WEBVTT 1 00:00:01.800 --> 00:00:04.660 In the previous module, we have completed the financial 2 00:00:04.760 --> 00:00:08.620 analysis. Now it's time for financial forecasting, 3 00:00:08.720 --> 00:00:12.260 financial modeling, and corporate valuation. 4 00:00:14.060 --> 00:00:17.100 The conclusions we drew from the financial analysis were quite 5 00:00:17.180 --> 00:00:20.720 straightforward. First, it's a highly profitable company. 6 00:00:20.740 --> 00:00:24.720 The return on capital employed is close to one hundred percent, though I would say 7 00:00:24.740 --> 00:00:28.540 that whatever the WACC, it's going to be a very positive economic 8 00:00:28.640 --> 00:00:32.259 profit company. Financial performance is great. 9 00:00:32.299 --> 00:00:35.460 The second conclusion is very important for the calculation of the 10 00:00:35.500 --> 00:00:39.120 WACC. There's visibility in this business model. 11 00:00:39.140 --> 00:00:43.000 We observe a stability in the profits and the cash flows, which 12 00:00:43.040 --> 00:00:45.940 will have a huge impact on the beta as a systematic risk 13 00:00:45.960 --> 00:00:49.360 coefficient and on the WACC, obviously. 14 00:00:49.400 --> 00:00:53.390 Third conclusion, financing growth is not really a problem because 15 00:00:53.400 --> 00:00:56.890 the company, on the one hand, is highly profitable, and on the other 16 00:00:56.920 --> 00:01:00.750 hand, is in a situation of a negative working capital 17 00:01:00.750 --> 00:01:03.560 requirement because of the deferred revenue. 18 00:01:03.580 --> 00:01:07.220 So financing growth is not a problem, and the operating cash flows by 19 00:01:07.360 --> 00:01:10.100 far finance the capital expenditures. 20 00:01:10.140 --> 00:01:12.880 The cash in excess is absolutely tremendous. 21 00:01:12.900 --> 00:01:15.980 Strong cash generation, and it's the ideal 22 00:01:16.020 --> 00:01:19.820 situation, strong cash predictability 23 00:01:19.880 --> 00:01:23.160 for an acquisition which is going to be financed by a leveraged 24 00:01:23.400 --> 00:01:24.000 buyout. 25 00:01:26.420 --> 00:01:29.520 The agenda I will follow consists in six steps. 26 00:01:29.560 --> 00:01:33.200 First, we are going to do some forecasting based on information 27 00:01:33.300 --> 00:01:35.880 provided by business operations. 28 00:01:35.900 --> 00:01:38.330 We are going to build the financial model of the company. 29 00:01:38.360 --> 00:01:42.160 We are going to forecast the accounting statements, the P&L, the 30 00:01:42.200 --> 00:01:44.780 balance sheet, the cash flow statement. 31 00:01:44.790 --> 00:01:47.570 Then, in order to discount free cash flows, we need a WACC. 32 00:01:47.580 --> 00:01:51.560 We need a discount rate, the weighted average cost of capital, which is going to be 33 00:01:51.720 --> 00:01:55.400 very much based on the beta. Once we have the free cash 34 00:01:55.440 --> 00:01:59.360 flow, once we have the discount rate, we can use the discounted free cash flow 35 00:01:59.440 --> 00:02:03.380 method to evaluate the company. The fourth step is going to be quite 36 00:02:03.420 --> 00:02:07.300 interesting because there is something which is very strong in corporate finance, 37 00:02:07.320 --> 00:02:11.200 the relationship between financial performance and value creation. 38 00:02:11.209 --> 00:02:14.480 And we are going to use the financial performance to evaluate the 39 00:02:14.540 --> 00:02:18.440 company, and we are going to find a figure which is quite close to the one 40 00:02:18.480 --> 00:02:21.800 which gets out of the discounted free cash flow model. 41 00:02:22.700 --> 00:02:26.620 Then, we can also use a discounted dividend method to evaluate 42 00:02:26.640 --> 00:02:30.100 the company, but we are going to see some imperfections in the 43 00:02:30.480 --> 00:02:33.780 method, and I will elaborate a little bit on that. 44 00:02:33.840 --> 00:02:35.900 I'm going to conclude with some comments. 45 00:02:35.960 --> 00:02:39.860 First, the importance of the terminal value in the calculation 46 00:02:39.920 --> 00:02:41.420 of any company, 47 00:02:42.320 --> 00:02:46.060 and the second comment will be about the financial structure. 48 00:02:46.100 --> 00:02:49.980 We need to do some valuation with the financial structure, but we are going to also 49 00:02:50.120 --> 00:02:53.900 forecast the cash, and then it's going to be a financial 50 00:02:53.960 --> 00:02:57.920 structure, which is slightly different, and I will tell you why. 51 00:02:59.740 --> 00:03:03.460 First, we need a context. The context is interest rate 52 00:03:03.840 --> 00:03:07.740 and inflation rate. I already mentioned the inflation rate, which was 53 00:03:07.800 --> 00:03:11.500 about three percent, thanks to which we could calculate the nominal 54 00:03:11.560 --> 00:03:15.120 increase in sales, but also the real increase, the 55 00:03:15.180 --> 00:03:19.160 volume increase. What you observe on the graph is that at 56 00:03:19.200 --> 00:03:22.920 that time, interest rates are ten percent and inflation is three 57 00:03:23.020 --> 00:03:26.360 percent. So the real interest rate is extremely 58 00:03:26.520 --> 00:03:30.430 high historically. And what we observe is in 59 00:03:30.480 --> 00:03:34.460 the next years, it's going to go down, which is quite normal. 60 00:03:34.480 --> 00:03:38.420 But at that time, you have to use the current situation. 61 00:03:38.480 --> 00:03:42.460 So we are going to use a WACC, which is based on ten percent as an interest 62 00:03:42.540 --> 00:03:46.240 rate, and we are going to increase the free cash flows, 63 00:03:46.420 --> 00:03:50.380 revenues, EBITDA, CapEx, and whatsoever, using an 64 00:03:50.460 --> 00:03:54.000 inflation rate to calculate nominal cash flows, and the 65 00:03:54.040 --> 00:03:57.700 inflation rate is going to be three percent. 66 00:03:59.560 --> 00:04:02.140 Now, we need two sets of assumptions. 67 00:04:02.180 --> 00:04:04.560 The first set is about the free cash flow. 68 00:04:04.600 --> 00:04:08.080 We are going to forecast the free cash flow, so we are going to take each and every 69 00:04:08.260 --> 00:04:12.080 item in the free cash flow, and we are going to make assumptions about the 70 00:04:12.090 --> 00:04:15.990 evolution of the free cash flow. The second set of assumptions is about 71 00:04:16.019 --> 00:04:19.269 the parameters which we are going to use in a calculation of the weighted 72 00:04:19.700 --> 00:04:21.659 average cost of capital. 73 00:04:24.090 --> 00:04:27.900 Let's go back first to the definition and the formula for the free cash 74 00:04:27.940 --> 00:04:31.760 flow. The free cash flow to the firm is a free cash flow which is generated by 75 00:04:31.920 --> 00:04:35.880 business operations. Once you have taken into account the amount of money 76 00:04:35.920 --> 00:04:39.520 you have to reinvest each and every year in order to be able to keep on running the 77 00:04:39.560 --> 00:04:43.460 business operations. It's about EBITDA after tax, tax 78 00:04:43.540 --> 00:04:47.300 savings and depreciation, minus the increase in a 79 00:04:47.360 --> 00:04:51.100 working capital requirement, which is going to be, in this case, minus, 80 00:04:51.140 --> 00:04:55.040 minus, plus something, and minus the capital expenditures, minus the 81 00:04:55.060 --> 00:04:58.940 investments which you need to make each and every year in order to be able to keep 82 00:04:59.000 --> 00:05:02.860 on running the business. So which kind of assumptions do we need? 83 00:05:02.920 --> 00:05:06.770 First, revenue, revenue growth during the first 84 00:05:06.800 --> 00:05:10.540 period, which is high growth period, and we also need a growth 85 00:05:10.620 --> 00:05:13.900 rate at maturity to calculate the terminal value. 86 00:05:13.940 --> 00:05:17.780 EBITDA is going to be a consequence of that, because EBITDA is a 87 00:05:17.800 --> 00:05:21.460 percentage of revenue. So once we know the revenue, 88 00:05:21.780 --> 00:05:25.000 once we know the EBITDA rate, we have the EBITDA nominal 89 00:05:25.040 --> 00:05:27.570 terms. We need a corporate tax rate. 90 00:05:27.600 --> 00:05:31.300 We are going to take the legal one. Working capital requirement, 91 00:05:31.360 --> 00:05:34.790 cash conversion cycle as a percentage of revenue, and 92 00:05:34.940 --> 00:05:37.640 investment capital expenditures. 93 00:05:37.680 --> 00:05:41.540 As far as depreciation is concerned, this is quite simple because it's a technical 94 00:05:41.640 --> 00:05:45.180 calculation. Depreciation and amortization is a direct 95 00:05:45.220 --> 00:05:48.000 consequence of investment. 96 00:05:49.920 --> 00:05:53.700 Now, this is a list of the parameters which were actually used by the company for 97 00:05:53.740 --> 00:05:57.580 the valuation when the transaction took place a few years ago. 98 00:05:58.480 --> 00:06:02.378 You remember that the CAGR was about twelve percent for the last years.... 99 00:06:02.428 --> 00:06:06.328 Now we take not twelve percent, but eight percent, which is a little bit 100 00:06:06.368 --> 00:06:09.408 conservative as a kind of average CAGR for the next 101 00:06:09.428 --> 00:06:13.308 period. Now, their inflation was three percent, so 102 00:06:13.368 --> 00:06:17.128 in real terms, the real CAGR, deflated one, 103 00:06:17.208 --> 00:06:20.348 is eight minus three, which is five percent. 104 00:06:20.388 --> 00:06:23.508 We need an assumption for the nominal growth at maturity. 105 00:06:23.518 --> 00:06:27.508 It's going to be five percent. Assuming that inflation remains three, 106 00:06:27.568 --> 00:06:30.728 it means that two percent in real terms. 107 00:06:30.748 --> 00:06:34.208 We are going to discuss the impact of this assumption on the terminal value 108 00:06:34.728 --> 00:06:37.268 and on the total value of the company. 109 00:06:37.328 --> 00:06:40.708 EBITDA, you remember that the last year was showing a small 110 00:06:40.808 --> 00:06:43.748 decline. We're going to be quite cautious in terms of 111 00:06:43.788 --> 00:06:47.528 EBITDA, and it's going to gradually come down from 112 00:06:47.588 --> 00:06:50.838 thirty-three to twenty-eight percent at the end of this first 113 00:06:50.948 --> 00:06:54.388 period. Capital expenditures as a percentage to 114 00:06:54.428 --> 00:06:58.398 revenues is down from nineteen percent to ten percent, which does 115 00:06:58.448 --> 00:07:01.088 not mean that the company invests less. 116 00:07:01.128 --> 00:07:05.068 It means that the company is still keeping on investing to grow 117 00:07:05.128 --> 00:07:08.828 the revenues, but the amount of the 118 00:07:09.008 --> 00:07:12.988 number of machines which are now in the portfolio, in the asset side of 119 00:07:13.028 --> 00:07:16.828 the balance sheet, and physically in the premises of the 120 00:07:16.868 --> 00:07:20.018 customers and generating revenues, is growing and growing and then 121 00:07:20.068 --> 00:07:23.828 accumulated. So as a consequence, the numerator is 122 00:07:23.908 --> 00:07:27.408 up, but the denominator is even more up. 123 00:07:27.428 --> 00:07:31.348 This is why CapEx is up in absolute terms, but 124 00:07:31.408 --> 00:07:34.908 down percentage to revenues. The working capital 125 00:07:34.968 --> 00:07:38.668 requirement assumption is a very strong one, because you remember, as a 126 00:07:38.708 --> 00:07:42.698 consequence of a negative working capital requirement, deferred 127 00:07:42.788 --> 00:07:46.628 revenue, we have some resource taken from an 128 00:07:46.688 --> 00:07:49.768 increase in absolute terms of working capital requirement. 129 00:07:49.788 --> 00:07:53.148 The assumption is that it's quite stable in percentage to revenues. 130 00:07:54.108 --> 00:07:57.128 Now, you remember that SECAP was distributing no dividend. 131 00:07:57.208 --> 00:08:01.178 Now we need to finance the holding, which is going to make the acquisition, and 132 00:08:01.208 --> 00:08:04.828 then one hundred percent of the net income is going to be returned to the holding 133 00:08:05.228 --> 00:08:09.088 as a dividend. But the company is going to generate more 134 00:08:09.168 --> 00:08:13.028 cash than the net income. Then what are we going to do with the excess 135 00:08:13.038 --> 00:08:16.248 cash? The excess cash is going to be one hundred percent 136 00:08:16.528 --> 00:08:20.428 returned to the financial holding, but at SECAP, there will be 137 00:08:20.528 --> 00:08:23.928 absolutely no debt, which is a conservative assumption for 138 00:08:23.968 --> 00:08:25.868 SECAP itself. 139 00:08:27.668 --> 00:08:31.488 What you observe on the graph is a consequence of all these assumptions. 140 00:08:31.528 --> 00:08:35.348 EBITDA is down as a percentage to revenues, 141 00:08:36.068 --> 00:08:39.889 more or less smoothly, with an exception in ninety-four, because there is some 142 00:08:39.948 --> 00:08:42.788 kind of renewal in the leasing contract. 143 00:08:42.848 --> 00:08:46.428 The revenue itself is up from four hundred 144 00:08:46.848 --> 00:08:49.728 to eight hundred and forty, eight hundred and fifty. 145 00:08:49.768 --> 00:08:53.628 So there's smooth growth in the revenues as a consequence of 146 00:08:53.688 --> 00:08:57.408 investment in the development of the portfolio of machines. 147 00:08:57.448 --> 00:09:01.128 Now, capital expenditures are going to be down, starting in 148 00:09:01.168 --> 00:09:05.088 ninety-one. In nineteen ninety, there's a strong effort 149 00:09:05.528 --> 00:09:08.768 in capital expenditures, but it's going to be just a one 150 00:09:09.008 --> 00:09:10.508 shot. 151 00:09:12.548 --> 00:09:16.517 Now, with all these assumptions, we can forecast the P&L and the 152 00:09:16.588 --> 00:09:20.508 balance sheet. And that's quite interesting because it's not 153 00:09:20.548 --> 00:09:24.348 a very difficult exercise in calculation terms. 154 00:09:24.388 --> 00:09:26.878 We observe that the revenues are growing. 155 00:09:26.908 --> 00:09:29.908 We have an assumption, which is revenue growth rate. 156 00:09:29.918 --> 00:09:33.388 We have some allocation to provisions, which is negligible. 157 00:09:33.448 --> 00:09:37.108 EBITDA to revenues is a very strong assumption, and as a 158 00:09:37.128 --> 00:09:41.068 consequence of revenue and EBITDA on revenue 159 00:09:41.308 --> 00:09:44.668 rate, we can build a forecast of the EBITDA. 160 00:09:44.708 --> 00:09:48.118 Depreciation is a technical consequence of capital expenditures. 161 00:09:48.128 --> 00:09:51.878 You just have to make sure that these figures are quite consistent. 162 00:09:51.878 --> 00:09:55.368 The financial result is nil for a very 163 00:09:55.448 --> 00:09:59.068 simple reason. We return each and every currency unit of 164 00:09:59.148 --> 00:10:02.708 cash to the financial holding in order to make sure that the financial 165 00:10:02.788 --> 00:10:05.908 holding has a cash balance, which is absolutely 166 00:10:05.988 --> 00:10:09.078 okay. Then we calculate the profit before tax. 167 00:10:09.108 --> 00:10:12.008 The income tax is the legal tax rate. 168 00:10:12.048 --> 00:10:15.588 We get the net income, we add up depreciation, we get the gross cash 169 00:10:15.668 --> 00:10:18.928 flow, and the change in working capital requirement is, as 170 00:10:19.048 --> 00:10:22.808 anticipated, going to be a resource because the company is 171 00:10:22.868 --> 00:10:26.508 growing, the working capital requirement is growing in absolute 172 00:10:26.518 --> 00:10:30.448 term, but basically, it's going to be minus 173 00:10:30.488 --> 00:10:33.008 something, and minus minus gives you plus. 174 00:10:33.028 --> 00:10:36.408 So the change in the working capital requirement is a source of cash. 175 00:10:36.428 --> 00:10:39.968 This is why you are going to be able to transfer, to return to the 176 00:10:40.028 --> 00:10:42.708 shareholders more than the profit you generate. 177 00:10:42.728 --> 00:10:46.368 Operating cash flow is gross cash flow minus 178 00:10:46.508 --> 00:10:48.188 change in working capital requirement. 179 00:10:48.198 --> 00:10:52.128 And then you, of course, can finance your capital expenditures, which are 180 00:10:52.168 --> 00:10:55.828 a percentage to revenue, down from nineteen to ten percent, you 181 00:10:55.928 --> 00:10:59.788 remember. We have a free cash flow, which is generated by the company. 182 00:10:59.798 --> 00:11:02.068 And then what about the financial strategy? 183 00:11:02.128 --> 00:11:06.028 We return one hundred percent of the net income, so the dividends are going 184 00:11:06.048 --> 00:11:09.188 to be exactly matching with the net income. 185 00:11:09.228 --> 00:11:13.148 But we still have more cash. First, we have the cash in the balance 186 00:11:13.168 --> 00:11:17.108 sheet of the company, the day you make the acquisition, and you return this cash. 187 00:11:17.128 --> 00:11:20.988 But the cash in excess is going to be returned to the holding as a kind of 188 00:11:21.248 --> 00:11:25.108 loan to the holding, allocation to provision, and 189 00:11:25.148 --> 00:11:29.138 then change in the cash position. The change in the cash position is going 190 00:11:29.168 --> 00:11:32.988 to be strongly negative in nineteen ninety for a very 191 00:11:33.008 --> 00:11:36.748 simple reason, which is we return the cash to the company, and then it's going to 192 00:11:36.828 --> 00:11:40.268 be zero. This is why the financial 193 00:11:40.328 --> 00:11:44.168 result is also zero. There is no cash 194 00:11:44.228 --> 00:11:48.088 in the balance sheet of the company, but there is no 195 00:11:48.148 --> 00:11:51.988 debt as well. So SECAP is very conservative in terms of 196 00:11:52.048 --> 00:11:55.068 financing for the industrial firm. 197 00:11:56.908 --> 00:12:00.708 Once you know the initial financial balance sheet and you 198 00:12:00.788 --> 00:12:04.648 realize your predictions in terms of P&L and cash flow statement, 199 00:12:05.208 --> 00:12:09.072 it's quite simple.... technically speaking, to build 200 00:12:09.112 --> 00:12:13.012 the forecast of the financial balance sheet for the next years. 201 00:12:13.052 --> 00:12:16.182 The balance sheet is made of capital employed and net financial resources. 202 00:12:16.312 --> 00:12:19.772 Capital employed is non-current assets and working capital 203 00:12:19.792 --> 00:12:22.872 requirement, net of non-current liabilities. 204 00:12:22.912 --> 00:12:26.442 The non-current assets are simply incremented by CapEx and 205 00:12:26.472 --> 00:12:29.292 decremented by depreciation of the year. 206 00:12:29.352 --> 00:12:31.312 The working capital requirement is known. 207 00:12:31.332 --> 00:12:35.182 It's supposedly stable in terms of percentage to revenues, so it's 208 00:12:35.212 --> 00:12:38.971 growing with the revenues. And non-current liabilities are 209 00:12:39.032 --> 00:12:42.122 incremented each and every year by the incremental long-term 210 00:12:42.232 --> 00:12:46.152 provisions. Then, if you observe the capital employed, you see 211 00:12:46.172 --> 00:12:50.072 that the non-current assets are growing, but at a lower 212 00:12:50.232 --> 00:12:53.812 rate than the revenues, because CapEx is 213 00:12:53.832 --> 00:12:56.552 declining in percentage to revenues. 214 00:12:56.562 --> 00:13:00.032 When the working capital requirement is perfectly correlated with the 215 00:13:00.092 --> 00:13:03.872 revenues, so you see the growing importance of the working capital 216 00:13:03.932 --> 00:13:07.492 requirement in the calculation of the capital employed. 217 00:13:07.532 --> 00:13:11.182 And interestingly, in ninety-seven, the capital employed 218 00:13:11.292 --> 00:13:15.252 is nil, and then it's going to turn negative, which is quite an 219 00:13:15.292 --> 00:13:19.212 exceptional situation. Now, let's move to the net financial 220 00:13:19.292 --> 00:13:23.032 resources. Shareholders' equity is going to be quite stable 221 00:13:23.052 --> 00:13:26.212 because there is, of course, no equity issue. 222 00:13:26.232 --> 00:13:29.472 But in addition to that, one hundred percent of the net income is 223 00:13:29.512 --> 00:13:32.852 distributed, though the retained earnings are going to be 224 00:13:32.952 --> 00:13:36.812 stable. The shareholders' equity does not move by one inch. 225 00:13:36.832 --> 00:13:40.132 The net financial debt is financial debt, net of 226 00:13:40.232 --> 00:13:43.892 cash, and cash is accumulated by the 227 00:13:43.952 --> 00:13:47.612 company. Not only cash in the bank account, but 228 00:13:47.692 --> 00:13:51.262 also loans to the holding. You remember that each and every 229 00:13:51.292 --> 00:13:55.152 currency unit in excess of the net earnings is 230 00:13:55.332 --> 00:13:58.752 returned to the financial holding so that the cash balance is 231 00:13:58.872 --> 00:14:02.352 absolutely okay for the financing company. 232 00:14:02.392 --> 00:14:06.292 Then you have the working capital, which is, uh, permanent resources 233 00:14:06.812 --> 00:14:10.692 minus non-current asset, and it's smoothly growing up. 234 00:14:10.712 --> 00:14:14.692 The working capital requirement is already known, and working capital 235 00:14:14.772 --> 00:14:18.421 minus working capital requirement is a net cash position. 236 00:14:18.452 --> 00:14:22.312 We check that it is exactly cash plus the loans to 237 00:14:22.372 --> 00:14:26.292 the holding. So there is a nice balancing of 238 00:14:26.352 --> 00:14:29.502 the balance sheet, which is absolutely normal. 239 00:14:29.532 --> 00:14:33.512 We have working capital minus working capital requirement, which matches 240 00:14:33.572 --> 00:14:37.552 with the net cash position, and the net cash position is very strong 241 00:14:37.892 --> 00:14:40.652 because it's a cash generator. 242 00:14:42.292 --> 00:14:44.892 Now, let's take the same figures and plot that on a graph. 243 00:14:44.932 --> 00:14:48.632 You see the revenues, which are up again from about four 244 00:14:48.752 --> 00:14:52.692 hundred to eight hundred and forty, and the capital 245 00:14:52.732 --> 00:14:56.312 employed in the meantime is a little bit up in 246 00:14:56.332 --> 00:15:00.092 nineteen ninety because the company is investing, but then 247 00:15:00.172 --> 00:15:03.952 it's gradually down, zero in ninety-seven and 248 00:15:04.012 --> 00:15:07.252 negative in ninety-eight and ninety-nine. 249 00:15:07.332 --> 00:15:10.992 Again, this is a quite exceptional situation. 250 00:15:12.932 --> 00:15:16.912 Now, let's move to the second set of assumptions, the calculations of weighted 251 00:15:16.952 --> 00:15:20.372 average cost of capital. The weighted average cost of 252 00:15:20.412 --> 00:15:24.272 capital is share of equity and share of debt, respectively 253 00:15:24.332 --> 00:15:27.432 multiplied by what is expected by shareholders and the cost of 254 00:15:27.492 --> 00:15:30.912 debt. The cost of debt is the interest you pay to the bank 255 00:15:31.412 --> 00:15:35.312 minus taxes for a very simple reason, which is interest expense is 256 00:15:35.332 --> 00:15:37.932 deductible from the taxable income. 257 00:15:37.972 --> 00:15:41.892 So the first assumption, which is quite important, is the financial 258 00:15:41.952 --> 00:15:45.932 structure. The gearing, which is going to be used for the valuation, is debt over 259 00:15:45.972 --> 00:15:49.692 equity is about fifteen percent. Fifteen percent, 260 00:15:49.892 --> 00:15:53.612 why? Because it's basically the long-term debt 261 00:15:53.892 --> 00:15:57.532 in nineteen eighty-nine divided by the equity in nineteen 262 00:15:57.552 --> 00:16:01.452 eighty-nine, more or less is fifteen percent, and this is a justification of 263 00:16:01.512 --> 00:16:05.472 that. Now, in order to calculate the cost of equity, we 264 00:16:05.512 --> 00:16:08.872 need a risk-free rate, the government bond rate, which was, you remember, ten 265 00:16:08.952 --> 00:16:12.652 percent at that time. The debt interest rate is a 266 00:16:12.832 --> 00:16:15.152 little bit more than the risk-free rate. 267 00:16:15.172 --> 00:16:19.122 There is a, a risk premium, which is quite low, two percent, and 268 00:16:19.152 --> 00:16:22.972 this is why the debt interest rate is supposedly twelve percent. 269 00:16:23.032 --> 00:16:26.532 Tax rate, we take the legal one, which we already use in the 270 00:16:26.572 --> 00:16:30.392 calculation. So what is left? What is left is the beta, 271 00:16:30.412 --> 00:16:33.092 the systematic risk coefficient. 272 00:16:34.952 --> 00:16:38.492 The beta, the systematic risk coefficient, represents the 273 00:16:38.532 --> 00:16:42.412 sensitivity of the value of the company to macroeconomic conditions. 274 00:16:42.472 --> 00:16:46.272 For example, if there is a downturn, are you going to suffer a lot? 275 00:16:46.292 --> 00:16:49.492 High beta. Or are you going to be quite resilient? 276 00:16:49.552 --> 00:16:53.412 Low beta. On an econometric point of view, you can calculate the 277 00:16:53.472 --> 00:16:56.632 beta as a covariance between the return of the company and the return of the 278 00:16:56.672 --> 00:16:59.592 market, divided by the variance of the return of the 279 00:16:59.632 --> 00:17:03.232 market. But then the company should be listed. 280 00:17:03.252 --> 00:17:06.833 As the company is privately owned, this is difficult to have this kind of 281 00:17:06.873 --> 00:17:10.792 data. You can look at competitors, comparables, but 282 00:17:10.972 --> 00:17:14.712 as we are going to see a little bit later, there are some competitors, but these 283 00:17:14.772 --> 00:17:18.353 are very diversified companies, and basically, it's 284 00:17:18.452 --> 00:17:22.353 impossible to isolate the beta of this activity. 285 00:17:22.373 --> 00:17:26.192 So you need to use your brain and make an economic estimation of 286 00:17:26.252 --> 00:17:29.512 the beta and not an econometric estimation. 287 00:17:29.552 --> 00:17:32.972 Then you look at the business. There's a visibility in the business because it's 288 00:17:33.032 --> 00:17:36.092 about lease contracts, medium-term, 289 00:17:36.212 --> 00:17:40.132 long-term, and then you understand that once you have signed the contract, 290 00:17:40.212 --> 00:17:43.172 uh, basically the revenues are in your pocket. 291 00:17:43.212 --> 00:17:47.152 It's a regulated market. You need some accreditation from the 292 00:17:47.212 --> 00:17:51.142 authorities, and the accreditation period is a minimum of two 293 00:17:51.292 --> 00:17:55.132 years. So there's no big competitive entry to be 294 00:17:55.152 --> 00:17:58.652 anticipated. Secap has a market share, which is about one-third, 295 00:17:59.152 --> 00:18:02.972 and in fact, the market is split into three competitors, 296 00:18:03.272 --> 00:18:06.652 big players, Alcatel and Pitney Bowes, 297 00:18:06.692 --> 00:18:10.552 conglomerates, diversified industrial companies, 298 00:18:10.612 --> 00:18:13.812 and you are in one business. You have one-third of this 299 00:18:13.972 --> 00:18:17.388 business.... So you understand that it's an oligopoly, quite 300 00:18:17.448 --> 00:18:21.148 restricted oligopoly, and I would say a reasonably 301 00:18:21.248 --> 00:18:24.868 quiet monopoly. Nobody wants to start a price war. 302 00:18:25.068 --> 00:18:28.848 It's stable, predictable market growth, no problem. 303 00:18:29.388 --> 00:18:32.688 Then the company used a beta unlevered, which is 304 00:18:33.208 --> 00:18:36.748 point seven, point nine, one point one, three different 305 00:18:36.828 --> 00:18:40.028 assumptions. And in my opinion, these are very 306 00:18:40.068 --> 00:18:44.058 conservative assumptions due to the economic parameters 307 00:18:44.128 --> 00:18:47.848 which I just described. 308 00:18:48.768 --> 00:18:52.048 Now we have all the parameters which we need in order to calculate the weighted 309 00:18:52.108 --> 00:18:55.688 average cost of capital. You remember the formula, share of 310 00:18:55.748 --> 00:18:59.268 equity, share of debt, respectively, multiplied by cost of equity 311 00:18:59.868 --> 00:19:03.188 and cost of debt. The cost of debt is interest rate multiplied by one 312 00:19:03.808 --> 00:19:07.138 minus tax rate. It is seven point six percent. 313 00:19:07.138 --> 00:19:10.558 The cost of equity is government bond rate, ten percent, but 314 00:19:10.608 --> 00:19:14.518 the beta multiplied by the equity market risk premium, 315 00:19:14.548 --> 00:19:16.648 which is about five percent in France. 316 00:19:16.668 --> 00:19:20.248 But the beta with debt is taken from the beta with no 317 00:19:20.327 --> 00:19:24.228 debt, with the Amada formula. You remember that beta 318 00:19:24.408 --> 00:19:28.368 L is beta U multiplied by one plus one minus 319 00:19:28.468 --> 00:19:32.428 tax times the gearing. The gearing is fifteen percent, the tax 320 00:19:32.468 --> 00:19:36.408 rate is thirty-seven percent. We get the beta levered out of the 321 00:19:36.428 --> 00:19:40.008 beta unlevered. We multiply by five, we add 322 00:19:40.048 --> 00:19:43.718 ten, we have the cost of equity. We adjust the cost of 323 00:19:43.868 --> 00:19:47.818 equity and the cost of debt as a respective contribution of shareholders and 324 00:19:47.908 --> 00:19:51.528 bankers in the financial uh, structure of the company. 325 00:19:51.548 --> 00:19:55.388 And then we have the WACC, thirteen, fourteen, and almost 326 00:19:55.408 --> 00:19:58.778 fifteen percent when the beta U is 327 00:19:58.808 --> 00:20:01.278 supposedly one point one. 328 00:20:03.348 --> 00:20:07.078 Generally speaking, when you use the discounted free cash flow method to evaluate a 329 00:20:07.108 --> 00:20:10.398 company, you split the future into two periods. 330 00:20:10.448 --> 00:20:14.308 The first period is growth, high growth, um, 331 00:20:14.348 --> 00:20:18.188 restructuration or whatsoever. Then the free cash flows are 332 00:20:18.248 --> 00:20:21.788 calculated one by one. You discount them, and you get the 333 00:20:21.808 --> 00:20:24.228 enterprise value for the first period. 334 00:20:24.268 --> 00:20:27.208 And then you consider that after this first period of, I would say, 335 00:20:27.268 --> 00:20:31.248 turbulences, there will be a kind of long-term growth with a smooth 336 00:20:31.328 --> 00:20:35.208 growth rate. And then you calculate the terminal value, which 337 00:20:35.228 --> 00:20:38.688 is based on an infinite annuity after year 338 00:20:39.068 --> 00:20:42.428 eleven in this case, because the first period is lasting ten 339 00:20:42.468 --> 00:20:46.268 years. Then you calculate the terminal value, which is the last free 340 00:20:46.388 --> 00:20:50.348 cash flow multiplied by one plus growth, divided by the difference between the 341 00:20:50.468 --> 00:20:54.388 WACC and the long-term growth. You get terminal value, and then 342 00:20:54.488 --> 00:20:58.348 you discount it, which gives you the discounted terminal value, 343 00:20:58.388 --> 00:21:02.348 enterprise value, period two, from year eleven to the end 344 00:21:02.388 --> 00:21:05.908 of the planet. The enterprise value is the sum of these two 345 00:21:05.968 --> 00:21:09.628 enterprise values, one plus two, turbulence 346 00:21:10.028 --> 00:21:13.948 and then maturity, and equity is enterprise value 347 00:21:14.008 --> 00:21:17.368 minus debt, so minus net financial debt. 348 00:21:17.408 --> 00:21:21.208 In this case, the net financial debt is negative because it's long-term 349 00:21:21.268 --> 00:21:24.588 debt, thirteen, minus cash, one hundred and ten. 350 00:21:24.728 --> 00:21:28.388 So when we calculate the equity value, we are going to take the enterprise 351 00:21:28.428 --> 00:21:32.348 value minus minus ninety-seven, so plus 352 00:21:32.648 --> 00:21:34.888 ninety-seven. 353 00:21:36.028 --> 00:21:39.608 Once we have predicted the free cash flows to the firm for the future, 354 00:21:40.148 --> 00:21:42.408 we have to discount them at the WACC. 355 00:21:42.428 --> 00:21:46.408 The WACC is a function of the beta. Lower beta, lower 356 00:21:46.548 --> 00:21:50.038 cost of equity, lower WACC, higher value. 357 00:21:50.648 --> 00:21:54.108 Because if you reduce the discount rate, you increase the present value of the free 358 00:21:54.188 --> 00:21:57.168 cash flows, which is exactly what we observe. 359 00:21:57.208 --> 00:22:00.708 With a beta U of point seven, the equity value is eight hundred and 360 00:22:00.768 --> 00:22:04.488 eighty-six. With a higher beta of one point one, the 361 00:22:04.548 --> 00:22:08.468 equity value is down to seven hundred and twenty-three. 362 00:22:08.508 --> 00:22:10.848 We have to make two comments out of that. 363 00:22:10.888 --> 00:22:14.468 The first one is that the value is very sensitive to the beta, 364 00:22:15.408 --> 00:22:19.288 and that's a problem because the beta here is estimated, 365 00:22:19.368 --> 00:22:23.248 not calculated. We have no stock price, so we have 366 00:22:23.288 --> 00:22:26.168 no econometric calculation for the beta. 367 00:22:26.188 --> 00:22:30.128 But even though you have stock prices, historical stock prices 368 00:22:30.168 --> 00:22:34.108 to calculate the beta in an econometric way, you have 369 00:22:34.128 --> 00:22:38.048 to remember that data is about the past, and the WACC is about the 370 00:22:38.108 --> 00:22:41.698 future. So you always have to introduce economic 371 00:22:41.728 --> 00:22:45.248 thinking in the estimation of the beta. 372 00:22:45.318 --> 00:22:49.248 The second thing we have to conclude out of that is that it's probably a good 373 00:22:49.328 --> 00:22:52.988 deal for the acquirer, because the transaction price was 374 00:22:53.068 --> 00:22:57.008 seven hundred and seventy. It's a bit more than 375 00:22:57.068 --> 00:23:00.808 the fundamental value, only if the beta U is one point 376 00:23:00.888 --> 00:23:03.728 one, which is quite conservative assumption. 377 00:23:03.768 --> 00:23:07.578 So it's close to fundamental value, and the value is 378 00:23:07.648 --> 00:23:10.388 very likely higher than the transaction price. 379 00:23:10.428 --> 00:23:13.938 So it's a good deal for the company which is purchasing Secap. 380 00:23:16.668 --> 00:23:20.658 Now let's go back to the fundamental relationship between financial performance and 381 00:23:20.788 --> 00:23:24.608 value creation. The return capital employed is 382 00:23:24.908 --> 00:23:28.658 ninety-five percent, but the ROCE is not the performance of 383 00:23:28.688 --> 00:23:32.628 ROCE. Against a WACC is the performance, but ROCE after tax, 384 00:23:32.648 --> 00:23:36.198 because the WACC is after tax. So if the ROCE before tax is 385 00:23:36.248 --> 00:23:40.108 ninety-five, the ROCE after tax is fifty-five. 386 00:23:40.148 --> 00:23:44.048 The WACC median is fourteen. 387 00:23:44.088 --> 00:23:47.868 Fifty-five minus fourteen is forty-one percent of an 388 00:23:47.908 --> 00:23:51.548 economic profit in percentage, which is absolutely 389 00:23:51.588 --> 00:23:55.318 tremendous. Now, you combine that with a CAGR of eight 390 00:23:55.408 --> 00:23:59.208 percent, and you remember that the market to book, which is 391 00:23:59.248 --> 00:24:02.268 enterprise value over capital employed, can be 392 00:24:02.328 --> 00:24:05.928 calculated, theoretically calculated, using 393 00:24:06.048 --> 00:24:09.928 ROCE and WACC. It's ROCE after tax less growth, divided 394 00:24:09.968 --> 00:24:13.108 by WACC less growth. Then the market to book 395 00:24:13.248 --> 00:24:16.122 theoretically is fifty-five minus eight.... 396 00:24:16.122 --> 00:24:19.872 divided by fourteen minus eight. The market-to-book is the 397 00:24:19.932 --> 00:24:23.832 enterprise value divided by capital employed, calculated seven 398 00:24:23.932 --> 00:24:27.892 point eight. Then the enterprise value is seven point 399 00:24:28.072 --> 00:24:31.812 eight times the capital employed, which was ninety-one. 400 00:24:31.852 --> 00:24:35.362 Then we get to an enterprise value, which is seven hundred and 401 00:24:35.512 --> 00:24:39.012 ten, and then the equity value is seven hundred and ten 402 00:24:39.492 --> 00:24:43.072 minus the net financial debt, so minus, minus, plus 403 00:24:43.152 --> 00:24:46.812 ninety-seven, and we get eight hundred and seven, which 404 00:24:46.832 --> 00:24:50.692 is quite close to what was provided by the 405 00:24:50.732 --> 00:24:54.692 discounted free cash flow method using the beta, which was a 406 00:24:54.712 --> 00:24:58.512 median beta, the median WACC. So it's quite interesting to 407 00:24:58.552 --> 00:25:01.892 observe this relationship between financial 408 00:25:01.972 --> 00:25:05.842 performance and value creation. What creates value is the 409 00:25:05.912 --> 00:25:09.342 financial performance, and the financial performance is the economic 410 00:25:09.432 --> 00:25:13.102 profit. The economic profit is ROC after tax, 411 00:25:13.212 --> 00:25:17.072 against what the market is offering for this category of risk, 412 00:25:17.112 --> 00:25:18.832 which is the WACC. 413 00:25:20.492 --> 00:25:24.272 The value of any asset lies in the ability of this asset to generate 414 00:25:24.332 --> 00:25:27.812 cash flows. When we use the discounted free cash flow 415 00:25:27.822 --> 00:25:31.232 model, we calculated the value of the business operations 416 00:25:31.812 --> 00:25:35.392 as a consequence of generating free cash flows from business 417 00:25:35.512 --> 00:25:38.692 operations, which was named free cash flow to the firm. 418 00:25:38.732 --> 00:25:42.632 We discounted them at the WACC because the business operations are financed by 419 00:25:42.672 --> 00:25:46.572 shareholders and by bankers. But you can also directly calculate the 420 00:25:46.712 --> 00:25:50.432 value of equity, considering that equity is generating cash 421 00:25:50.572 --> 00:25:54.012 inflows, which is about dividends, and then it's named the 422 00:25:54.092 --> 00:25:57.692 discounted dividend model. You use a two-period model. 423 00:25:57.702 --> 00:26:01.472 Same story. You have a growth at maturity, which is five percent. 424 00:26:01.492 --> 00:26:05.252 You have calculated your dividends for the first period, and you discount 425 00:26:05.332 --> 00:26:09.132 all these dividends at a discount rate, which is the expected 426 00:26:09.172 --> 00:26:12.212 return on equity, because these cash flows are equity 427 00:26:12.292 --> 00:26:15.872 linked. Then we have three different beta use. 428 00:26:15.892 --> 00:26:19.832 We have three different equity values, ranging from six 429 00:26:19.892 --> 00:26:23.812 hundred and seventy for the highest one to five hundred and twenty-eight for the 430 00:26:23.912 --> 00:26:25.651 lowest one. 431 00:26:27.572 --> 00:26:31.042 You have observed that the value, the fundamental value of equity, which is 432 00:26:31.072 --> 00:26:35.052 provided by the dividend discounted model, is significantly less 433 00:26:35.112 --> 00:26:39.001 than the value which is given by the free cash flow model. 434 00:26:39.792 --> 00:26:43.392 And that's very often the case in practice, because the actual dividend which is 435 00:26:43.472 --> 00:26:46.632 paid by the companies are very often 436 00:26:46.652 --> 00:26:50.192 significantly less than the dividend which is potentially distributed to the 437 00:26:50.212 --> 00:26:54.012 shareholders. In the SECAP case, the shareholder return 438 00:26:54.072 --> 00:26:57.372 capacity, so the cash we can return to the holding company, 439 00:26:57.932 --> 00:27:01.892 is significantly greater than the dividend which is paid by the 440 00:27:01.972 --> 00:27:05.662 company, even though the company is distributing one hundred percent of its 441 00:27:05.792 --> 00:27:09.402 earnings. And this is a very exceptional case because we have 442 00:27:09.412 --> 00:27:13.001 declining invested capital, so the operations are 443 00:27:13.052 --> 00:27:16.032 returning more cash than the profit which is 444 00:27:16.052 --> 00:27:19.392 generated. But in a general case, it's very often 445 00:27:19.872 --> 00:27:23.492 that the dividend is less actually than 446 00:27:23.632 --> 00:27:27.032 potentially. And then, if you want to use a dividend 447 00:27:27.092 --> 00:27:30.432 discounted model, you have to calculate the dividend, which is 448 00:27:30.472 --> 00:27:33.992 consistent with the sustainable growth rate of the company. 449 00:27:34.592 --> 00:27:37.992 The formula makes a link between the ability of the company to 450 00:27:38.072 --> 00:27:41.672 grow and the return on equity and the dividend policy. 451 00:27:41.712 --> 00:27:45.172 Then you calculate the dividend, which is consistent with 452 00:27:45.352 --> 00:27:48.972 generating a sustainable growth rate, which matches with the 453 00:27:49.252 --> 00:27:52.812 actual growth. And under the circumstances, you can 454 00:27:52.932 --> 00:27:56.632 calculate the kind of value which is consistent with 455 00:27:56.652 --> 00:27:59.232 the discounted dividend method. 456 00:28:01.112 --> 00:28:04.352 Now, a couple of comments in order to conclude this 457 00:28:04.432 --> 00:28:07.892 module. First, you remember that we have 458 00:28:07.932 --> 00:28:11.792 calculated the terminal value. The terminal value is almost one point 459 00:28:11.952 --> 00:28:15.892 three billion in a medium case of the WACC. 460 00:28:15.932 --> 00:28:19.872 If you discount that at the WACC, you get three hundred and forty million French 461 00:28:19.952 --> 00:28:23.842 franc, which is fifty percent, half of the value of the 462 00:28:23.872 --> 00:28:27.392 invested capital of the business operations, which is 463 00:28:27.452 --> 00:28:31.232 extremely important. And that's very often the case. 464 00:28:31.272 --> 00:28:35.152 Your usual approach for the calculation of the terminal value is you 465 00:28:35.212 --> 00:28:38.932 simply take the last free cash flow, and you extend this 466 00:28:38.972 --> 00:28:42.332 last free cash flow up to the end of the planet. 467 00:28:42.352 --> 00:28:46.232 But the question is: What will the environment, the economic model, 468 00:28:46.312 --> 00:28:50.192 look like in ten years' time? You remember, we are 469 00:28:50.312 --> 00:28:53.712 in eighty-nine, ninety. What will happen ten years 470 00:28:53.752 --> 00:28:57.412 later? Internet. Of course, Internet will have a 471 00:28:57.552 --> 00:29:01.272 huge impact on the terminal value and on the postal 472 00:29:01.392 --> 00:29:05.212 services at large. But when you're back ten years before, 473 00:29:05.272 --> 00:29:09.032 in nineteen ninety, can you anticipate that there will be a 474 00:29:09.092 --> 00:29:12.982 disruption, which is named Internet? The answer is no. 475 00:29:13.632 --> 00:29:17.352 And even though there will be some external events which are completely going to 476 00:29:17.392 --> 00:29:21.272 disrupt your business model, you make a valuation, taking 477 00:29:21.332 --> 00:29:25.322 into account that fifty percent of the value is going 478 00:29:25.352 --> 00:29:29.072 to be generated in a period where everything is made of 479 00:29:29.112 --> 00:29:32.912 uncertainty. This is a huge problem of the calculation of the 480 00:29:32.982 --> 00:29:34.992 terminal value. 481 00:29:36.752 --> 00:29:39.772 The second set of comments is about the financial structuring of 482 00:29:39.872 --> 00:29:43.432 SECAP and the relationship with its financial value 483 00:29:43.442 --> 00:29:44.302 calculation. 484 00:29:45.212 --> 00:29:49.092 You remember we built the financial forecast considering that debt should be zero 485 00:29:49.432 --> 00:29:53.152 and remain zero. So we are very conservative as far as the 486 00:29:53.332 --> 00:29:55.572 balance sheet of SECAP is concerned. 487 00:29:55.612 --> 00:29:58.972 So we return every unit of currency we can. 488 00:29:59.012 --> 00:30:02.952 But is it going to be enough? Is maximizing the returns 489 00:30:02.992 --> 00:30:06.872 to the holding company enough to balance the accounts of 490 00:30:06.932 --> 00:30:10.292 the financial holding? You understand that it's about 491 00:30:10.412 --> 00:30:14.362 liquidity. But now, the second perspective was about the WACC 492 00:30:14.412 --> 00:30:18.082 calculation. In the WACC calculation, we take debt, which is 493 00:30:18.092 --> 00:30:22.052 fifteen percent to equity, so that we have share of debt and share of equity 494 00:30:22.072 --> 00:30:25.672 in the calculation of the WACC. So we calculate the fundamental 495 00:30:25.752 --> 00:30:29.282 value in the WACC with a kind of negligible 496 00:30:29.392 --> 00:30:32.232 debt, but it's negligible, it's not 497 00:30:32.312 --> 00:30:36.244 zero.... So on the one hand, we calculate the value, which 498 00:30:36.324 --> 00:30:39.484 is very much based on a normal financing 499 00:30:39.544 --> 00:30:43.484 structure, but we also have the cash flow perspective in 500 00:30:43.544 --> 00:30:47.004 mind, because we have to balance the accounts of the financial 501 00:30:47.104 --> 00:30:50.464 holding, which is going to own one hundred percent of the shares of 502 00:30:50.524 --> 00:30:54.324 Secap. And we always have, we finance people, these two 503 00:30:54.404 --> 00:30:57.924 perspectives. We have a liquidity perspective, which is about cash 504 00:30:57.944 --> 00:31:01.434 forecast, and we have a performance and value 505 00:31:01.544 --> 00:31:04.764 perspective, which is a WACC perspective. 506 00:31:04.824 --> 00:31:08.604 It is very much about the two functions of the finance team 507 00:31:08.664 --> 00:31:11.244 inside the company. 508 00:31:12.084 --> 00:31:15.064 Before we move to the financial structuring of this leveraged 509 00:31:15.144 --> 00:31:19.084 buyout, there are a few conclusions we can draw from the valuation 510 00:31:19.124 --> 00:31:23.084 process of the company. First, we have used discounted free cash 511 00:31:23.104 --> 00:31:26.904 flows, using realistic business parameters 512 00:31:27.204 --> 00:31:30.294 and using conservative WACC parameters. 513 00:31:30.324 --> 00:31:34.064 The fundamental value we got out of this process is quite 514 00:31:34.104 --> 00:31:37.624 close to the transaction price. So we understand that 515 00:31:38.124 --> 00:31:40.354 it's a good business, it's a good acquisition. 516 00:31:40.384 --> 00:31:43.494 It's not a tremendously positive one, but it's 517 00:31:43.544 --> 00:31:47.304 okay. Now, interestingly, we calculated the 518 00:31:47.404 --> 00:31:49.664 value with a performance approach. 519 00:31:49.684 --> 00:31:53.604 The market to book, in theory, is ROCE after tax less 520 00:31:53.664 --> 00:31:56.104 growth, divided by WACC less growth. 521 00:31:56.124 --> 00:31:59.984 And we got something which was quite close, which goes 522 00:32:00.024 --> 00:32:03.844 back to the absolute relationship between financial 523 00:32:03.924 --> 00:32:06.904 profitability, growth, and value creation. 524 00:32:06.964 --> 00:32:10.654 What creates value is performance, and 525 00:32:10.664 --> 00:32:14.284 growth is boosting value creation. 526 00:32:14.344 --> 00:32:17.064 Now, the question was about the terminal value. 527 00:32:17.074 --> 00:32:19.574 We have a highly performing company. 528 00:32:19.664 --> 00:32:23.504 Is it economically sustainable? When you take a decision 529 00:32:24.024 --> 00:32:27.724 and you have a two-period model, you understand that a very 530 00:32:27.824 --> 00:32:31.784 significant chunk of the value is a terminal value, even 531 00:32:31.844 --> 00:32:35.664 discounted. And then what will the business look like 532 00:32:35.704 --> 00:32:39.484 in ten years' time? You don't know, but the value is there. 533 00:32:39.504 --> 00:32:42.024 This is why you have to be quite cautious. 534 00:32:42.043 --> 00:32:45.924 And the cash flow perspective, the liquidity perspective, is extremely 535 00:32:45.984 --> 00:32:49.964 important because in this case, there is no debt at 536 00:32:50.004 --> 00:32:53.784 the level of Secap. We return everything we can return to the 537 00:32:53.844 --> 00:32:57.664 financial holding, and the question is: Is it going to be 538 00:32:57.704 --> 00:33:01.524 balancing in terms of cash in and cash out for the financial 539 00:33:01.584 --> 00:33:05.553 holding? But we have some flexibility at the level of 540 00:33:05.604 --> 00:33:09.584 Secap, because in the cash flow perspective, we put absolutely 541 00:33:09.594 --> 00:33:12.544 no debt. You have to be quite cautious and 542 00:33:12.584 --> 00:33:15.904 conservative. Now, we can go to the 543 00:33:15.944 --> 00:33:18.924 financial structuring of the case.