Eurazeo Paris Ord

Hello and welcome to the Euro09 month 2024 trading update. Please note this conference is being recorded and for the durations of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0 and you will be connected to an operator. I will now hand you over to your host, William Cato-Chachan, Co-CEO, to begin today's conference. Please go ahead, sir.

Thank you very much. Good morning. Thank you all for joining this call. We are aware it's a very busy day from a news standpoint. So pleased to see that you are here to listen to our nine months 2024 trading update. Overall, we published today a a strong set of results across the key metrics. So I will go through the key highlights for the quarter pertaining to, first, the asset management activity, second, the asset rotation, and third, the underlying performance of the on-balance sheet portfolio assets. So let me start with the key data relating to the asset management and, of course, with fundraising. Activity continues to be strong with 3 billion raised over the nine months year to date, which is up 76% compared to the same period of last year. More in detail, private debt continues to enjoy a strong momentum following the launch earlier this year of our seventh vintage in direct lending. Private debt now represents 25% of our AUM. Private equity is also significantly up. It's up. Fundraising pertaining to private equity is up 60% relative to the same period of last year, with additional closings on the fifth vintage of MLBO, i.e. our mid-large buyout franchise, and flows in secondaries as well as in venture, biotech, and digital. And as you know, we've commented that in the previous call, we have already announced the final close of our sustainable infrastructure fund, our impact-related sustainable infrastructure fund, at over 700 million, which was 40% above the initial target. Second, and this is key to our strategy, We continue to grow our international LP base. Flows from international LPs represented 70% of the total amount of institutional fundraising in the first nine months of 2024, with some key wins in Asia, in the rest of Europe, as well as North America. Third, wealth management continues to grow with 629 million raised over nine months, which is an 11% growth year on year. Now, as customary, we give you a guidance for the rest of the year. Looking forward, we now expect fundraising for the full year of 2024 to be around 40 billion euros. Remember, we were at 2.9 in 2022. We reached 3.5 in 2023. So that 4 billion would be another year of growth. in spite of a context that is only gradually improving. Turning to AUM. Let's start with the fee-paying AUM. Over the first nine months, we continue to enjoy a steady increase in our assets under management. Fee-paying AUM were up 9% year-on-year, with fee-paying AUM from third parties up again, double-digit, at plus 12%. Total AUM stand at the end of September at 35.5 billion euros, up 7% year-on-year, with AUM from third party also posting a 12% growth. As you can see, both for total AUM and fee-paying AUM, the balance sheet related AUM are stable to negative, which reflects our own strategy in terms of capital allocation as we highlighted it back in November of last year during our capital market day. Turning to management fees. Total management fees, including balance sheet, were up 9% for the first nine months. Here again, management fees from third parties are up double digit, plus 15%, with similar growth on IMG as in private markets. In line with our strategic plan, as I said, management fees from the balance sheet are down 3% as we are progressively limiting our reinvestments in our funds with the intention to generate excess cap through asset rotation, as we already mentioned. Additionally, because here we're talking about management fees, we generated 12 million of performance fees year to date, of which 3.4 million pertain to third parties. A word on realizations. Asset rotation is accelerating against the backdrop of a yet gradually, only gradually improving M&A market. Realizations were up three times compared to the same period of last year at 2.4 billion at group level. This figure reflects our ability to monetize assets and generate distributions for our clients. As you know, Euraseo fares pretty well relative to peers in terms of DPI as a case in point. Exits have been done in good terms, reflecting the quality of our investment strategies and translated in strong returns for our clients. Deployments also increased, also at a modest pace on the period, and totaled 3.2%. up 5% versus last year. We remain highly selective, but nevertheless see increasingly good opportunities to deploy in our preferred sectors and geographies. Focusing on asset rotation pertaining to the balance sheet, there again you see that the balance sheet rotation year-to-date is strongly up versus the same period of last year, over the nine the last nine months, we've been able to increase significantly our volumes of exits with realized amounts for the balance sheet at five times higher than the same period of last year. Including announced deals, asset rotation already represents 11% of our previous year's portfolio, around twice the level we had last year at the same period. The last example of exit, which is an announced deal, is eye tracing. a cybersecurity company from our lower mid-market fund PME4 through a continuation fund. The sale will generate a 64 million cash upstream for the balance sheet, consistent with a three-times cash-on-cash multiple and a gross IRR of 33%. As previously announced, we've launched several exit processes which are expected to materialize in the coming quarters. Last, Let me comment on the underlying performance of the portfolio companies. You're all aware that under IFRS 10, we don't consolidate the revenues of portfolio companies held by the banner sheet any longer, yet we give you indications of the health of the portfolio on a quarterly basis. This performance reflects still the good quality of this portfolio. In buyout, which represents 60% of our portfolio, at quantum scope, weighted average revenues were up 7%. In growth, that's 22% of our total portfolio value revenues were up 14%, with strong enemies still in SaaS companies and platforms dedicated to circular economy. In real assets, which accounts for 12% of your portfolio value. Revenues were up 21% in real estate, with a particularly strong dynamic in our hospitality segment and a rebound of the real estate development segment. This is an important segment for us. We have a very dedicated positioning as an operational real estate investor. That's why, for us, revenue and EBITDA metrics in that sector matter. We are now available to answer your questions. Thank you very much for your attention.

Thank you, William. As a reminder, if you would like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. We will take our first questions from Nicholas Veselier from BNP Paribas. Your line is open. Please go ahead.

Hi, good morning. Thank you very much for the presentation. I will have three questions, please. The first one on fundraising, I'd like to know what is the pipeline looking like for Q4 in 2025 and if you could provide updates on what's the status for the MLBO fund. You said you had additional fundraising there this quarter, but is the fund closed and how much AUM have you raised there? And also in terms of private equity secondaries and growth, what's the status of fundraising for those two funds? The second question more on the balance sheet monetization and capital structure. Correct me if I'm wrong, but you haven't announced any new exits since the beginning of the summer. You're still talking about a pickup in realizations, but I wonder if you think this year you can reach the you know, 20, 25% realization pace that you typically have during one year. Obviously, it's more something for 2025. And as a result of lower exit pace in the summer, I noticed the net debt increased a bit again on the balance sheet. So I wonder if it's constraining your capacity potentially to do strategic M&A. And last question is more on the NAV dynamics. I know you don't update quarterly, but how do you see value creation going into H2? Would you expect that the contraction in multiples you've seen over the recent years is done? And if that's the case, then should we expect NAV to grow in line with earnings? And also, I have noticed that you don't release EBITDA growth. in your presentation, but if you could comment on how it's evolving, that would be super helpful.

Thank you, Nicolas. Very comprehensive questions. So let's start with fund raising. So we gave you a guidance for the year, which is 4 billion. That means we expect to generate a good billion around a good billion of fundraising for the last quarter. As usual, you will have the contribution from the wealth segment, though it's pretty foreseeable. Remember that we have still on the road at full steam our Private Debt 7 Fund. We have on the road our Secondary Fund 5. fund amongst the flagship and that fund is both funded through LPs but also has attracted significant money from the wealth segment. We are on the road with our newly launched impact fund around the planet boundaries in Mayhaut. We have our biotech fund. As a case in point, this is key contributors for the quarter going forward. And in 2025, some of it will continue to be deployed. We also intend to launch new vintages at some point during 2025. We will comment on that during the annual result together with Christophe, but we are thinking about real assets. Also in buyouts, remember we have no well-deployed overfund falls, so we should, pertaining to the lower end, mid-market segments, so we should come back to the market. So we'll highlight precisely at the end of the year what we have in the pipe for 2025 as usual, but I think for 2024 you have a good view. MLBO is the mid-market fund. So we will announce the final flows in the next weeks for MLBO. And you know that this fundraising is associated with successive closings. So we had a number of closings ever since the first close. We should be... As a whole, for the program, we should be around 3 billion, including balance sheet. So that means you're going to have well north of 1 billion of third-party money. The growth fund, as we said, we don't expect to have fundraising in 2024. Yet, as I think Christophe had commented earlier, During our first half call, we are seeing good traction with LPs, and so this is something that should generate yield fundraising in 2025. We think as early as H1. Balance sheet monetization. You can say it's slow pace relative to the expectation that we come back to a normalized 24%, 25% set rotation per annum. Or you can say, which is what we say, it is a strong pickup. In fact, five times in realization and two-fold realization plus announcement relative to last year, that's pretty strong in the context. I mean, let's take stock of the environment. The environment is improving, probably more gradually than we would have expected, we and the rest of the industry, towards the end of last year. And in fact, the M&A market is not buoyant so far. So you have to be really good at selling good assets that you have on your portfolio to generate this type of asset rotation that we are generating. So just to put things in perspective. But I understand perfectly your question. Of course, to generate the 4 billion excess cap that we've committed to generate over the four-year period of execution of the plan, we would need to come back to a more dynamic asset rotation. In fact, if we stick to the distribution we have committed to shareholders, share buyback and dividend, we are more at 16% needed. So no, we don't expect 25% in 2024. But so far, as I can tell, based on the processes we have in the pipe, we are confident that we should go beyond the 11% that we have at the end of September. That's how I would phrase it. So it's going in the right direction. And obviously, any improvement in the macro and rates environment is helpful. New comment on net debt? No, we don't feel constrained. We are obviously pretty conservative in terms of net debt level at Euro-Zero level. And again, back to the earlier comment we our aim is to generate excess caps not to hold net debt but 17 gearing at a given point in time is still very comfortably implicitly uh qualifying euro as a good credit and it would be qualified as investment grade uh in uh based on you know the key metrics by a potential ratings agency should we have a rating. So that has its own life. So if we complete further transactions in the next quarters, it will go down. So this is more a factor of the sequencing of the sales and per se problem of exit space. Does it constrain Eurasio to do potential M&A? Number one, it would mean... Your question implies that we will announce M&A at some point. We may, but this is not an imminent move. We're observing what's happening in the market with great attention. And it is not a constraint, per se, because we have imposed a financial leeway should we need to finance something. But as you heard from me, this is not an imminent announcement that we are preparing here. NAV dynamics, again, are looking forward questions. Listen, we don't comment on value creation on a quarterly basis. But as we have said, or we've been saying in the first half, what we see now is that we think we've reached a plateau in terms of adjustments on the value creations. As you know, value creation in Dynamics are made of pluses and minuses overall. So we don't give guidance here, but we can give you an indication that we know of you. Gradually, we will resume some value creations in the next quarters. 2024, as we had highlighted, was still a year where we had some adjustments, looking at some multiples that we thought were necessary, but gradually we should see some more positive outlook going forward. Again, I won't commit on anything here. We don't give a guidance on that metric. And last question on EBDA. The reason why we don't give a BDA matrix on a quarterly basis is because we are focused on revenues, both at the asset management level as well as the portfolio level. What I can tell you is that there is some improvement in the drop-through. So in fact, without giving you a number, of course, we will share that for the full year when we publish our final results. We see a more dynamic EBITDA growth than revenue growth on the buyout side. As well as in growth, for a growth equity company, most of them are not yet at breakeven. Some are close to breakeven. So we see a tendency to decrease the cash burn, which can be quite material depending upon the company. pretty encouraging.

All right. Thank you very much and have a good day.

Thank you.

Thank you. We will take our next questions from Isabel Hetrick from Autonomous Research. Your line is open. Please go ahead.

Good morning. Thanks for taking my questions. It's Isabel Hetrick. Hello. Can you hear me?

Very well. And thank you to join the The crew of analysts covering Euro-Zero is up.

Great, thank you. So I just had two questions, please. So the first, understanding M&A is not imminent, but if you could talk around potential areas or capabilities that you would maybe look at acquiring, please. And then the second question is, looks like Donald Trump's going to be elected president. And so have you done any analysis or do you have any thoughts about how potentially, you know, heightened geopolitical tensions, you know, the returns of tariffs potentially extended to European countries as well could impact your portfolio companies in any way? Thank you.

Thank you, Isabel, for these questions. Obviously, wide questions. M&A, as we had commented with Christophe, last year during our capital market day and again more recently during the first half results presentation. We consider that M&A could be useful to accelerate the pace at which we are executing our strategy, yet we don't consider that M&A is absolutely necessary to execute the plan that we've presented to the market. bit of an in-principle comment I'd like to make. So if you take that in-principle comment in consideration, then you end up with, you will do M&A in areas where you are confident that it will accelerate the pace at which you execute your strategy, i.e. scale your funds faster than on an organic basis by way of acquiring good franchises that have a more diversified or differently diversified client base than the one we have. So clearly we would look more at sort of European-centric platforms in terms of investments, although happy to have some of these platforms also invested partly in Asia or in the US, as this is the case for our own platforms. Yet, with an investor base, there would be probably more guilt towards US and Asian investors than our investor base, case in point, because we're pretty strong in Europe and certainly in core Europe. And also, in terms of typology of investors, as you know, for example, quite strong with intros. So ideally, we would look for platforms which are stronger in all the areas. For example, we know that we could make progress with endowments, key inputs. So that's the type of thing. So now you look at the strategies we have, it is clear that we have launched, for example, new strategies in real assets. Could we go faster? by doing some acquisitions there, possibly. But you could go out of the area where we are not yet at a scale that would be comparable to some of the peers with longer vintage, and that could be a case in point. I stopped there because obviously It's always delicate to comment more on that, but you just be confident that we are very focused on the execution of our organic strategy, but also being mindful of the environment. We also spend some time gauging if opportunities that would be value creating for our shareholders may arise. Donald Trump, so as it seems he will win. but I'm not sure I will convey any new news to you. Listen, we are mostly a European investor, and it is true. A lot of our companies export or deliver services beyond Europe, namely Asia and the US. For example, if you take some companies we have in our growth equity funds, a company like FIBA, which is a Spanish-based company working for the entertainment industry in a gross equity fund for. These guys obviously are very geared towards the U.S., given where the entertainment industry is. Two comments I would make. Number one, where we invest in terms of sectors, we're not very exposed to the risk of further tariffs imposed by potential U.S. governments, because we are not very much curious about the sectors that are at the core of the war on tariffs. But obviously we'll have to monitor that. Number two, there could be even, and I'll be saying that very cautiously, there could be even some and by that I don't mean to make any political comments. We are an important investor for European competitiveness. We are an important investor in biotech, in venture, in growth equity. We back in biotech very specific sectors, including healthcare, for example, or specialty finance, for which a Europe that would be more conscious of the need to put more money at work to fasten the closing of the technology gap, to finance research, and also to be a bit less naive in terms of tariffs and non-tariff barriers. thinking about impact, for example, and the energy transition related technologies and services. For Eurazeo, even where we invest, probably not bad in principle. But listen, this is very impressionist as a remark, and it's too early to call.

Great. Thank you very much.

Thank you. As a reminder, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We will take our next questions from Alexander Gerard from CIC. Your line is open. Please go ahead.

Yes, good morning William and good morning to the investor relations team too. Three questions on my side. The first one is regarding your S4E margin in 2024 and generally speaking also on the evolution of the OPEX base. Can you comment on that? Can we see a rising FOMR in 2024? So that's my first question. Second question, are you still committed in delivering a 15% growth rate for your third-party management fees until 2027? And my third question would be a general question regarding IAM Global Partners. Can we have a comment on that? on the performance of your 50% stake in that company, and are you committed in keeping it at that level going forward, I mean 50%. Thank you, William.

Alexandre, thank you for your question, but as the line was not so good, could you repeat the second question, the first on the FRI margin and the third on IM Global and Goddard?

Okay, so the second question was related to the 15% average growth rate for the third party management fees until 2027. Are you still committed in delivering that performance? Is it a base case scenario for you? So how confident are you in delivering that target?

Okay. Well, listen, I'll start with this one. We are reiterating every target that we've delivered to you a year ago. Our Capital Market Day dates back 30th of November, 2023. If anything, our first year of execution is comforting us as related to this perspective that we had shared with you. It is true that, particularly when you talk about management fees, this will not be necessarily linear in the four years because, as you know, it depends upon not only the fundraising you do, but it can also depend upon some step down in certain funds. They would be higher or smaller given the year overall. We are 15% year-to-date, and when we look at the schedule of the fund and our ambitions in terms of fundraising for the years to come, there is no reason for us to change that guidance. For FRA margin, similar to what I said earlier on the EBDA, we don't provide profitability numbers on a quarterly basis. This is a trading update, not a full... plate of results. As you could see in the first half, we have been very disciplined so far in terms of cost management, yet making key investments. Remember, we've hired key senior people on the sales side. We've strengthened our growth teams around our leader, Alaphadel, hires of high-profile MDs, particularly in London. But overall, we've been quite disciplined. What I would say is that for the 2024, from where we sit, we should see some operating leverage in 2024. being mindful of that balance that we're trying to monitor, being disciplined on the one hand, but also funding growth. I mean, this is a growth company that needs to fund its development. I am global partners, so we are very pleased with their positioning. We're very pleased with their growth. Obviously, their growth pattern is more dependent upon market effect than the pure private market part of our business, given the definition of management fees in which they operate. They are able both to grow their AUM at a good pace, and they are able to grow to acquire new partners, which is key to their platform. They also grow by having more partners that they can put on their platform. So, so far, it's a good performance. By definition, over the four years, it will be a tad more volatile than the performance that we have in other components of asset management, given the potential market effects. An important thing about global partners, they are more geared to the U.S. than the rest of Eurasia, which provides us with some diversification because a number of the underlying partners are very good equity slash credit platforms with the U.S. underlying focused approach.

Thank you.

Thank you. It appears we have no further questions on the phone. I will now hand over back to Willem. Please go ahead.

There are no more questions, and we should end this call here. We would like to thank you again for joining us today, and we remain at your disposal for further questions together with Pierre, Agathe, and the team. Thank you very much. Have a good day.

This conference is closed. Thank you for joining today's conference.