Two months after the scandal broke, the CNMV released the long-awaited investigation into Grifols’ accounts. The report serves as a relief to the company, which has seen its stock drop about 40 percent so far this year. The CNMV states that in its reviews of Grifols’ financial statements no significant errors were found and there is no evidence showing that the financial debt reported in the consolidated annual accounts does not reflect reality. Nevertheless, the CNMV points to a number of relevant deficiencies in the way Grifols presents its consolidations, especially in the detail and precision of breakdowns, the explanatory notes, EBITDA presentation, and the debt/EBITDA ratio. The commission explains that these shortcomings are significant to the extent that they hinder investors’ ability to fully understand the financial position, results, and cash flows of the company.
The most material deficiency, which could lead to a restatement of 2022 and 2023, is the review of the Inmunotek transaction. In its findings, the CNMV argues that the accounting treatment given to the collaboration agreement with InmunoTek was inappropriate. It concludes that instead of recording it as a financial investment, it should have been treated as a joint operation. Correctly applying the standard in this case would imply a negative reserve adjustment of 39.3 million and, had the 2023 figures incorporated this treatment, about 15 million euros of losses would have emerged for that year.
The CNMV also urges Grifols to publish within 15 days a detailed breakdown of EBITDA and net financial debt, as of December 31, 2023 and 2022, for the most relevant entities with non-controlling interests. This is to enable an investor to calculate leverage using either EBITDA and debt with or without the impact of these non-controlling holdings.
The CNMV’s view arrives two months after Gotham City Research, a US-based short-seller, released a damning report accusing the company of manipulating its accounts and hiding part of its debt. The fund argued that Grifols’ debt actually runs between 10 and 13 times EBITDA, far higher than the six times acknowledged by the company, and highlighted so-called tunnel transactions between Grifols and Scranton Enterprises, the supposed family-owned vehicle. The key, according to Gotham, lies in the sale of Grifols’ Biotest and Haema units to Scranton, though both entities continued to consolidate the operation, claiming an option to buy. Grifols’ stock fell by more than 50 percent and, after volatility, has declined about 40.8 percent to date.
Grifols rejected the allegations, and on January 26 announced a lawsuit in the United States against Gotham City, seeking damages for the harm claimed. In Spain, minority holders of the firm considered pursuing damages against the directors over concerns that relatives and executives connected to the company had harmed them. One issue cited by critics is a lack of corporate governance and transparency, a point even acknowledged by the company’s president during an investor conference aimed at addressing questions about the Gotham case.
A few days later, on February 5, leadership underwent a radical change to avoid conflicts of interest. Grifols appointed a new chief executive and the three founder-family members stepped back from executive roles, though they remained on the board as non-executive directors. Investors initially gave a cautious vote of confidence, but rating agencies did not share the same sentiment. By mid-March, S&P and Fitch lowered the credit rating amid doubts about Grifols’ ability to meet two 1.8 billion euro issuances maturing in 2025. Moody’s, meanwhile, kept the rating under review due to cash-flow dynamics and delays in publishing audited accounts by KPMG.