Tikehau Capital

valuation contribution have been mainly based on BCF.

Okay.

But if I take 39 million to your capital shares multiplied by the current share price... I don't get to 1.1, right?

Because, of course, there's a different share price than your reference price. But that's what's going to happen. In fact, it is 39 million new shares are going to be issued.

Sorry. Once again, the 39 million newly e-share price is a ratio that's the result of a parity between the valuation of the contribution from TCA, which has been assessed at 1.1, divided by the reference price 40k capital share assets at 29.5. So these 39 million newly created shares is a ratio based on the work of the three independent experts that have been working on the transaction and all their reports will be published mid-June.

Okay. And can you share with us, since you're referencing a discounted cash flow, what cost of capital and terminal value were used?

Actually, at this stage, we cannot share such information. It will be included in the report from the three independent experts that will be published and finalized mid-June. These reports are not yet finalized, and they will be actually published by the three independent experts.

Okay. I've got a few more if that's okay. 40 million. I think you say you talk about on a pro forma 2020 report. basis, you're talking about an externally managed cost of 70.6 million, looking backwards. The 2% of NAV we have is 62.9, so I'm wondering specifically what element I need to look at to try and understand how to get to 70.6?

Okay, yes, I think the difference between the 62 and the 70 is VAT, which is a non-deductible as far as TKO Capital is concerned.

Okay, got it. And does this transaction affect carried interest and how it's split between the company and shareholders, between the staff and the company, I suppose?

Well, actually, no. You know we have a very shareholder-friendly allocation of carried interest as more than 53% of carried interest are allocated to the listed perimeter. This is not at all modified. We remain with the biggest proportion among our peers of carried interest allocated to the listed perimeter.

Got it. And just a final question. You're talking about a 40 million... improvement in cash flows going forward for 2021. Can you give the moving parts there from the transaction, please?

Well, to calculate this, this is actually quite simple. Actually, we've been using the net income based on the self-signed analyst forecast for 2021. We have restated an estimated preferred dividend using an hypothesis of 75% of the consolidated net income for statutory accounts. And from that basis, we have actually incorporated the savings the savings linked to the termination of the 2% charge on one hand. Then we've added up the new 2.5 million euros compensation for the manager. Then we've added up the cost incurred by the integration of the corporate function transferred to the listed group coming from TCA. And all that actually nets off tax. And all this sum actually gives you to a cash earnings benefit of a bit more than 40 million euros.

Perfect. Thank you very much.

Thank you, Otto.

A reminder, that is star one. If you would like to ask a live question on today's call, our next question comes from the line of Christoph Hulik of Berenberg. When you're ready, please proceed.

Yeah. Good evening, Anna. Thanks for taking my question. Yeah. The first question would be for the this proposed new structure to be approved during the HM. What type of maturity is needed for that? I assume the 85 that you have secured so far, this should be sufficient.

Yeah, well, actually, yes, we've already obtained approval from just slightly more than 85% of our current shareholder, and this is fully sufficient effectively to move forward to obtain the full approval during the mid-July, during the AGM that will take place. Yes.

And this is like a verbal commitment, or how should we understand that support?

It has been... Duly documented and totally firm commitment.

Okay. And then I was wondering, you're also talking about the accretion to the 2021 earnings per share. What kind of earnings per share are you having in mind to come to that number?

We are taking the 116 million euros, which is the net group result, coming actually from from the sales size analyst forecast updated after our 2020 financial year results.

Okay, that's clear. And then lastly, what I'm wondering is, so we had the introduction of the two new managers and then the 1% preferred dividend and this 2.5 million of a fixed compensation. I'm just wondering, in the context of this restructuring, why did you not decide to completely exclude such type of agreements? Why is not everything taken away? We have basically just the listed entity left.

Well, Christophe, we think that the format of the commandeer is fully adapted to our entrepreneurial history and profile. It corresponds to our entrepreneurial culture and structure that has actually allowed the group to grow significantly. And so, as you know, the founders and management are by far the largest shareholder of the group, which is a strong factor of alignment of interest, which is why we've been actually keeping such structure.

And just so that I fully understand that, so far, Antoine and Mathieu, you will become now employees of the listed entity or you will basically be represented by those managers?

No, Antoine and Mathieu will be directly the manager of the listed entity and as such they will have this compensation of 2.5 million euros per year for both Antoine and Mathieu directly.

Okay, that's very clear. And then just lastly, I remember back when you announced the 2020 AUM, you were mentioning that you're currently working or thinking about targets for 2025. So just wondering how far you've come in that exercise and when we could expect to hear more about that.

Well, you know, Christophe, the current target we have provided was done in 2019. So that was prior to the COVID, I would say. We have been keeping our guidance ahead. So more than 100 million euros of peer-related earnings and over 35 billion euros of AUM. So we have been keeping those guidance. We stick to that guidance and hopefully before end of 2020, we will issue a new guidance and we will provide more outlook before end of 2022. First, let us complete this reorganization and then we will move to next step.

Okay. Sorry, Christophe, go ahead.

That was all from me. That was all very clear. Thank you.

Thanks, Rousseau. I just wanted to add to this conclusion from Henry, and it's a general comment I'd like to add, that effectively it's a first step, but it's a defining step. I mean, with all of you, I mean, Arnaud earlier on, with you and other of your colleagues or peers on the line, I mean, we all know that we've been on the road with you. We heard many feedback from investors, and very often this structural aspect was coming back. So, We're really seeing that as the beginning of a new chapter together. And back to your question, yes, Antoine and I will still very much be there and we look forward to being back on the road with you.

Yeah, sounds very good. Thank you.

Before we take our next caller, one last reminder, that is star one. If you would like to ask a live question, our next caller is Jens Arnberg of Citi. When you're ready, please go ahead.

Hi, guys. Thank you very much for the presentation and for taking my questions. I don't think I have much left. Just on the operating costs, to get that sort of clear. First, obviously, if we see the big decrease from the 70.6 million, or if we even say the 2%, which I think Donald mentioned, where the 62 million from 2020 to the pro forma 20.8 million, I mean, that seems like quite a significant step. Can you just give me a bit more color on the moving path there? And then secondly, operating costs going forward. So we have the $2.5 million of fixed annual compensation, and then the $20 million, which I think, yeah, you stayed as from 2021 onwards. I saw two questions around them. And one is, do you expect any significant growth in that cost position? And then secondly, Gernot Wagner- Given that the two and a half million is a fixed annual compensation and what are the other sort of incentive schemes in place to just to make sure that interests are aligned, you know they really seem to be yeah sorry that was a handful of questions, but any color would be appreciated.

Hello Ian, thanks for your question. Maybe I start the first question on Mathieu and myself compensation, the 2.5 million annually. As you all know, we are big advocate of skin in the game and our incentive is to be the largest shareholder of the firm, similarly to the senior management and the employee. So we see ourselves as fully incentivized. And alignment of interest has been really the key driver of this firm since inception and has enabled us to be the fastest growing alternative asset manager in Europe. That's part of the DNA. We want to continue this path. So that's how we see compensation on our side.

To come back on your previous question, and I mean you have the figures on page 18 of the presentation, but effectively you had previously this 2% of consolidated equity for the year 2020, which was representing 70 million euros, including the 80. I remind you that that during the year 2019 we've done a significant capital increase which has therefore increased this figure for the year 2020 uh for the previous year it was a it was a bit lower and then the corporate costs that were located within tca that we are pushing down bringing down into the listed entity uh are representing effectively around 20 million euros. All these costs are representing all the central functions of the group, would that be IT, legal, HR, internal audit, compliance, and finance. And so all these teams have strongly increased over the past year to actually be in line with the expectation growth for the group, and so they should not grow drastically in the coming years.

Okay, can I just quickly follow up on that? Firstly, Antoine, your point is very well taken. Clearly, you guys are among the largest shareholders in the group, so there's clearly incentivization. I was just wondering if there's any other variable components more related to the direct employment. So clearly, the shareholding does a lot there. Just on the operating costs, I mean, the services don't really change, right, other than being transferred from outside the listed entity into the listed entity. And yes, you see this big decrease from the 70 million to the just about 20 million. Yeah, it's just, I'm having a few question marks there as to how the same services become so much cheaper all of a sudden, if that makes sense. I might be having the wrong end of the stick there, but yeah.

Sorry, Jens, would you mind rephrasing? Because I'm not sure we get 100% of the question.

Yeah, so just on the operating costs in the 2020 figure, which was the 2% of consolidated shareholders' equity, which you stated at the $70 million, right? You then... based on this transaction, you speak about the pro forma figure of just about 20 million, which again is very much lower than the 70 million. But yet the services don't really change, right? You transfer those corporate functions into the listed entity. I'm just trying to understand as to why they are all of a sudden so much cheaper, if that makes sense.

But if you remember, and I think that's been part of the discussion with some of you, This company TKO Capital was externally managed and it's been since 2004 the case and this company was externally managed, TKO Capital was externally managed by TCA and for that has been receiving two components, 2% of the equity and 12.5% of the net income of the listed entity. If you take 2020 figures, 2.8 billion of equity, let's call it 56 million, plus VAT, plus part of the 12%, it came to 70 million. Part of this transaction, we transferred the entire staff, which, as you can calculate, costed less than 70 million. We transferred the compensation of the management, i.e. 2 million. So you've got plus 70 minus the cost of the staff minus our compensation. That leads to a minimum of 40 million. So that's why we say the cash flow increased by 40 million.

But you know, during many years and since the inception of TKO, TCA has supported all these external costs since the inception of the group.

Yeah, yeah, no, that's fair enough, and I appreciate where the group comes from and the sort of structure that was in place so far, so that all makes sense.

Yeah, no, thanks, that is helpful, Callum.

Moving on to our next question, we have Yufan Chalet of AutoBHF. When you're ready, please go ahead.

Hi, everyone, thank you for taking the question. So we understand that basically you... you transfer the compensation from management fees of 2% of consolidated equities to a much more shareholder-friendly dividend policy for everyone above 80% of FRE and PRE. But don't you think in the end, that at some point it will not let you be able to invest enough in new strategies, in M&As. I mean, since also with the fact that your balance sheet will be much more locked into long-term funds, which is, to me, a good strategy, but which is also a problem when it comes to the liquidity if you have 75% of your funds into locked funds Will you still be able to be active or pushing new strategies with M&A or launching new funds? Thank you.

Thanks, Geoffrey, for your question. If you have all the figures in mind, we ended up the year, or we started the year, sorry, with €845 million of cash. We issued this inaugural sustainable bond for €500 million, so let's call it close to €1.5 billion, and on top of that, we've got a €500 million RCF. So our liquidity position is fairly unique for the industry, and part of the business model has been really to seed sponsor our initiative and our fund. I like taking this example, but when we launched our energy transition initiative, Back in 2018, if you remember, we invested $100 million, total invested $100 million, and on the back of that, we raised $1 billion. So seeding, sponsoring has been part of the DNA. We just announced earlier today that we launched North America Decarbonization Fund with $300 million, $200 coming from our balance sheet, and $100 million from total. So we will continue to seed, sponsor new initiatives. The culture of the firm has been fairly innovative. Not nuclear science, but it's like launching our cyber security initiative, like launching direct lending back in 2009. So yes, we will continue to seed sponsor our fund initiative and we've got enough cash as just explained. Number two, you've got cash coming back from existing fund and existing investor. So we can consider that we've got fairly large amounts of capacity to launch these funds. Number two on acquisition, as you know, we've been fairly selective on acquisition. For the time being, we've been focusing on small acquisition in terms of price. and try to put some TKO inside in this acquisition. Latest acquisition is AC, focusing on aerospace. When you remember, we bought this small company managing $300 million. Two years ago, this company is now managing a billion. So I think we will continue to look at acquisitions around the world. Star America is a good example last year. for infrastructure in the U.S. at a time whereby the Biden administration is just focusing a large amount of money on infrastructure. So on one and two, i.e. acquisition and sponsoring seeding new funds, we have the capacity and we'll continue to do that in a fairly selective manner.

And I would add, Geoffroy, if I may on this point, is that Here again, you know, I mean, four years into our listing and our model that you know extremely well is asset management fee and balance sheet. And sometimes, you know, the market has been kind of, you know, pushing back on this model, you know, why the asset manager would need a balance sheet. I mean, your question illustrates the merit of the balance sheet. by setting up you know this new structure what we intend to do is that you know the market will be rewarded you know out of the fre and effectively the multiple that the fre will be benefited from as you know constantly growing and and dividending but by the same token having the balance sheet to your point you know which is a key differentiating factor that can help you fuel the growth potentially look at some acquisition and you know you know this industry much better than uh than anyone else here. And when you look at the re-rating of some of our peers, competitors, ICG in Europe, KKR here in the US, who've been balance sheet heavy asset manager, but who have demonstrated effectively the merits of this balance sheet, we think that we are now in the right position to address this new chapter of the TKO development. hopefully bringing along and dragging with us the support of shareholders with this new structure, because the models of alternative asset management should no longer be divided between, on the one hand, the asset-light asset management business, and on the other hand, the balance sheet heavy investment company, old-style investment company. I mean, today, the merger of Dial and All Rock here in the U.S., the Blue Hole seems to be going ahead. It's a great precedent, a great data point. So in this ever-changing landscape of the alternative asset management globally now, I mean, we've tried to look, you know, to listen, you know, to effectively factor that in back. And your question is actually a great one because actually it seems that now the market starts to realize that having a balance sheet shouldn't be effectively necessary. shouldn't be a handicap, but much more a differentiating factor.

Thank you. That's very clear. That's all for me.

All right. We'll move on to our next caller. Our next question comes from the line of Ilan Wonken of Debrouw Peter Pong. When you're ready, please go ahead with your question.

Yes, good evening. Thank you for taking my question. I have more of a clarification question actually. So you mentioned the 1.1 billion euro for 39 million shares, so 29.5 euro per share. And if I understand correctly, this deal will actually add value for TC shareholders, because if at closing the TC share price is, for example, 25 euro, DC will give shares worth 25 and will receive assets worth 29.5. Is that correct or did I understand wrong?

No, it's the other way around actually. Let me rephrase it. On one hand, independent experts and banks have valued the 1.1 billion for the contribution. But the French regulator, and usually in this transaction, are asking for a multi-criteria valuation of the listed company. And it could have been 20, it could have been 25, it could have been 30, but they came to the 29.5. And so because it's higher than the share price, The current share price, because you divided 1.1 by 29, if you divide by the current share price, you will get to 42 million new shares. So now you've got 39. So it's better, actually, to have an higher multi-criteria. Does that answer your question, Yoram?

Yes, thank you.

All right. We now have a follow-up question from Christoph Gulick of Varenberg. When you're ready, please go ahead.

Yeah, thank you. Just two quick follow-ups from my side. The first was coming back to the EPS accretion. My thinking is in 2021, there's obviously a drag on the net income that comes from the macro hedge that was still in place at the beginning of the year. So I think the argument of EPS accretion might be a lot more difficult to uphold when we look into the next year. So I'm just wondering if you have looked at that and done that exercise.

Thanks, Christophe. Well, you know, we've taken effectively the consensus of the analysts for this year. If you restate the effect, this effect you are mentioning, it is a slightly flat, slightly flat position, depending on how you calculate effectively the preferred dividend.

Okay. And then the other question, and apologies if that was already answered. I had some technical issues before, but Just if you can give us any color on the valuation methodologies used and the key assumptions in order to come up with those valuations for the two entities.

Okay. I will try. We can have all this valuation methodology will be described end of June in the report of this expert. But once again, these elements of parity, I remind you, I recall you how this has been calculated. The numbers of new TC chairs to be issued is resulting from a parity identified between, on one side, the value of the contribution from TCA and TCGP, which have been assessed at 1.1 billion euros, And on the other side, the reference price for TKO capital share in remuneration, which have been assessed at 29.5 euros per share. Both elements of parity have been assessed based on multi-criteria valuation approach, comparable for each parity. As such, the retained methodology for the valuation of TCA and TCGP contributions have been mainly based on discounted cash flow. Secondary valuation has been done based on multiples of net results, so price-earning ratio, or multiples of fee-related earnings and performance-related earnings. That's for the valuation of TCA and TCGP contribution. For the valuation of TC share, at 29.5 euros per share. The same methodology has been written with the sum of the parts approach. On one side, the IMFT, the asset management activities, which have been appraised based on a multi-criteria approach, BCF, multiples of FRI and PRE. and the investment management activity, which has been valued based on the 2020 fair value account. Once again, all this methodology will be disclosed in the report of the three experts, which will be made available at the end of June. And so this 29.5 euro per share that has been used is actually not a cap. It's a value that's been used to fix the 39 million euro of share.

Yeah, that's very helpful. Thank you.

We now have a follow-up question from . When you're ready, please go ahead.

Yeah, just a very quick follow-on. Thanks. It's very clear now, the methodology, the valuation methodology. It's just, is it the regulator that requires an external valuation from TKO Capital, or is it your own choice? I'm wondering, because obviously you could have chosen to use the share price, which would have been more advantageous for your conversions.

Let me, just on the process, the process which is legal and regulatory process is, first of all, the board of TKO Capital appointed an ad hoc committee, only independent board member. This ad hoc committee had to choose an independent expert, number one. Number two, the French Paris Courts appointed two independent experts on top of that. The board of TC of TKO Capital decided to appoint banks namely Rothschild, BNP and Natixis and TCA decided also the TCA board decided to appoint also a bank which was Credit Suisse.

Thanks, okay.

Just one point on that. I remind effectively that, to be very clear on that, FINEXI, which is the independent expert, has been appointed by the supervisory board with the head of committee of TKO Capital as an independent expert. This expert is issuing a fairness opinion on the term of the transaction. BINIS, meanwhile, you do have actually some statutory appraisers which have been nominated, appointed by the president of the Commercial Court of Paris. In that case, that was Sonia Benhaberna and Alain Berger, which are, in regards to the term of the merger and the contribution, giving as well their opinion on the transaction.

And at this time, it looks like we have no further questions. One last call. If you would like to ask a question, please press star 1. If we have no further questions, I'll now return the conference over to your host.

Thank you very much for your time and patience. We look forward to continue the discussion, and we think it's been A new step for us, and we look forward to see and talk to you. Mathieu, I let you conclude.

Thank you. Thank you all. No, I mean, just as Antoine said, we see that as the beginning of a new chapter for TKO Capital. with this increased alignment of interest across the board. And more importantly, for those of you who've been asking questions, and thanks for that over the past few minutes, us factoring all the feedback that collectively we heard on the road together over the past four years, and we're ready to take the company to the next phase. So thanks. Thanks, everyone. Looking forward to seeing you soon.

Thank you for joining today's conference. You may now disconnect your lines.