Exor N.V. (EXO) Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon. Welcome and thank you for joining Exor Investor and Analyst Conference Call. Please note that the presentation is available for download on Exor website, www.exor.com under the Investors and Media Events and Presentations section. And any forward-looking statements Exor management makes are covered by the safe harbor statements included in the presentation material. [Operator Instructions] Please note that this conference is being recorded. At this time, I'd like to turn the conference over to our host, Chairman and CEO, Mr. John Elkann. Sir, you may now begin.

Thank you very much. I would like to thank you all for being on our call today. And I hope you all are safe and your families and loved ones are well in these extraordinary and difficult times that we have been living through. I would like to start today's presentation by COVID-19, which is what we have all been living with in the last months. Our priorities in this time have really been, first and foremost, to the people who work with us and in our companies to protect their healths, their employment and their likelihoods. We made clear that, this being a crisis, we needed effective processes in place to manage the extraordinary consequences of the pandemic. And finally, we, at Exor, and in all our companies, paid extreme attention on ways to preserve our liquidity and to increase it. In these extraordinary times, what I would like also to share with you is the incredible work that has been done in our companies for our communities. We have been very present in making sure that we could come to help to the health care system in moment of need. And that was the first priority, both with equipment and also with real help. And also, secondly, to make sure that we could address the need of who was more in necessity. The initiatives that we have been part of have been many. And I would like to express my gratefulness to our colleagues in our companies and also thank our Board and our leaders for the sacrifice they've made, that all have made in our companies to make sure that we could protect our companies and also our communities. In the recent weeks, we have been shifting our focus in our companies from crisis management to going back to work. And I can say with pride that all our companies and our associates working in them have really been at the forefront of trying to be creative, imaginative, innovative in finding ways, in which in all security and mitigating the risk of COVID-19, we could go back to work and service our customers. And we have done this also in our businesses in close coordination with our partners, our suppliers and our dealer. What I would like also to address today is to give you more insight in what has happened in our companies and the investments that we have made or are making. I would like to start with PartnerRe. As you all know, last week, Comau has decided not to honor its engagement in the MoU it had signed early March. And I wanted to share with you the excitement, the genuine excitement that PartnerRe has and we have of the future ahead. We have been focused since last week when we announced that we were proudly going to keep owning PartnerRe for the future to really look at the market opportunity that has presented itself as the market is hardening. A hardening of the market in the insurance world means that pricing are moving up. And we are transitioning from a soft market to a hard market, which already was in the brewing having had 3 difficult years. And we were seeing on one side due to capital scarcity, that prices were going up. What this pandemic is doing for the insurance and reinsurance industry, it's creating conditions in which these prices increase are substantially going and becoming higher. PartnerRe is among the companies with the highest solvency ratio in excess of 250% at the end of Q1. Just to give you a comparison, Swiss Re is at 200% and SCOR at 210%. The company has a liquidity in excess of EUR 10 billion. And the losses that we have incurred linked to COVID-19 for Q1 were of $18 million, and they were mainly due to event cancellation, and we expect small underwriting losses for the remainder of 2020. The Life and Health business, which is a priority for us going forward and growing, is underexposed to mortality risk, hence to the pandemic risk. And we believe that we are on a good track to growing profitably this business which complements well our P&C and specialty business. And finally, a lot of effort has been put in place to build a third-party capital business, which we think will give us additional means to deploy alongside PartnerRe's capital in this market environment. So I would like to leave you with a positive outlook for the industry and an even more positive one for PartnerRe, who is very well positioned in this moment in time to seize the opportunity of a hardening market. I would like now to address the ongoing process of the FCA/PSA merger, which was announced last year, and I'm very excited about the work streams that have been ongoing. The merger is going ahead. And the rationale of the combination between FCA and PSA is even stronger today under the circumstances that are impacting the car industry. I'm very pleased that the regulatory process is going ahead well. And we believe that we are following the time line that we had indicated by being able to get to de-merge company at the latest in Q1 of 2021. And as yesterday at the AGM of PSA's shareholders, SSP, which is the holding company of the Peugeot family, they are as encouraging about the prospect as we are, and we are very happy to be alongside SFP and the Peugeot family in this exciting adventure, where both our companies and our families have been historical founders of these 2 companies. We have had, during this crisis, changes happening in CNHI. Where on the back of disappointing results of 2019 and with the emergency that occurred facing the COVID-19 crisis we had to take action on leadership. I am very grateful to my colleague, Suzanne Heywood, who, in addition of her chair role has stepped in as acting CEO and is ensuring proper stability, both operational and financial, to ensure CNHI is doing everything it can in this crisis, as we look forward to a permanent CEO and for the bright future of CNHI as it prepares itself to become 2 distinct companies: One in the off-highway business; and one on the on-highway business. During this period of time, we have gone ahead with the acquisition of GEDI, who is the leading media company in Italy. We announced the acquisition in April of the 54% that was owned by CIR and the launch of a mandatory tender offer. On the back of that, we changed the leadership team in order to accelerate the digital transformation with a sense of urgency on the back of the COVID-19 crisis is even more acute. And it's early days, but these weeks we've already seen a noticeable change in the speed of execution towards an exciting digital transformation that GEDI is well positioned to profit from. We also announced the investment in Via. Despite the difficult environment, we stood behind our words and committed going ahead with what we believe is a very exciting company. And one who will become a great company and are very looking forward, our partnership with its founders who are operating this business. And we believe that this is a model in which we have had experience in the past with successful investments in Banijay and one we did in Welltec, where we believe that we can become a partner to owner operators. Whereas a minority shareholder, we would be able to contribute to the successful growth of these companies and then becoming great companies that, as you know, from our Investor Day last year in November is the purpose of Exor. So we've been very busy, not only addressing and facing COVID-19, but also with the many initiatives and projects we have. One of them is one which we have discussed in the past, and we have operationalized a fund, which is open for our own proprietary capital and will remain such, both for Exor and PartnerRe, where we selected 50 family controlled companies, which we believe is a way of investing our liquidity, where we believe that we can outperform the market, but also an increase in our knowledge on how great family companies are built and run. So this is something which I've shared with you in the past and that we have completed and have been able to start investing in the crisis that we are living in where the strength of the selection we've made of the 50 companies and their resilience has been put to test in this moment in time. I would like now to pass to our CFO, Enrico Vellano, to walk you through our financial -- give you a financial update on our gross debt, our liquidity at the moment.

Thank you. Thank you, John. Good morning, good afternoon all. At the end of April, Exor issued a new private placement with maturity 10 years and for an amount of EUR 500 million. Including the new issuance, the reserve gross debt at the end of April 2020 amounted to EUR 4.2 billion, of which EUR 0.4 billion with short maturity and EUR 3.7 billion with long maturity. The weighted average cost of long-term bond debt equals to 2.5% with an average maturity of 7 years. Compared to 2019 year-end, the gross debt has increased of EUR 790 million, of which EUR 290 million short-term bank debt and EUR 500 million of long-term to increase the cash available. At the end of December 2019, Exor had cash available on banks accounts, excluding EUR 366 million of cash and cash equivalents for a total amount of EUR 423 million. The first part of 2020, Exor decided to increase cash available, issuing a new bond for EUR 500 million and drawing down uncommitted credit lines for EUR 290 million. Including the dividends already cashed in from Ferrari and PartnerRe and adapting the investment in GEDI and Via, financial and general expenses, dividends to shareholders in line with the previous year. And the bond mature in November 2020, EUR 200 million, the cash available at the end of the year will be EUR 500 million, excluding cash equivalents for EUR 300 million and competed credit lines for about EUR 500 million. I will pass to you, John, now for the closing remarks.

I would like to reinforce that we've been in business for many decades, for centuries and have gone through many different crisis. And out of each of them, we have learned a lot and that has made us stronger. And what I'd like to share with you is that the objective that we've given ourselves for the decade ahead when we had the opportunity of exchanging that, with you on the back of the first decade of Exor in its current configuration, remain unchanged. I would also like to emphasize that the last of our 4 values, which we discussed at our Investor Day, courage and responsibility comes very true in this moment in time. And I am very proud and grateful that among my colleagues among our companies, both in our boards, in our leadership teams and our associates have proven that this is the value that we all share in Exor and our company. I look forward to answering any questions you have, and I'm very grateful for your participation in this extraordinary times.

[Operator Instructions] Your first question today comes from the line of Liz Miliatis of Bank of America.

If we could start on PartnerRe and Covea. I was just wondering, firstly, there has been some press reports. But if you could just confirm whether Covea actually came to you guys and approached you guys in regards to the deal rather than the other way around? And secondly, once COVID really kicked off and we all recognized that this was going to be a global pandemic and there were significant implications to that, was there any room for negotiation in terms of pricing from either your side or Covea? Or was any particular party completely unwilling to waiver and just walk away from the deal? And then thirdly, do you think that there's any room for Covea maybe to come back once things settle down and [ increases ] the market to potentially look at PartnerRe again or indeed any of the other reinsurers, just as there's not that many competitors of a similar sort of size. I imagine it'd be really difficult for them to actually make an acquisition of PartnerRe's size.

Elizabeth, thank you for the great questions and always happy to read what you write about Exor and about our reinsurance business. As I mentioned in my letter, PartnerRe came with an unsolicited offer early this year. So this was definitely not an offer that we were contemplating. It is an offer that came to us, and it was a very good offer for Exor and for PartnerRe. Secondly, when we announced, COVID-19 was already known. As you remember, we announced in March, and had been defined as pandemic. So this was a known then as we announced. And thirdly, we were in dialogues during the whole month that were leading to our MoU to be transformed in a SPA, a contract on the back of the authorization of the workers' council. And during all this period of time, so from March to May, the signaling of changes was never done by Covea. So the fact that they did not honor their engagement came to us as a surprise. Will they come back is something I don't know. But what I can assure you is that first, the reason why we acquired and fought very hard to acquire PartnerRe, which was to have a different business to the ones we have. And to have a different cyclicality has proven to be right in this crisis. And secondly, as much as most of our businesses are suffering from COVID-19, PartnerRe is in an industry where COVID-19 is going to accelerate what was becoming a favorable pricing environment. So I would argue that the value of PartnerRe is higher today than it was pre-COVID-19.

Our next question today from the line of Martino De Ambroggi of Equita.

The first is on just a generic question on the strategy. During your Investor Day, you mentioned you are not in a hurry to find new investments in the past 6 months. You invested in Via and GEDI, quite small compared to your size. But could you take advantage of the current environment that accelerate and maybe some investment or a loan-to-value preservation today is the main priority?

Do you want to -- Martino, do you want to ask me all the questions or do you want me to answer one by one?

No. Okay. I can ask everything. So the second is on PartnerRe. You already answered to many points, but it clearly now a core asset, is it like in the portfolio. But would you be willing for a merger? And the third and fourth question, I know it's a critical issue. So it's inevitable the question. I don't know if you can talk about it, but the issue is quite debated in the past few weeks, concerning the extraordinary dividend of the FCA. So the two questions are, is there any pre-agreed mechanism to adjust the dividend in some specific events, for instance, the failure of [ Via ] spin-off. And more recent and presumably without an answer because the state-guaranteed loan was not issued yet. Is there any implication on the extraordinary dividend for the state-guaranteed loan?

So we don't think that the market is cheap, Martino. There are pockets of value, for example, in the leisure and tourism industry. But then you need to have a clear underwriting on what that -- the prospects are, the oil and gas and some commodities. So we've been, in our financial investments, being capturing some of those opportunities. In terms of acquisitions, for Exor. As I mentioned in November, we will be patient to wait for the right opportunity. What I had mentioned in November was that we had from just our ordinary capability would give us a firepower of EUR 1.9 billion. If you subtract from that EUR 400 million that we invested in GEDI and Via, that leaves us with EUR 1.5 billion. And that is the fire power that we believe we have and those are backed by having decided that in this environment, while we were planning to reduce our debt to EUR 3 billion, we felt that the market is giving us opportunity, as Enrico mentioned, of funding ourselves long-term at interest rates as the EUR 0.5 billion private placement proved it. And so we believe that we can have a higher leverage of close to EUR 4 billion without compromising our LTV. And maintaining our firepower, which was EUR 1.9 billion minus EUR 400 million, which is EUR 1.5 billion, which we could deploy if we felt that we'd see interesting opportunities that could very well be in the lines of making a full acquisition or control acquisition like GEDI or a partnership like Via. On PartnerRe, we think that the opportunity of the market is so compelling that a merger would be a distraction. So we would not be today interested in any talks of mergers. And I honestly think our competitors neither as really what the industry is focusing now is to get ready and equipped for this cycle of the market in a hardening environment. Finally, on the contractual terms, you know we entered in a binding combination agreement with PSA that was announced last year. As Mike Manley said on the Q1 earning call, the terms of the deal have not been changed. We have -- FCA and PSA have publicly released last week a joint press release where they stated the importance of the merger and even more so in this environment, and proceeding to that end in Q1 2021. As I said before, and the word that the Chairman of FFP, Robert Peugeot mentioned yesterday clearly go in that direction. Finally, on the loan that is being negotiated, FCA issued a clear press release on Saturday. This is a loan which is really designed to help the automotive sector in Italy, which you know is a very important part of the Italian economy, 7%, more than 10,000 companies. And it's an innovative and effective mechanism that banking [ PSA ] has been working on, supported within the legislation that has been approved by the Italian government and looking at it for the car industry and the ecosystem linked to the car industry, which obviously takes into account FCA being the largest component of it. Those are ongoing talks and their benefit is for the industry, and that is very coherent with what is happening in other countries which have important participation of the car industries in their economies. And we believe that the opportunity set exiting this crisis for the merged company, FCA/PSA is a great one if we're able to capture the transition the car industry is going through. This is valid for companies as it's valid for countries.

Okay. Just a follow-up on the last point. I thought the loan could be used just as for temporary free cash flow absorption, but seems to be 3 year, the duration. So my interpretation was not correct because you are looking for something for a longer period of time. So...

As I said, Martino, this is a facility that is being designed to help an industrial component of Italy. And the terms are being today discussed, and it's really being led by Banking [ PSA ], as they will be the ones providing the liquidity for the supply chain and the ecosystem in the car industry in Italy.

Our next question today comes from the line of Christophe Van der Kelen from Value Square.

I'm very encouraged to see that you started the family fund, so we actually focus on the same thing and the strength of family shareholders. I'll be very curious to see which companies you invested. I have two questions. One is on PartnerRe, the impact of COVID. I have read many reports of the impact of COVID on the insurance industry. Not so much in what happens in the future, but more what will happen in terms of claims underwritten. Do you have any view -- could you give any numbers what you see happening in the industry related to business interruption and listings? And what is the exposure to PartnerRe? And the second question, which you have partly answered regarding the FCA/PSA deal. Is still -- you also mentioned in the annual report, how many shares of PSA would be exchanged for the new company. But it's not entirely clear to me, which of the conditions that are being negotiated, which have been set in stone, which have been written in clay and which have been written in sand, so to say. I hope the analogy is clear but it would give me a better idea to see what can fuel change and what cannot change anymore in this deal. As I understand you are both looking forward to consume this deal?

So these are two great questions. We believe that COVID-19 is not impact -- won't impact PartnerRe. And as I said, for Q1, the number was EUR 18 million of losses due to event cancellation. And we don't expect in 2021 to have major losses. This is different for other companies in case some have a very strong Life and Health business, and they would have a high exposure to mortality risk. It clearly would be different. And the insurance casualties that would be linked to business interruption is a very difficult one to be determined because this is true if you have a cat event for example, if a hurricane touches the ability of your business to operate. It's not clearly defined within a pandemic and so how you establish that and the time for that to be established is very uncertain. So as we've been looking at it, it's really been more on the positive side for PartnerRe due one to the type of business PartnerRe has underwritten in the past. And secondly, to having a very strong liquidity in its investment portfolio. As I mentioned before, we have EUR 10 billion of liquidity within our portfolio. The question on the terms that you raised on PSA are binding. There is a combination agreement that was signed. It was a clear cash and equity deal to reach a 50-50 equity deal between FCA shareholders and PSA shareholders, of which Exor will result owning 14%. And it was designed in a way in which you would have contributed to that aim of the cash and equity deal to get to 50-50. So it's set in stone as contracts binding in their nature are. On the family business -- on our family company fund, this is an idea, which we've shared with you over the years, being a family controlled company ourselves and controlling companies through Exor. We've seen that family controlled companies tend to outperform the market. And so we have been spending a lot of time on this topic, one to learn about it, but also to find a better way to invest in the market, especially when we had disruption like the one that occurred. What we've done is we've selected these companies to get to 50, and we have done that with very clear quantitative criteria of good, sound businesses both from the return on capital from their cash conversion and from the solidity of their balance sheet. So these are quality businesses, and they all are family controlled. And we have selected 50 of them that compose our funds, and we will be reassessing these 50 companies on a yearly base. So the basic thesis is high quality business, family controlled, screened them, selected 50 had a qualitative thinking on them as an overlay to the quantitate one and created a fund for our own capital at Exor and PartnerRe and have started to deploy in a modest way to date. And we believe that this will provide us opportunities to do better than if we were invested in the equity market in aggregate, which, as you know, our stated objective is for our NAV per share to outperform the MSCI World Index in Euro and also to be able to learn more how great family companies are built and operated.

And our next question today comes from the line of Andrea Balloni from Mediobanca.

My first question is about PartnerRe. In the past, you mentioned about a return on equity target in the range of 25%. Just wondering if this is still confirmed and if you expect to present any updated business plan for PartnerRe in the very short term? My second question is about CNHI. How long do you expect the hiring process when your new CEO may last? Do you foresee any delay in the hiring costs due to COVID? Or you are confident to close this process in the short-term despite the outbreak? And my very last question is a follow-up about FCA. I'm really sorry about that. I've lost your answer to my colleague. My question is about the special dividend distribution of [ EUR 5 -- 0.5 billion ]. We had some [ percent ] mentioning in the FCA request or the state credit facility may prevent or freeze any dividend distribution including the special one. Can you give us your view about that?

So I will answer to the first and the last question, and we'll let my colleague, Suzanne Heywood, address CNHI. I confirm what we said about our expected returns of PartnerRe over the cycle. And we've had 3 difficult years the last years and hopefully, the next 3 will be better ones. We are not planning to -- we're not planning any business plan update of partner in the near future. We will have, in '21, our Investor Day. As you know, we generally alternate 1 year with our investor -- institutional investor and analyst call after our AGM, which we hold today, and we do our Investor Day the second year. So very likely within the Investor Day, we will be speaking about PartnerRe. And hopefully, more than speaking about its future, we look forward to speaking about its present then, which should be a more prosperous one than the recent past. On FCA, as I mentioned before, that there is a clear binding combination agreement of a merger that was designed between its equity and cash component to get to a 50-50 parity. And that is what both parties are committed to get through. The moment in time we're living, makes this transaction even more important to achieve. And the facility that you have mentioned are very much linked to the automotive industry within Italy, where FCA has a large presence, but it's one of the countries in which we have a large presence. As you well know, the country which has our biggest presence is in North America and primarily in the U.S. And all the mechanisms that are being put in place are very much linked to the countries, in which they're put in place and for them to be designed for their industries to have the required liquidity needs to go through this moment in time.

John, I will pick up on the second question, as you said, which was on the appointment of the new CEO for CNHI. This is Suzanne Heywood just to say that the process for the appointment of the new CEO is underway. It is being led by the Governance committee at CNHI, as you might expect. Head hunters have been appointed for that process. And we don't currently see any reason why that process should be unduly delayed. Obviously, we will be doing it, as you might expect on video conference and that sort of approach, but there's no particular reason why that process should be delayed. Of course, depending on who we decide to appoint, they may have personal circumstances or other commitments, which may affect when they can start, but there's no particular reason why that should be an extended process compared to a normal CEO appointment.

[Operator Instructions] Your next question is a follow-up from Liz Miliatis from Bank of America.

Before taking that question, Elizabeth, I really would like to thank Suzanne for stepping up and taking over as acting CEO. And really, I really want to thank her and complement in the leadership that she's provided the company in these very difficult circumstances in stabilizing the company and making sure it can progress for the bright future it deserves.

And now your question from Liz Miliatis.

Just a follow-up question. At the Investor Day last year, we talked a little about the excess capital that sits within PartnerRe and that sort of excess on top of any regulatory requirements or even company losses that you would have in there. Is there any view, or is it consistent, or has it changed in terms of what you would do with that excess capital? Will you potentially distribute up to Exor? Or will you keep it up -- keep it down in PartnerRe for investment there? And then secondly, you seem very cautious on investments in this kind of environment, but when it does come time to potentially making acquisitions, once COVID cover gets a bit more under control, what sectors are you interested in? Just recognizing that last year, you did give us color, but there weren't -- the focus was actually quite broad. So I was just wondering if there was any more understanding of, was there any particular sectors or particularly keen on?

So we believe that the opportunity set today is really to keep excess capital net of dividend out. So we would define with the company to make sure that we can capture it best, this underwriting cycle. We think that the opportunity set will very much depend of -- as I mentioned in November, we don't want to be prescriptive of where we would be looking to acquire a company or to make an investment. And as we enter also a different moment in time on the back of what we are all living, I think it's important for us to be thoughtful about the implication and also how that impacts possible tailwinds and redefines headwinds. And the combination of our conviction around tailwinds and a good opportunity in terms of value will very much dictate what type of company, we will end up acquiring or investing in.

There are no further questions at this time.

I would like to thank you all for your trust in Exor and for being close to us, I wish you all to stay healthy and be well. And looking forward to seeing you in person next year for our Investor Day. Thank you all.

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