Antin Infrastructure Partners S.A. (ANTIN) Earnings Call Transcript & Summary

Good morning, welcome to Antin's Full year 2022 Result Presentation. On the video call this morning, you have Alain Rauscher, Chairman and CEO; Mélanie Biessy, Senior Partner and COO; and I'm Patrice Schuetz, partner and CFO. We'll start by sharing an update on our business activity. And I will then move on to talk about our 2022 results and our outlook. As always, we conclude the video call with an opportunity for you to ask questions. With that, I hand over to Alain.

Thank you, Patrice. Good morning, everybody. I'm going to spend some time sharing with you the key highlights of 2022 on 5 main points. The evolution of our assets under management base, the amount of capital we have raised in this -- in 2022 and the number of investments we have done in '22. Our investment performance fund by fund, our growth in investing in the team and members and in our platform and the [indiscernible] financial performance and outlook. The first point is that in 2022, we have experienced very strong assets under management growth which has been powered by investment performance and differentiated positioning. The first point worth mentioning is that infrastructure happens to be in a fast-growing market. We expect that the asset class is going to grow at a CAGR of 16.6% on the period between 2021 through 2026, which is much faster growth base than the one you could expect to see in other product markets segments. The second important feature is that we have a scaled investment platform. We are the largest pure-play infrastructure private equity firm in Europe, and we are among the 10 in the world globally. The third element is that we enjoy top-tier investment returns. We have achieved 2.7x money multiple on realized assets and a 23% realized growth IRR. So this allows us to experience a very strong growth in our assets under management base of 38.4% for the fee prepaying assets under management and at large of 34.9% for our global assets under management. The second important point to raise is that we have managed to raise a lot of money in 2022 and also make a very large number of investment. By far, 2022 is the largest year for us for Antin's story with EUR 8.2 billion raised compared to 2021 where we raised EUR 2.5 billion. You all know that this was an extremely challenging times, marked for most of the year by the Ukrainian-Russian conflict, which had a very negative impact in many of fundraisings in the product markets industry, but nevertheless, we managed to prevail. And to give a bit more color as to this fundraising results, we have achieved to raise 75% of our target sites for the flagship fund of EUR 10 billion, and we have managed to raise 80% of the target size for the next-generation Fund 1. So it gives you an idea, we are way, way advanced, thanks to an extremely active fundraising activity during extremely challenging times. Second important point is that we have made a record year in terms of number of investments. We have made 8 new investments, 2 for the flagship strategy; 3 for the mid-cap strategy and 3 for the next-generation strategy. And in terms of amount invested, we have deployed EUR 2.7 billion of equity in new investments to be compared with EUR 1.7 billion in 2021. All this, I'll remind you, in extremely challenging times. And we also managed to make 2 significant exits for a combined amount of EUR 2.2 billion in 2022 compared to EUR 1.3 billion in 2021, one being Roche in the U.K. and the other one being the sale of Lyntia network, which is the bulk of Lyntia in Spain. So 2022 was a very special year for Antin, the largest -- it was a year when we raised the largest amount of capital ever in a single year. You can see how 2022 compares to 2019, '20, '21. And what I think is beyond the numbers of EUR 8.2 billion is interesting to note is that -- we managed to basically raise EUR 5.6 billion with existing investors, but on top of that, EUR 2.6 billion with new investors, which basically not only reflects the solidity of our ties with existing LPs but also our attractiveness to new investors. We made a first close on the flagship fund V this fall for a commitment of more than EUR 5 billion. Another important thing to note is that we have expanded significantly our fund investor base. The number of investors in our funds is going to 268 LPs at the end of 2022 from 213 at the end of -- for the year 2021. So it's an increase of number of investors of 26%. And this, of course, paved the way for further expansion of our asset base and amount of capital that we can raise. We have continued to globalize our fund investor base, and 2 figures illustrate that. The first one is that the capital raised in the Americas, and it's mostly in the U.S. and in Canada, has gone up 3.6x from 20 -- 3.6x historically, and we are now have EUR 1.5 billion of North American investors in flagship Fund V from -- up from EUR 1.1 billion in flagship Fund IV and EUR 0.4 billion from flagship III. And those figures are not final at all as we are continuing to raise money in America in particular. And we will give you an update in a month from now about which will show a much significantly higher number from that geography. In Asia also, we enjoy a very, very strong growth in capital raised. This has been multiplied by 5.6x from the Flagship Fund III to EUR 2.3 billion. So we have a very solid beyond France and which is a small portion of our asset of our capital base but mostly Europe. We have some very strong, I would say, pools of capital coming from the Americas and from Asia. Another important thing to note is that we have been kept able to capitalize on existing relationships given our 3 strategies, which are flagship, mid-cap and next generation. And 40% of fund investors invested in multiple funds, which we think is a very, very important feature and very promising for the future. The performance of all funds have improved in 2022. And I think this is also quite remarkable given the difficult market conditions, and particularly on the debt funding market. All funds are performing on plan or ahead of plan. Fund II Vintage, which is a vintage of 2013, is now realized as of 91%, we are 1 deal away from closing this fund. And as you can see to date, we have made money multiple, which is cash money multiple of 2.6x, very consistent with the performance of the previous Fund I. We have one more investment to go, and we expect that this realization will happen in the not so distant future. On Fund III, which is a 2016 vintage, we have only realized 23% of the portfolio to date. And we have, nevertheless, 1.8x money multiple, which, again, I insist does not compare on a for a cash or cash business. It's money multiple, which is based on NAV, net asset valuations, which assumes we sell the whole -- the entirety of the remaining portfolio tomorrow morning, which, of course, we will not do. This is a strong performance, which we think is totally consistent with Fund I and Fund II that you see on the side because we will, of course, sell this portfolio gradually over, say, a 3- to 5-year period and achieve the same kind of cash for cash money multiples. Fund III, which is a 2020 vintage follows the same path and Fund IV, which is a 2019 vintage, of course, is a more recent one. There has been no realizations and no disposals to date, but we believe that this will also be an extremely profitable vintage comparable to Fund I and Fund II. So we have built -- we have some very strong built-in resilience of our performance of the fund manager, and just a few metrics for your attention. The first one at the top of our portfolio is very diversified by geographies and sectors. If you look at the sectors, you will observe that digital accounts for about 40% and energy for 34% and environment for 34%, with social representing 16% only and transportation 10%, so diversified by with 2 big, I would say, more active sectors. And this is very important for us because we try to benefit from the best opportunities and the most profitable opportunities of investment when we can. And having 4 sectors allows us to have some flexibility to allocate capital on the most promising and profitable projects. By geographies, you'll see also that we offer some very good diversification. America is performing extremely well. We deployed about 30% of our capital in this geography, which is, as you know, an important geography. So they are really performing in line with our ambition. And for the rest, in Europe, we are, I would say, very diversified with France accounting for 13%; U.K. for 20%; Italy for 9%; and Iberia, Spain and Portugal for 16%; and the rest of Europe for 12%. Something very important. People often ask us about the underlying performance of our portfolio companies. Our portfolio companies are very resilient. They have experienced growth of revenues in 2022 of 27% and an EBITDA growth of 23%. So we are not talking -- or investing in, I would say, mature businesses, dogs, which don't show growth. On the contrary, they are very, very focused on delivering growth, profitable growth. And there are 2 additional factors of resilience for Antin's portfolio companies. The first one is that more than 90% of our postal companies benefit from strong inflation protection. So if we do not suffer from a growing cost base, because we can, through our contracts pass-through those cost base -- those cost elements to our, I would say, to our clients. And the second thing is that we have an extremely cautious debt management policy. More than 90% of our debt expires in 2025 and beyond, which means that we have the ability to navigate higher interest rates which are, I would say, very , which is a very favorable in this amazing, I would say, surprising environment. So this -- the 3 elements, diversification of portfolio by countries and geographies, strong financial performance of our underlying companies and the protection we have against inflation and debt refinancing, I think, are unique features. And now I will hand over to Mélanie, who will talk about our platform and our sustainability track record.

Thank you, Alain. Good morning. Indeed, because of the strong growth that we've experienced that is in front of us as well. We continue to build out the team and invest in our platform. Looking at the numbers, at the end of 2022, we have 200 investment professionals at Antin. Out of the 200, 174 are impacting the P&L of the firm. The others are part of the fund administration team. We've added 32 new employees in 2022, 23 in the first half and 9 in the second half. We are pacing our hiring because we want to make sure we leave time for integration, which is extremely important to preserve our unique culture. We've hired across all functions, 11 investment professionals in total, mostly at the junior level because we want to integrate them and make them grow up until the partner's position. It's our philosophy to hire at associate level and to grow talent internally. We did also appoint 2 new partners for the investment team, one for the next-gen U.S. efforts and one for the flagship mid-cap in Europe. Two investor relations professionals as well to beef up our investor relations team, which is already extremely well resourced with more than 22 people. 19 employees have been also recruited in operations, support functions to reinforce our ESG setup, technology teams, but also to reinforce our finance team and those hires were related to the IPO that happened early in 2021. We've also reinforced our setup in the U.S., as Alain was saying, there's huge growth in the U.S. And therefore, the employee base in New York grew by 30 persons to 43 employees. We also launched technology projects to increase the efficiency of our back and mid office, which will be extremely important and will significantly enhance the scalability of our operating platform. As I will mention to you right away, we've made huge progress on the ESG road map and therefore, have also invested in new resources for the ESG team. Let's move on to the sustainability highlights. 2022 was another very positive year on the sustainability front. This has been marked by significant progress made in key ESG areas. We've identified 5 material ESG matters after having gone through a materiality assessment, and I will comment on those key areas. And we've also had outstanding scores received from external rating agencies. Let's start with climate change. This remains at the top of our sustainability agenda and to align our climate change mitigation efforts with the objectives of the Paris agreement. We've started working on the deployment of science-based carbon reduction targets. Those targets will be shared with you later this year. We've also continued actively engaging with all our portfolio companies to help them decarbonize our operations. And as of end of 2022, all companies that have been with us for more than a year had measured their carbon footprint and half of them had set or were in the process of setting carbon reduction targets. We also performed a high-level assessment of our portfolio climate risk exposure to identify our portfolio companies likely to be most at risk from climate change impacts. And that we should engage with in priority going forward to develop a climate risk response plan. On the social front, we maintained our strong focus on diversity during recruitment and continued taking action to promote diversity, equity and inclusion in our workplace. For instance, providing DEI training to all our employees. We are also very happy to report that our efforts paid off with the share of women in our total workforce, increasing by 4% and from 42% to 46% between '21 and '22. We also reinforced our career development program with the implementation of new employee training courses and the 360-degree performance appraisal system. We maintained furthermore, robust employee health, safety, well-being policies, which allowed us to record a pretty low absenteeism rate of 2%, and this has been the record percentage for the second consecutive year at Antin. To deliver on our commitment to act as good corporate citizen, we maintained our existing academic partnerships in Europe with [indiscernible], Bocconi University, but we also established new ones, one in the U.S. with Cornell University, and more recently one in the U.K. with the London School of Economics. We've also supported 8 charities through corporate donations, but also multiple fundraising activities across our different offices. We remained also actively involved in various industry groups promoting responsible investment practices within the financial sector. It includes the UNPRI endorsed international climate initiative and also invest Europe's responsible investment from Temo. In the area of ethics and governance, we maintained an effective board. Our Board is comprising a majority of independent directors. And we have continued building a positive, trusted working relationship with all our board members. We've held 17 board and specialized committees meetings over the year. We also -- and that's really important to note, continued rolling out our compliance program, which has been recognized as best-in-class by most rating agencies. To ensure the effective implementation of our responsible investment process across all our funds and portfolio companies, we offered a responsible investment training course to all our Antin investment professionals and implemented a new responsible investment protocol with the aim of defining actions that must take throughout -- that people must take through the investment cycle to make sure that we properly incorporate ESG risks and opportunity. Last comment that I would like to make is on sustainability ratings. We are delighted to report our sustainability efforts were recognized by multiple rating agencies. We've been placed within the top highest performing companies in our sector by Sustainalytics and more recently by Moody's and by the UNPRI, which we have been a signatory of since the early days of Antin. On that note, I will leave the floor to Patrice to cover the financial performance.

Thank you, Mélanie. I will talk about our financial performance for 2022. And I'm pleased to report that we have made significant progress during the year. As Alain mentioned, we've substantially grown our assets under management by 35% and our fee-paying AUM by 38% to EUR 19.1 billion on a fee-paying AUM basis and more than EUR 30 billion on a total AUM basis. What was really important to mention about those fee-paying AUM is that 43% are contracted for 10 years plus options for extensions. And when you look at our average life of those total EUR 19.1 billion in fee-paying AUM. We're standing at about 7 years. So what this really gives you is a very predictable long-term contract or management fee stream that provides very strong visibility on our P&L for the years to come. If we move to the right-hand side of the page, you'll see that we've grown our management fees by 22.5%. And we've grown our total revenues by 18.6%, reaching a total revenue of EUR 214 million in 2022. 98% of our total revenue are management fee revenues, and our effective management fee rate has decreased slightly from 1.38% to 1.35%. And that's really an effect of a larger number of investors coming in Fund V with sizable ticket sizes and therefore, benefiting from a very slight fee discount. But overall, we would say that we expect effective management fee rates to remain largely stable. Looking at the different components of our revenue composition and the bridge from 2021 to 2022. For flagship, we've increased revenue on a net basis by EUR 15.4 million. EUR 42.9 million is an increase that relates to Fund V, which is really 5 months of management fees on the basis of the EUR 7.4 billion commitments that we've secured for flagship Fund V. Now it's important to note that if you were to look those numbers on a 12 months basis, we would run at more than EUR 100 million in revenues related to Fund V, which is already secured and contracted today. So another EUR 60 million that's going to come through in 2023 that's already contracted. And obviously, beyond that, because we expect to continue to raise significant amounts of capital. Those EUR 42.9 million have been offset by step-down effects related to flagship Fund IV, which moved from the investment period to the post-investment period in August of 2022. That means fees are being charged on the basis of invested capital rather than on the basis of the committed capital. And then in addition to that, you've seen slight declines in management fees for Fund II and Fund III due to the realization of investments. for Mid Cap Fund I, we've seen management fee revenues increased by EUR 8.1 million. That's because MidCap Fund I has generated management fees for 12 months for the first time. And for NextGen, we've seen management fees increase by EUR 15 million. on the basis of the EUR 1 billion in commitments that have been secured at the end of the year. The effect on carried interest and investment income has been slightly negative relative to 2021 and -- that's really because of 2 reasons. The first reason is that we've grown our valuations for Fund III at a slightly lower pace than we have grown them in 2021, which is really just a reflection of the market environment that we've seen in 2022. So still positive performance for the year, but growing at a slightly lower pace. And the second effect is that for flagship Fund V and for NextGen fund, we're seeing ordinary J curve effects related to the majority of those funds. So essentially, in the first year, we're accruing management fee expenses and costs in those funds while no revaluation of the portfolio companies has taken place. And the last effect is that we see small changes in our admin fees, which relate to fund administration services that are provided by the group in Luxembourg. So overall, 18 point -- roughly 18.5% increase to EUR 214 million. If we look at our cost base, we've increased our personnel expenses by 27.7% to EUR 64.5 million. And as Mélanie already explained, a majority of that increase is really driven by the hiring activity and the increases in headcount, which have grown by 22.5% during the year. The balance relates to wage increases, which we can really split into 2 parts. We have wage increases that relate to promotions and about 3% wage increases in 2022, which a majority of our employees have been given in connection with inflation and sort of ordinary salary increases during the year. Now a note for 2023, those salary increases will be more in the range of about 5% plus promotions coming on top. And because in 2023, we've promoted 7 individuals to partners. The amounts may be slightly higher than what you've been seeing in 2022. Moving to the right-hand side of that page. We've grown our other operating expenses by a headline number of 43.6% to EUR 31.2 million. Now that amount is not really reflective of how we've managed the underlying cost base because our other operating expenses are affected by a number of periodic effects that make the numbers not directly comparable to 2021. So I will walk you through those periodic effects. The first one is that we've recognized EUR 2.1 million related to placement fees, which occur in connection with fundraisings, meaning when we're raising a fund, we will recognize placement fees in our cost base -- and in a year when we're not raising a fund, we wouldn't recognize those placement fees. So 2021 had very marginal amounts, whereas 2022 recognized EUR 2.1 million. We've also recognized EUR 0.7 million in temporary office rent in 2022. And on top of that, we've seen a return of business travel coming from environment in 2021 where COVID restrictions have essentially led to abnormally low travel expenses in 2021. So if you strip out those periodic effects and also strip out the effects of business travel, we've grown our cost base by about 18.5%. And I think the important thing to note is we've managed our cost base in a prudent manner and are demonstrating good cost control on that basis. Moving to our underlying EBITDA. We've increased EBITDA by 9.3% and to EUR 118.5 million. That's really an effect of the revenue and cost effects that I have just described. We've increased our margin, our EBITDA margin stood at 55%, with significant improvement seen during the year. We've recognized 50% margins in the first half of the year, 60% in the second half of the year. And even within the second half of the year, we've seen significant improvements between the third and the fourth quarter of the year. And obviously, as we continue to add commitments to Fund V and grow the revenue base, those margins are expected to improve further. Moving to the right-hand side, we've increased our underlying net income by 7% to EUR 79.7 million, resulting in earnings per share of EUR 0.46 per share. So those are robust improvements in our P&L. The real step change is obviously expected to come in 2023, when we'll see the first year with Fund V reflected in the earnings capacity of the business. I'll talk about our balance sheet because we have an exceptionally strong balance sheet with $422 million in cash and cash equivalents and no financial debt. That means the cash that we're holding today accounts for almost 15% of our market cap today, providing significant value opportunity once we deploy that into earning generating business opportunities. All of our cash holdings were held with globally systemically important banks, meaning we don't have any exposure to the banking sector turmoil that you're seeing no direct exposure to the banking sector turmoil that you're seeing. And a portion of that cash has now been invested in term deposits to essentially produce some positive earnings in 2022. You've seen some of those effects in the second half of 2022 already, but it's obviously going to be higher in 2023. Our objective is to invest those funds over time. And we should really break that out into 2 parts. The first part is that we will invest alongside our fund investors through co-investments and through the investments in the carry vehicles. We have about EUR 107 million in commitments that are undrawn for investments into the Antin funds and about EUR 20 million in commitments that are undrawn into the carry vehicles, meaning EUR 126 million overall is going to be earmarked for co-investments alongside our fund investors. That still leaves us with close to EUR 300 million to support our growth initiatives. And for those growth initiatives, we will be looking at geographic expansion opportunities as we've done it in the U.S. in the past; strategy expansion as we've done it with NextGen; and very opportunistically, we will also consider M&A opportunities. In light of our very strong cash position, we've decided to dividend out a majority of our underlying earnings in 2022 or related to the earnings for 2022, we're going to pay out 92% of our earnings, which equates to a dividend payment of EUR 0.40 -- EUR 0.42 per share, EUR 0.14 per share has already been paid as an interim dividend in November of 2022 and EUR 0.28 per share would be following in June 2023, subject to shareholder approval at the AGM. So the total dividend payment will be EUR 73.3 million. And I think the distribution underpins the attractiveness of our business model, which is a highly cash flow generative business model with very limited amount of capital required to support our strong growth. With respect to the outlook, we continue to expect long-term growth in fee-paying AUM that is well above that of the infrastructure market. Alain alluded to market growth rates of around 16%. We are confident in our ability to grow faster than those market growth rates. Specifically with respect to flagship Fund V, we feel confident in our ability to achieve the hard cap of EUR 12 billion. And with respect to next-gen Fund I, we feel confident in our ability to reach the target size. What's less certain in today's market environment is the pace of fundraising. Whether we achieve the EUR 12 billion in 2023 or whether some of this is going to move into 2024 is difficult to predict at this point, which is why we've also changed slightly our guidance on the EBITDA. Our expectation for EBITDA is that we will significantly increase the underlying EBITDA in 2023 and achieve a level on an underlying basis of EUR 200 million to EUR 240 million. And you see the range is wide, but it's really driven by whether we achieve EUR 10 billion of commitments for Fund V or EUR 12 billion. At EUR 10 billion, the EBITDA will be around EUR 200 million, so 70% growth relative to 2022. And at EUR 12 billion, it would be about EUR 240 million, so approximately a doubling of the EBITDA in 2023. Now just as a reminder, any commitments that we raised in 2024 instead of 2023 will be subject to catch-up fees, meaning we're not foregoing any profit. We're just delaying profit from 1 year to the other because fees are due from the moment of first close of the fund and technically, that first close happened the second of August of 2022. With respect to distributions. We expect to pay a majority of our cash profits as a dividend and that guidance and objective is really unchanged. We expect to pay the dividend in 2 installments, and we expect to see dividends that are going to grow on an annual basis in the future. With that, I would hand over to Alain for some concluding remarks.

Thank you, Patrice. If I sit back and look at the last decade, what I see strikingly is that it's growth powered by performance. In our flagship funds, we have made 31 investments, of which 15 have been exited, which is a remarkable number, by the way. And on those realized assets, we have made a 2.7x money multiple, and a 23% gross IRR, which also illustrates, I would say, the merits and the successes of our value-add strategy. Our -- when I mentioned growth powered by performance. It translates into fee paying AUM, which have grown at a CAGR of 33% since -- over the last 10 years since 2012. Revenues have gone up at a CAGR of 29.2%, and underlying EBITDA has gone up at a CAGR of 38.2%. So this is I think, very, very strong numbers of performance and of growth, which pave the way for further, I would say, successes. And with this, we are very happy to listen to your questions.

[Operator Instructions] And our first question comes from Nicholas Herman from Citi.

Yes. Three from me, please. One on fundraising, one on the EBITDA guidance and one on costs. So on fundraising, you've pushed out the expected time to completing Fund V fundraise. I guess just why now? I guess it's been pretty clear for a while that 2023 would be a tougher year for fundraising for the industry. So just curious what has changed? On the EBITDA guidance, you previously talked about hitting the 70% in '23 or '24. You've now changed that. Just to be clear, though, does the guidance change reflect the more uncertain pace of fundraising? Or is it higher cost inflation, presumably the latter because you would get catch-up fees regardless? And as part of that, presumably you would expect to be a 70% plus margin after flagship Fund VI whenever that might be? And then finally, just on costs. you've attributed the slower piece of hiring to a desire to preserve culture, but it does look like you've slowed the pace of growth versus prior expectations. So is this just the postponing of hiring rather than an absolute reduction in plans and what are your highest growth priority growth areas for '23 and '24? And can you talk about hiring plans for 2023 and over the medium term, please?

Thank you, Nicholas. Maybe I can try to [indiscernible] pointers on the first 2 questions. On the fundraise pace. I think, first of all, you have to bear in mind that out of a EUR 10 billion target, we have raised EUR 7.5 billion. So 75% of that, which is I hope you appreciate that, a huge result. And I will repeat it. It's huge result. Most of that has been basically raised in, I would say, adverse conditions. And typically, since the Russian and Ukrainian war. So this -- I think you want to appreciate. If you look at our industry at large in the product markets, you will find that very, very few people have achieved this kind of fundraising or above. The second one is that -- and I know it's difficult for you because you are thinking about updating your figures year-by-year, if not quarter by quarter. And clearly, what is very important for your appreciation. And I know this is not the way you write things, but I will nevertheless reiterate it is -- where do we think we shall land in terms of fund size. And what we are telling you is that we confirm the target, the objective of raising EUR 12 billion. Now you may have a bit less fundraised and EBITDA, I would say, less management fees and therefore, EBITDA for 2023, if we raise EUR 10 billion and we'll be roughly around EUR 200 million, if we were to raise EUR 12 billion in the course of this year, we would be at EUR 240 million of EBITDA. But the reality is that our business is long term. You cannot just look at it on a single calendar year because what we will not raise this year, as Patrice has alluded to, we shall be caught next year in -- through the catch-up mechanism. And again, think of the uniqueness of the earnings that we provide you. When we raised EUR 1, this is for 10 years. which business do you know, which has this kind of recurrence of earnings? Which business do you know? Okay. So this is unique. And I know it's a difficulty for the market to understand that. So to be quite direct, raising EUR 10 billion this year and 2 more next year or raising EUR 12 billion makes no difference for the long-term valuation of our business. It is absolutely immaterial. And what we do not have -- and I'm sure you don't like to hear that. In 2023, you will get through the catch-up effect in 2024. We are long-term investors, securing 10-year revenues. 10-year revenues, which business matches this? So that's my first question to the first point. On the cost side, to be quite frank, I think inflation doesn't play a material role and probably Patrice can provide you with more data. The increase in our cost is very simply really geared to reinforcing a setup, particularly in the States, but not only, but particularly in the States. And when we think of the impact of inflation, namely the growth of packages we provide to existing salaries. This accounts for a very minor part. But maybe, Patrice, you can share more data?

Yes. Look, there really -- I think there are really 3 effects on the EBITDA margin side. It's sort of in combination make it up. The first one is that if fundraising is a little bit slower in 2023, that obviously has an impact on the top and the bottom line. So we felt that in that context, the 70% looked ambitious -- if you add on top of that, the fact that we've had some inflation, even if it makes up small amounts. And on top of that, some FX effects in our case, particularly on the stronger dollar that's added a little bit to the cost base. The combination of those 3 effects have sort of led us to change the guidance on the EBITDA. Now we don't expect that we will continue to have exceptionally strong margins in an industry context because nothing changes about the way we run or operate the business. It's just the number of effects that have led us to give a more specific guidance for 2023 in the context of the environment.

There was a third question, I think.

Yes, on the hiring and pace of hiring.

I think we'll continue hire, but it will be paced based on the fundraising progress as well. So we can -- you can assume that for 2023, we'll hire roughly 30 people, a bit below than what we said for 2022. Of course, there are some recruitments that have been postponed to '23 because recruitment process is always long. And so we always have this kind of lag and postponement of recruitment from one year to another. But -- we -- as we said, it's really important to attract first the right talents that really fit with our culture, but also the right number of people to make sure that we continue delivering on the high returns and high performance that we've promised to our fund investors. So slightly less. And we are clearly pacing the hiring based on the evolution of fundraising.

That's very helpful. If I could just a quick follow-up. The cost per head actually did fall in the second half. Is that a flexing compensation? Or is that just more just mix with a high proportion of junior staff? And if it is the latter, does that effect then kind of continue as well in addition -- I mean, I think you did talk about the promotion effect and the 5% underlying inflation. So just is there also a mix effect as well going on to [indiscernible] we should need to be thinking about going forward?

Yes. Yes, the different things you see that contribute to that. So the first one is it really depends on when you hire the people. Do you hire them at the beginning of a certain reporting period or at the end of a certain reporting period. So that can -- that will have had an impact. The second one is that in the second half of the year, we have hired more at the junior end of the spectrum. And then the third effect is that in because of COVID in 2021 and because of the IPO in 2021, people have accumulated holiday over time -- holiday and over time. And early in the first half of 2022, some of that was paid out. So it's sort of 3 effects that are contributing to what you are describing.

And our next question comes from Arnaud Giblat from BNP Paribas.

I've got 2 questions, please. Firstly, would you mind giving us a bit of a trading update on Hesley Group in '23. Has what's the outlook there? My second question is valuations have filled up well in 2022. I was wondering if you could break that down into some moving parts for us. So how have I suppose the EBITDA growth of the underlying companies has been very positive for valuations. But how have exits and change in multiples affected valuations overall. So question to that as well. 2% of EBITDA growth, is that on an organic basis? And my last question is on deployment. What's the outlook given probably a tougher macro environment have purchase price multiples adjusted to levels that you deem much attractive? What's the outlook there for putting money to work?

Okay. Maybe I'll comment on the Hesley situation. I cannot comment more. As you all know, the situation investigations are ongoing, and no conclusion has been really presented to Antin. As far as I can say, there have been no charge retained against Antin or Hesley on allegations that have been made relating to events that have occurred in some of the residences. Hesley has been acquired in 2018. It's part of the social sector totally part of our mandate. It's a Fund III asset. And clearly, when we decided to invest in that sector, it was really because it was providing essential services to communities in a sector that suffered under investment. So we've chosen those schools and Hesley because they were extremely well rated by the regulator and our intention was really to build out care capacity. We've invested a lot of money to improve the quality of care and to build out this capacity. And then, well, we had to take immediate actions as soon as we heard about those allegations in some of those residences. So clearly today, the trading is low. It's not the best of performer, as you can imagine in this portfolio. But we continue being involved. We are shocked by what we learned because any misconduct is unacceptable and totally at worst with our high standard of care and compassion, but we continue being a shareholder and controlling shareholders of this firm, and we'll make everything we can to sustain the trading and to make sure that residents that are still coming at those residences, the ones that have not been closed that they get the proper level of care. In terms of relative value. Hesley, Kisimul, Hesley represent 1% of our Fund III portfolio.

I would just like to complement on that. We had, I think, 4 years ago, comparable, I would say, incident at Kisimul. And basically, we immediately took action on the individuals who were involved or allegedly were involved by ensuring they were no longer in the contact with patients. After more than 2 years period, there was no charge retained whatsoever against the company, of course, not for us, but against the company. So It gives you an idea that there is a disconnect between the allegations and actual things which may have been committed -- wrong doing committed by individuals and the legal consequences. So that's the first thing. The second thing I would like to say is that we take -- we are very [indiscernible] firm , I would say. And we take this activity very much at heart and are in whatever will happen, we will always have, I would say, a compass, which is to ensure that all measures, whatever measure we implement is going to be in the best interest of the patients going forward.

Just to tackle some of the other questions, Arnaud. On the underlying company valuations of the portfolio companies. So first of all, a majority of our portfolio companies, as Alain had alluded, had exceptionally strong performance. So 90% of all portfolio companies increased revenue and increased EBITDA over the last 12 months. But as you know, we go through our quarterly process of doing valuations. And in each of those quarterly processes, we assess updated business plans for the businesses. And when we feel that we need to make adjustments to the valuation, we will do so. And you've seen some of those adjustments come through in the second half of the year. They reflect updates to the business plan. I think it's in this case is a very small number of portfolio companies that are affected, but we would always do that when we feel it's appropriate to do so. And across the portfolio, it's obviously keeping up extremely, extremely well. And just to comment on the growth rates. Those growth rates, they include organic and inorganic activity. It's sometimes not that easy to separate because we're investing in the build-out of infrastructure and then we see EBITDA being generated once the growth has been realized and comes through and that can happen in an organic way or it can happen, it can happen in an inorganic way, but obviously, always with value creation in mind. Alain, I don't know if you wanted to comment on the exits -- outlook on exits as well.

Yes. I think it's something also very, very important. We shared with you some information on our I would say, on the -- on our main funds' performance. And for those where -- which is typically 1 mill away in Fund III and the portfolio in -- of course, in NextGen and Fund IV, not even to mention Fund V, which is just invested for 1 asset. We have plenty of divestitures to make. What's the outlook of the market? First of all, -- we have to be very -- and again, I know it's not easy to understand that, but I will try to be very clear about that. We are not in a situation where we have to make sales tomorrow morning. We shall not make any sale tomorrow morning. It's as simple as that. So we have built portfolios fund by fund. -- we over a 5-year period, more or less, 4- or 5-year period, doesn't matter. And we have 5 more years -- or 6 more years in this case beyond the investment phase 2 to realize our investments. So -- if we think about the kind of how many investments we expect to make in, say, 2023, I think it can be close to 0, maybe 1, maybe 2 if we got a very good offer for an asset and probably it will be the same for 2024. So you should not think that our performance is under pressure because of adverse market condition. It is not the case. I mentioned about the strong term refinancings that we have put in place systematically since actually Antin was formed. We think it's one of the elements of its strong performance. We are never in a situation where we are forced to sell, so to speak. And we have time ahead of ourselves. So you have to appreciate that there might be some times when say the energy market is under pressure. And therefore, we cannot maximize value, fine, we will wait. There will be times when transport market is not under pressure. [indiscernible] we shall wait. We have under no pressure to make disposals now. And again, I think it's very important for you because -- what we see when we look -- and I must say I plead guilty on that, when we look at the share price evolution of Antin and actually of our peers. I see that we are very much, I would say, responding to things, inflation, growing inflation, interest rates, frankly, which are totally decorrelated from our activity, and I'm not here to advocate for the sector, but from our private market sectors. I mean the only case where you could justify such a negative reaction is if everybody was forced to sell tomorrow, which is not the case. Our portfolio companies will be sold over, say, a 10-year period. So that's the same -- you that how many we have. And you say maybe 10% of it year after year. This is what we are. So therefore, we are not exposed at all to short-term conditions.