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16-04-2023 : Getlink's decarbonisation margin


Getlink, the parent company of Eurotunnel, has published a new financial indicator that allows extra-financial elements to be integrated into the financial elements, by subtracting from EBITDA a fictitious charge corresponding to the valuation of all its greenhouse gas emissions (scope 1, 2 and 3) at a price more than double that of the current cost of a tonne of carbon (€197 compared to €94).

For Getlink, which has low greenhouse gas emissions, the impact on its profit and loss account is small, with a 3.3% reduction in EBITDA. But for its ferry competitors, that emit 73 times more for the same journey, you can imagine... This also shows the forced transformation that some companies must carry out between 2024 and 2030, in a context where the European Union is going to extend the carbon quota market to new sectors such as maritime transport (well, well...), construction and road transport, or to reduce the volume of quotas that are currently free of charge, in accordance with the polluter-pays principle.

Who will ultimately pay? The customer via price increases, the shareholder via lower profits, the community to relieve sectors that cannot adapt quickly enough? It remains to be seen.

In any case, as we explained in the last edition of the Vernimmen, it is easier for investors to take into account the externalities that companies impose on the planet if their costs appear in the profit and loss account, rather than in an appendix, another document and quantified in tonnes, litres or kWh, and not in euros. This is why we welcomed Danone's decarbonated EPS as a first step in this direction, even if Danone's approach was focused on the growth rate of its decarbonised EPS 2019, which was higher than for the classic EPS since the food group had reached its peak of greenhouse gas emissions. As far as we know, no other group has followed suit and Danone has stopped publishing it for three reasons: Covid, which caused its decarbonised EPS to decline faster than conventional EPS, the sharp rise in the price of carbon credits from €35 to €94 in Europe, which would have put decarbonised EPS at a loss, and probably the change in CEO.

Does the decarbonisation margin have a better future? Probably, since its proponent does not risk being caught out like Danone, being a low emitter of greenhouse gases; and because the time when this theoretical cost could well become a real cost is much closer.


Have a good day. 

19-03-2023 : Greed and short-sightedness.


In a recent article entitled How start-ups should manage their finances, we read the testimony of two confident entrepreneurs: "When you have at least 1 or 2 million in cash, you can invest it in US Treasury Bonds. At the moment they are paying 5%! This will give you a free runaway. "We bought US Treasuries a while ago. There is little chance that the US Treasury will default. If not, the world will be in big trouble."

We don't dispute that the world would be in big trouble if the US Treasury defaulted, and that this is very unlikely. 

We find, in our dual role as educators and investors, including in start-ups, that it is a very bad idea for a European start-up to invest its cash in dollars. The only case where this might make sense is if the start-up has debt in dollars or makes significant purchases denominated in dollars, so as to constitute a natural hedge against currency risk, which should not concern many European start-ups since they rarely have debt, and even less in dollars!

Why is this a bad idea? Because in order to get 5% on US Treasury bonds, you have to buy a two-year paper, which only yields 4.4%, whereas French Treasury bonds currently yield 2.7%. So for a rate differential of 1.7%, the company takes a currency risk on the dollar. If the dollar falls by 1.7% against the euro in one year, the gain in the return on the dollar Treasury bill against the same maturity in euro is wiped out. A fall of 1.7% means that the euro falls from its current rate of $1.06 to $1.08. When you consider that the dollar has fluctuated between 0.96 and 1.4 over the last 10 years, you can see that a variation of at least 1.7% in one year is a possibility ... if not a certainty.

But there is not only currency risk, there is also interest rate risk. If in a year's time US one-year interest rates have risen to 6.2%, because inflation is finally higher than expected and our start-up needs the funds, it will sell its treasury bills at a loss, at a constant exchange rate, erasing the difference in yield.

We wish good luck and a lot of courage to these apprentice treasurers to go and announce their brilliant idea to their governance committee, or even, when the time comes, the possible disaster of an investment that would have lost 10% of its value with a dollar at 1.17, especially in the context of a rising tug-of-war between the Democrats and the Republicans on raising the ceiling of the US government debt. ... In any case, we have advised start-ups that have put their trust in us by welcoming us to their capital and their governance committee to invest wisely in euros and to focus on operations. 


Have a nice day.


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The Letter

Number 150 of April 2023

News : Orpéa: They had eyes but couldn't see (2/2)

Statistics : Corporate income tax rates

Research : The virtues of financial flexibility: the case of the Covid crisis

Q&A : What is NAV financing?

COMMENTS : Comments posted on Facebook