erratic ups and downs, which the operational cash flow in contrast to the Ebitda for years laid down, Wirecard with the "Christmas business sales" and a "delayed holiday-related disbursement". This means that the credit card companies are already in the fourth quarter of the year, but Wirecard is only transferring the money to the dealers in the first quarter. But what about the fluctuations in the second and third quarters? Here Wirecard holds the "statement of strong fluctuations" for "analytically incomprehensible".
In any case, the importance of the fourth quarter of Wirecard's business life is noticeable. Shortly before the end of the year, money always flows into the consolidated balance sheet - and to a large extent also out again. The six acquisitions of Wirecard in Asia (between 2011 and 2015) were all paid or paid at least in the fourth quarter. It is strange that the cash flow has practically no connection to the Ebitda, but is closely correlated with acquisitions in a part of the earth.
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Wirecard says that the reference only to the six acquisitions in Asia is an "arbitrary selection" which is "factually unfounded". In fact, there have been 15 transfers worldwide since the end of 2011. At six, closing was in the fourth quarter, nine in other quarters.
Of 15 takeovers the six Asian filter out - is the "Willkür"? To point out that 75 percent of the total surplus in two daughters who are a blackbox in the blackbox - is that "misleading"? Investors, including many small investors, point out that three quarters of "acquiring receivables" are not really "acquiring" claims in the strict sense - is this lapsed?
Part 6: The warning of financial analysts
Companies such as Wirecard, who are strictly marching towards Dax, in a league with Siemens, Bayer and SAP, are usually trying to fill any room for misinterpretations in their accounting. Wirecards deal with the company's own financial system, which makes Credit Suisse's investment bank unstable. At the beginning of January, Credit Suisse lifted its price target for Wirecard, but emphasized that TecDax-Krösus was a "difficult story, with unclear reports and numerous acquisitions , Which must be digested ". Significantly, Morgan Stanley - that is, Wirecards - was supposed to be a leading witness in the acquisition requirements. The Wall Street House downgraded the price target from 55 euros to 45 euros, because "the quality of the growth is cause for concern".
Morgan Stanley had previously dealt in detail with the largest of the six Asian acquisitions, the Indian company group GI Retail. Wirecard had taken this up to 340 million euros, which corresponds to 49 times the pre-tax profit of 2015. According to official data in India, GI Retail operates around 150,000 "smart shops" - small shops where local agents offer customers different, Western-based, rather rudimentary financial services, including the possibility to convert cash into electronic cash Transfer Typical customer is a worker on assembly who sends part of his wage to the family at home.
In order to investigate the substance of the purchase, Morgan Stanley sent a sort of detective team, who was to search for "smart shops" for 90 working hours. The investigators discovered on their hour-long tours just one of these shops - and seven more after previous internet search.
According to Morgan Stanley, the local wirecard management has given various explanations for the rather disappointing result. Many stores were concentrated in certain city districts - apparently neighborhoods where the detectives were not looking. In addition, many "smart shops" operate under a different brand. In fact, Morgan Stanley also limits the meaningfulness of his own investigation work a bit. Discussions with Indian competitors have shown that GI Retail has a strong presence in the Indian market. Therefore, according to the author of the analyst study, the search result falls under the line "mixed".
A fairly diplomatic formulation. It fits quite well to Wirecard. Because a very mixed feeling is exactly what remains behind once you have penetrated into the blackbox of the much-acclaimed German tech pearl.