When is making a profit actually a loss? When you're the accountant at Volkswagen Group's chronic underperformer Seat.
Earlier this month, VW's Spanish unit reported its first profit since 2008. On closer inspection, the 6 million euros after-tax profit Seat said it made in 2015, compared to a 66 million euro loss in 2014, isn't as impressive as it seems.
Firstly, the figure only includes Seat S.A. – the core company that lacks certain subsidiaries and is not representative of the overall "Seat Group" as the unit's 2015 annual report shows.
Secondly, the income statement was prepared using Spanish accounting principles rather than the international IFRS standard that VW Group is required to use to improve comparability among global corporates.
Thirdly, the figure is expressed in net profit rather than earnings before interest and tax (EBIT). No doubt it has its supporters and bottom line profits are important (certainly better than bottom line losses). Yet this is the kind of white noise that says little about the health of the underlying business, which is best encapsulated by its operating result.
Lastly, it needed help to get there. Seat actually received money back from the tax collector. Only then did it become profitable.
After a request by Automotive News Europe, Seat provided results that showed as a brand it had narrowed its operating loss to 10 million euros last year from the 127 million loss posted in VW Group's 2014 annual report, a figure that is directly comparable to VW group profits.
The last time that Seat as a whole earned any money was when it posted the tiniest of operating profits in 2007 at the absolute high point of the Spanish car market.
This isn't to say I am not confident that Seat can finally contribute positively to results. The launch of the critical Ateca compact SUV will finally bring a margin-rich product to its range that – even after the inevitable launch costs – should propel Seat into the black for this year. Seat also plans to save around 100 million euros by improving processes, focusing on higher added-value business and reducing costs.
Although it's important to follow Seat on its quest to break even, it's equally worthwhile to look at the cashflow statement. That is one of the few aspects of a business that should not differ regardless of what accounting standard is used, since it is supposed to reflect cold hard cash moving into and out of the till over the reporting period.