Eurazeo SE (RF) Earnings Call Transcript & Summary

Good day, and welcome to the Eurazeo Financial Information Q1 2023 Results Presentation. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to William Kadouch-Chassaing, Co-CEO. Please go ahead.

Thank you very much. Welcome to you all. Thank you for joining this call. I will now walk you through the performance and developments we recorded in questions. Let me start with Slide 1, and the AUM. In Q1, we continued to enjoy a steady increase in our assets under management. AUM, as you can see, are up 10% year-on-year. Net new money was EUR 2.7 billion over the year, representing 84% of the growth with the balance coming from value creation. Fee-paying AUM are up 26% year-on-year and now stand at EUR 25 billion. As a reminder, we do not evaluate portfolio assets in the NAV during quarters. Following the recent change in reporting we announced in March, AUM excludes the value of asset management activity and include the commitment from our balance sheet. You will find all the details in our press release in the appendices. Turning to fundraising, which is the next slide. We raised EUR 866 million from third parties in the first quarter of 2023. Excluding the fundraising of Rhône, pertaining to Rhône Capital in Q1 2022. This is equivalent to a 42% increase year-on-year. Let me stress that quasi 100% of this EUR 866 million of fee-paying AUM. Private debt continues to enjoy a strong momentum, with over EUR 500 million raised in the quarter. As you know, the risk reward profile of our direct lending fund is attractive to our LPs, and we are launching a new program on asset-based financing, which collects wealth. Our sustainable infrastructure fund continues to prove successful with the sale closing at EUR 420 million and has now reached 80% of its target. Fundraising is private equity amounted for the quarter to EUR 209 million, focused on venture and secondary. Wealth Management continues to be a strong contributor to fundraising with EUR 185 million raised in the quarter, which represents 21% of the total amount raised in the quarter. As we indicated during our annual results presentation, we will be collecting institutional money for our 3 main funds during the next quarters of 2023, i.e., secondaries, growth and mid-large players, and we will continue to ramp-up our new products and partnerships in Wealth. Turning to revenues of the asset management activity. As you can see, our recurring revenues continued to grow at a strong pace in the asset management. Management fees are up 28% over the period, with management fees from third parties growing at around 20%, more precisely, 19%. Performance fees in the quarter are negligible given the limited realizations. Precisely, turning on to asset rotation. We continue to be very selective on investments in complex and uncertain complex. Our deployments amounted to EUR 900 million in Q1 compared to EUR 1.7 billion in the same period of last year. Private funds have been the main contributor to deployment as a team find attractive opportunities in secondaries. Let me stress that the lower amount of deployment is totally related to our own policy of being selective and prudent. On the contrary, we enjoy strong headrooms and firepower to grab opportunities in the future, with dry powder up at EUR 7.3 billion from our LPs and an additional EUR 2.4 billion of commitments from the balance sheet. Realizations were limited in the quarter and roughly in-line with last year at around EUR 300 million. We finalized the exit of Vitaprotech, as you know, which was announced last year. This is an amount of EUR 68 million for a multiple of 3.2x cash-on-cash growth. Let me now turn to the performance of portfolio companies with a little caveat, technical caveat to begin with. As you know, we no longer consolidate portfolio companies from 2023. This is due to the IFRS 10 exemption of consolidation that we applied from the first January 2023. However, as we indicated during our full year results conference call, we consider it is appropriate to give you indications on revenues and EBITDA on a half year basis of portfolios as the balance sheet remains invested in the portfolio. As you can see on the page, we have a very satisfactory performance of the portfolio companies across the board. Starting with mid-large buyout, which is the largest component, revenues were up 24% in Q1, which is a very broad-based growth pattern across the portfolio. And despite a high basis comparisons in Q1 2022, let me remind you that revenues were up 55% already. This reflects, obviously, the quality of our choices of companies and sectors. And if not, as you would expect, travel -- the travel industry continues to rebound. In small buyouts, revenues were up 8%. Growth is strong in business services with companies exposed to consumers -- consumer categories have roughly stable revenues. As regards brand, which is our consumer growth unit, revenues were up 13%, again, broad-based across the portfolio. Growth companies, mainly pertaining to tech, revenues were up 21% in Q1. On high comparables, revenues were up 50% in Q1 2022, as a reminder. This will be -- and companies focused on secular economies, such as BackMarket or Vestiaire Collective, as kaizen points, performed very well with consumer marketplace experienced a slowdown. Across the portfolio, it's important to note that our companies in the tech space are focused on cost control and profitability, which may have a short-term impact on growth. To finish with the portfolio, let me turn to real assets. Revenues are up a strong 38% in real estate, reflecting notably the strength of the hospitality segment. In infrastructure, on the low base, revenues are up 18%. So as you can see, overall, we have a strong quarter across the board despite the challenging environment. I will now turn to you for possible questions.

[Operator Instructions] We will take the first question from Nicolas from BNP Paribas Exane.

Maybe I'll start with 2 questions from my side. The first one, so we've seen a slowdown in exits across the industry. So I was curious to know how you think about your realization pipeline for this year versus the typical 15%, 20% that you could usually achieve? And what are the strategies that are -- that you are expecting to contribute to this mainly? And my second question would be on M&A in third-party asset management. So you saw yesterday, TPG in the U.S. announced a deal with a significant portion being funded through equity. It seems like it's necessary in that space to align the interest of the target of the buyer. So with your shares trading at a high discounts to its NAV, market might be a bit skeptical or measured to the reception, to the M&A. So I was wondering if -- what is your thinking around this? Do you think that the discount needs to be addressed first, maybe through buyback by using the net proceeds from our balance sheet rotation before thinking about M&A, which could come in the second time?

Thank you for your questions. Let me start with the questions pertaining to exits. As we said, we expect in the year to be consistent with the -- through the cycle average of asset rotation, you said 15%, 20%. For '23, it is to be expected that we should be rather at the low end of the 15%, 20% as we hinted already during the full year results presentation. Now with regards to our exit plan, we have no indication that it is -- that we should not be able to implement it for 2023. It is to be said though that the largest amount of exits we expect rather in the second half of 2023, so it's a bit too early for me to say whether there will be challenges or not. What we see is a lot of interest, incoming calls for assets we have on the portfolio, which obviously reflects the quality -- interesting quality of the portfolio. We see that many corporates are back at looking at assets, generally speaking, because they have a sound balance sheet positions and are a bit more competitive or feel they are more -- a little more competitive, vis-a-vis relative to funds. And we also see that for small-mid market businesses in the buyout space, as kaizen points, there is still liquidity, particularly funding to be found on direct lending. So as -- and this is part of your question I'll finish on, the bulk for exits pertain to buyout we consider the market continues to be open. Now it is to be said that if Eurazeo, despite the fact that we are increasing room to maneuver with dry power being up, is selective. It is to be expected that all the people are selective. So you have really to have good assets in the good sectors and of decent size of financial size to be able to complete your program. M&A, that's a broad question that goes much beyond the consideration. Our stance is to say that part of the development of Eurazeo as the leading diversified European platform in mid-market growth and impact, M&A could be part of -- could be a valuable route on top of our organic developments. But we have no rush to do anything on the M&A side. We agree with some of the things you on the analyst community are writing, which is, it could be part of the asset rotation. It should be part of the ambition in the consolidating industry. There could be opportunities for us, but we are not in a rush to do anything. So it's difficult for me to answer to your question as to what could be the consideration, form of consideration we would use for an M&A. We have the capacity to generate excess capital over the years, as you know. You've done the math in your recent initiation research piece. I don't challenge the approach. And on top of that, we are listed companies. So we have, in other words, 2 currencies we could use. We will do that, of course, very mindful of value creation. That's all what I can say, not having an immediate obligation to deal with a question. We'll be cautious there as well.

The next question comes from Patrick from Societe Generale.

Can you hear me?

Very well, Patrick?

Well, my first question is about the revenue of the company in the portfolio. Could you remind us the way this 24% plus 8% and so on are calculated, especially in the pure organic growth? Or how would you make it, please? And my second question, especially because you do not change the value of the portfolio at the end of March. If you're feeling on the value of this portfolio was, let's say, negative versus the value at the end of December, would you have introduced the buffer that you had some quarters ago?

Patrick, on the revenues, so it's very simple methodology. We take the revenues of the owned portfolio companies, that obviously is pertaining to those, times our percentage of interest in the company. So the 24% for MLBO results from the -- that calculation line by line. To your question, it is adjusted for perimeter and exchange rate for Eurazeo as a group. It could be, though, that in the revenues that we show here, there is a bit of change of perimeter, marginally low at the company level. So to give you a hint, this has no impact on the 24%. Some buildups, in other words, can be included in these numbers because it's difficult for us to adjust. But this has no impact on most of the lines, MLBO, real assets, brands, et cetera. The only area where there is some impact is SMBO. I mean, typically, this strategy implies growing with buildup, so you shave off a few percentage. So fundamentally, you see like-for-like and adjusted for the percentage of interest. On the portfolio valuation, as you know, in the quarter, we don't revaluate the portfolio. We will no longer have a net asset value in 2023. As you know, we will just make an accounting value of the portfolio we've seen directly translated in the -- on the asset side of the balance sheet. Which means, it being an accounting item, that any change we do in the computation of the value of the portfolio will go mechanically through the P&L. So there will be no such thing as a provision we do at the bottom of the NAV. If we want to have a margin of caution on a given valuation, this will flow through the P&L. So that's the way you can see that. Now putting things in context, given the strong revenues I've just mentioned and looking at the multiples in the market, even though we take average multiples. We look still at spot multiples as an indication of how the market goes, where the market goes. If you look at the multiples for most sectors between December and in March and you factor in this revenue growth, I'd say the case for at least stability is pretty much there.

[Operator Instructions] We'll have the next question from Alexandre from CIC.