{ "docId": "019dd923-622c-750b-8b96-5d5485212a1d", "docSlug": "94b7a97af4bb", "documentTitle": "Groupe Casino Guichard-Perrachon SA (CO FP)", "authorId": "51_Muddy_Waters", "authorName": "Carson C. Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2015-12-16 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 4, "pageCount": 22, "prevPage": 3, "nextPage": 5, "slideType": "problem_statement", "function": "diagnose_problem", "density": "overcrowded", "nDataPoints": 8, "notes": "This is a research note page focusing on financial forensic analysis of Casino's accounting.", "elementsJson": [ "paragraph", "footnote" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b96-5d5485212a1d/4", "deckHref": "/decks/019dd923-622c-750b-8b96-5d5485212a1d", "deckJsonHref": "/decks/019dd923-622c-750b-8b96-5d5485212a1d.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-5d5485212a1d#slide-4", "components": [ { "bbox": null, "kind": "callout", "text": "The basic problem with Casino is that its financial statements are literally meaningless to understanding the company's (poor) health.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-1ac5-725e-9dd1-db4519b2e3ac", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "EBITDA: €1.4 billion", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-1ac5-725e-9dd1-dc7a72ac3076", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.2, "w": 0.72, "x": 0.14, "y": 0.095 }, "kind": "paragraph", "text": "The deleveraging “plan” is clearly shambolic. The press release read that the deleveraging would be accomplished through asset sales. But when Casino held the call to explain the announcement, the CFO repeatedly stated that sale proceeds might be used for dividends or capital expenditures. When analysts asked pointed questions and pressed on where Casino would get the money to deleverage, the CFO made vague statements about France free cash flow rising substantially from its present level, which seems to be about zero. We estimate that debt is € 10.9 billion, and the France subsidiaries just below the parent have net cash of € 1.7 billion. The notion that a company with this little free cash flow, and that is using asset sales for other purposes, and somehow burning substantial amounts of cash in ways that have not been explained, can pay off meaningful amounts of debt over the next year is astonishing.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "2af2ba16-c532-4b95-966c-c37618dd5fdf", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.72, "x": 0.14, "y": 0.48 }, "kind": "paragraph", "text": "While Casino’s financials overstate EBITDA by an estimated 100%, the portrayal of the debt is much more accurate. Casino’s real net debt is approximately 93% of the amount shown on the consolidated financials. In other words, while Casino’s chairman wrote in the 2014 annual report Casino’s balance sheet was “strong” and its leverage ratio was a conservative 1.8x, a leverage calculation based on debt and EBITDA actually owned by Casino, along with estimated adjustments to offset financial engineering profits, results in a leverage ratio at that time of 6.1x. (Note the substantial deterioration in our estimated leverage ratio since then.)", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "3ffeda7c-dac2-47ce-9519-4a27c1b27451", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.72, "x": 0.14, "y": 0.335 }, "kind": "paragraph", "text": "The basic problem with Casino is that its financial statements are literally meaningless to understanding the company’s (poor) health. It has about half the EBITDA its financials show, but almost all of the debt.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "6ace654b-cfc4-4dce-aad7-cab59ca30c52", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.09, "w": 0.72, "x": 0.14, "y": 0.615 }, "kind": "paragraph", "text": "Casino’s financials are so misleading because it consolidates financials of businesses in which it has only fractional stakes. For example, while Casino only owns 14.2% of Latin America electronics retailer Via Varejo it consolidates the entire amount of Via Varejo’s EBITDA, which on a LTM basis accounted for approximately 21% of Casino’s overall reported EBITDA. Casino fully consolidates the financial statements of this business because accounting standards require a company to fully consolidate results of companies", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ce0d2620-e734-4a01-9fa3-3bbd85d69fb2", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.72, "x": 0.14, "y": 0.395 }, "kind": "paragraph", "text": "For the LTM period, it appears as though Casino has EBITDA of €2.6 billion. However, its true economic ownership (“proportional”) EBITDA really is only €1.4 billion. To eliminate the income inflation of financial engineering, EBITDA likely should be further adjusted downward by approximately €165 million to €1.2 billion.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "d263d4e4-0d3c-4af4-a750-a70c49d1934c", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.1, "w": 0.72, "x": 0.14, "y": 0.72 }, "kind": "source-note", "text": "4 The LTM period is through June 2015 for Casino-France Retail and BigC Vietnam, and through September 2015 for the other business segments, based on public filings for CBD, Exito, Via Varejo, BigC Thailand, and Cnova. 5 See Section IV. 6 Casino owns a 50% interest in a holding company that owns 37.5% of CBD, which owns 43.3% of Via Varejo. Casino also directly owns 3.7% of CBD and 54.8% of Grupo Exito. Grupo Exito owns the other 50% of the holding company that owns CBD. This results in Casino owning 14% of Via Varejo through its 32.73% ownership of CBD.", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "af538bcf-7226-410b-8294-c8888f568ab1", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.54, "x": 0.23, "y": 0.305 }, "kind": "title", "text": "I. The fundamental problem with Casino", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "020ef89b-4965-4e19-b255-b2c36449f4c2", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 4, "from": 4, "beatId": "19dc6e7c-2a58-4bf6-8d08-575cc4a50c22", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Problem", "beatSlug": "problem-agitate-solution-problem-identify-pain", "evidence": "The fundamental problem with Casino", "position": 0, "confidence": 0.8, "parentBeatName": "Complication", "parentBeatSlug": "complication" } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }