French supermarket operator Casino Guichard-Perrachon rejected a claim that it uses complex accounting to mask poor results, saying that it has a “solid” financial structure and enough liquidity to “comfortably” cover debt payments.
In a recent statement, the retailer dismissed allegations made last week by Carson Block’s Muddy Waters. The short-seller recently said that Casino is using financial engineering to mask a sharply deteriorating core business, sending its stock down the most since 1999.
“Casino strongly rejects all arguments put forward by Muddy Waters Capital,” the Saint-Etienne, France-based retailer said. “The group remains confident on its business outlook and its capacity to create value for all stakeholders.”
Block said that Casino’s debt burden is dangerously high and only being managed for the short term. Casino has said that it may take legal action.
Casino shares rose 0.2 per cent to €44.10 at 9.48am in Paris. They fell to as low as €38.75 last week, after Muddy Waters published its report.
Countering Block’s charge that the grocer is in poor health, Casino said that low prices at its hypermarkets and discount stores in France, where it gets about 40 per cent of sales, are winning back shoppers and should help generate a strong rebound in profitability in the second half. Margins will improve from next year, Casino said, forecasting domestic earnings before interest and tax of more than €500 million in 2016.
The retailer said that it has delivered on its deleveraging plans over the past decade. A recent decision to sell assets in Vietnam, Thailand and Colombia to cut debt by more than €2 billion “is designed to deliver long-term shareholder value”, while it has enough cash to cover debt repayments beyond 2017.
Free cash flow this year in France is expected to fully cover financial expenses as well as dividends, Casino said, adding that the measure will exceed €200 million in 2016. Muddy Waters estimated that Casino France’s free cash flow is approximately zero at present.
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