Wendel

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Vendor's Q1 2024 Results Conference Call and Webcast. At this time, all participants are in listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. You can also ask your questions on the webcast Olivier Allou, Director of Financial Communications and Data Intelligence, will read them. I must advise you that this conference is recorded today. I would now like to hand the conference over to your speaker, Mr. Jérôme Michel, Vendor Executive Vice President and Director of Vendor Growth. Please go ahead, sir.

Thank you and good afternoon and welcome to this Q1 2024 trading update. I'm very happy to be here today with Olivier Allot and Lucille Roque from our investor relations team to go through the key highlights of this quarter. I'm on page three of the presentation, and I will start with the consolidated sales that we are reporting at 1,848,000,000, which is 11.7% overall in terms of growth. and 6.9% organic growth. So solid quarter for this Q1 2024. The net asset value is also up by roughly 11% since December 31st, 2023 at 178.1 euros per share. As you will see, the increase is fully attributable to the appreciation of the share price of Bureau Veritas by more than 20% since the beginning of the year. We have carried out the deployment of our new strategic orientations with the disposal of 9% of Bureau Veritas share capital that generated around 1.1 billion euros of proceeds to us at a price which is in line with March 31st 24 net asset value and at a tight discount of 3%. We are moving forward with the closing of IK Partners that we expect to finalize in the coming weeks. And lastly, we've carried out our share buyback program with 475,000 shares bought back as of April 2024, which is about 39 million euros within the 100 million euros program that we've announced for share buyback. Let's now turn to the consolidated sales on page 4. As I said, they are up 11.7% overall and 6.9% organically. When you look line by line, I'm sure you will have seen the very good performance of Pure Veritas announced yesterday. Q1 posted 8% organic growth. which is a very good start of the year, especially when you look at the different divisions, with notably consumer products resuming a good level of organic growth, slightly north of 6%, as well as the other divisions that have performed extremely well over the first quarter. Stahl has also had a very positive quarter, at 0.5% organic growth, which is a recovery compared to the last quarter with a volume growth recovery after the second half of 2023, where we have seen some destocking effect. This quarter starts in a positive territory with more than 3% volume growth for the quarter. We are extremely pleased with the integration of ISG, the ICP packaging business, coatings for packaging that we bought from ICP, and this generated a scope effect of 10.9% for STAL during Q1. Scallion, as you might remember, Scallion has a different reporting period than Vandel. And in this chart, in this table, what you see, 137.5 are the sales for the three months ended December 31st. If you were to consider the sales for the first quarter, they came in at 140.6 million euros. That's the small number you see underneath the Scallion line. A total growth of 1.3% and an organic growth of 0.2%. The market is difficult, and Scalion has done better than most of its peers, but as you might be aware, the engineering and IT services market is less favorable during this first quarter, and we are pleased with the performance of Scalion that has also been affected by a seasonal effect, so this 0.2%, as I said, is better than the market, especially when you take into account this seasonality effect. CPI is up 9.7%, strong organic growth, continuing on very good momentum. And lastly, ACAMs at minus 3.5% organically. This is the result of the continuous growth in the core North American banking sector as well as market share gains in Europe that have been offset by delayed agreements with certain large enterprise customers that have shifted to Q2. We are confident that the company will resume growth Well, we typically see it, but this Q1 has been affected by delayed signatures of agreements. So in total, 1.8 billion, 11.7% total growth, and 6.9% organic. External growth at 9.8%, mostly as a result of the integration of ICP and some scope effect at Bureau Veritas, and minus 5%. foreign exchange impact largely as a result of the foreign exchange impact at Bureau Veritas. If we now turn to the net asset value on page 5, 178.1 euros per share. This includes 4.6 billion of listed equity investment. This was before the disposal of 9% of Bureau Veritas that we carried out early April. So if you were to strip that out, you would be looking at 3.5 roughly listed investments. And obviously the cash balance that you see there of 2.3 would have to be increased by 1.1 billion to 3.4 billion. Unlisted assets, 3.3 billion. This takes into account the disposal of Constantia that has been carried out earlier this year. The rest is unchanged versus December pretty much. So in total, 178.1 euros. The discount has slightly contracted at 48% versus around 50% at the end of last year, so still at the high level. When you compare to the December 2023 NAV on page 6, we are showing the components of the growth on this chart. So it mostly results and substantially results from the increase in Bureau Veritas share price, which has been of 23.4% year-to-date. Unlisted assets are pretty much unchanged. with a progression of less than or around one euro per share which is the result of both the change in multiples as you know we calculate NAV at the end of the quarter based on peer multiples and some very slight changes in the re-forecast from our unlisted companies that we have taken into account as well resulting in a NAV per share of 178 euros at the end of March. From a liquidity and net debt standpoint, we are in a very strong position at the end of March with 2.3 billion of cash supplemented by our RCF ungrown of 875 fully ungrown. So the average cost of our debt is pretty low at 2.4%, especially in current markets where interest rates are much higher. Our average maturity is beyond four years, and we have strong ratings with stable outlooks both at Moody's and S&P. Our loan-to-value ratio is at 0.6% at the end of March. Again, this was computed without taking into account the disposal of a 9% stake in Bureau Veritas, nor does it take into account the acquisition of IK that we expect to close in the next weeks, the sponsor money commitments associated with our investment in IK, on the acquisition of IK, and the CPI dividend that we received early April for around $100 million. So if we were to include all of the above, we would be looking at a negative loan-to-value ratio, so minus 5.1%, which means that we are in an excess net cash position based on all of the above, again, and our total liquidity would be of $3.6 billion in total, taking into account the closing of IK, including the sponsor money commitment, the disposal of BV, the CPI dividend, and the remainder of our share buyback program of $100 million, which is around $60 million still to be carried out within this program. So very strong liquidity, long average maturity, and low cost of debt. So in a nutshell, Q1 has been quite dynamic in terms of the performance of our portfolio companies as well as for Vandel. We have energetically deployed our new strategic directions that we have detailed that are invested in late last year. So we are now in a very strong position in terms of liquidity with $3.6 billion invested at the end of March and we have at the end of March adjusted for what I've just mentioned which means that we have the firepower to invest both in permanent capital and to continue building an asset management platform. We are actively looking at opportunities obviously to create more value for our shareholders and in the end sustain double digits a total shareholder return. Thank you very much for your attention, and I will now be very happy to take your questions.

Thank you, sir. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To wait for your question, please press star 11 again. Once again, please press star 11 on your telephone and wait for your name to be announced. If you wish to ask a question via the webcast, please type them in the question box and click submit. We are now going to proceed with our first question. And the questions come from the line of Geoffrey Michellet from UdoBHS. Please ask a question. Your line is opened.

Hi, gentlemen. Thank you for taking my questions. I have two. The first one is, could you elaborate a bit on the rationale of doing a dividend recap on CPI, while you have jointly pro forma 3.6 billion of cash or of liquidity. Second question is on the valuation of unlisted asset. I know that you don't provide granular information, but would you say that it is fair to assume that you have revised slightly up CPI and STAL and slightly down ECAMS and Scallion? Thank you very much.

Thank you for your questions, Geoffroy. So let's start with the first one on CPI. Well, CPI was financed with Unit Ranch debt previously with funds actually providing debt to CPI. And we saw an opportunity to re-leverage as the company had paid down some debt and basically seen a very strong increase in EBITDA. We thought it was a good time to re-leverage and improve the capital structure. We were down to an EBITDA multiple of 3.75 times, which is fairly low. for such a cash-generative business. And as the market reopened for leverage loans, we refinanced in the market at very favorable terms to re-increase leverage close to five times. This has been done very successfully by our teams. This is, I would say, a logical move for CPI to go to those syndicated loans in the leverage finance market as the company has grown in size and moves into this territory. You're right, we already have a lot of cash at the holding level, but this was really an excellent timing to issue in this market and move to a more, I would say, standard LDO financing under very favorable conditions. Regarding the valuation of unlisted assets, you're right, we are not providing any... detailed information to the market on the components of our net asset value. I will just say that there has been very, very many more moves in terms of net asset value at the end of March compared to the end of December when you look at the unlisted assets. We are talking of a 1% change, and really it's the result of very, very small pluses and minuses. So there is not one line, you know, which is increasing significantly. You're really looking at very, very small variations, like plus, minus 1% on each line, and altogether it's a plus 1%. So really nothing there to comment specifically on.

Thank you very much. If I may just catch up on the CPI dividend recap, does that mean that you don't see any M&A opportunities in that field? I mean, historically, it was not really a build-up story, rather an organic story, but it doesn't change, it means.

We do see some opportunities. We have... We have a pipeline, we have looked at a few, and there are some opportunities that are alive within the pipeline. But CPI is a very cash-generative company, fast-growing company with a high level of EBITDA, and most of the targets that we see can be executed under the new financing and the new capital structure. If ever we come across a larger opportunity, I think we would be certainly happy to put equity at work in such a good transaction and in such a good investment. But I don't see that materializing because, as I said, the targets that we are looking at or that CPI is looking at are of such size that they can be acquired by CPI under the capital without requiring any significant need for new equity.

Last one and then I stop. Is the covenant disclosed for CPI? And if yes, at which level?

If it's not disclosed, it's going to be disclosed in our financial statements for the first half or the second half. But there's nothing fancy there. I mean, it's a typical transaction. And we don't have an issue with that. I mean, we have sufficient headroom with regards to Kubernetes. As you know, CPI is highly cash-generative. So given the leverage that... that the company now has post-refinancing, even with that level of debt, we have absolutely no issue with regard to governance.

Okay. That was it for me. Thank you.

Thank you, Jean-François.

Thank you. We are now going to proceed with our next question. And the questions come from the line of Alexandre Girard from CIC. Please ask a question.

Yes, good afternoon, Jerome, Olivier, and Lucille, and thank you for that presentation. Two questions on my side. In the press release, you qualified your portfolio of opportunities as being rich. Can you please comment further on that? Evandel was mentioned in the press recently as being potentially interested in the French fintech company Harvest. Can you confirm that? And also, still on the investment side, would you be ready to consider opportunities sold by IK partners? For example, ARS was sold by IK this week to Eurozeo. Is this something that you studied? And theoretically speaking, would you be ready to buy companies which are being disposed by IK? And second question is on the financial communication side. It seems that many of your competitors are moving and changing their reporting standards, adopting the IFRS 10 accounting standards. Would you be ready to do that? Don't you think that this might help also to read your numbers? And we saw also a few weeks ago XR in Italy, which has more or less the same portfolio structure as yours, doing that. So would you be ready to do that? Thank you.

Thank you, Alexandre. Very good questions. On the pipeline, yes, we are active as always. So we have a good list of opportunities that are attractive and that our teams and we are actively working on these. I'm not going to comment specifically the name you mentioned because this is our policy basically not to comment. any rumors from the press, but yes, we are active. As outlined by the executive board at the investor day, we intend to further invest in the permanent capital, and given the level of liquidity that we have, we are actively looking at new investments, both on the permanent capital side and on the asset management side, to grow our platform there. Would we be ready to consider opportunities coming out of IK? I think it would be a bit awkward to be the controlling shareholder of IK whilst buying businesses from them at the same time. We are interested in the general sector of... of independent financial advisors and globally financial services, which is the sector of RS that you mentioned. But specifically, we did not work actively on RS. It's a very good exit for IK, and we are very happy, obviously, about this. We're not pursuing actively opportunities that should come out of IK partners. Regarding your question on IFRS 10, it's not an option which is open to us at the moment. But you're right in saying that it's increasingly popular within the investment holdings. I think that... It can give a better visibility on the financial statements when you have a sizeable asset management business because obviously aggregating the financial statements of Bureau Veritas with a significant asset management business will certainly raise questions at some point someday. there yet, so we will be looking into it in due time. I think at this moment it's not open for us. I've seen, just like you, that EXOR has communicated about this, so people are moving towards this exemption from consolidation, but it's not open to us. I'm sure we'll consider it down the road whenever it becomes open.

All right, thank you.

Thank you. Thank you, Alexandre.

We are now going to proceed with our next question. And the questions come from the line of Greg Warhermann from Berenberg. Please ask a question.

Hello, everyone. Thanks for taking my question. I have three, please. The first one would be on the cash. I think you're now piling quite some substantial cash at the holding level. was just wondering where is it sitting at the moment are you just keeping it in your bank account or using like very short maturity notes I know it's meant to be deployed but for the moment it's sitting on your bank account and for at least the start of the year so this could mean substantial interest income here and if this would be the case would you consider it redistributing it to shareholders or actually you would consider just it's as deeper pockets for more expenses and the second question I would have is actually kind of a read across with the CVC IPO today I think we're seeing them trading at quite some high level in terms of fee related earnings just wondering here when we look at the acquisition price of IK partners how do you feel about that it looks like you had IK partners at a very a decent price. Obviously the two companies are not really comparable but are you confident that you can still target this kind of prices for the next acquisition that you are planning to make? Thank you.

Thank you. So on the cash, yes we have a lot of cash at the moment but we are actively managing it. it's not sitting on on our bank accounts it's actively managed and we are receiving interest on the on this cash or making a return on this cash through investment in very very low risk securities with with liquidity We might, in some instances, be ready to surrender a bit of return if we draw short term. So we have some securities that bear interest at 4% or even slightly more than 4% over six months. If you repurchase them, then you get a lower return. So provided we keep invested for six months, we might, for some investments, receive 4% return without any significant risk. So this is what we are talking about. Not all our cash can be invested under such conditions, but until now we've done pretty well thanks to our treasury team. And our CFO has been very active in terms of managing this cash. We don't intend to redistribute cash more than the dividend that we have increased by more than 20% this year already. So this is a significant increase, which is the result of our ambition to develop an asset management platform which will result in a higher dividend now that we are determining the dividend pay as a percentage of net asset value and that we intend to increase that from 2.5% roughly to 3.5% in the future. So we are already talking of a good level of distribution. supplemented by share buybacks and we've always said that we'd be opportunistic in terms of share buyback. We've announced a 100 million euros program that has been completed for about 40 million today so 60 million remaining and once we will have completed this program we might again launch a new program depending on market conditions and on priorities that we see but I think our number one priority is to invest in attractive companies for the permanent capital, as well as growing our asset management business towards the objective of $450 million full-fee retail earnings in 2027, and that's what we are doing every day, and it's about finding attractive opportunities and getting them at the right price. How do we feel about the acquisition of IK Partners? We feel very good about it, especially as the business is developing very well in terms of fundraising as well as in terms of performance. As Alexandre mentioned it, ERES was, for instance, an excellent exit, but before that we also had some very good news at IK Partners. We are very impressed and very happy for the CVC IPO, which demonstrates that public shareholders are very keen on the good performing asset managers. CVC is certainly one of the best in Europe. So it's all very positive for the sector that this IPO is going well, and especially in the aftermarket. what are the implications for us in terms of our asset management strategy. I think our strategy is unchanged. It's still about building a sizable platform. And we hope to come back to you in the following quarters with news on this strategy as well as on the permanent capital side.

Very clear. Thank you. Thank you.

Thank you. We are now going to take our next question. And the questions come from the line of Honor Paglias from CIC Market Solutions. Please ask your question.

Yes, good afternoon. Thank you for taking my question. I have two questions. The first one is on Stahl. I would like to know what is your current view on this asset? following the build-up you made with the acquisition of ICP. Do you expect additional build-up opportunities for STAHL? Or is it an asset on which you consider today that the maximum in terms of scaling up this company has been done? And the second question is, I'm going back to the CVC IPO. In your strategy to build up a larger asset management platform, can we expect some acquisition of a listed private asset manager? Is it something you're looking at or you are only looking at companies that are still private?

Thank you, Arnaud. So on your first question, Yes, we are looking at additional bid-bets opportunities. As I said, we are extremely pleased with ICP in terms of positioning STAL towards the coatings business and in terms of synergies as well. It has gone extremely well since the acquisition about a year ago. It further expands the exposure to an interesting part of the business, and we are actively looking at other opportunities to further expand Stiles' exposure to higher growth types of businesses, provided that they generate the same type of profitability than the rest of the group, and there are some opportunities out there that qualify. So we are... We are supporting that and management is working on that. We are not of the opinion that we've reached a max. We think there is more to come in terms of expanding STAL. Regarding the potential acquisition of a listed business, never say never, but the Until now, the pipeline is more for private targets. There are some asset managers that are listed, you're right, and we might look at them. But until now, we have rather focused on unlisted opportunities. But let's see. Let's see if we can materialize a few of them in the next year.

Thank you. Just to be a bit more precise, you don't expect to just purchase minority stakes in listed private asset managers?

No. No, our strategy is to have control in asset management. So it would make no sense for us to buy a minority stake in a listed asset manager. We are really looking at developing an asset management platform for private markets and having control is very important for this strategy.

Thank you. Thank you.

Thank you.

We have no further questions at this time on the phone. I'll hand back to you for a webcast question.

Yes, we have a question coming from the web, Olivier.

Yes, we have a question from Alexandre Cazas. Does the sale of Ares... by IK Partners at quite a good price, will change anything to the valuation of the IK Partners acquisition for you?

No, although it's good for the business of IK, but it doesn't change the valuation parameters of the closing.

Okay, a question from, three questions from Samantha Grohl. Some of them were already asked. But Samar wants more details. One question about portfolio valuation within unlisted assets, which grew only modestly while there was a rebound in broader market valuations during the quarter. Was the total unlisted valuation overall impacted by any particular asset, or is it a function of sectoral positioning?

So there was no particular impact by one asset. And within the total, it's pretty evenly spread in terms of pluses and minuses. As I said, yes, we've seen some positive multiple effects here and there, although it depends on the company's end, some slight changes in terms of reforecast. Altogether, And if you add up some foreign exchange impact on our investment in the U.S. and other small items, that's what results in the 1% change that we're seeing. But within that, again, there is no particular impact that I would highlight because we are really talking minor, minor changes making up this 1% change.

Thank you. Question about related to the liquidity. How does your current principle investment pipeline looks like? What are the near-term plans of capital deployment into third-party asset management business? And three, is it also feasible to expect a stronger buyback program given the very strong cash position and the wide and easy discounts?

Thank you. While the pipeline looks healthy and busy, both on the permanent capital side and on the asset management side, we internally refer as Q2 being the deal season pretty much in the investment world of the PE. So we have active opportunities right now. Our teams are very, very busy currently. We'll see if we prevail and manage to buy the targets that we are looking at. We have ample liquidity, as you said, to execute. Will we improve or increase buybacks as well? Well, we have this $100 million program outstanding that we are making progress on, and we always say we will stay opportunistic and decide once it's completed whether we do another one. But we see effective opportunities and I think it's about repositioning Vandel with new investments on the permanent capital side and growing the asset management business. These are really the two priorities. I think buyback comes as a distant third behind those two very important priorities of our strategy.

Thank you. We have a question from Saima Hussein from Alphal Value. It's about the sale of 9% of Bureau Veritas. So Bureau Veritas remains the main driver of your operating performance and your dividend income. When do you think that IK partners will make full contribution to your dividend income? And when you say pro forma of IK Partners acquisition in your LTV calculation, are you referring to $383 million or $255 million? If I've understood correctly, IK Partners is just the first step in building your asset management business. What would be your asset under management target?

Lots of questions. Thank you. So in terms of magnitude post the disposal of 9%, we are looking at a net asset value at Bureau Veritas of 3.3 billion. The acquisition of IK is going to represent 383 million for the 51% that we are acquiring. to be increased by the sponsor money commitment that we will have in the funds of IK. At this point, we estimate that we should be around 300 at closing. So IK is going to be 383 plus 300 or about, so shy of 700 million. Bureau Veritas is going to continue to grow As you know, the company has unveiled the LEAP 28 plan at their capitals market day, which calls for an improved organic growth profile, an improvement of profitability, a more active M&A policy. So we expect Bureau Veritat to continue to grow from this $3.3 billion today. And we expect to deploy capital in IK as well as a... sponsor of their funds and at some point we will have the option the possibility to acquire the remaining 49% of the share capital but I think it will take more IKs before we reach 3 billion but that's what our teams are working on to expand our asset management business organically Obviously through IK, through the increase in valuation of the GDP as well as the performance and the funds that we will deploy in the funds as a sponsor. And then the acquisitions that will come will help us reach the 150 million FRE that we are targeting for 2027. I think it's not the right time to compare Bureaucratas with IK or to permanent capital with asset management as it is only at the beginning, but we are very pleased by the beginning. IK is a wonderful company and we are very happy to to be able to become the controlling shareholder of IK and to support such a good team and such a good track record.

Thank you. We have additional questions from Saima Hussein. As usual after this quarter, what do you think of the current environment for private equity? Do you think that IK partners will be able to do as good a deal as they did for And what are your cash inflow targets for IK partners for 2024, 2025 and 2026?

Thank you. Very detailed question again. Well, I think private equity is an asset class that is growing more and more capital, that has been growing more and more capital over the past years. It is still a very attractive category when it comes to investing, as demonstrated by the performance of IK and other asset managers. Some of you were talking of CVC, so we now have public information on the performance of this asset class, which has been very good and remains very good. There is some liquidity, as demonstrated by IK. They've been able to sell under very favorable terms quite a long list of businesses over the past 18 months which is why they are successful in raising new funds. So we expect that to continue and the market is also helped by the reopening of the leverage market as we have seen in the US with CPI and we have seen that as well in Europe with already a handful of transactions having reopened the leverage market. So there is liquidity, there are some funds to be invested, and the performance is very good. So we are confident that this pattern will continue and the trend will continue. In terms of our expectations for the cash flow of IK, We are not entering into those details, but we will report on IK once the closing will have been done on a quarterly basis, and you will get some information there on IK.

Thank you. We have no more questions on the web or iPhone, so I think you can conclude.

Thank you. Thank you very much. So thank you for having attended this call. The next... event will be the AGM for us on May 16th and then the H1 results on July 31st. Thank you very much for your attention and have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.