Casino, irresponsible allocation of profit?

Proxinvest, Managing Partner of ECGS, took part in Casino’s Group Annual General Meeting on Tuesday May 7th at the “Maison de la Chimie”. Once again, the dividend obtained a score of 99.36%, a topic on which shareholders seem to follow ignorantly the management's voting recommendations.

The dividend is the return on the high risk taken by capital investors, but responsible investors must also look deeper into this matter in order to evaluate the sustainability and the consequences on the long term. Since 2015 Proxinvest considers that Casino’s dividend is too high, risky and irresponsible. The proposed dividend still amounts to € 3.12 per share, which has been the case for years.

For the year, the consolidated financial statements showed a loss of € 54 million. According to Proxinvest's voting guidelines, the distribution of a dividend for a year where the Company shows a loss in the consolidated accounts is not generally satisfactory.

The distribution also represents 5.13% of the group's equity and 8.3% of the market capitalization.

The total dividend represents 111% of the group's free cash flow (Cash Flow From Operations - Capex) which does not respect our guidelines. It is therefore not covered by net cash after investment and seems excessive. In fact, the cash flows generated by the activity amounted to € 1,141 million, whereas the investments (CAPEX) amounted to € 1,185 million. The willingness to pay this annual dividend of € 342 million can therefore only be financed by a higher debt risk or by divestments, the company having made the choice to implement major divestment plans. Even if net debt has decreased by 17% in 2018 and is less significant (gearing of 0.51 and net consolidated debt equivalent to 2.29 years of operating cash flow).

Hence, Proxinvest notes that the sale of Asian activities Big C Thailand and Vietnam have reduced consolidated revenue by 9% and operating profit by 18%. In the same way, a large portion of the divestments relate to sales and lease back operations, for example the sale of the “Monoprix Walls” operation or the 2019 operation with Fortress. This resulted in an increase in real estate and property rental commitments from € 3,022 million to € 3,605 million.

As is the case every year, maintaining the proposed dividend of € 3.12 mainly allows the controlling shareholder to honor his financial debt, a problem that is found on almost every layers of Jean- Charles Naouri’ holdings. As early as 2015, Proxinvest raised doubts regarding the sustainability of Casino's dividend and, since 2016, Proxinvest recommended to oppose, blaming :

a dividend that "above all allows the controlling shareholder to honor his financial debt (a problem that is found at almost every layers of Jean-Charles Naouri's holdings)”.

and concluding that "it is incoherent to pay a dividend while the consolidated accounts present a loss and the group is forced to deleverage massively. This dividend does not appear to be in Casino's interest but serves the interest of the controlling shareholder. "

While Standard & Poors' and Moody's' credit ratings were downgraded in September 2018 in BB negative outlook and Ba1 negative outlook respectively, these impairments continued in early 2019, our historical opinion remains and Proxinvest cannot recommend shareholders to approve this dividend.

Not all shareholders are tied to share this point of view, which is a remarkable point in shareholder democracy. However, observing an extremely high approval score on the group's dividend is likely to raise questions concerning the lack of analysis on the financial topics within the general meeting, where the dividend analysis should be one of the top priority for responsible investors. The Casino Group still has many challenges ahead, and it is unfortunate that the dividend policy has not played its role as a shock absorber during this difficult period.

Our analyses are available on our website dedicated to our clients and on ResearchPool