Wednesday 28 October 2015

Globo (GBO) ... two and a bit reasons ...

... why the cash might not be there. 

Wednesday 28th October 2015

As the ceramic dust settles from the self inflicted smashing of plates over the heads of Globo shareholders, the last straws are being clutched at. Does the company have all that €47 million of net cash it reported in its interims to 30th June 2015?

I very much doubt it and here's two and bit reasons why ...

Firstly, we know that the former CEO, Mr Costis Papadimitrakopoulos "Costis", fessed up at the weekend. Although not before flogging as much of his Globo stock as was humanly possible in the weeks leading up to that. All told he is reported to have sold c. 42 million shares outright in the weeks leading up to Thursday 22nd October 2015, and pledged 10 million shares as collateral for a loan.  

Volume data would suggest that a large chunk of Costis' stock was dumped on Tuesday 20th and Wednesday 21st October 2015, immediately following Tom Winnifrith's fireworks at Globo bearcast at on that Tuesday, and the call he received on the Wednesday from the FT's, Dan McCrum (that Globo timeline in full).

The volume data also suggests that the other big sales came in the days and weeks prior and before rumours of the killer Quintessential Capital Management report began. 

Globo trade volume data
Source: Bloomberg
If so, then it looks likely that the catalyst prompting Costis to begin his dumping of stock was the failure of the $180 million high yield bond issue, finally revealed as cancelled, also on Wednesday 21st October 2015. This had been dragging on since June last and so its impending failure had been a long time coming. 

One possible reason Costis began selling may have been his knowledge that a failure to raise a further and far larger debt would leave the company insolvent due to the cash balance also having been misrepresented and falsified.

That's one theory

A second reason there may be no cash is from an inspection of the group's balance sheet and the receivables, payables and debt held by its subsidiaries and associates. 

Below is the group's assets and liabilities to 30th June 2015

Globo assets and shareholders' equity
Source: Globo interims
Globo liabilities
Source: Globo interims
The group claims €104 million in cash and cash equivalents.

Also in the assets section is €55 million in trade receivables, €5 million of other receivables and €35 million in other current assets. 

Within its liabilities, the group reported €57 million in borrowings, €9 million in trade and other payables and a further €10 million in other liabilities. 

Without doubt the debt is definitely real, leaving the reported €47 million in net cash. What is less likely is, given the reported falsification of data, that the trade receivables, other receivables and other current assets are entirely real or ever likely to be recovered. 

However, by contrast, I would imagine that a large portion of the liabilities (excluding debt) are very real. Ex-debt and tax, the remaining liabilities come to c. €19 million. 

Here is the balance sheet of  Globo's divested associate, Globo Technologies, to 31st December 2014.
Globo Technologies balance sheet
Source: Globo Technologies
This shows, that Globo Technologies had a total €27 million in borrowings. As it is an associate, Globo Technologies debt will not have been consolidated into Globo's accounts. But there is possibly some risk that the debt is fully secured against Globo Plc or that Globo Plc is on the hook for at least 49% of it.   

Another factor to consider is that historically all facilities provided by banks have been secured against receivables, and it was never quite understandable what the statement "In addition, the Group has also secured major customer contracts in exchange for 60-70% of the contract value." ever meant.
Historically borrowings were secured
Source: Globo 2012 annual report
Further, the 2014 annual report highlights that "When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate."

So are there any legal obligations?
Investment in associate
Source: Globo 2014 annual report

And another thing

As we now know, Globo has(d) a partnership with Metis SA. Indeed, in its report, QCM reckoned on Metis being one of the satellite companies to Globo.

Metis partnership with Globo
According to Metis' website, Pyramis is/was a customer of Metis.

Pyramis is a Greek based kitchen sink manufacturer of all things.

I say is/was, as rather perversely, up until Friday 23rd October 2015, Pyramis seemingly was a customer of Metis. The Pyramis logo has mysteriously disappeared since Globo announced its financial irregularities. It is also the only customer to have seemingly disappeared from Metis' webstite.

Now why would that be?

Now you see it!

Metis SA customer list including Pyramis
Source: Wayback machine snapshot from 23rd October 2015

Now you don't!

Metis SA customer list no longer including Pyramis
Source: from 28th October 2015
The Pyramis website shares the same server as Altanet and indeed, bottom right of the Pyramis website is a link to Altanet's, Altab2x logo, which directs you to the Altanet website.

Pyramis website "Powered by altaB2x"
Pyramis website "Powered by altaB2x"
So Pyramis has some sort of relationship with Alanet.

As it happens, Altanet also designed a number of the Globo subsidiary websites.

Altanet's design of Globo's subsidiary, Profitel's website

It would appear that Altanet is a customer to Globo and vice versa.

Altanet partnership with Globo
Altanet strategic partnership with Globo

So Metis is a customer/reseller/partner of Globo's.

Pyramis is/was a customer of Metis; mysteriously this relationship seems to have ended in recent days.

Pyramis is also a customer of Altanet.

Altanet is a client of Globo and Globo is a client of Altanet.

It's all rather incestuous and circular.

Incidentally, a Mr. Nikolaos A. Bakatselou is the CEO of the fore-mentioned, Greek based, kitchen sink manufacturer, Pyramis.

Pyramis Group board
He is also on the board of the Greek based, Attica Bank.

Attica Bank board
That's the bit I found interesting.

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