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.