Will Corkery’s kitchen sinking at Datalex draw a line?
Investors should expect much of $26.2 million in project development to be written off
Datalex’s acting chief executive, Seán Corkery. Photograph: Nick Bradshaw
Datalex’s acting chief executive, Seán Corkery, signalled on Friday he would be taking an approach to the balance sheet of the troubled company that only a newcomer could.
Less than four months after being appointed to the board, Corkery and his recently-appointed chief financial officer, Niall O’Sullivan, said they were reviewing the company’s “investment in product development and expect to report a significant exceptional cost” in the 2018 accounts, which are way past due.
Investors should prepare for a kitchen sinking of the balance sheet. Expect the duo to write off much of Datalex’s $26.2 million of project development costs that had been converted into assets in recent years, rather than taken as an expense against profits.
This will result in a massive net loss for the company when it finally posts figures before an annual general meeting in mid-September.
If Datalex’s shares were still trading (they’ve been suspended since the start of May due to the late filing of results), they would have tanked on Friday.
Datalex’s woes started in January when the company revealed it expected to post an earnings before interest, tax, depreciation and amortisation (ebitda) loss of up to $4 million as it would be unable to recoup some of the costs on its biggest project, an overhaul of Lufthansa’s retail software system. A suspected overstatement of service revenues from the programme in the first half of 2018 were subsequently confirmed by PwC.
There’s been a drip, drip, drip of bad news ever since.
There have been persistent rumours in the market in recent months that Lufthansa or another key customer, American airline JetBlue, may seek to buy a sizeable stake in Datalex, given how important its software is to their future profits. Larger software industry peers such as Spain’s Amadeus and Texas-based Sabre have also been mentioned.
But it’s hard to see anyone stepping forward until Corkery shows what’s left after he finishes with his red pen.