Goto published its second-quarter report. The distance between the gross margin and the operating line is the whole story.
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The Quarter
| NIS millions | The quarter | Share of revenue |
|---|---|---|
| Revenue | 55.9 | |
| Gross profit | 16.4 | 29.4% |
| Operating loss | -0.7 | -1.3% |
| Pre-tax loss | -5.3 | |
| Net loss | -4.3 | |
| Attributable to shareholders | -3.6 | |
| Non-controlling interests | -0.7 | |
| Basic loss per share | -NIS 0.49 | |
| Balance sheet total | 139.2 | |
| Shareholders' equity | 31.2 |
The Gross Margin Was Consumed in Full
NIS 16.4 million of gross profit, and the operating line is a loss of NIS 734 thousand.
That is, operating expenses came to about NIS 17.2 million - more than the entire gross margin.
And this is a point worth understanding in businesses at this stage.
A gross margin of 29.4% is not low. It says that on every shekel sold, the company keeps almost a third after the direct cost.
What turns the quarter into a loss is the cost base beneath it - marketing, head office, technology and operations - and it is larger than the current turnover covers.
And that is a familiar position at companies in a building phase: costs are built to the size of the target, and revenue is still on its way there. What determines whether this is a stage or a state is the rate of revenue growth - and that is not in the structured filing.
For proportion: to bring the operating line to zero at the current margin, turnover would have needed to be about NIS 2.5 million higher in the quarter - that is, about 4.5% more. That is a small gap, and it is what makes this report more interesting than a large loss would be.
And What Happened Below the Line
From an operating loss of NIS 734 thousand, the pre-tax loss grew to NIS 5.3 million.
A further NIS 4.5 million was taken out.
And the explanation is in the balance sheet: NIS 139.2 million of assets on equity of NIS 31.2 million - a ratio of 4.5 to one.
And then the tax line reduced the loss by about NIS 0.9 million, to NIS 4.3 million net.
And the Minority Absorbed Part of the Loss
Of a net loss of NIS 4.3 million, about NIS 0.7 million is attributable to non-controlling interests - 16.3%.
A loss of NIS 3.6 million is attributable to Goto's shareholders.
And this is the phenomenon that recurred several times today - at Doral Energy the minority absorbed 39.6% of the loss, and at Rani Zim it absorbed a loss while the company made a profit.
The conclusion is the same: in a loss-making report, the line "attributable to shareholders" reduces the loss - exactly as in a profitable report it reduces the profit.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
What I find interesting in this report is how close the operating line is to zero.
An operating loss of NIS 734 thousand on turnover of NIS 55.9 million is 1.3%. This is not a business far from profitability - it is a business sitting right on the line.
And what that means in practice is that two variables decide the next quarter: the rate of revenue growth, and discipline on operating costs. A small move in either flips the sign.
And what does trouble me is what sits below the line: NIS 4.5 million was taken out there, that is six times the operating loss. At a company with equity of only NIS 31.2 million, that is a charge weighing more heavily than the operations themselves.
So the two numbers I will follow are revenue and the line below the operating line - not net profit, which is in any case a product of both.
And what I would look for in the full accounts is a split of operating expenses between fixed and variable. That distinction determines how much growth is needed to bring the line to zero - and that is the whole question at a company at this stage.
(It is important to stress: this is my personal opinion only, and nothing herein constitutes a recommendation to take any action.)
