The Grifols soap opera seems to be ready for sentencing, although not completely closed. In fact, the post-credits clues point to a sequel in the coming months much more dramatic than what has been seen so far. The lessons that can be drawn from the case should mark a before and after in the dissemination of financial information by listed companies, which usually groom themselves, comb their hair and make-up to appear better looking to investors every time they present accounts. . . An upward value should be naturalness and transparency, good governance and, above all, that the numbers are understandable. Sophistication, linked operations, ‘Ebitdas’ on demand and financial engineering to square circles have to be, now and always, warning signs for every investor.
The National Securities Market Commission (CNMV) has finally ruled this week on Grifols after more than two months of reputational crisis of the pharmaceutical multinational, following the January 9 analysis by the activist firm Gotham, which called into question The fundamentals of its accounting, corporate governance and certain operations linked to a company (Scranton) of twenty directors and the Grifols family. The supervisor chaired by Rodrigo Buenaventura has taken a Solomonic position, agreeing with the obscure investor with a comic book name in many of the complaints that he raised to the public. At the same time, he has been kind to the pharmaceutical company and has decided to exempt her from having to reformulate all of his accounts, although he does require her to republish part of them. He also does not currently apply his sanctioning capacity despite the fact that he has detected “omissions” and “relevant deficiencies” in his reports, which have been previously audited by KPMG and, in relation to 2023, also by Deloitte.
Recapitulating, for those who are now joining the non-fiction stock market series, the long-awaited ‘forensic’ report (post-the-fact accounting investigation) from the CNMV concludes that the way in which Grifols presented its accounts “has hindered investors’ ability to understand “financial situation, results and cash flows” of the company. We recommend that you avoid customizing your metrics to appear better in the photo because it creates confusion. Encourages you to detail the breakdowns of some business units. Requires you to correct a serious error with a subsidiary (Inmunotek) that generated losses in results but that Grifols considered a mere investment. The ‘police’ of the Spanish markets have found 400 million euros in operations with related parties that should have been notified as such, but that seems like another story. Behind the scenes, the Grifols family has had to abandon management and its current executive president, Thomas Glanzmann, will lose his duties starting next year.
Regarding the accounting treatment of the plasma subsidiaries Biotest, Haema and BPC Plasma, which are owned by Scranton, a Grifols shareholder, but which the pharmaceutical company accounts for as its own despite not having shares, the CNMV validates the company’s accounting criteria and the auditor because it complies with regulations (IFRS 10). Now, the CNMV emphasizes that “the breakdown of the consolidated assets and liabilities of these companies, which represent a good part of the Ebitda on which their financing capacity is based, “still has not been incorporated.” And this is where we reach the ‘mother of the lamb’ of the Grifols case. Grifols’ debt exceeds 11,000 million euros and before 2025 it has to refinance or face the payment of nearly 3,000 million in maturities. Between bonds and bank financing, the pharmaceutical company has gone from being a preferred client of the bank due to its frenetic corporate activity buying companies and issuing debt, to becoming one of the most serious concerns right now within the Ibex 35.
Perhaps that is why the CNMV has for the moment avoided displaying the regulatory deck in this whole matter and has hidden behind competition problems when dealing with certain issues in the Grifols case, such as those related to the financing of Scranton through the company itself. pharmaceutical company (is it normal for a company to finance its shareholders?) or the law firm Osborne Clarke, head of the company but which included executives and key shareholders of Grifols and Scranton as partners of the firm. The problem is that its equivalent in the United States, the SEC, does have powers to go all the way and the blood products company has most of its business in that country since the purchase of Talecris in 2010.
He will do it as soon as someone explains to him, if he can, what the dust with the Sant Cugat del Vallès company is due to. Beyond this issue, the immediate and critical future of Grifols involves concluding the divestment in the Chinese Shanghai RAAS to the Haier group (about 1.6 billion euros) to be able to sit down with the bank to renegotiate and refinance its debt. At the moment, the rating agencies (Fitch, S&P and Moody’s) have lowered the company’s rating, or warned that they will do so, to highly speculative levels that have companies in difficulty. Grifols is and will have to consider an alternative roadmap with more divestments and, probably, a capital increase to balance its current situation.
