Short seller reports have become a regular feature of public equity markets. Some contain highly valuable analytical work, others rely more heavily on rhetoric and selective framing. Recently, Grizzly Research published a report on Ottobock SE & Co. KGaA (hereafter: Ottobock), raising a broad set of allegations and concerns regarding the company.
The Grizzly Report addresses a wide range of issues. In this post, however, I will focus exclusively on the accounting-related aspects of the report. This should not be understood as a judgment on the relevance or merits of the other allegations or topics raised by Grizzly. Rather, the sole purpose of this assessment is to analyze the accounting matters discussed in the report.
EBITDA as Core KPI
Grizzly statement
Grizzly criticizes Ottobock’s focus on “Underlying Core EBITDA” as the company’s predominant management KPI and argues that EBITDA can be misleading, particularly for more asset-heavy industrial businesses. The report also criticizes the company’s “core” definition, arguing that management can classify weaker businesses as “non-core” and thereby improve the profitability profile of the remaining business.
Own Assessment
Conceptually, this criticism is not entirely unreasonable. EBITDA always requires careful interpretation in businesses with meaningful capital intensity, ongoing reinvestment needs, or substantial development expenditures. While Ottobock’s business model is not really asset-heavy (once we abstract from R&D capitalisation) it still requires certain amounts of capex and IFRS 16 lease spending.
At the same time, it is important to maintain perspective here. Ottobock’s use of “Underlying Core EBITDA” is not hidden or obscure. The reconciliation is disclosed and can be followed analytically (Ottobock AR 2025, p. 44). Excluding businesses formally designated for disposal is also not uncommon in practice, particularly when companies communicate operational “core business” performance separately from assets intended for divestment.
This does not mean investors should blindly accept management-defined KPIs. In fact, in situations like this, analysts should usually work through the bridge themselves and assess profitability on several levels: EBITDA, EBIT, free cash flow, and return metrics. And if I had to decide which operating metric best represents the business model I would probably also place greater emphasis on EBIT than on EBITDA.
However, this is normal analytical work and not evidence of accounting fraud. One may conclude that EBITDA somewhat flatters economics relative to EBIT or cash flow, but that is something investors can adjust for relatively straightforwardly.
Russian Operations and Consolidation
Grizzly statement
A second topic raised by Grizzly concerns the consolidation of Russian operations and the lack of more detailed disclosures regarding the Russian business. The report argues that investors are insufficiently informed about the share of earnings generated in Russia and claims that Russian operations may account for 35.1% of total group profits.
Own Assessment
The accounting treatment of Russian companies is obviously a sensitive topic for many European companies. Since the beginning of the war, questions regarding consolidation, trapped cash, sanctions exposure, and disclosure practices have become highly relevant analytical topics across many industries.
However, from an accounting perspective, the situation is more nuanced than often portrayed. Under IFRS, deconsolidation is not triggered simply because operating conditions become difficult or because sanctions exist. The decisive question is whether control under IFRS 10 still exists. Many Western companies have continued consolidating Russian subsidiaries throughout the last years, while others impaired or partially deconsolidated operations depending on their specific facts and circumstances. Therefore, continued consolidation in itself is not an indication of improper accounting. In the concrete case of Ottobock I have no reason to assume that the business should be deconsolidated.
The second issue concerns disclosure. Grizzly criticizes that Ottobock no longer provides detailed regional information regarding Russia. Here, IFRS 8 is relevant. Unlike operating segments, geographic disclosures do not automatically follow a strict quantitative “10% rule”. IFRS 8.33 instead focuses on materiality of revenues and non-current assets by geography if such information is available. Based on what I remember from discussions around the 2025 IPO and afterwards, Russia appears to account for only a mid-single digit percentage share of total group revenues which is rather not in line with the alleged profit contribution implied by Grizzly (however, I might remember wrongly here).
Whether more disclosure would still be useful from an investor perspective is a fair discussion. Analytically, many investors would certainly welcome additional transparency. However, based on the currently available information, I do not see indications of accounting misconduct regarding consolidation and information disclosure itself.
Capitalization of Development Costs
Grizzly statement
The most interesting accounting discussion in the Grizzly report relates to R&D capitalization. Grizzly compares Ottobock with Embla Medical (formerly Össur), clearly Ottobock’s closest listed peer. The report argues that Ottobock’s balance sheet contains a far larger amount of capitalized development costs relative to total assets than Embla and suggests that Ottobock may therefore be aggressively capitalizing development expenditures in order to inflate margins.
Own Assessment
This is probably the strongest analytical point in the Grizzly report.
At the same time, one first has to understand that Ottobock is in fact a technology and innovation leader within human bionics. Ottobock is strongly active in neuro-orthotics, digital O&P, exoskeletons, AI-related interfaces, microprocessor-controlled prosthetics, and other advanced technologies. In other words: this is genuinely a highly development-intensive business.
Nevertheless, the comparison with Embla is analytically important. Embla does capitalize much less development costs than Ottobock. Therefore, it is entirely fair to say that direct margin comparability between both companies becomes more difficult and that analytical adjustments may be appropriate.
But this does not imply that Ottobock’s accounting is wrong. IAS 38 explicitly requires capitalization once specific criteria are met. The difficult part is that these criteria inevitably contain management judgment regarding technical feasibility, commercial viability, expected future benefits, and project maturity. Different companies can therefore arrive at materially different capitalization outcomes while both remaining fully IFRS-compliant.
It is entirely possible that Embla applies a quite conservative accounting philosophy. It is also possible that Ottobock applies a somewhat aggressive interpretation within the boundaries of IFRS. As external analysts without detailed project-level information, it is difficult to conclusively determine where exactly the “right” level should be.
From an analytical perspective, however, Grizzly’s broader point is valid: when comparing Ottobock with Embla, investors should probably normalize for the different capitalization practices in order to improve comparability of margins, earnings quality, and invested capital.
Useful Lives and Depreciation Periods
Grizzly statement
Finally, Grizzly criticizes Ottobock’s depreciation periods as being materially longer than those applied by Embla. The report points in particular to longer estimated useful lives for technical equipment and machinery.
Own Assessment
Again, this is analytically relevant, but one should be careful not to overstate the implications.
Useful life estimation under IAS 16 always involves judgment. Different production setups, equipment types, maintenance policies, utilization intensity, and asset composition can all lead to different depreciation profiles between companies. Therefore, a direct one-to-one comparison between two businesses is not always straightforward.
That said, Grizzly’s observation is not without merit. Longer useful lives mechanically reduce annual depreciation expense and therefore improve EBIT and net income relative to a more conservative depreciation approach. In that sense, one could reasonably argue that Ottobock’s accounting appears somewhat more aggressive relative to Embla.
However (and again), aggressive does not automatically mean improper. There is a substantial difference between selecting assumptions that are somewhat favourable within the range permitted by IFRS and actual accounting misstatement. Based on the currently available information, I do not see evidence suggesting the latter.
Summary
Overall, I think the accounting-related parts of the Grizzly report contain several analytically valid observations. The discussion around R&D capitalization, comparability with Embla, useful lives, and EBITDA adjustments is relevant and worth considering carefully. However, part of the truth is also that many of these issues have been already known and discussed by capital market participants in the context of the Ottobock IPO.
Moreover, most of the topics raised relate to normal areas of accounting judgment under IFRS: management KPIs, capitalization policies, useful life estimates, and regional disclosure materiality. These are all areas where analysts frequently make adjustments in order to improve comparability and better understand underlying economics.
In my view, the reasonable conclusion is therefore not “accounting trickery” or fraud, but rather that Ottobock appears to apply accounting policies which in some areas may be somewhat more favourable or aggressive than those of its closest peer. That is analytically important and should be adjusted for where appropriate. But based on the currently available information, it does not appear extraordinary or alarming from an accounting perspective.
Disclaimer: The above reflects solely my own subjective analytical assessment based on publicly available information. It does not constitute investment advice, accounting advice, or a recommendation to buy or sell securities. As always: do your own research.