Grifols SA: Scranton and the Undisclosed Debts

Summary of Our Opinions:

• GRF manipulates reported debt & EBITDA to artificially reduce reported leverage to 6x which we believe is closer to 10x-13x.

• Both GRF and Scranton Enterprises (a Grifols family vehicle) fully consolidate BPC + Haema onto their financial statements. This treatment is materially deceptive and incorrect.

• Should our estimate of the Grifols’ true leverage be correct, GRF will face notably higher financing costs. Consequently, we believe shares are uninvestable, likely zero.

Supporting Observations:

• Grifols fully consolidate both Haema and BPC Plasma, despite owning 0% of each company. Haema + BPC are material to GRF, as they account for ~40% of GRF earnings from Non-Controlling Interests.

• Scranton Enterprises also fully consolidates BPC Plasma and Haema, at the same that Grifols does. These entities’ earnings appear to account for more than 100% of Scranton’s earnings. Scranton owns 8.4% of GRF.

• Grifols' Leverage is ~6x, as reported. We estimate it is closer to ~10x-13x. We calculate Scranton’s leverage to be 27x.

• Grifols lent Scranton $95 million in 2018. This loan appears tied to the BPC/Haema transaction, yet this loan is undisclosed in Grifols’ corporate governance filings.

• Scranton 2021 filing shows an increase in liabilities of EUR 59 million relating to “advance payments from Grifols Worldwide Operations Ltd”. This transaction is undisclosed in GRF filings.

• Grifols shareholders, due to minority interests, own shares in a loss-making entity that is heavily indebted.

• The CEO is being hailed as a change in direction, but he has been with Grifols since 2006, and on the board when the suspect transactions we describe in our report occurred. We find him heavily conflicted and a Grifols in everything but name.

The report is available below, or through this link: https://www.scribd.com/document/697614403/Grifols-SA-Scranton-and-the-Undisclosed-Debts

Grifols SA: Scranton and the Undisclosed Debts.pdf

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