Tikehau Capital (TKO) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for being here. This is a combined general meeting, and we are meeting to announce the reorganization of Tikehau Capital as was announced on 20 May 2021. As you may know, we have to abide by social distancing, barrier gestures, wearing masks and so on and so forth throughout the meeting. So we'll be looking at transactions that will contribute to the simplification of the group's organization, which should result in a significant improvement in its financial profile and allow a new dividend distribution policy in order to increase value creation for shareholders. This meeting has been convened by -- at the behest of top management. You've had all the information on the website. And in keeping with regulations all the documents were made available. We have here with me Mr. Mathieu Chabran, representing the Supervisory Board; Mr. Marcoux, who is the Deputy CEO of Tikehau Capital; and Geoffroy Renard, who is Secretary General. And I should like to apologize on behalf of Mr. Antoine Flamarion, who couldn't make it this afternoon, I have Mr. Simon Beillevaire, who is a statutory auditor, representing MAZARS is present and represents the college of statutory auditors. We have to establish the bureau, the shareholders representing the largest number of votes will be appointed to be scrutineers. So the representative of the Societe Generale, Mrs. Florence Bellon, representing Tikehau Capital Advisor. She said she would accept to be the scrutineer for this meeting. The second largest shareholder in alone capacity or by proxy, is the company MASCF [Foreign Language], and they said they would be happy to act scrutineers in the person of Mr. Roger Caniard, and we'd like to welcome him and thank him for being with us. So I suggest to you appoint Geoffroy Renard as Secretary of this meeting. Geoff, do we have a provisional quorum?

Yes, based on the indications that we have received from Societe Generale, which is the body that centralizes this information. We have around about 93% representation. So we do have a quorum, and so we can have both the ordinary and the extraordinary part of this meeting. We'll give you the final quorum. It's being worked out as we speak. But of course, before we move on to the resolutions, we will have the exact numbers. Right then. Now moving on to now that we do have our bureau, I believe you have received the agenda. It is part of the invitation letter. Let's not -- I don't propose to read out the entire agenda. The documents were made available on the website. But of course, we -- I don't propose to read them out again, we do not need to. So the documents and information were made available to shareholders within the defined timetable.

Thank you, Geoffroy. So this is how I propose to go about this meeting. In the first part of this meeting, we'll go over the assets under management at end March 2021. And of course, we will consider the proposed new organization. We have not received any proposed draft resolutions or indeed additional items on the agenda or indeed written questions from shareholders, and so we can move on to questions from the audience right after the presentations, and then you will be given a chance to vote on the draft resolutions. Now then let us start with assets under management at the end of Q1. At end of Q1, assets under management reached EUR 29.4 billion, up 15.5% on an annual basis that is compared with March 2020. And they were up about 3.3% compared to December 2020. We'll get back to this, but there is some seasonality in fund raising. Regarding asset management proper, the assets stand at EUR 27.7 billion, up 18% over the past 12 months. Since March 2020, Tikehau was able to raise as much as EUR 4.2 billion, which is a significant amount, reflecting the dynamic approach of the group. And of course, the attractiveness of the asset classes that we offer to our investors at -- throughout the first quarter, net inflow reached EUR 0.5 billion. It's comparable to previous months, but you have to recognize that Q1 tends to be slower than the other quarters usually. Well, of course, this is coming on the heels of Q4 of last year, which was very active indeed. And in Q1, again, we were able to strengthen our financial position. We issued our very first sustainable bond, EUR 500 million with an 8-year maturity and a coupon of 1.625%. That's the lowest coupon rate ever achieved by Tikehau Capital, which goes to show that, of course, creditors hold us in extremely good esteem indeed. This is the very first public sustainable bond ever issued by an issuer of alternative investment vehicles.

Christian?

Mathieu?

Thank you, Christian, and thank you for inviting us. And if we can move on to Slide #4, let's look at 2 key stages that were announced at the end of Q1. The first announcement -- the first significant announcement on the strength of our energy transition fund in Europe. Because of its successful launch, we decided to have a private equity strategy in North America, looking at low carbon economy, investing EUR 300 million from our own balance sheet. And this is -- well, the American equivalent of something we've been doing in Europe for the past 2 years. We also announced the launch of 2 innovative strategies for life insurance products, unit-linked products for individual investors, one in private debt with MACSF, which is the largest insurer of health with health care professionals; and another one in private equity with the CNP Assurances. They are a key player in the French market of private insurance. So these, of course, initiatives reflect Tikehau's strong position and its ability to appeal to private markets and offer alternative asset classes.

Thank you, Mathieu. Well, let's now look at the main item of the agenda that is the key items of Tikehau Capital's new organization. So as to fully understand what it is we are discussing today, maybe we should take a step back and give you some background. As you may remember, Tikehau Capital was founded in 2004 by Antoine Flamarion and Mathieu Chabran. The idea was to become a key player in alternative asset management. 17 years down the road, time sure flies, well, these ambitions actually happened. We were able to achieve profitable organic growth and targeted and accretive acquisitions. And now we have about EUR 30 billion assets worth of assets under management. We are listed companies on the international market. And of course, we -- our organization, our structure made it possible for us to grow and become what we have become today. But in view of our present size, the time and in view of our future ambitions, the time has come for us to look forward to the future and get ready for the next stage of our development. So Tikehau Capital is preparing the next chapter of its own development with a simplified organization, a strengthened financial profile, but of course, a new and reset dividend distribution policy. So there are a number of key items to look at here. A, the organization is made simpler and made it easier to understand. It strengthens again our financial profile. But of course, new commitments will be made in terms of dividends. Yes, Mathieu?

The present structure of Tikehau Capital, which goes back to the group's entrepreneurial DNA as it were, will be replaced with a simplified structure, what we call regroup and reset. So we will be bringing together all our workers within the listed scope. It used to be that the support functions were with TCA, Tikehau Capital Advisors. We want to reduce operational costs with the Tikehau Capital, and reduce the preferred dividend that was, of course, reserved to the general partner. Now of course, we will have our team even more involved in the activities of the group. This has always been to the company culture, but of course, we keep our entrepreneurial and innovative spirit. If we move on to the next stage, this new organization will strengthen Tikehau and provide many advantages to shareholders. Number one, this simplified organization, it's easier to read. We have all our employees working within the listed company. Then there are 3 aspects that should be highlighted, improvement in cash flows, up EUR 40 million after tax in 2021 and more in following years, mechanically. We're looking at 1.4 -- upwards of 140 basis points improvement in the return on equity. And a significant accretion based on adjusted EPS as of 2021. But we will take advantage of that to improve our dividend policy, looking at the performance of our asset management activity that is that business, which is the recurring activity, the recurring business, which has enjoyed significant growth and has become more and more profitable. Indeed, as of 2021, we're looking at more than 80% of the operating profit, that is the NOPAM asset management -- And as of 2021, ordinary dividend will not be less than EUR 0.50 per share. On the next slide, as Christian indicated earlier on, this new organization means that Tikehau can start a new chapter in its own growth. We have an improved financial profile and a new dividend policy I have just outlined. But before getting into the details of this, this new organization, where we bring together all the functions and within the listed company and reset, as it were, the financial folks of the said listed company. Let's go back to our track record and see just how successful we've been its entrepreneurial adventure that started 17 years ago. So this gives you a backdrop, if you like to look at Slide 11. Our journey has been one of significant growth, combining sound financial performance, the recruitment of remarkable talent and constant geographic expansion and a diversification of our investment strategy at end, March 2021. At the end of Q1, we had EUR 29.4 billion worth of assets under management which was twice as much as what we had at end 2017, which was when your -- this company was IPO-ed, but that's also 10x the amount that was managed back in 2013. And our teams, well, our headcount followed the same trend. We were -- headcount traveled between 2017 and March 2021. But that momentum is the reflection of, as said, sound organic growth, but also external growth that is targeted and value-creating acquisitions. And this success has made us a top range, a diversified player in asset and alternative asset management worldwide. So we used to have a EUR 4 million under management. We have a few people and our headquarters was here in Paris back in 2005. Now we are an international player, 12 offices around the world, Europe, Asia and North America. I'll give the floor to Henri Marcoux, who will tell us about our history of growth ever since we were listed and go back to history of asset management and few facts and figures.

Thank you. Let's look at a few financial indicators then in particular, the way in which these numbers have been developing ever since we have been listed; and it's, of course, a new trend since 2017. And you have 6 indicators up on the screen. And you can see that, well, they speak for themselves. On all indicators, Tikehau Capital has delivered. If you start at the bottom -- on the top left corner, you have assets generating income. They grew more than 40% since 2016. If you look at assets from international investors, of course, this platform has become international and now upwards of EUR 9.3 billion from international investors were left in our hands. Then if you look at the management -- the fee rate, average fee rate has improved over the years. We grew from 0.75% to 0.92% because, of course, we diversify to new asset classes where, because of our know-how, because of our teams, we were able to gain ground on these new asset classes and generate better fees. Then if you look at income that is from asset management, this has grown 50% since 2016. And then if you look at the key indicators, fee-related earnings, we look at the fees less of operating costs, and that indicator has improved dramatically, upwards of EUR 70 million last year, and this is much better than the benchmark. And so these numbers show that we are in a position to deliver fast, profitable growth ever since we became a listed company. If you move on to Slide #13 to see what is at stake, why it is we want a simplified organization. Well, there are many benefits indeed. First, we're looking at -- well, if we want to provide our own central services, we are in-sourcing these services, and that makes for a more readable organization, but we're also bringing down operating costs for Tikehau Capital. Right now, these costs for -- well, because of the services provided by Tikehau Capital advisers, will now be taken back in for the support function, but we will be paying EUR 2.5 million to management to provide these services. But if we look at 2020 as a reference, significant savings instead of EUR 75 million, you're looking at EUR 21 million after the simplification. So we're looking at upwards of EUR 50 million saved right there. And then regarding the preferred dividend debt will be significantly reduced from 12.5% down to 1% and of the net profit of Tikehau Capital. So that, of course, will significantly improve the financial profile of Tikehau Capital.

Well, thank you, Henri. And now I think, well, it's pretty obvious that this organization was introduced with a view to strengthening the position of Tikehau Capital. This remodeling of financial flows, as Henri has just said, is we're looking at contributions from particular Tikehau Capital adviser, the main shareholder of the company, which was the main recipient of the flows there. As a trade-off, Tikehau Capital advisers will receive 39 million shares in Tikehau Capital, new shares that is newly issued shares. Now this is worked out on the basis of the valuation of the contribution of Tikehau Capital of EUR 1.150 billion in Tikehau Capital Advisors. And then Tikehau Capital's shares well worked out at EUR 29.5 million per share. Now these valuations were reviewed by an independent expert and 2 M&A specialists. Now that valuation at 29.5% is at a premium of 19% compared to the share price on the day prior to the announcement that is on the 19th of May. But of course, it doesn't jeopardize the potential growth of the share price. In fact, we believe that because there will be more shares available, this will make it easier for investors to acquire Tikehau Capital shares. I mean we are in constant contact with our investors and Louis Igonet, our Investor Relations man, has discussed this with shareholders and investors, and they asked us to work on this to improve, to increase the liquidity of the -- our share and increasing the float. Now the founders and top management of Tikehau Capital will increase their stake in the company from to 44% to 56%. And of course, there's an alignment of interest between management and shareholders. So in summary, to sum up, there are 3 takeaway messages as it were. We are improving the after-tax cash flow, upwards of EUR 40 million as of 2021. Because if we agree on this today, this will be retroactive as January 1, 2021. So EUR 40 million and even more in the following years. We're looking at 140 basis points in improvement in return on equity starting in 2021 and a significant accretion, 1 figure, a single-digit growth that is accretion on the share of Tikehau Capital. So that makes it even more attractive for you as shareholders, present or future shareholders. Regarding now the outlook and you have details on Page 16, we are on the right track to reach the finding objectives that were announced in 2019 that is prior to the COVID outbreak and now in a position to confirm these key items for 2022, namely assets under management upwards of EUR 35 billion compared to EUR 29.4 billion at end March 2021. Profitability, that is fee-related earnings, now we just -- we are looking at upwards of EUR 100 million by 2022. Let me remind you that we've passed the EUR 70 million mark in 2021. And regarding our own portfolio, we invest in our own strategies, and therefore, in line with our customers, and we, in fact, are ahead of schedule because now we have 66% at end 2020. If you may remember, our objective was to have an alignment of anywhere between 65% and 75% by end 2022. And then the return on Ecuador. We're looking at 10% to 15% in pro forma by 2022, and we are on track to reach these objectives by 2022.

Thank you, Henri. Now a few words. If you look at Page 17, Slide 17, our priorities in terms of capital allocation. We will keep investing in the group's own funds and instruments with you to promote this asset management business. This is, of course, a key and differentiating factor that is of interest between management and the company. In terms of external growth, we will look at new opportunities to broaden our client base, diversified towards new asset classes and diversifies geographically looking at existing or indeed new territories as was the case in past years. As we said earlier, we will also review our dividend policy, aligning it with our asset management business, so upwards of 80% of NOPAM will be allocated to dividend with a threshold of EUR 0.50 per share in dividends as was announced earlier on. So Tikehau shareholders will be the first beneficiaries of value creation brought about by this asset management platform, which has been delivering sound performances and significant NOPAM. Now by way of conclusion and before we give the floor to Christian, let me just say, in summary, that we are here simplifying the structure. This will be financially beneficial. This will create value, and this will strengthen Tikehau capital.

Well, thank you, Mathieu, and thank you, Henri. Before we have an exchange or before we can take your questions, I will ask Geoffroy Renard to go through the draft resolutions for you to vote on.

Yes. Thank you, Christian. So the draft resolutions that you have before you for this meeting, we have as many as 9 resolutions. Number one, the appointment of one of the few statutory managers of the company, AF and Co. AF stands for Antoine Flamarion. So Mr. Flamarion is the Chairman of that company. And so he has 100 ownership of that company. So he would be the statutory manager. Draft resolution #2, MCH management, MC stands for Mathieu Chabran, who is the CEO of this company and has 100% ownership of MCH and so he would be the second statutory manager of Tikehau Capital. So we are -- we have the 2 statutory managers appointed. Number three, the appointment of a general partner, Tikehau Capital commodity. This is a 100% subsidiary of Tikehau Capital Advisor, which, of course, is the main shareholder of Tikehau Capital. So these are the 3 stages of this newly revisited management structure. Draft resolution #4 proposes to -- and that we said earlier on, to reduce the preferred dividend from 12.5% to 1% of the Tikehau Capital's net profit this company that is -- this company is jointly and liable-ly -- and jointly and solely -- sorry, liable for the debts of the company. Hence, the remaining 1% preferred dividend. Then the compensation of the managers from EUR 1.265 million before tax. That amount will have to be reviewed by shareholders under say on pay. [ Moreover ], shareholders will have to decide on this compensation policy for the company's managers. And then in a more defining way, the 2 aspects of the reorganization. There will be a merger. One aspect of this operation is to merge the general partner within Tikehau Capital, that's resolution #6. And so if this happens, 14,924,353 new shares will be issued. In fact, if you look at the slide, you have the amount of this capital increase. And so you have the nominal, the premium and the total amount. And then -- the next resolution is a partial contribution of assets. Under that operation, Tikehau Capital Advisor will be providing the central functions of the group that have been set up in 4 business units. These are basically will be transferred to Tikehau Capital so that the employees find themselves within the listed company. As a result of which about 24 million new shares will be issued for that operation worth about EUR 710 million. And so you have the stock capital and the premium that are added up. But of course, this -- the details, the numbers have been made available in the documents issued prior to this meeting.

Thank you, Geoffroy. And Geoffroy will be talking about the very last resolution, draft resolution, which is the legal formalities. Well, we've not received any questions inviting from the shareholders. So now the shareholders who are with us can ask questions if they have any. And if you have any questions, the management and general management are here to answer your questions. Do you have any questions, ladies and gentlemen? No. So I think we can start and vote on the draft resolutions. We will do what we usually do. That is we want those against and abstentions to be expressed. We will take due note of the number of against and abstentions, and we will calculate the number of votes cast in favor. The final quorum now is almost 93%, 92.894%, which is a high percentage for a quorum. I suggest that we don't go through all the particulars of these draft resolutions that were presented to you just a little while ago, and all the shareholders have received a copy of the draft resolutions. We'll have a show of hands to vote. And we'll ask you to wait until we finished with each resolution so that we can move on to the following one. We're going to start in a second. Resolution #1, appointment of AF and co-management as statutory manager of Tikehau Capital. Anybody against? [Voting]

Abstentions. [Voting]

Yes, 1 person, so approved. Resolution #2. Appointment of MCH management as statutory Manager of Tikehau Capital, Anybody against? [Voting]

Any abstentions? [Voting]

One abstention. That is duly noted. Resolution carried. Resolution #3, Appointment of Tikehau Capital commodity as general partner to Tikehau Capital. Anybody against? [Voting]

Any abstentions? [Voting]

Carried. Draft resolution #4, modification of Articles 14 and 15 of the Articles of Association of the company. Anybody against? [Voting]

Any abstentions? [Voting]

Resolution carried. Resolution #5, modification of Article 83 of the Articles of Association. Anybody against? [Voting]

Any abstentions. [Voting]

Resolution carried. Resolution #6, review and approval of the merger of Tikehau Capital General Partner by Tikehau Capital. Anybody against? [Voting]

Any abstentions? [Voting]

This resolution is approved. Resolution #7, review and approval of the partial contribution of assets governed by the legal regime of spin-offs granted by Tikehau Capital Advisor to Tikehau Capital for the business line made up of corporate central functions. Anybody against? [Voting]

Any abstentions? [Voting]

Carried. Resolution #8, approval of the components of the remuneration policy applicable to managers say and pay. Anybody against? [Voting]

Any abstentions? [Voting]

This resolutions carried. And Resolution #9, powers for formal -- or legal, rather, formalities anybody against? [Voting]

Abstentions? [Voting]

Resolution carried. So this is the end of our general meeting -- combined general meeting. But if you're in the room with us in Paris, please don't hesitate. We have drinks for you. But before that, we have something for you. We're going to show you something. Unfortunately, the shareholders following the webcast online, will not be able to see this video, but we have a new video about your company.