Partners Group Private Equity Limited

Ladies and gentlemen, welcome to the Princess Private Equity Holding Q2 2021 Investor Conference Call and Live Webcast. I am Emma, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a question and answer session. Webcast viewers may submit their questions or comments in writing via the relative field. For operator assistance, please press star and zero. This conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to George Crow. Please go ahead, sir.

Thank you very much. And good morning, everybody, from my side. My name is George Crow. I'm a member of management in Partners Group's Client Solutions team in London. And I'm also responsible for investor relations for Princess Private Equity. I'm joined today by Felix Haldner, who is a partner at Partners Group and also a director on the board of Princess. During the next 30 to 40 minutes, Felix will run you through the Q2 results. And there will also be an opportunity for the Q&A at the end CEO, please do enter questions in the tool as we go. With that, I will hand over to Felix to take you through the presentation. Over to you, Felix.

Thank you, George. Good morning. A warm welcome also from my side. As always, before we go into the quarterly figures and discuss them in more detail, I'll provide a short introduction to Princess and its investment strategy. And Princess, as U.S. investors know, provides shareholders with exposure to our, that's Partners Group's direct private equity deal flow, investing in transactions alongside the institutional clients. Our focus is clearly on middle market and upper middle market companies, so privately held companies. And the strategy, the investment strategy focuses on the identification of transformative trends that provide a tailwind to certain subsectors and help to drive above market growth rates. And these trends actually may be due to a variety of factors, including technological development, changing demographics, or new patterns of working and living, amongst others. We then search for companies that are positively exposed to these trends, and our focus is on the buyout stage. So we are looking for profitable companies with a track record of growth. And in order to invest, we also need to be convinced that companies still have significant growth ahead of them, particularly in times of fairly elevated valuations. And of course, that partners group as a manager can add value as an owner. So we bring extensive resources to accelerate the growth of our portfolio companies with a global team of over 150 private equity professionals and over 50 operational specialists. We also maintain a global network of external industry advisors and operating directors who bring invaluable industry expertise, supporting with sourcing, due diligence, and take board seats at portfolio companies. Of course, all of Prince's investments are subject to Partners Group's responsible investment policy, and ESG factors are fully integrated at all stages of the investment lifecycle, alongside commercial and, of course, financial factors. And finally, the company's investment objective is to generate long-term capital growth and an attractive dividend. And it has achieved double-digit NAD and share price performance over the last decade, of which the company distributes 5% of net asset value by way of semi-annual dividends. On the next page is a description of your manager, which I won't cover in more detail other than that the partners group released a press release this morning. It was basically a positive profit warning. Amongst other, it's mentioned that two of the investments we'll discuss also in this call have contributed substantially to the expected half year result. Turning to page five, the performance continued to develop very positively and bring the net asset value total return to a stellar 16.7% for the first half. And strong trading was the main driver of performance. So Prince's mature portfolio continued to benefit from a very supportive exit environment, generating a number of full and partial exits. So it was also an active quarter for investments with two new transactions closed during this quarter, and three transactions actually signed and in closing at quarter end. So we'll discuss these investments in more detail later in the presentation. With that, on page six, where you can basically see the historic net asset value and share price performance, So, for instance, NAV and share price continued to perform positively, and particularly maintaining their long-term outperformance of public markets. On the discount development side, you will observe that despite the strong recovery in net asset value, the shares continue to trade at high single-digit or low double-digit discounts to NAE. Now, you need to know that Partners Group, other than some of our peers, revalues portfolio companies on a monthly basis. And valuations are consistently validated by exits above very recent carrying values, yet discounts exist. So in my view, I continue to believe the shares offer considerable value. On page eight, we'll have a look at some of the key figures. at the end of June, so one remarkable figure is a negative cash position, however, so we drew on the credit facility at the month end, however, by now, this has been fully repaid as we have received proceeds from the realizations that were announced earlier this year. So commitments remain at the comfortable, well, actually a very low level. And again, as a reminder, we differentiate between investments to funds which are still investing and are considered active. And on the other hand, on stale commitments, which we do not expect to be cold. By that, turning to slide 10 on the revaluations for the 10 largest portfolio companies in the second quarter of this year. So the majority, again, of the top 10 positions made a positive contribution to performance during the quarter, as we have reported earlier. a partial realization was agreed for international school partnership at a modest uplift following the company's positive revaluation actually at the end of March. The remarkable uplift and exit of about 45% above carrying value for Globalogic was reflected in the March net asset value, so didn't have a significant impact on performance during this second quarter. Both realizations actually closed in July, and Princess reinvested 17 million Euro in ISP, International School Partnership, to continue to participate in the growth of the business. which by now has more than 50 schools in 15 countries, and I think about 45,000 pupils. Outside of the two largest investments, performance was broad-based with a number of companies, contributing to performance. I'm happy then at the end of the presentation to dive deeper into any of these companies if questions arise. On the next page, you'll see that your portfolio is very diversified. across sectors, across regions, vintage years, and providing you as an investor with exposure to an all-weather direct private equity portfolio with, well, substantial allocations to companies in sectors such as technology, healthcare, education, which benefit from long-term secular growth drivers. On page 12, we showed the weighted average metrics for Prince's portfolio companies, which basically point to the health of the portfolio. So, both revenue and EBITDA growth increased materially, while valuations and net debt remained more or less in line with the previous quarter. Just for the avoidance of doubt, these figures exclude investments in ISP and GlobalLogic where the June valuations are based on the exit valuations. Before moving to the company's portfolio activity in more detail, I'd like to spend a moment on the market on page 13. So after a dramatic collapse, in transaction volumes during the second quarter last year. We now continue to observe a strong recovery, which we commented on already in fall last year. And the recovery we expect actually to be sustained into the second half of the year, providing a supportive exit environment for owners of mature private equity portfolios such as Princess. Now, against this very supportive market backdrop, Princess made a number of realizations during the first half of the year, including two full exits and two dividend recapitalizations. The largest realization was the sale of Cerber Healthcare, which I'll cover in more detail on the next page. But there were other exit events in BARBRI, the US-based provider of bar exam preparation services in SRS, where we received a dividend, or in USIC, the provider of underground utility location services, again, where we, for instance, received a dividend. On SERPA, CERVA, which we fully exited last quarter, is a leading operator of clinical pathology diagnostics laboratories in France. So we acquired CERVA on behalf of the many clients, including Princes in 2017. We were attracted to the company due to its leading position in the fragmented French market, with potential to consolidate the market through M&A, and as well as to expand into new markets, which then happened actually, particularly in Europe, Italy, and in about 10 countries in Africa. So, during our four years of ownership, We implemented a number of value creation initiatives. The main focus was on platform expansion, like we do with many of our companies. We had close to 50 add-on acquisitions in these four years. And then also by that, we averaged down our entry multiple from a bit more than 11 to about 9.9 acquisitions. in relation to enterprise value to EBTA, as well as the accelerated company's growth, as I mentioned, in Africa and other European markets. In addition to M&A, we worked on a number of other initiatives to grow top line and to make the business more efficient. We managed to reduce risk and to enhance employee engagement. And as a result of this work, SERPA actually achieved an EBTA compound that annual growth rate of over 20% during our holding period and also improved its margins and ultimately achieved a return above our underwriting case. With that, I'll point you to some post quarter and realization activities. We are already in the midst of the third quarter. We had a active start with 250 million Euro received from the exits of ISP and Global Logic, which as mentioned, closed in July. And last week, Partners Group agreed to exit Hortifruti that is the fresh food retailer chain in Brazil. This brings me to the investment activity in the second quarter. During the last call, we highlighted three investments that were signed and in closing at year-end, two of which have been subsequently closed. AXIA Women's Health is a leading women's healthcare provider in the U.S. with a client base of 150 care centers across the U.S. and supporting close to 500,000 patients annually. Building on our experience as owners of other U.S. multi-site business, including Confluent Healthcare and iCare Partners, we actually plan to grow the business through the expansion of ancillary services as well as accretive M&A, which probably doesn't come as a surprise to shareholders. Now, the largest new investment this quarter was Vetchwood Pharmacy, I briefly touched on in the last call, and I cover it in a bit more detail on the following page. So, Vetchwood Pharmacy is a the largest specialty provider of compounded medications for animals that experience acute and chronic conditions. It's a business in the U.S. with about 20 to 25% market share. Compounded medications are prescribed when there are no FDA-approved commercially available alternatives to treat the pet patient So, Ratchwood is positively exposed to the trend of increasing pet ownership globally, but certainly also in the US, and what we call the humanization of pets. So, owners increasingly viewing pets as one of the family, and are spending more money on pet healthcare, underpinning steady organic growth. So in addition, we see scope to expand VegFood through M&A, as well as increasing the company's share of wallet with existing customers through cross-selling and digitization of its ordering systems. Now, looking forward, On page 21, what are we searching? What are we looking for in the market? So our focus is and continues to be on investment teams with visibility over secular growth. So we had a very active period, first half year. active for realizations. Now, of course, we look to reinvest capital to generate future growth. And we continue to seek to invest in businesses within subsectors that benefit from long-term transformative mega or even giga themes. So at any given time, we are tracking about 40 to 60 investment themes, which guides the activity of our investment professionals. You see an example on the left-hand side of this slide, and with some arrows, examples of what it results to. So we recently acquired alongside an industrial owner, an e-commerce and logistics business in China, Apex Logistics, or in what is circled with advanced CDMO, so Advanced Contract Development and Manufacturing Organization, Pharmacin, a leading European pharmaceutical company. Or when it comes to energy efficiency, we recently signed a transaction with a company called Reedy Industries. a leading provider of HVAC maintenance repair, HVAC standing for heat, ventilation and air conditioning. So, and as we speak, we track a lot of these themes and identify and are working on currently actually on 35 life opportunities. which we then expect to close in the next couple of months. So the three transactions I just mentioned, we expect to close soon, and along with the reinvestment in international school partnership, we deploy approximately 50 million. So there is a near-term pipeline as I mentioned, and you can see that this is broadly spread over the geographies. We are active, so in the US, we've got close to six billion in transaction value, pending in Europe even a bit more, but also in emerging markets, with a number of examples as displayed on this slide. So while we won't win all of these transactions, having a broad pipeline allows us to be patient and maintain investment discipline. And we actually expect to announce further investments over the coming quarters. This brings me already to the summary. So the portfolio is very well positioned. with exposure to companies in resilient sectors that are supported by long-term growth drivers. We expect the recovery in the market transaction volumes to be sustained in the second half of this year, and we look forward to announcing further transactions, both on the exit side and new investments in the weeks and the quarters ahead. Now, with that, I'll conclude the presentation and would be pleased to take any questions. Thank you.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may submit their questions or comments in writing via the relative field on the webcast. I would now like to hand over to Mr. George Crow for the webcast questions. Please go ahead.

Thank you very much. So we've just got one question so far. If you do have any questions, please do fire away. The question is on exposure to the Chinese education sector. Does the company have any? And also, what is the total exposure in China? And maybe that's what I'll take. So the first question, no exposure to Chinese education. International Schools Partnership, our schools platform, does have a presence in Southeast Asia, but it's predominantly Malaysia. So nothing in China yet. And to the second part of that question, what is the total exposure in China? It's pretty low. It's a little under half a percent. That's not to say, I guess, we're particularly negative on China. It's just clearly the team that we have in Shanghai are competing with a number of investment teams in other jurisdictions around the world. And it's challenging to get through the IC process It's probably also fair to say that we do have a bit more maybe indirect exposure to China through companies in the portfolio that have revenues that are exposed to China or potentially some supply chain exposure. But in terms of NAV, less than half a percent. Okay, we have one more question here on dividends. to what degree will judgment play a role in determining future dividend payments versus strictly using 5% of opening NAB at the beginning of the year? Felix, I don't know if that's one you might like to take. So to what extent will we just stick with the 5% or would there be some degree of judgment in the amount of dividend each year?

Well, I would say, I mean, the board has, of course, always, well, it's part of responsibility to make judgments. However, it's the firm intention to pay around the 5% of opening net asset value. And as you expect, as the question is rightly assumed, as you expect that the NAV is growing over time, then also the absolute amount of the dividend is then of course growing. But we, for the time being, and there's no reason to deviate, we stick to the 5%.

Okay, perfect. Thank you. Okay, so that is all the questions we have on the webcast for now. So in the absence of any late questions coming through, I'd like to thank everyone for their time this morning. We'll be back in three months' time or so to talk through the results and portfolio developments for Q3.

So with that, thank you again, and I wish everyone a good day.