Partners Group Private Equity Limited

Ladies and gentlemen, welcome to the Precinct's Private Equity Holding Q2 2022 Investor Conference Call and Live Webcast. I'm Moira, the Chorus Call Operator. I would like to remind you that all participants will be in listen-only mode and the conference has been recorded. The presentation will be followed by a Q&A session. Webcast viewers may submit their questions or comments in writing via the relative field. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Felix Haldner. Please go ahead, sir.

Good morning, ladies and gentlemen. A warm welcome to today's webcast. As you know, I'm a partner with Partners Group and a director with Princess Private Equity Holding, and I'd like to give you an update on what happened in the last quarter, the first half year, and some of our views as to going forward. As a reminder, the company, Princes Private Equity Holding, provides shareholders with an exposure to the direct private equity transaction flow of the manager or partners group. And whilst Princes invests predominantly in transactions that are led By partners group, it has also the ability to make so-called co-investments alongside other managers slash general partners. We have very much a kind of a thematic investment approach whereby we identify companies that enjoy tailwinds and then we lead them through a transformation. We build the company through what we call platform building and business transformation. And while doing so, we fully integrate the ESG factors in the investment process. And I'm happy that in the course of the presentation, will make a deep dive on what we are doing specifically. The company is managed by Partners Group, a leading global private market firm that has invested over 94 billion in private equity across market cycles, and there are more than 170 direct private equity professionals supported by a large network of industry experts and so-called operating directors with deep industry expertise. The objective of Princess is to generate long-term capital growth and an attractive dividend yield. So NAV total return stood at 9.9% per annum over the last 10 years. The share price total return stood at 14.8. The dividend objective is, as you will be reminded, is 5% per annum of the opening net asset value via semi-annual payments. And you will have realized that in June we made the first payment. This brings me directly to the NAV performance in the second quarter. It comes as no surprise given the extraordinary volatility in public markets and the way we value portfolio companies, that there was a negative performance in the second quarter, particularly actually in June. So NAV total return in the second quarter was then in total minus 7.5%, whilst the first quarter was still flattish. and the share price total return in the second quarter slightly positive, but year-to-date negative with 13.5%. This compares then to the MSCI world in the second quarter of minus 10.8% and year-to-date minus 13.5%. As said, the first interim dividend of MSCI 38 cents were paid in June. And for the whole year, a dividend of 76 cents per share is expected to be distributed in line with the company's objective to distribute 5% of the opening NAV. This then results in a fairly attractive dividend yield of short of 6%. In terms of activity, the portfolio, roughly 40 percent, pardon, roughly 40 million of investments were executed in the second quarter, including new investments in forefront dermatology, precisely Minecast and Climeworks, which leads us to an investment volume of 62.7 million for the whole first half year. and we have received a similar amount of realizations in the second quarter, of which a good part stemmed from the partial redemption from senior loans. Year-to-date, we have seen realizations of over 100 million euros. This brings me to the NAV and share price performance overview, and you will see that the In the long run, we are still outperforming the MSCI world, but in the short run, we certainly will observe as to what the market volatility is doing. You have observed, we've all observed in public markets, there has been a strong rebound in July and actually also in August, which is not yet reflected in these figures. So we expect that we will see some of it also then in the NAVs as the monthly reports are published later this year. In terms of discount development since the long listing in November 2007, end of the quarter, there was a discount of 22.3%, which is certainly disappointing However, considerably better than those of the peers, which I also attribute to the fact that investors have understood that the valuation, the timely valuation of princes versus some of the peers also provides kind of more accurate picture in the yield. This brings me to the key figures. Not much to be said, of course, in line with the declining NAV, the net asset value of the company has declined. NAV per share stood at 13.76. Investment level a bit more than 100%. The credit line was partially drawn, and there are unfunded commitments of 103 million However, as in previous calls, I emphasize, like to emphasize that only about 60 million are viewed as being active unfunded commitments that are anticipated to be called over the next couple of years. The balance is to mature funds, and it's not anticipated to be called in full. This brings me to the portfolio activities, pardon, to the portfolio review. And I'll start with a reminder of our valuation approach. Given the strong volatility also in the NAV we have experienced in the second quarter, Just as principle, valuations are performed in accordance to fair value principles. The technique maximizes the use of relevant observable inputs, and by that, we are, of course, in public markets, so public markets comparables in terms of multiples. However, also, our VAT values database of private companies that are in the sample and by that are observable for us. So the evaluation techniques are also applied very consistently. So you will see, you can expect to see upward valuations when the public markets are strongly buoyant and you can expect to see downward valuations as we have experienced in June. The valuations are bottom-up driven using ultimately the widely recognized market and income valuation methodologies. And of course, they are very solid. They are tested. They're reviewed on a regular basis. So, in a nutshell, for direct equity investments, which is the vast majority of Prince's portfolio. We use last 12-month EBTA data, which we have readily available on file from management reporting, financial reporting, from advisory board packages. We then apply enterprise value to EBTA multiple times. of public peer companies and of multiple private transactions. We deduct the debt and then derive to the net asset value. And more specifically, to determine the fair value multiple, of course, there's a quantitative assessment, and there's also a qualitative assessment, which includes company-specific characteristics like liquidity size, growth rate, risk, and so on. Having said so, we can dive deeper into the portfolio, and I'd like to discuss in a bit more detail the revaluations for the 10 largest portfolio companies in the second quarter and year to date. You will see as the largest, company still in the portfolio is SRS Distribution. This is this company that distributes roofing products. It provides residential and commercial roofing designs to actually end customers that are roofing and building contractors. So you can see that the value has been written down. And this is fully due to lowered valuation multiples applied. So as an example, the industry peers tanked about 25% in June in terms of multiple. At the same time, SRS remains highly acquisitive compared to its peers, has large white space potential, and also is less cyclical due to low exposure to commercial roofing. So SRS is growing. EPTA and revenue figures are growing. That's why also the downward valuations has been balanced by growing EPTA numbers. SRS is still largely able to pass on inflationary pressure to ENDS customers. That's to do with the continued strong demand. SRS is quarterly reviewing their pricing and adjusting it with a quarter announcement in advance. And they actually enjoy kind of a really price inelastic demand due to a number of factors. I mean, they have a greater exposure to residential damages in roofings are often supported by insurance coverage, or just simply that replacement needs are there within a stated framework. So, nothing fundamentally wrong with this company. On the contrary, we expect this to grow further in the quarters to come. Second largest portfolio company is KinderCare. We have discussed in quite some detail over the last couple of years as it was hit hard by the pandemic. It's the largest for-profit provider of early childhood education and care services in the U.S. So in the second quarter, KinderCare was written up. on the back of very robust financial performance, despite of multiple contraction in the peer group. So, with the normalization of the COVID-19 virus, KinderCare's licensed capacity was raised from the previous year, and KinderCare's really healthy performance is reflected by year-on-year increase in revenue. and adjusted EBTA over the last 12-month period, and that's attributed to strong enrollment rates as well as increasing occupancy rates. Remember that occupancy was the issue after the pandemic, whilst as we speak now, we enjoy similar numbers as pre-pandemic. The number three on this list is PCI Pharma. It's a leading global provider of outsourced pharmaceutical services offering. So they offer a full service integrated platform throughout the pharmaceutical supply chain. So the valuation of PCI Pharma services was written up, again, on the back of positive business performance. So PCA experienced robust organic growth across all of its business segments. And PCA is also able now to enter the sterile fill and finish market through an acquisition that was discussed in one of the previous calls. Sponsia. the France-headquartered company that provides property management and real estate services. So Foncia was written down to reflect the download trend in market comparable. Nonetheless, the EBTA for the last 12-month period increased year on year due to strong organic performance across all the company segments. Noteworthy is that the company benefit from strong acquisition activity. So some of you, particularly in the UK, may have realized that Foncia agreed to acquire Firstport, which is a leading provider of residential property management services in the UK. The UK has been for long a target market for Foncia, because Foncia's goal is to be the number one property manager in the three largest European markets, being France, where it is already there, Germany, where it's close, and now with the acquisition of Firstport, the foundation to be there, to get there in the UK. And Foncia intends to continue expanding its geographical footprint in both the new and existing markets via accretive bolt-on acquisitions at attractive multiples. Vishal, the franchisor and wholesale supplier for a network of over 500 stores across India, was written down. to reflect the downward trend in market comparable. Again, nevertheless, the company continues to recover from the effects of COVID-19 lockdowns with both revenue and EBITDA for the last 12-month period increasing, as also restrictions on stock operations have been lifted. So the next is Amiga. Amiga, similar story. Just to remind you, this is the parent company for the joint operations of Amiral Beltec and Megadyne, the global leader in mission-critical industrial power transmission and lightweight process conveyor belting. So, the valuation was lowered in the second quarter following the decrease in trading levels of public and sector comparable. So, the same story. Again, nothing fundamentally wrong. On the contrary, the company continues to perform strongly with both revenue and trading levels going up. So Tech-Am also suffered from a marking down. negatively revalued over the second quarter. And you will hear me again that nothing is fundamentally wrong. The company's financial performance remains very robust. TechGEM continues to deliver stable results, healthy year-on-year growth, as driven by high energy prices in TechGEM's energy efficiency services business segment and solid contribution from M&A activities. ICARE partners, which I covered in more detail in the last call, here, again, the valuation declined slightly over the second quarter to reflect the downward trend in market comparable. And FEMARCA, the developer, constructor, owner, operator of midstream natural gas infrastructure in Mexico, so the evaluation of the marker remained broadly stable. There's still some issues, and we are actively monitoring the delays in certain permits. However, we expect this to be solved over the next quarters. Finally, USIC. United States Infrastructure Corporation. That's a provider of infrastructure locating services. So, while the USIC, as you can see, was slightly marked down in the second quarter, you may have seen the news we released or the company released on the 10th of August, so after quarter end, whereby we basically sold USIC or part of it and reacquired at least part of it so that at the end, Partners Group and its clients will retain 50% of the company. And you will also have realized that the sales price was 23% higher than the last, well, the last observed data point that is the data point you have here in the presentation. So this also kind of shows you that whilst valuation with all the technology we have and is as accurate as it can be and reflecting as accurately public markets and other comparables, finally it's important at what price an asset is being sold. And I think those who have been longer with Princes have observed, like me, that there is a very typical pattern, that is that we typically sell companies at a higher price than the last observable market value. With this, I'll just give you the overview on the portfolio. Princess continues to be very diversified across investment sectors. You will see there are a number of very resilient sectors, including healthcare. The type of information technology we have, it's very service-driven, services-driven. The investments by type, we have most investments are direct investments. There's some debt, particularly as we have some debt basically parked in the senior loans for liquidity management purposes. Actually, that was reduced during the quarter in view of the financing needs of announced transactions. And you also see the diversification over vintage years. We observed that there are a number of vintage years, like 2014, 2015, 2016, where there are a number of assets where you can expect activity in the quarters to come, as these are typically fairly mature companies. This brings me to the portfolio metrics, where you can observe that actually we are still in growth mode and continue to do so. against the backdrop of general economic slowdown. You see a 20.3% revenue growth over the last 12 months, more or less unchanged. The EBITDA growth has slowed down to quarter one. EBITDA margins have been stable. So top line performance remains stable. Margins in this sample have gone down. However, we have also very sustainable capital structures comprising on average more than 60% of the equity. This brings me to the overview on our approach. Just as a reminder, we are a We are a thematic investor. We are looking for kind of an investment that goes for transformation. That is basically the answer to opportunities and challenges ahead of us. So we are looking for companies where growth is underpinned by long-term transformative trends. We build our conviction way before we transact. We systematically develop investment hypotheses, typically years ahead of transactions. And then we leverage our network of experts, advisors, to develop them more. And we also, once we own them, we compound long-term winners for longer for the benefit of our clients, as you have observed. in relation to international school partnership or FONCIA, or now very recently with United States Infrastructure Corporation. We then lead and guide these companies in a very entrepreneurial manner. We make the board the center of vision, strategy, and accountability. a very active or activist collaboration with the management teams. We then apply capabilities of our network and lead operating directors. And one of the examples I want to cover in a bit more detail at today's presentation is Guardian, Guardian Child Care and Education, an Australian company. And for this, I actually hand over to our new head of investor and shareholders relations, Sarah Page. The floor is yours.

Thank you Felix and welcome everyone. I'm delighted to speak to you today about Guardian because it's a great example of partners group transformational investing philosophy that Felix has just presented to you. Guardian is currently the second largest childcare and education provider and cares for over 10,000 children aged up to preschool age. The investment was made in June 2016 when revenues were $162 million Australian dollars and was Partners Group's largest private equity investment in Australia in 2016. Under Partners Group ownership, as at June, its revenues have increased to $380 million. Next slide, please. As Felix mentioned earlier, transformational investing is underpinned by thematic investing and entrepreneurship at scale. So how does this look like in real life? In terms of thematic investing, on this slide are some industry factors to give you a feel for the potential that Princess shareholders are buying into from a macro perspective. The industry growth has a stable upward trajectory, which is expected to accelerate over the next four to five years, in the region of 3.6%. And this is supported by factors such as stable births and migration forecasts, as well as increased government spending. So the industry fundamentals are attractive. The way the investment team went about sourcing this opportunity was that they not only leveraged their own deep knowledge, which they gained through prior investments in the US, UK and India, but they also leveraged experts experts and advisors to build the solid investment thesis. Now they did this over three years, which involved monitoring the macro factors I mentioned earlier, as well as several onsite visits, getting to know the management team and the local market. Next slide, please. Now in terms of the second pillar of transformational investing, which is entrepreneurship at scale, this was applied to Guardian in the following way. Firstly, the Partners Group Network was leveraged to support the board with high-quality and experienced operating directors, including the hiring of a new CEO who came from a larger competitor at the time. In the early years of the investment, development was slower than anticipated, so this led to management changes being implemented. Secondly, the board set the vision and strategy with a three-year plan focusing on organic growth, M&A and operational efficiencies. These strategic value creation plans have so far produced the following results. Guardian is outperforming its peers in terms of national quality standards of its centers. Also, customer satisfaction has improved, which you can see through the net promoter scale on the bottom right-hand side. And these best-in-class quality ratings are building a solid reputation for Guardian. which is helping to retain as well as attract more customer demand. In fact, Guardian has enjoyed the highest occupancy rates in the sector at over 74%, despite the impact of four waves of COVID-19. And this, in turn, has fed into increases in revenue and EBITDA. A good reputation is also helping to retain employees, which has lowered labour costs. In terms of increasing the number of centres, organic expansion has been in attractive catchment areas, not only in local communities, but also with on or near site care for children of staff working for some of the country's largest corporations. Also, several potential M&A sites have been identified, exhibiting high margins and occupancy rates. To give you more colour, there are roll-up opportunities in this highly fragmented industry, which has around 6,600 sites mainly run by small private operators. The investment has been in the portfolio now for around six years, and by holding on to solid companies for longer, Partners Group is capturing more value for Princess shareholders through long-term commitment and conviction. Now I'll hand over back to Felix to take you through the rest of the presentation.