Tikehau Capital (TKO) Earnings Call Transcript & Summary

Thank you very much, ladies and gentlemen, for joining us for this general meeting of your company, which is going to deliberate on the results of the fiscal year 2022, and we are also going to discuss the running of the company this year. This general meeting is organized as convened by the management. You saw the communication on the website of the company and also in line with the law the documents related to this general meeting. I have with me Mr. Antoine Flamarion; Mr. Mathieu Chabran, representing the management; Mr. Henri Marcoux, Deputy CEO of Tikehau Capital; and Mr. Geoffroy Renard, COO; Mr. Simon Beillevaire, who is here, statutory auditor representing Mazars, is representing the college of auditors. I would like to thank the members of the Supervisory Board. Most of them are with us. And I would also like to thank the partners and members of Tikehau Capital management who are here. I would also point out that this general meeting is broadcast in its entirety and live on the webcast of the company, and the presentation that you are going to receive will be available to rewatch on the website. If you agree, I'm going to Chair this session. And I would like to remind you that as far as attendance are concerned, they are the 2 members of the general meeting with the highest number of votes who have accepted this function. If I refer to the list sent to me by the Societe Generale, the present shareholder with a higher number of votes in their own name or by proxy is Ms. [ Pauline Gager ], representing Tikehau Capital Advisors, who said that she accepted this function of teller. Thank you, madam. And the second shareholder present with the highest number of votes personally or by proxy is The Fonds Stratégique de Participations, FSP, said that they agreed to serve as teller with representation by Mr. Andrea Beneventi. Thank you for being with us. I would like to suggest to appoint Mr. -- sir Geoffroy Renard as secretary of the meeting, and I'll give him the floor so that he explains a few things about how this meeting is going to unfold.

Thank you, Mr. Chairman. We've just received the temporary quorum, which is 92.88%. This is a very high quorum. You know that we care about this every year. We make sure that we have as many votes of shareholders represented. This is due to the work of our teams that we would like to thank. And so that we have a high number of votes by as many shareholders as possible. With this quorum, this meeting can validly deliberate. It's higher than what is necessary, both for the ordinary part and the extraordinary part of the meeting. I would like to point out that we will know the final quorum before we vote on the resolutions. And of course, this quorum is going to be recalculated for each resolution, if necessary. Regarding the agenda, you received the convening documents. They are on the -- they contain the agenda. I'm not going to explain the agenda again. Later, we'll have a description of the draft resolutions. So we'll come back to the agenda. The meeting documents are available on the website of the company in accordance with the law. I will also skip reading of this list of documents, documents available on the desk of this meeting and the universal registration document 2022, of which copies were available at the entrance of the room. This document includes the agenda, the draft resolutions, the Management and Supervisory Board report, all that prepared for this meeting. We also made copies of the business report and the sustainable development report available for your reading. Our meeting is going to be organized as follows, if you agree. First, we'll give you a presentation of the company's activities for 2022 and also the '22 results and the prospects for Tikehau Capital. The company did not receive any draft items for the agenda or draft written questions from shareholders. So we're going to move immediately to a discussion between the management of the group and shareholders, and they will answer all your questions before we move on to a vote on the resolutions.

I suggest that we start with a business review of your company for 2022. If we try to derive the highlights of the fiscal year, in summary, we should highlight that Tikehau Capital had a sustained pace of capital deployment through all asset classes for EUR 7 billion for 2022, whilst remaining highly disciplined and selective in the investments made. On the other hand, we also made value creating these divestments for EUR 1.8 billion, up 20% compared to the previous year. Regarding fundraising, thanks to our positioning and solid performance in our investment strategies, fundraising reached a record level of EUR 7 billion or a 27% increase compared to 2021. Finally, we strengthened our commitment for sustainability and impact. So the amounts outstanding for our impact platform reached EUR 3 billion, of which EUR 2.3 billion entirely devoted to climate and biodiversity. The remainder is invested in areas like cybersecurity and resilience. Finally, we carried on making progress abroad. So 71% of our fundraising is coming from international investor clients. The financial performance of the company was very -- has been very robust since the initial public offering. I'll remind you that the IPO occurred in 2017. And so it seemed interesting to give you a historical reminder between the fiscal year 2016 and the situation at the end of 2022. So the amounts assets under management reached EUR 38 billion at the end of 2022, exceeding the target that we'd set. Income from asset management exceeded EUR 300 million in 2022, thanks to the sustained growth of management fees. Operating income from asset management, excluding performance fees, reached EUR 97 million. I'll remind you that this amount was EUR 3 million in 2016. Our net income reached EUR 320 million at the end of 2022, reflecting solid performance, both for the asset management business as for the investment portfolio management on the assets of your company. As you can see, the growth trend has been very good since the IPO of the company and for all factors. To try and summarize all of these figures, you could summarize the fiscal year 2022 as follows: selective -- major selective deployment, so EUR 6.9 billion, of which 63% in private debt; an acceleration in divestments, plus 20% compared to last year; and very dynamic fundraising, up 27% to reach EUR 6.4 billion. Regarding strategies and prospects, I'll ask the management and especially Antoine to please tell us more about it.

Thank you, Mr. Chairman. Ladies and gentlemen, dear shareholders, I'm delighted to see you again for the Annual General Meeting 2023 of Tikehau Capital. A few words about our investment themes that are based on our beliefs, and we have strong beliefs. Tikehau is still building a bridge between global savings, which have been growing strongly and looking for yield, and the real economy because we are financing a number of projects in various themes, both with equity and debt. Here, you can see our 5 main activities, our 5 main business lines. Within these 5 business lines, you know that we've carried on innovating, and we are still innovating, adding various verticals. And in the next few years, we shall strive to add more verticals so that we can diversify our activities, but also offer all of our investors opportunities for attractive yield. Regarding figures, if you look at these various areas of expertise, we reached EUR 38.8 billion in AuM through 5 strategies, as you could see. Private debt now accounts for EUR 14.8 billion in AuM, and it should grow fairly quickly against the growing backdrop of credit crunch across the board. Real assets worth EUR 13.7 billion. Real assets are both real estate and infrastructure, infrastructure being mostly located in the U.S. We'll end the year with EUR 5.2 billion in private equity, where we are mostly focused on minority private equity along certain themes because this is what we are doing with the energy transition in aeronautics and cyber, in particular, EUR 4.1 billion in capital market strategies, which are still growing in slightly more challenging climates and context for liquid assets than for private debt and then our indirect investment portfolio for EUR 900 million. These 5 verticals are deployed through various typologies of vehicles. I will quickly comment. Permanent capital so that we can manage very long-term capital, these are our evergreen structures, so either REITs or some dedicated mandates, closed-ended funds, which are the bulk of our business, specific evergreen mandates that we are growing more and more recently, green -- open-ended funds, our CMS activities. And as you know, we launched a number of SPACs in 2022 that we are still developing. Because unlike what most people think, this is a very good tool, and we de-SPAC-ed the first company for almost EUR 500 million in EBITDA, which is doing rather nicely on the stock market. So this is our business, and I will give the floor to Mathieu.

Thank you. Thank you, Antoine, and good afternoon, ladies and gentlemen. As Antoine was saying a minute ago, what is making your company strong is its diversification in terms of sectors and geographies. Our investment strategies are deployed via a variety of sectors and especially industries. I'll come back to it. No sector accounts for more than 7% of investments apart from real estate. We'll talk about it. And the real estate platform at Tikehau is very granular with over 8,000 assets now. At the end of December 2022, we had a level of dry powder, so available cash in our funds of roughly EUR 6 billion, which is a significant pool to seize future investment opportunities. In terms of geographical exposure, our strategies are mostly deployed in France and Continental Europe. The U.K. accounts for a smaller share of our assets, whereas the share of North America is growing, thanks to differentiating strategies that we're deploying in the area, especially with secondary private debt, we told you about that last year, and infrastructure, as Antoine reminded us, and also private equity for the energy transition. Now I'll come back to the robustness of our portfolio of companies. In the current environment, the private debt business has a very attractive yield to risk profile. The financing instrument that we offer are variable rates. So if rates increase, of course, mechanically, the yield of our funds increases. And generally and via all our asset classes, we are very cautious when it comes to the use of debt and leverage. The level of debt of the companies in which we invest are very weak and very low compared to most of the market in Europe and especially in North America. To give you 2 examples, we are 4.4x leveraged for the companies that we finance. The average in the world is 5.9. And that's the -- European average is 5.5. And in the U.S., it's rather 6 to 6.5. The operating performance of our companies remained very robust through all asset classes with strong growth in revenues and EBITDA in the last 12 months, both in private debt and private equity. The nature of the companies in which we invest is to be growth companies and profitable growth companies. In real estate, the occupancy and rent collection levels that we track are very high, respectively, 90% and 97%. Overall, we remain very disciplined in our investments, and I hope that this will come as no surprise. So we could deliver solid performance for our clients and for our own balance sheet because as you know, our balance sheet is mostly invested in Tikehau strategies. As the Chairman was saying previously, one of the pillars of your company's growth is its international development. At the end of December 2022, international investors accounted for 37% of the AuM or EUR 14 billion roughly, an increase of 17% compared to 2021. If you look at the change versus 2016, the year before the IPO of your company, the AuM coming from non-French investors was multiplied by 7. It's also noteworthy that over 70% of fundraising coming from third-party investors was done with international investors in 2022, which, to date, is the highest level. This illustrates, we think, the relevance of our multilocal model that we were talking about and that we are still developing internationally in order to meet demand from our clients and also investment opportunities. And now I'll give the floor back to Antoine.

Thank you, Mathieu. In our fundraising part, as you know, we have developed a number of strategies and vehicles devoted to private investors, because eventually, we captured international investors, institutional investors in the last few years. And we also decided to spend more time with private investors because institutional investors are made up of private investors. And so we did that with various channels, so that now we have 22% of our AuM coming from private investors. The global peer group, the big U.S. and European peers are slightly over 10%. So we have a lead in fundraising from private investors. We use a multichannel strategy. You have a few examples here. First, we were pioneers in insurance products, unit-linked insurance products. You have 3 examples here with MACSF, CNP and Sogecap that we launched. What's interesting is that it's both fairly innovative because there are a few private unit-linked vehicles. Most French savings is invested with insurance companies, and we can see that we are raising nice amounts. So for the MACSF product, we collected hundreds of millions of euros, and it's still going on. And with Sogecap, we launched another one, which is quite promising. These are the 3 examples. We have another few projects in the pipeline with other insurance companies. So we've beefed up this fundraising channel. What's more, we launched 2 platforms, digital platforms, both Opale Capital, which is fully Tikehau native. We created it from scratch. It's a platform to collect retail savings devoted to closed-ended funds. We started marketing funds that are not Tikehau funds, so Kinsight and Saga. It's a quick plug for our peers. And so we launched our own digital platform. And the start was fairly promising. It's less than a year old, but it's quite promising. Moreover, we put some of our funds on iCapital. If you are not familiar with it, it's slightly over 10 years old. It has EUR 150 billion in AuM. It's a North American platform. We listed 2 of our products on this platform, and it's turning out to be quite encouraging. On third channel, you have 2 examples here. We have partnerships with private banks rather outside France. So you have 2 examples with Fideuram in Italy and Banca March in Spain. Last year, we had a partnership with FAB, First Abu Dhabi Bank in Abu Dhabi. So with all these channels, we continued on. We think it's very promising, and that's the way of the future. And if you look at the fundraising for 2022, 31% of fundraising came from retail savings. And so we have a number of channels in place, and we will continue in that direction. Maybe looking at the balance sheet exposure to our own management activities and funds. As you know, we care strongly about having skin in the game, having the team invested in the company's funds. And so directly or indirectly, all of the employees of the company own 57%. When we invest EUR 100 million in a fund, this means that the whole team collectively invest EUR 57 million. We had a relatively low percentage at the IPO. We had 35% invested in our own funds. Now we're at 79%. We set a guidance between 75% and 80%. What is for sure is that by investing in our funds, we can make our portfolio a bit more granular, diversifying risk. And that way, we can undoubtedly accelerate our fundraising, but especially our innovation because all new strategies that we are launching are launched from our balance sheet. If you remember, in 2018, we started energy transition with a balance sheet investment of EUR 100 million. Now we're happy to launch the new generation of the energy transition fund, where we are investing EUR 200 million. It was the same thing in aero or cyber or regenerative agriculture. With that, we could successfully launch our private debt activity. So slowly but surely, we'll carry on investing balance sheet money in our own products.

Thank you, Antoine. A word about the platform, what we call our multilocal platform. Now this platform is global with 14 offices over 3 continents so that we can be present locally with our investor clients, but also, we can be close to investment opportunities. We opened 2 offices in 2022 in Switzerland in Zurich and in Israel in Tel Aviv. And noticing earlier, we want to continue growing internationally, but very selectively. Now Tikehau has 742 employees, 48 different nationalities, a figure that I'm particularly proud of personally. I'm proud of this cultural diversity, and I would like to thank every one of them for their flawless commitment. We continued striking solid partnerships during the fiscal year with governments, with big industrial companies. We give you a few examples of financial companies to carry on in innovating, create, not compete, and create differentiating investment strategies for our clients. This platform is a differentiating asset that will be at the core of our future growth. Now a word about a very important thing, our sustainability commitment. This is an essential item for this company. It's part and parcel of all of its actions and every aspect of its model. A few indicators to gauge the sustainability commitment of your company. To start with, 60% of AuM are coming from funds that are listed Article 8 or 9 according to the SFDR EU regulation about the disclosure of sustainability information and financial services. Another item, 20% of variable pay of the team is indexed on social or climate-related goals. And 65% of the corporate debt of your company is related to sustainability criteria. These are very objective evidence and concrete evidence of the way we embed sustainable development in our model. At the end of 2022, EUR 2.3 billion were dedicated to the climate or biodiversity or invested in them. And we're on track to reach our public guidance of EUR 5 billion in AuM devoted to climate and biodiversity by 2025. This commitment, your commitment, the commitment of this sustainable company was rewarded in 2022 with a very satisfying ESG rating by Sustainalytics, ranking us amongst the top 4% of the most effective companies in this sector. In this context, we are reasserting our ambition by 2026, what we disclosed on the Capital Markets Day of March 2022, to have over EUR 65 billion in AuM for asset management, a minimum of EUR 250 million in operating income for asset management, which is 2.6x the amount of 2022, and reach a return on equity of 15%. This figure was 10.2% in 2022. Thank you. I'll now give the floor to Henri Marcoux, who will tell us more about the 2022 accounts, and we'll be happy to take your questions after his presentation.