Muddy Waters announces short position on Ströer SE Co. & KGaA and publishes report

DGAP-Media / 21.04.2016 / 13:07

San Francisco, CA, USA / Cologne, Germany, April 21, 2016 - Muddy Waters
Capital LLC ("Muddy Waters"), a leading activist investment firm, has
analyzed the German listed stock corporation Ströer SE Co. & KGaA (ISIN
DE0007493991; together with its predecessor legal entities, "Ströer") and
has today published the outcome and the conclusions of its analysis, which
is based on publicly available information. The fund Muddy Waters manages
is short in Ströer, which can result in conflicts of interests. Below is a
list of the key findings which are elaborated on in the full report with
the title "Ströer: Blue Sky or Being Taken for a Ride?" which can be found
on www.muddywatersresearch.com.


Summary of the report

As we see it, Ströer SE Co. & KGaA ("Ströer") is not the company the market
seems to think it is. We believe organic growth, EBITDA, operating cash
flow, and free cash flow to be significantly lower than Ströer reports.
These items go right to the heart of the investment case for Ströer. We
have serious concerns about Ströer's governance, and these concerns are
inextricably linked to our views on the company's profitability and cash
flows.

Ströer's governance reminds us of some of the companies we researched in
China. In one instance, Ströer agreed to buy a company from insiders before
the insiders themselves even purchased it. Because of the way the
transaction was structured, it is impossible to say how much profit the
insiders made; however, we believe approximately EUR22.5 million on a EUR2
million cash investment made just six months earlier is a reasonable
estimate. Insider-affiliated companies are both users and suppliers of
Ströer OOH advertising locations, which we think is inappropriate; and
further causes us to be concerned about whether sufficient internal
controls exist.

We have identified an instance in which a once key digital acquisition went
bad, and to our mind, the company and management seem to have avoided being
held accountable. Perhaps it is then not surprising to read the remarks
that a senior Ströer executive made publicly about the company's approach
to buying digital businesses - in our opinion his comments show a highly
cavalier attitude toward capital allocation.

Insiders have sold hundreds of millions of euro worth of stock, and in all
appearance even failed to properly report some of their share transactions
- possibly in violation of the law. We believe that since Ströer embarked
on its digital strategy in 2013, its board of supervisors has generally
lacked sufficient independence, which has helped to create the conditions
giving rise to the aforementioned issues, as well as other issues we
discuss in this report.

We believe that Ströer has substantially overstated its organic growth
figures in 2014 and 2015.  We do not know if what we believe to be the
overstatements result from incompetence or are an attempt to mislead
investors. In our view, the most accurate way of measuring digital organic
growth in 2015 would have yielded a rate of only 2.5%.

We adjust Ströer's 2015 free cash flow down by a) EUR24.8 million due to
our inability to reconcile certain balance sheet and cash flow statement
accounts, which causes us concern about Ströer's accounts, and b) EUR26.9
million of purchases of non-controlling interests. We adjust Ströer's 2015
operating cash flow downward because we suspect the company greatly
stretched its payables (in terms of days sales) to 118 days, versus a
three-year average of 95 days. We believe Ströer artificially inflates
EBITDA through other operating income and certain capitalized items that we
suspect are more conservatively expensed.

Ströer's 2015 year end cash flow statements wrongly show that Ströer had no
borrowings during the year, which is not the case. However, Ströer's annual
cash flow statement only shows borrowing activity net of repayments, rather
than gross. This appears to violate IFRS and gives what we believe is the
incorrect appearance Ströer is able to fund itself through cash flow and
cash on hand throughout the year. In our opinion, Ströer's auditor has
committed a clear error in allowing for this presentation in the annual
cash flow statement, as we believe it's misleading.

Ströer's public video operation, Infoscreen, seems to be an outlier in the
industry in terms of its profitability. Since its reclassification to the
digital segment in 2015, Infoscreen has been integral to the Ströer digital
growth story. We believe Infoscreen deserves greater scrutiny from
investors.

As a result of the foregoing factors, we find the investment case for
Ströer hollow.


# # # 


About Muddy Waters Capital LLC 

Muddy Waters Capital LLC, along with its affiliate Muddy Waters, LLC, is an
alternative investment firm and pioneer in on-the-ground, freely published
investment research. The firm's investment and research process peels back
the layers, often built up by seemingly respected but sycophantic law
firms, auditors, and venal managements, to assess a company's true worth.
Muddy Waters prides itself on being able to see through the opacity and
hype that some managements create in order to expose business and
accounting fraud as well as fundamental problems at companies across the
globe. Its research approach combines diverse talents, including
accountants, trained investigators, valuation experts and entrepreneurs,
many of whom have hands-on experience running businesses in the U.S. and
emerging markets. For more information, please visit
www.muddywatersresearch.com or follow on Twitter at @muddywatersre.



Media Contact US/UK

Dukas Linden Public Relations
Zach Kouwe
(o) +1 646-808-3665
(m) +1 551-655-4032
Twitter - @zkouwe


Media Contact Germany

Charles Barker Corporate Communications
Thomas Katzensteiner / Tobias Eberle
+49 69 79 40 90 25
+49 69 79 40 90 24
Thomas.Katzensteiner@charlesbarker.de
Tobias.Eberle@charlesbarker.de


End of Media Release

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Issuer: Muddy Waters Capital LLC
Key word(s): Finance

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