Eurazeo Paris Ord

Hello and welcome to the Eurasio Financial Information H1 2022 results call. My name is Courtney and I'll be your coordinator for today's event. Please note that this call is being recorded and for the duration your lines will be on listen only. However, you will have the opportunity to ask questions and this can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any time, please press star zero and you will be connected to an operator. And I will now hand you over to your host, Virginie Morgan, Chief Executive Officer, joined by William Caduce-Jasson, Member of Executive Board, General Manager of Finance and Strategy, to begin today's conference. Thank you.

Thank you very much. Good morning. Thanks, everyone, to join this half-year conference. earning call. It's my real pleasure with William, William Cadou Chassin, to welcome you all to our Altio Results for 2022. Our accomplishments for the last six months highlight our very strong operational execution. And as we are entering a more challenging environment, I feel starting from a very strong position following not only the 2021 record year, but that very strong half year set of results. So let me take you through some of the most important highlights and drive you through some perspectives. So successful execution of our strategy is really the main message. First, you continue to see that our asset management business is growing. Assets under management overall have been growing by 27%. We are reaching 32.5 billion. And our FRE, fee-related earnings, are up also by 24% year-on-year. We continue to raise funds in line with our plan. The second thing, which shows a very strong execution of our strategy for that first half, is that you see very strong, solid trends across our portfolio with top line and EBITDA growth. And I share with you my conviction that our choice of sectors riding future trends has really paid off with strong performers and inflation-proof companies. Notably, just to highlight a few, biotech, healthcare, tech-enabled business services, and financial services. My third highlight of that strong execution is our very much on-track exit program. We have sold, up to now, 14.14% of our net asset value which is about two-thirds of the program for the year. We achieved our latest exit in excellent condition. I'm very proud. It's 3.6 times average cash-on-cash multiple, and we'll come back later to the detailed returns north of 35% IR. And prices have been above our latest valuation in our net asset value that we published in March. fourth and that's absolutely critical we continue to build on the greatest investment opportunity of our lifetime we are accelerating the decarbonization of our portfolio and we are launching new impact funds with more to be announced in the months to come overall our net asset value is slightly down at 115.5 euro per share. So two things. Despite very good operational growth in the portfolio, we reflected the fall in the market multiples in the growth tech segments. The markdowns we have applied are in line with correction on public markets in order to be on the conservative side. For the rest of the portfolio, we have set aside a contingency buffer taking into consideration the overall uncertain environments. William will detail this later, of course. So let's start with fundraising. What we see today makes us confident about 2022 and 2023. So first, how much have we raised? We raised $1.8 billion in the first half. Several of our flagship funds have had a strong momentum. Just to mention a few. In the small-mid buyout sector, our PME4 funds have closed above 1 billion euros. It's a 50% increase from its latest vintage. And the other example I can share is private debt. Private debt continues to be in high demand with, again, more than a billion already secured for EPD6, Eurasio Private Debt 6. Looking forward, we continue to see an acceleration of allocation towards private markets and a very strong appetite for our products. The markets, though, are quite busy for 2022, especially on buyouts, due to the acceleration of deployment after COVID that may lead to extending the timeline. The good health of the portfolio, the crystallization of value through recent exits, and our recent attractive new funds like Energy Transition Infra and the very topical nature of our impact-proof product all combine to make us confident that the fundraising momentum will continue in the coming months. All in, we are growing our assets under management and our management fees, and we continue to build a strong asset management platform. So that's for the fundraising. But let me deep dive a second and tell you more about the retail performance for this year. We raised €380 million from private clients in the first half. That's about 60% increase year on year. You can see it on the slide. Private client solution now represents about 13.13% of our third-party asset center management And I see this, you know it, as a major source of new growth in the years to come. 2022 should be another record year in the segment. We have very strong competitive advantage with 20 years of experience and an extended network of distribution partners. Our goal, and that's very critical, our goal is to have one private client fund that on offer for each institutional fund that we launch. So I give you the two recent examples of the product that we launched for retail. The first one is Eurazeo Principal Investment, which is a bundle of our two buyout activities, the mid-large and the small-to-mid, which we are offering for distribution for a much broader public. The second fund that we are launching this year is dedicated to real assets, with very much a value add positioning for our retail investors. So now let's turn to the portfolio. My conviction, the conviction of the executive board is Eurazeo is extremely well positioned to be embracing and facing a more challenging market environment. So let me deep dive into our current portfolio. We are for sure confronted today with an unusually high number of uncertainties. We're mentioning inflation, rising interest rates, geopolitical risk, and supply chain disruption, to name but a few. We can't be sure how those risks will evolve, but my conviction is that Eurasio is entering this more challenging time in a very strong position. So I'll tell you why. First of all, and that's probably the most critical to remember, is our diversification plays to our advantage in full. We're building resilience and we're protecting value. And I think in volatile times, portfolio effect is obviously absolutely key. So let's go through a few highlights. So we take first buyout. So you see buyout and private fund, which account for 36%. of our assets under management, we have invested in market leading companies in asset light sectors like business and financial services or like healthcare. These companies are able to pass on price increases which provide a natural hedge to inflation. Remember, Elemica or Scale Agile in tech-enabled business services, very strong pass-through. Cranial and Dork in the Netherlands in healthcare, same thing, very strong pass-through. Second highlight in the portfolio of buy-out, we see some acceleration post-pandemic with a rebound in the travel sector. We have world shrines in the U.S. and we have planets as a global player in payment and DCC. And finally, we are monitoring closely the normalization and the rebalancing from direct-to-consumer to brick-and-mortar retail with a few examples in the portfolio like Aromazone or like Group Rosa at PME. So then let's move on to growth and venture. Those investments represent 30% of our assets under management. They have structural tailwind, very strong revenue growth. We're certainly continuing to benefit from the digitalization of our economies, and those companies generate outsized revenue growth, are very well capitalized. Our sector leaders, I'll just name a few, like Doctolib, or Backmarket, or Content Square, continue to gain market share and extends geographically. We have conservatively taken some markdowns on valuation in H1. William will detail, but we are confident in the strength of our portfolio. Moving on to real estate and infrastructure, 6% of our assets under management. Real estate and infrastructure businesses benefit from the natural pass-through of inflation and from our strong position in hospitality, hotels with grapes, and the very strong and attractive energy transition sector, which is covered by our team, Energy Transition Infrastructure Fund. Finally, the private debt, which is 20% of our assets under management. Our private debt business is doing extremely well. with a very strong portfolio, lightly leveraged, very secured, and benefiting from floating rates. This makes it a compelling investment in the current environment. The third highlight is about the strong execution of our exit program. I have to say, I'm very proud not only of the decision which was taken more than 18 months ago in September 20 to accelerate the rotation, but of course the execution has been nothing but excellent, including during the first half. So first, we exited around $2 billion of assets year-to-date. In a tighter purchasing market, execution and timing are key. The remarkable 3.6-time cash-on-cash and average IRR of 36%, delivering proceeds of more than 1 billion for Eurazeo, reflect the pace of development we achieved at Red End Solar, Trader Interactive, that was our first investment in the U.S., Aurelia, and Vita Protech. You'll see more exits by the end of the year. Regarding deployments, the second leg of our asset rotation investment, the geographic and sectoral extent of our deal flow allows us to be very selective as we invest in tomorrow's successes. In H1, we invested a total of $3 billion. That includes $1 billion in private debt, $0.5 billion in private funds, and $1.5 billion in buyouts, venture, and growth. companies benefiting from very exciting and long-term trends with strong tailwinds. The core sectors that we're reminding you in terms of focus for us in investment, healthcare, consumer, financial services, tech-enabled business services, and energy transition. Those five sectors represented in H1 are more than 19% of our deal flow, with a very strong focus on asset-light businesses. And finally, before I turn to William to go deep into the review of our results, I want to highlight our strong inroads during the first half in terms of new steps towards a more inclusive and a more low-carbon economy. You know our commitment to driving sustainability across the portfolio, creating resilience and increasing the value of our companies in stronger than ever in that environment. So in 2020, a reminder, we became the first private market firm to apply the science-based target for carbon neutrality, establishing that model for our portfolio companies to follow. In 2021, More than 80% of our active funds were classified at the highest standards of European sustainability regulation, namely Article 8 and Article 9. This figure is now 89%. Now, in 2022, we're actively working on our next-generation impact funds, focusing on themes of planetary significance. I'm turning now to William for the full detail of our results for each one.

Many thanks, Virginie. Good morning to all. Thanks for the interest you take in our company. I will now guide you through our financial results. And let's start with the key drivers of our P&L. I'll start with the asset management. As Virginie mentioned, asset management continues to post strong growth. Total AUM are at 27% in H1 from a year ago to reach 32.5 billion euros. The main driver, as mentioned, is fundraising, with AUM coming from limited partners rising 32% in the last 12 months to 23.4 billion. The balance sheet component, as you see on the slide, has increased 16% compared to a year ago. Importantly, fee-paying AUMs are up 31% relative to the same period of last year, and amount to 21.6 billion. Turning to the next slide, you see, stemming from this strong pace of collection, strong the double digit growth in our recurring earnings from asset management earnings standing from asset management good at a double digit space as i just said management fees were up 30 percent in h1 they reached 200 381 million management fee from third parties grew at approximately 40 percent and now represents 77 percent of total management fees this is to be compared to 71% in H1 2021. FRE were up 24% over the same period of last year, standing at 50 million. During the first part of the year, we continued to invest in our platform with requirements in our investment teams, sales and marketing, operations, and some key corporate functions. Turning to the portfolio companies. As Virginie said, we have there a strong contribution. First, our consolidated portfolio companies delivered strong growth across the board, revenues and EBITDA. Consolidated portfolio economic revenue at constant Euroseo scope and exchange rate increased 43% compared to last year. The portfolio EBITDA is up over 40% when adjusted for the base effect related to the insurance indemnification received by World Strides in H1 2021, which amounted to €61 million. Second, our growth companies, which are not consolidated in our P&L as you know, have also done very well with revenue growth of about up of about 46% in H1. As Virginie said, we think we are well positioned in a more challenging environment. One case in point is that we think we are very resilient in an environment of rising interest rates. Let me explain why. A few key facts. At corporate level, As you see on the left-hand side of the slide, we aim for a structurally low gearing. Performer of the realized sale of Red & Solar and Aurelia, Eurodeo has a net cash position of plus 21 million euros at the end of the first half. On top of that, we have a 1.5 billion credit line with a 2026 maturity. Turning to the portfolio, half of our strategies have no or little leverage. In addition, private debt operates in a floating rate environment with low default rates. For strategies using some leverage, i.e. buyout or real estate, we take a very cautious approach. In buyouts, the level of leverage is moderate for the industry, It is, in fact, at less than five times EBITDA in aggregate. The average debt duration for the portfolio is five years or more, with very little portion under one year of maturity, and overall with favorable confidence. In real estate, more specifically, we have a moderate loan-to-value of about 60%. And I'd like to stress that nearly 90% of rates are hedged. As Virginie said, we are well on track to execute the investment company exit plan. As we mentioned during our full year's results presentation, we aim in 2022 to exit roughly 20% in value of our balance sheet assets. We've executed 14%, which is more than two-thirds of this target. To date, we announced or realized four exits for 1.1 billion of proceeds at a 3.6 average cash-on-cash multiple. All these transactions were done at or above their value in our net asset value. Due to the timing, this transaction did not impact H1. but will provide approximately 750 million of net capital gain group share in the second part of the year. That is, 530 million capital gains related to realized exits, Reden and Aurelia, 220 million capital gains on announced exits, i.e. Trader and VitaProtec. In addition, realized transactions will generate approximately 66 million of performance fee for the asset management company, which will be booked in the second half of the year 2022. Turning to the profit and loss figures. Our net results group share for H1 stands at minus 96 million for H1. Proforma for the realized net capital gains, i.e. the 530 million I just mentioned, net group result share would have been 437 million, plus 437 million in H1. And if you look at the asset management line, i.e. the 44 million contribution, which is here solely associated with the FREs, with no PREs accounted for, if you add back the 66 million I just mentioned that will be booked in the second half, you would find that the asset management contribution would have been up 18%, standing at 110 million. To finish, let's look at the net asset value. At the end of June, our net asset value was down 1.9%. at €115.5 per share. The value of our investment portfolio represents €89.5 per share. It is down roughly 4%. The value of the asset management activity is up 5.5% at €26 per share. You may have noticed that there is a slight difference in the percentage of decrease in the net asset value between what you find in the tables in the appendix relating to the absolute amount of NAV versus the per share amount. The difference stems from the share buyback, which has an accretive impact of roughly 50 basis points. Looking more at details for the investment portfolio first. There are four main blocks to consider here. First, positive variations in the valuation of our portfolio, excluding gross assets. This results from the following factors, which you see on the slide. The realization of Red & Solar at the superior net asset value that was marked at the end of 2021. This account for 1.1 euro per share. The effect of a strong US dollar on our US asset. This is another 1.7 euro per share. The strong performance in revenues and EBITDA of our companies in H1 2022, as I mentioned earlier. But let me stress that for this portfolio, we kept a constant methodology using last one month figures and average multiples. We only checked that the multiples that we were using are in line or below spot multiples for comparable companies. So again, this remains a fairly conservative approach to valuation that translates into positive variations. Second, we map down the valuation of our growth portfolio, taking into account several factors as Virginie already highlighted. On the plus side, we have the strong performance in revenue growth of those businesses. as mentioned, plus 46%. New rounds of financing for some companies, like ContentSquare, which were done at various valuations above the last mark we had in our NAV. On the downside, we applied an average 25% haircut on the rest of the portfolio, excluding ContentSquare, in line with the decline in market indices for tech companies, such as the NASDAQ. Note that we have already largely anticipated this markdown with a contingency of roughly 270 million we have taken at the end of 2021. Third, we applied a discussionary contingency buffer of 500 million related to the non-growth portfolio. As Virginie mentioned, this is purely linked to the level of uncertainty we see in the market, which may or may not materialize. Variation in the cash position, essentially linked to the distribution of the cash dividend in 2022 for an amount of €3 per share, as you know. The NAV of the asset management is up 5.5%, you see, to €26 per share. This reflects the continuous strong growth with FRA last 12 months up 31% at the end of H1. We applied last 12 months figures as well for the asset management as we do for the portfolio companies. To value FRAs, we use a multi-criteria approach based on LTM numbers and cautious multiples. This translates into implicit multiples which are below those of our peers, as we've already mentioned a few times, and at the low end of our DCF. On PRE, our main approach is a DCF with a 12% WAC, or a six-type multiple, which, again, is fairly conservative. I will now hand over to Virginie for the conclusion.

Thank you very much, William. So, the last line in conclusion to project ourselves for the year to come, is proving more ambiguous and challenging than 2021. But the key growth drivers of our business model remain strong for the future, as we demonstrated in H1. These include growing our asset management business, delivering strong asset rotation, and maintaining a disciplined approach of investments in promising sectors. The half-year set of results show that our fundamentals are strong, that we are responsible investors in terms of deployment, exits, and valuation. So as we are facing more challenging times, our group first is resilience. We're building a diversified model in terms of asset classes, sectors, and geographies. We're also prudent, prudent in how we value our assets, and our asset management activity over time, especially today. But also our group is fit for growth. We continue to demonstrate the strength of the portfolio, we create value through successful exits, and we invest in the right sectors to create value in the years to come. We have gathered over time a very significant investment capacity in addition to our own resources, With investment commitment given by our investment partners, that gives us more than 5 billion to be deployed in new opportunities over the years to come. And finally, of course, we continue to invest and innovate in ESG and impact, consolidating our leadership and competitive edge. Thank you very much for listening to our healthcare results, and of course, we're now ready to answer any of your questions. Thank you very much.

Thank you. As a reminder, if you would like to ask a question on today's call, please press star 1 on your telephone keypad. Please ensure your line is unmuted locally, and you will be advised when to ask your question. That was star 1 on your telephone keypad. And our first question comes in from the line of Murad Lamidi calling from BNP Paribas. Please go ahead.

Yes, thank you very much. Murad Lamidi from BNP Paribas Exxon. I have three questions, please. The first one is on fundraising activities. So you raised 1.8 billion in the first half. If we compare to the same period last year, it was 2.4 billion. So could you please comment on the context in terms of fundraising activity? Has it been more difficult to raise funds due to the context? Do you see any extension in the closing of the programs? And what do you foresee for the current year? Could you elaborate maybe not necessarily on the number, compare it with the record year that you had last year. The second point is on the buffer that you applied to your NAV of 500 million. Could you please explain the rationale for this 500 million? Why 500 million and not a number above or below? And finally, on performance fees, the 66 million that you mentioned, can you give us the share of the balance sheet? out of the 66 million. Thank you.

Good morning, Mohan. Thank you for your question. So I'll start with the fundraising, and William will cover buffer and performance fees, balance sheet versus third party. So listen, fundraising, you know it because you're very knowledgeable about our industry. Always extremely difficult to compare H1 to an H1 of previous year because it's about It's about the timing of our own fundraising, you know, which funds do we have in the market from one semester to another. So that's my first comment. So don't take the billionaires compared to last year as a change and a difficulty of raising. It's about the product we have in the market. So which product do we have in the market? I mentioned private funds. Sorry, I mentioned small to mid buyers, which we... We have successfully announced reaching a billion. I mentioned private debt, which is ongoing, but the first half has been pretty active. We'll continue to be very active for the second half. Second half, what you should expect is private debt to continue to fundraise. We have a target of 2 billion euros. You should also expect the start of the mid-large buyers coming to the market second half. And in terms of big programs, you have growth and venture. Venture is already in the market, only starting, and growth will be in the market during the fall. There are other, you know, teams which are fundraising, like Infra, you know, going very well, great product, green economy, energy transition. So that's the first sort of highlight to your question. Second, which is more about the market sentiment and what has happened. So I should say, for us, you know, H1 is very satisfactory. We're in line with our, you know, expectations. There's been a few months during which the institutional investors, and that was right after, you know, invasion of Ukraine, March and April were softer for institutional, but came back to the market. Institutional investors are not willing to play the market. They're willing to deploy regularly and consistently with alternative asset managers that they trust. So retail has never stopped, you know, the collect of retail. As you could see, 380 million year-to-date is very strong. I would actually say no stop in March and April, but even some form of acceleration. So the fund program for H-222 and H-423 is quite strong for us. So retail will continue to be very strong with new products, as I highlighted in my presentation, both buyout and real estate. and with more partners coming in and partnering with Eurazeo to distribute our product. And for institutional funds to be launched, I mentioned growth. We have great ambition for growth. There is this big push-up called Scale Up Europe at the European level with EIF and a number of strong institutional investors backing the large player in Europe north of 2 billion of size. So that's a European initiative that you should compare to the TB initiative, which was at the French level. We have mid-large, I mentioned. We have real estate. We have infrastructure and private debt, which is continuing to raise money. So we have very good pre-marketing, positive. I did say in my presentation earlier that it's about being our eyes wide open, that it may... be a bit more timely to raise the money in notably buyouts. So let's see. Time will tell. It's a lot of moving parts as some of the funds, some of them are very tactically positioned, meaning that when you have on offer Article 9 products in healthcare, in green economy, in digital transition, just to name a few, There's a lot of need and a lot of attraction in the market, including for USLPs who have been a little bit on the back foot and late to the party in terms of their own deployment. So that's what I can share with you, Mohad, as to the highlight of H1, some of the perspective for H2. And as you know, we never comment on and never give guidance on full-year fundraising. But I hope it's helpful. So buffer and performance fees.

On the buffer, Mohad, if you look at the table we provided, the detailed table for the NAV in the press release or the appendix, you'll find the way we've calculated it. We decided it's about 7% roughly of the value of the portfolio So, deduct the asset management part from it, deduct the growth component from it. So, that's a bit judgmental, I have to say. The rationale, again, is that we consider that there is no reason to mark down that portfolio line by line today, given the strength of the performance, the quality of the assets, and a few factors I've mentioned, be it the realization of a NAV or NAV3, or the foreign exchange. But as Virginie highlighted, there are uncertainties, and this is sort of an uncertainty buffer, so 7% looked to us conservative enough. It is true that we may have or may not have usage of it, and we'll see it through the end of the year. Performance fees. The amount of 66 is largely related to balance sheet performance fees, and the reason being that Reden Solar was only held by the balance sheet. So there is no LPs owning a stake in Reden Solar, and this is the largest chunk of the net gain in the first half. So this is 62 balance sheets, 4 million related to LP money. Let me say, without giving you a number of performance fees, that the ownership of VitaProTech and Trader is much more balanced between balance sheets and LPs, and you should expect that the balance of performance fees that will be associated to this transaction Okay, thank you very much.

I have a follow-up one on fundraising again. Can you give us some insight on the origin of the money in terms of geography?

I mean, we tend to give highlights of, you know, geographical origin of the money rather at year-end, but for full year. But you could assume that from the French market, about 40% and 60% is rest of Europe and rest of the world. Again, take into account the fact that depending on what's in the market, and not to get into too many details, a Eurazeo SME fund of a billion would probably tend to raise more money towards France or with French clients, while a private debt of 2 billion funds would be way more balanced. Actually, France would be quite a small amount of the private debt fundraising of a billion so far. It would be Asian, it would be European, with big clients outside France. It would be Middle Eastern, to give you a few examples. The geographical source of resources also absolutely depends on which products are in the market.

Great. Thank you very much.

The next question comes in from the line of Jeroen van Aken calling from Diggroof, Petercam. Please go ahead.

Yes, good morning, everyone. I have two questions on the very strong reported NAV. First one, if you look at investment companies throughout Europe, like Investor AB and Sofina had already reported, When they report about the private equity segment, they can only report the Q1 NAVs of these funds. Now, of course, I know you have a lot more visibility on the valuations, but if you look at your 115 NAV for the private equity or for the whole portfolio, Should we look at it as you're using Q1 NAVs or are these already updated for Q2 NAVs? And the second question is, if you look at the overview of the NAV in the appendix in the table, you see a net cash and others line of minus 1 billion. We know the net cash is 21 million. So could you explain which items constitute the minus 1 billion then? Thank you.

Thanks for your question. So I'll take the first one and William will take the second one. So we are reporting on Q2. It's not Q1 performance. Portfolio performance is at the end of June with all updated results, top line, EBDA, net debt, every even post-event, post-closing events. Every valuation line by line that William was describing for all the portfolio from buyouts to venture and growth are as of today, like literally as of last week, last Friday. So I don't know why our peers stayed on Q1, but we're definitely on Q2. And for every investment strategy that you see, although it may be different vintages, So, like, take the example of the mid-large buyout, which you see as, you know, one investment strategy. There's actually two funds in there. There's actually three funds in there, three, four, and five. The reporting to our LPs will be made on these valuations for end-of-Q2 results, and they will receive their full reporting completely consistent with what you see there as a sort of synthesis of our performance, at the latest 45 days after closing, so at the latest on the 15th of August. So that's for your first question.

As to the second question, which relates to the very bottom of the NAV, what we call the cash and others, I mean, starting with the main factor, which is the net debt or net cash position of the company at the end of the quarter, I mentioned plus 21 million pro forma for the sale of Forolia and Red and Solar. Remember, this transaction has been completed on the early July, 6th of July for the first. And that means that the cash came in our account after the 30 June cut, cut of date. So in fact, you find it in the press release. in detail, the net debt position of the company at the end of H1 was $726 billion to be precise. So logically, in the cash position we have in the NAV, which is dated 30th of June 2022, as Virginie just reiterated, you have this net debt position. In addition, you have a few factors which are usual, and they may fluctuate. but you have things such as the provisioning of taxes, so tax liabilities that will be then spent over time, which are related particularly to the sale of assets. So that's this point. Overall, it doesn't change much, particularly the net cash position in the NAV, because usually What you spend, you'll find at the upper end of the NAV in the form of change of perimeter and new assets on the balance sheet. So overall, this is not necessarily a material difference in the NAV.

Does that answer your question? Thank you very much. Very clear. Thank you. Yeah, very clear. Thank you. Thank you.

The next question comes in from the line of Christoph Grealish, calling from Barenburg. Please go ahead.

Good morning, Virginie and William. Thanks a lot for taking my questions. Three from my side, please. I would like to start with a follow-up question on the buffer. So is it fair to assume that you will, going forward, adjust that buffer upwards or downwards depending on your market outlook? And is there a clearly defined framework in place according to which you will adjust that buffer? Then the second question is with regard to the debt financing of new buyout investments. If you maybe could describe the changes you have seen since the start of the year. And then lastly, when we look at the demand from LPs, given that you cover a range of different strategies and asset classes, have you seen any shifts in demand between the strategies and asset classes in light of the change macro outlook? Or would you say the demand trends are rather uniform across the group?

Christophe, can you rephrase your last question? I want to be sure that I understood it well.

So I'm just wondering, given that the macro outlook has changed quite significantly since the start of the year, have you seen that translating into a shift of demand that maybe some asset classes are kind of seeing increased demand at the expense of others? Or would you say that the trends are rather uniform across all the strategies that you cover?

Okay, that's very clear. Let me try the buffer because you all have a lot of questions and questions. I'd like you to understand that, you know, how would you feel if we had published a net asset value at 121 euro per share growing from the 117, which we published in March? You know, a big question mark in the current environment. You know, CAC 40, most of the public, you know, market index are down like 15, 20%. There's been significant market correction in the NASDAQ that we already anticipated back then in March. So listen, it's a prudence. It's a contingency. We have no detailed analysis, anticipation behind it. You know, could we have taken less? Yes. Could we have taken more? Probably not. I mean, it's already 500 million euros. We are talking 6.5 euros per share of contingency buffer. It wouldn't have been professional to come with a much bigger number because then you would have said it must be allocated some ways in some special situation. And it is not. It's just that you would not trust me if I was telling you I had a lot of visibility for the future. So it's not, you know, William will complete my answer, but I'm trying to share that approach so you feel it rather than you understand it. It's about being more conservative so that we are protecting the months to come. And you know us, we always want to publish good results and overperform. and not oversell. So it's us. It's a conservative approach. And we are hoping that by March next year, when we publish our next net asset value, you know, we're not disappointing the market and we have a sufficient, you know, runway in the portfolio growth and some of those contingency buffers. So we continue our path of growth for our net asset value. But William would complement that.

That's exactly that. Just the thing I wanted to add is relating to your question as to what could we do and how, with that buffer, depending upon what we see and in which time frame. The time frame, obviously, we can't control, but it's clear that we will monitor the situation in the coming quarters. Again, as Virginie stressed, some of the risks you see in the economy and the broader environment may not materialize or may not have a negative impact overall. They may be transitory. Some may, and at this stage, we have to be humble, we don't know. So to your point, if they do not materialize or do not have an impact on the performance of our companies and the valuations overall, this 500 million is an upside. So it may be written back, in other words. If they materialize, It limits any downside to the shareholder because it would have been already priced in. So that's the way you should look at it.

On the financing environment, which was your second question, we can do two voices with William. Large buyers, large transactions probably are facing, and it's sort of an understatement, headwinds in terms of financing because the capital market financing is closed. And the large sort of financing is probably going to be with banks or with private debt operators a little bit more complicated. However, as far as we're concerned, operating in the mid-market segment, and maybe it's about also the quality of our companies, the strength of the sectors in which we operate, But both on the exit, you know, VitaProtec has been very well financed and it's been acquired by a private equity buyer. Aurelia, it's a different place, been acquired by a corporate buyer. But in mid-market, we think we're going to be sort of a little bit more protected in terms of financing availability because there are banks which are still, you know, willing to finance good mid-market companies in Europe If you know it's not over leverage and they are private debt players, which are very much there because they understand And it's good business there so Overall, that's how I would characterize the current market environment. So, you know slightly more tight overall and probably quite complex for larger deals in terms of putting financing together and

And maybe just on the pricing side, not to repeat what Virginie said, we probably are in the right segment where we are not dependent on either the high-yield market, which is closed, or as a result, the bridges from banks, which are full in the underwriting commitments, so placed to our advantage in a sense. So the direct lending space is still available. There is some tension on the spreads, some repricing, but As of yet, not very material.

And your last question was about do we see, in terms of demand from our clients, some sectors or some geographical or some trends which are more looked for than others? Yes, a little bit, at least seen from our standpoint. I don't mean... to give you an overall view of the market, because I'm just talking about what we see at Eurazeo based on who we are. Private debt, there's a lot of appetite. I think LPEs are seeing this as a good risk-return profile. And at least for us, we have a great diversification of companies that we finance. The returns have been very strong, we're talking sort of 7% net IRR. So you make up your judgments, but for a good risk return, no defaults, large diversification, good European companies across different sectors, not too high leverage, good returns. So private debt, big clients coming in with large large investments in terms of size, so we clearly see a bigger amount of LPs investments in our funds, which is a great thing. We see great attraction for healthcare, healthcare-related products, healthcare companies, healthcare funds, so that is a trend which has not changed, and quite rightly so, because when you look at the performance of all our companies across the board in health care, from venture to gross to mid-cap, they're growing very strongly. I mentioned also Cranial in health care and Dork in the mid-large buyouts, strongly performing. And every product and fund related to energy transition and green would be impact. Article 9 are very much looked for. So it's a few private funds is going very strongly as well because it's a good diversification and strong results. So I think it's more where it may take a bit more time and we have to maybe anticipate some timing delay. It could be in the buyout because buyout was very crowded in 22. So we have to expect 22 and 23 to be maybe the horizon of some of the buyout fundraisings. Thank you for your question, Christophe.

The next question comes in from the line of Alexander Gerard calling from CIC. Please go ahead.

Yes, thank you. Good morning, Virginie. Good morning, William. And thank you for taking my questions. Three on my side. My first question relates to your portfolio management. So you mentioned a good diversification of your portfolio. But besides that, do you intend to take any particular measures to protect your portfolio? from any impact of the harsh economic crisis? Can we expect, for example, an acceleration of your disposals? Can we expect from Eurozero the fact of maybe putting your investments on hold on the second half of the year? Can we expect fewer investments? So that's my first question. The second question relates to the impact of inflation. on your EBITDA of your portfolio companies. Have you maybe realized any sensitivity analysis to that risk? And also the third question is related to the retail segment that you mentioned. What weight should the retail segment represent? let's say in five to seven years' time, and what are the pros and cons of being more exposed to that type of clientele? Are their assets more profitable? Are they more sticky? Thank you.

Okay, it wasn't super easy to understand everything, Alexandre, so sorry if there's one that we didn't get. I think we got one and two, maybe not, one and three, maybe not two. So I'll start with retail, which is your last question. So very strong momentum. Yes, it's very sticky. I mean, it's not, you know, institutional is very sticky as well because, you know, they come in closed funds. And remember, we're not an asset management with open funds. So most of our relation with clients being retail or institutional would be very long term, like seven to ten years, you know, that's the choice they make when they come in. I think what's happening these days is that we have more products, we have built on 20 years of experience, we have more partners distributing our products, and we're offering very strong returns compared to a very volatile public market. So there's many reasons why retail comes to private equity and to us in particular being also a public company with full transparency, reputation, and inspiring trust and ethics. Also, I think you could, in terms of your question on, is it the same sort of economics for us? Exactly, yes. There's no difference for us between retail money or institutional money. And finally, there's this... specificity that we as an asset manager, we're offering to return the exact same product at an entry investment which is very affordable, very low, which could be 3,000 to 5,000 euros, the exact same product than an institutional investor which would put 150 million euros in our institutional funds. And that structure of having that size retail money investing into the exact same product and the institutional funds, I think has shown great attraction. On your question about what are you doing in your portfolio and how are you reacting to this volatile and uncertain environment, well, we are very close to our portfolio company on many fronts, Alexandre, We're reviewing, and it's been the case since the beginning of the year. So every financing has been reviewed. Timing, interest coverage, covenants, renegotiation were needed since probably early Feb. Then we reviewed across the board. Every of our buyout companies in mid-large and small to mid-large Pricing power, pricing review of what can we do about pricing, depending on what's happening in our supply chain, our raw material costs. But taking into consideration, you know our portfolio well. There's about 15 companies in mid-large, about 15 companies in small to mid. You've known those companies. They have strong pricing power. The companies are category leader. We think more than 90% of our companies are very much inflation-proof. They are passing on price increase. We have very few companies which are asset-heavy. We like taking able business services, but still, since early Feb, we have, in a different way than what we did during COVID, but we have come back very strongly, hand-in-hand with every other portfolio company, to come all the way across every level of operation, pricing, top line, supply chain, and financing. So I think that answers your, hopefully, your first question.

And the second one, I didn't get, but maybe... Inflation impact on portfolio, which I think you already answered. I mean, we monitor... or specific situation, but in aggregate, as Virginie mentioned in the presentation, the bulk of the portfolio is quite well positioned in the inflationary environment, given either the leadership position, which allows for price increases, or the fact that it is fairly asset-light and less dependent upon prices, input prices of use. Obviously, this is not immune, and this is a situation we monitor for the companies which would be more exposed. But overall, we consider that the buyout portfolio particularly is less exposed. The real estate and infrastructure have natural hedges, and the debt is a different story, evolving in a floating rate environment. And you already answered the question.

Okay, thank you. Maybe a final question on my side, if you can hear me well. On the fundraising side, for the full year, can we expect a fundraising that will be at least at the same level as last year, i.e. about 5 billion?

We're not commenting on fundraising. We never did, and we're certainly not going to comment in such a volatile and uncertain environment. Everything that we could tell you, we did. And the slide is giving you a lot of highlights and explanation. I can just go back to the slide, but we won't comment. There's a few questions online as well that we won't sort of answer. How much do you expect fundraising for 2022-2023? David Cerdon, unlikely that we give you any forecast. Same thing on dry powder. I know you're dying to know it, but it would be... It would be quite unusual, as we never did it, that we would in that environment share any sort of forecast. There's a question on growth strategy. We understand multiples are now more conservative. How is this evolving recently in the market? Last fundraising from private companies. I thought we sort of covered that, but you should assume that every of our growth companies are now valued in line. and consistently with markets as it stands now. And yes, there has been, and I think we well communicated on a very recent one, there's been some transaction recently which shows that it's not just one market trend where you, you know, people, investors think that every growth company is down 25% like NASDAQ. I mean, look at Content Square. I mean, they just raised $600 million on a $5.6 billion post-money valuation, which was way higher than what we had in our NAV at the end of December. And this is new money coming in, new investor. So it's a real market check. It's not just re-ups. So it's a mix. And I think what we have today in our net asset value absolutely reflects the best update and knowledge that we can share with you guys as to the growth portfolio.

We've got a question coming through from the line of Murad Lamidi calling from BNP Paribas. Please go ahead.

Yes, thank you. So I have a follow-up. Can you maybe refresh our memories on the way you mark your portfolio companies? Because to my recollection, you take into account five years historical multiples and last 12 months earnings. And if you look at the market today, most of the companies are trading below five years historical multiples. So Maybe you can help us on that. Thank you.

Sure. Let's start with the buyout to which you refer, I think. Depending upon the portfolio, we would use one year or five years average. So typically for small-sized companies, we use five years. For larger-sized companies, we use a one-year average. we apply it to, as you said, in the vast majority of cases, to last 12 months multiple. And then we do, of course, apply some judgment to it. Some judgment as to the positioning of the company relative to its peers. Sometimes, you know, there are no exact peers. Or we consider that given the size of the market position of the company, it deserves a discount or premium to market multiponts. But more importantly, as I said, we also check that the implicit multipont that we get, that we apply for the valuation, is not disconnected from what we see with spot multiponts, or usually by spot we mean one month average. Again, at the end of H1, the very vast majority of the portfolio was valued on the basis of multiples that in the end are at or below spot multiples. That's for buyout. And then we mentioned before the growth portfolios. growth portfolio typically, this is the way the industry does, we're using the last mark stemming from the most recent round of funding for a company, to the extent, of course, that it is material enough, an amount that is significant enough relative to pre-money valuation. But here again, So with our traditional cautious approach, we applied some judgment and we cross-checked what type of evaluation we had, particularly for companies for which there was not a recent round. We cross-checked with market multiples, and that translates into this 25% in aggregate discount that Virginie alluded to.

I think we have one last question from Patrick Jusome.

The final question comes in from the line of Patrick Jusome calling from Societe Generale. Please go ahead.

Good morning. Can you hear me? Yes, very well, Patrick. Okay, perfect. So a lot of my questions were already responded, but I have two additional. First of all, regarding the contribution of the investment activity, I understand that capital gains will be recorded in H2 this year rather than in H1, but why minus €161 million in H1? And second, regarding the buffer, coming back to it, I just wanted to check that the 500 million euros are all on portfolio X trading growth, or is it only the 230 million additional euros of each one? And still on the buffer, do you intend to monitor it on a quarterly basis, on a, let's say, half-year basis?

Okay, so, I mean, your first question is... It relates to the loss in the investment company.

Yeah. So, I mean, it stems, you know, from two facts. I mean, logically, you have a plus in the asset management, you have a plus in the contribution of companies, and then the third layer, which is investment companies, I mean, usually the big plus stems from net capital gains. So, as you don't have... net capital gains here. You have, on the one hand, a negative coming from the costs that are located in the investment company. You know that we allocate the costs to the asset management company that are linked to its activity, but we keep some costs in the investment company, including some transaction costs related to balance sheet investment. And then you have some mark-to-market variation, as I think we've been explaining in the past years. That's related to minority stakes. So in this case, you have the variation of the minority stakes held by IMG Global, which would go through the The P&L, when they are marked down, and this was the case, they've been marked up in previous quarters, some of them, the stakes have been marked down there. So that's fundamentally what happens.

Patrick, you're just basically missing, you know, had we been able to close, and there was some regulatory sort of delay, had we been able to close Jordan on the 1st of June, and Aurelien, you would add back to that 161 negative, which is essentially about management fees paid to the asset management company, and investment-related expenses, which is related to our activity, you add back 530, which is about the capital gain that we would have had, which we had, of course, but just a few days later, and then you would found approximately a very similar investment company results for H1-22 compared to 21. So that's really it.

And then to your question on the buffer, you're right, Patrick. The way you think you should think about it is we have $217 million related to largely the growth companies. We wrote it back, in a sense, because we adjusted the value of the portfolio directly line by line. And then we opted for 500 million related to non-growth companies at the bottom. The net amount, 500 less 270, is an increase of 233, but they're not related to the same bucket. So we clearly have a 500 million, but the net difference is, as you said, 233. We don't do, and that was the last part of your question, We don't do published NAV each and every quarter. So next time you should see the NAV adjusted computed full year, it would be the full year results. But of course we will monitor the valuation of our company through the year. I mean, remember that we have some LP reportings to do and anyway, we do a daily not valuation, but daily monitoring of our participation.

Patrick, I mean, I know it's not completely simple, but you have nearly 300 million of markdown in the growth portfolio, of which 260 was sort of anticipated, I mean, not anticipated, but accounted for at the bottom of the NAV in December. so about 380, and an other 500 million, as we largely discussed, contingency buffer at the bottom, which excludes growth companies and could be a positive going forward if we don't need it. So I hope it's clear.

Thank you very much.

Thank you. That was the final question in the queue, so I shall hand the call back across to yourselves for any concluding remarks.

Thank you very much. Have a great day and a lovely summer. We'll see you soon. Thank you. Bye-bye.

Thank you for joining today's call. You may now disconnect your handsets.