Wendel (MF) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Wendel's Q1 2023 Trading Update Conference Call. [Operator Instructions] You can also ask your question on the webcast, Olivier Allot, Director of Financial Communication and Data Intelligence will read them. I must advise you that this conference is being recorded today. I would now like to hand the conference over to your speaker today, Mr. Jerome Michiels, Wendel's, Executive Vice President, Chief Financial Officer and Director of Wendel Growth. Please go ahead, sir.

Thank you very much, and good afternoon or good morning, ladies and gentlemen. For those of you who aren't based in U.S. Welcome to this trading update on Q1 2023. I will go through a very short presentation, after which, I will be happy to take your questions. Moving to Page 2 with the key highlights of the quarter. And if I were to characterized this quarter in just a couple of words, I would say, it has been reasonably strong and very busy. Consolidated sales have grown double digits to about EUR 2.2 billion, which is the result of a strong like-for-like performance of our company that plus 8.4% consolidated. Net asset value is slightly up at plus 2.8% versus the end of last year at EUR 172.5 per share, as you will see, the increase is almost entirely attributable to the increase of the share prices of our listed assets. At the level of portfolio companies, there has been continued M&A activity, starting to finalize the acquisition of ISG, further reinforcing its position as the global leader in the field of specialty coatings and treatments. And Constantia announced 2 acquisitions, representing EUR 45 million of additional sales on a 12-month basis, and it's very much in line with the selective acquisition strategy that Constantia is pursuing. Lastly, we have been very active at a level as well with the successful issue of a EUR 750 million exchangeable bond into Bureau Veritas shares and the signing of an exclusivity agreement with a view to acquire Scalian as well as 3 direct investments that have been closed by Wendel Growth around the first quarter. All of the above is very in line with the strategic orientation that we announced as part of our 2022 earnings mid-March. Let me now move to Slide 3 and give you a little bit more color on the Q1 revenues. Overall revenues have reached EUR 2.181 billion, which is 10.4% more than last year. These results from organic growth, 8.4%, 2.2% total FX as portfolio companies and a slightly negative foreign exchange valuation, which is a sum of a negative 1.1 at Bureau Veritas and positive, mildly to very positive as other companies. On a line-by-line basis, Bureau Veritas unsurprisingly has been the strongest contributor in all dimensions with 8.5% organic growth led by sustained growth for sustainability and energy transition across all Bureau Veritas businesses. The growth has been driven by the vast majority of the portfolio. Marine & Offshore is up 13.5%, Industry 12.5%; Certification 11.2%; Buildings & Infrastructure, 9%; and Agri-Food commodity plus 7.7%. Less than 6 of the portfolio, which is Consumer Product Services declined at minus 3.5% organically due to fewer new product launches and volumes. Based on this strong quarter, Bureau Veritas reconfirmed its guidance for 2023. Constantia Flexibles has had another very strong quarter with Q1 sales totaling EUR 527 million, up 19% on an organic basis and 22% on a reported basis. This has been very strong in terms of activity and in terms of profitability and cash generation. The sales growth was driven by strong volume growth in the pharma market and low single-digit growth in the consumer markets combined to further price increases compensating the impact of cost inflation. Stahl has had a slower start of the year and the activity in the global coatings industry was generally muted this first quarter. Stahl experienced low volumes across this division only partly compensated by favorable price trends and foreign exchange. The order book, however, started to be down towards the end of the first quarter, and the company expects a progressive rebound starting in Q2 2023 and continuing towards the end of the year in the wake of a normalization along the supply chain and the end of destocking at clients. CPI grew quite significantly again at almost 15% organic growth in Q1. This growth was underpinned by the expansion of the installed base of Certified Instructor, CI as well as the related growth in renewal and peer trainings by these CIs. This growth was also driven by the expansion of the program offering which provides Certified Instructors with even more options for defensing specialized or topic facility trainings. At ACAMS, I would like to spend a little bit of time on this as the comparison of last year is not shown in the table, we closed the acquisition, as you know, during the month of March last year, which means that we have started to consolidate ACAMS after Q1 or during Q1, but we don't show comparison and the scope is not the same. However, when you look at revenue generated last year over the quarter, we see a decrease of minus 14%, which was anticipated by management as the second largest annual conference that ACAMS organized in 2022 was earned during Q1, whereas it's going to be held in Q2 this year. Plus, we had a large contract at the beginning of Q1 2022 with very large activity that was -- that transition to a more normal level over the course of 2022 and in 2023. So when we restate for the events on the prior year, we will be looking at a plus 9.6% year-on-year growth for the fourth quarter, which reflects the momentum in the enterprise sales efforts, notably in the U.S. and in Europe and the increased adoption by Chinese banks in preparation for our planned upcoming regulatory evolution. Let's now move to Page 4 for the net asset value, which stands at EUR 172.5 per share at the end of March. A few changes from last December apart from the share price of our listed companies, that -- and the issue of the exchangeable bond into Bureau Veritas shares, which increased our cash balance and our gross debt by EUR 750 million, respectively. This is reflected in the numbers you see on this page with EUR 1.6 billion in cash and EUR 2.160 billion of gross debt. The discount to NAV has slightly narrowed to 42.6%, down from the high point of September 2022, when it was closer to 50%. On Page 5, as you will see sequentially, our net asset value is slightly up by 2.8% or EUR 4.6 per share. The change is mostly explained by the increase of the share prices of our listed assets, BV is up 6.5% year-to-date, whereas IHS is up 15.4% year-to-date. On the other hand, the value of our unlisted assets slightly decreased, which is only the reflection of the decrease of market multiples used for the valuation of designated assets over the period. We have not seen any upward or down and revision of currency and outlook in the portfolio, which is not surprising at this point in time and as Q1 current trading has generally been in line with the budget. On Page 6, looking at our balance sheet and cash position, you see a very quite -- you see quite a robust picture. Following the issue of the EUR 750 million bond, our cash position exceeds EUR 1.6 billion, which could be complemented by an additional $750 million through the undrawn credit facility. So our total liquidity is at EUR 2.3 billion. On the liability side, we have EUR 2.5 -- EUR 2.16 billion of bond debt outstanding with a limited average weighted cost of 2% and an average maturity of 5 years. Our loan-to-value ratio stands at 6.4% at the end of March and should increase to about 12% pro forma of the realization of the acquisition of Scalian later this year. Speaking of which, on page 7. I -- before wrapping up this presentation, I take the opportunity to go through the main features of Scalian again. As you know, we have just announced an exclusivity agreement with the intent to acquire this company which is a leading European consulting firm, specialized on digital technologies, project management and business transformation. Scalian expects to generate EUR 510 million in sales LTM as of the end of June 2023 and about EUR 74 million in EBITDA. The track record of this company has been very robust with 12% organic growth per annum on average since 2015, thanks to the very strong management team and the unique positioning of Scalian. The enterprise value is EUR 965 million, and Wendel would invest EUR 550 million in equity. This is fully in line in terms of size and in terms of investment thesis with our strategy. We intend to play our role of active partner and contribute our expertise in terms of developing global leaders in business services, both through organic growth and M&A, which is a strong part of the value creation plan here. We are very happy with this opportunity to invest again in France and to back the CEO, Ivan Jovanovic, and the strong management team he has assembled. To wrap up on Page 8. I would say this has been a good quarter, both in terms of trading and in terms of executing on our strategic orientation. We will continue to focus very much on the trading of our companies, given the uncertain and challenging environment that it prevails. We are progressing on our road map in terms of capital deployment and have filed the opportunity to improve our liquidity through the issuance of the exchangeable bond. In the next few months, we will remain fully dedicated to execute our strategic orientation, and we report to you as part of our H1 results late July. Thank you for your attention, and I will now take your questions.

[Operator Instructions] We will now take the first question. It comes from the line of Arnaud Palliez from CIC Market Solutions.

Yes. I have 2 questions, if I may. The first one is on ACAM. I would like to know what is the stake in revenue of the conferences especially the one that was postponed to Q2. Do you -- can you give us some indications about the importance of these conferences for ACAM and for its revenues? And the second question is about Constantia. I would like to know what was the price increase, the price impact on their revenue in Q1 because the organic growth, of course, is significant. And I would like to know if these price increases are mostly food products are on a different one.

First of all, Arnaud, thanks for the question. I hear some noise in the back. Can you go on mute maybe. So your first question on ACAMS about the magnitude of the conference at ACAMS the timing results in about shy of 20% impact compared to the revenue of the quarter, which is quite important, as you can imagine. And regarding your second question about Constantia and the price impact at Constantia, as I said, the volumes grew, I would say, modestly at both divisions, it's slightly more at pharma than a consumer and -- but prices were -- the price effects were very strong at both divisions during the quarter. So when you look at the organic growth, I would say most of it comes from price, but there is a little bit of help as well. On the volume side, both are positive at consumer and pharma with a slightly better -- higher impact at pharma.

Every year? Or there are several ones?

Sorry, there was a conference?

Yes, there is just 1 conference organized by ACAMS or there are several ones during the year?

No, no. There are several conferences. Can you go on mute. Thank you. There are several conference, but this one is one of the largest. I have -- 2 big conferences in mind, but I think there are also some smaller conference. This one is really moving the needle when it goes from 1 quarter to the other. As I said, impact can represent up to 20% of quarterly revenues, so that's quite sizable. But this is, as I said, one of the largest -- it's the second largest actually.

[Operator Instructions] There are no questions on the phone at this time. Please continue.

Okay. Thank you. So there are questions from the web. Are you relatively confident with the present valuation of the unlisted assets? Do you expect a negative latency FX involved value issues?

Thank you for your question. Yes, we are confident we -- the NAV valuation is a very thorough process. We spent reasonable time on quite a sizable amount of time on each asset actually. We are updating our views on multiples, and we look closely at the peers that we use for the valuation. We have a third-party valuation experts performing its own valuation, and we look at the valuation between the 2. So this is really something that we spend a lot of time on and feel comfortable. Do we expect any change going forward? Well there are 2 aspects that can change valuation or the 2 major ones, I would say, the first one is the trading activity, which has an impact on EBITDA and in the end on net debt, obviously, which is a key driver here. And the second one is market multiples. As I said, in terms of EBITDA, we haven't seen any resilience during the first quarter to the current year's budget. So all companies are seeking to their budget, they have not revised upwards their business. They have not realized downwards their business. It's very difficult to forecast on a quarter-to-quarter basis because most of our companies have a limited order book. They have visibility over the next quarter at best, but not beyond that. And especially in these times of high sense volatility and uncertain, I would say, macro environment, it's very difficult to forecast whether there will be any sizable change on the upside or on the downside to the EBITDA and EBIT that we use for this year, but at this point in time, we have no reason to believe that budgets have to be adjusted. Regarding the market multiples, I think it's anybody's guess, very difficult to forecast as well. Especially as we are using industry multiples, which do not generally reflect the broad market. I mean for Constantia, we are using packaging companies, multiples, Stahl, specialty chemicals and more diversified chemicals and CPI, ACAMS, we are using the government risk and compliance sector multiples. So it's the subset of the market each time which moves -- as it is starting in sake, and it's very difficult, obviously, to make a guess to where these multiples will go in the next few months. I guess it very much depends on the macro environment and the interest rate, et cetera. So but as I said, apart from that, no strong valuations to be expected because the rest is really mechanical. So the one thing that I can say is that we see no reason to change our views on the trading and the budgets of our companies at this point in time for 2023, neither on the upside nor on the downside.

Thank you. We have questions on Stahl. Can you elaborate on factors explaining Stahl's weaker performance this quarter. To what extent whether it's industry-wide or is it affecting Stahl disproportionally? Is it more linked to laser or to performance coatings? Is it explained by automotive sector or China?

Thank you. Well, as I said, it's a broad, an industry-wide phenomenon that we have observed during the first quarter. So Stahl is -- in terms of organic growth down 12.5%. When you look at other players like BASF, BASF is down 13.2%, so slightly a little bit more than Stahl whilst the element, which is another comparable company is down 7% organic. And this company is referring to the weak demand in electronics and in the Asian markets overall. At Stahl, we -- where most of the surprise came, I would say, is on the coatings side, leather has been more in line with expectations and even slightly higher than expectations. And the comments, the read across that we got from these players really points to an industry-wide phenomenon where volumes have been affected during the first quarter. At the end of the quarter, we see the order book of Stahl slightly increasing, which is positive news and which gives us a good confidence on Q2 but we are delivering that. And I think again, the read across from other players is also pointing at, I would say, a better situation in Q2.

Thank you. We have 2 questions on LEV. So for unlisted assets, was there material impacts from time scope effects or aggregates or changes in the comparables company. About comparables, can you elaborate on the one you use for CPI and ACAMS?

Sure. So at this point in time, there is no change in time scope as we are not -- I mean, at this point in time, we use 2022 actual numbers and 2022 preforecast exactly at the end of December. So from December to March, there is no change in terms of timing. There can only be a change if we change our views on current year. But as I said, 2023, no changes. So we are still using the same numbers for our companies than at the end of December. The only changes relate to the multiple, which has on average decreased, and this depends which companies we are looking, but it's pretty much across the board. I mean, Stahl chemical companies that have seen their multiples decreased slightly. And generally, at ACAMS and TFLEx, we have the same phenomenon. And the rest is really -- the rest of the changes are related to foreign exchange, for instance, when we look at our U.S. companies, CPI and ACAMS, but it's pretty minor. Regarding the comparable that the company that we use for Constantia for, I think, called CPI and ACAMS. We use a broad set of governance, risk and compliance players we are using quite a lot of companies actually about a dozen for CPI and diversified in terms of type of services that they provide and in terms of geography and a slightly shorter list of peers for ACAMS we have more like 7 companies, but we think these companies in this sector covenants, risk and compliance reflects the type of multiple on average that these companies could be fairly valued at.

Thank you. Question on Scalian. Can you elaborate on the acquisition of the company? Was it a competitive bid? What were the big contenders their profile?

Well, we do not comment, as you can imagine, on this -- specifically on these processes. But yes, it was an auction. Although it was, I guess, a limited auction involving strategic players as well as private equity funds as well as strategic players backed by private equity firms. It was, I think an asset that attracted a lot of interest. So -- which is not untypical for companies of this quality given the growth potential, given the profitability, the quality of the business model, one should expect to see cost process when it comes to buying these companies. So this was very much the case.

Thank you. Two questions on the listed assets. Now what is Wendel's commitment vis-a-vis Tarkett, is it still a long-term investment or a disposable one?

There is no change in terms of our commitment to Tarkett. It's -- we have made this investment in 2021, and we currently extreme, it's still listed and it's part of our listed investments, but there is absolutely no change in terms of our commitment for this company.

Thank you. Question about BV. What is a valid assessment on BVI's transition towards edge computing, IoT and automation in certain certification usage. Can you give the share of sales and growth linked to these new technology called evolutions.

I think you should put this question to BV directly because I -- I'm not sure that I can be able to give you an answer. But BV is involved, obviously, with the advent of IoT and the classification of these new technologies. As you can imagine, they are large players within this market on the consumer side of things. And they are also, I would say, increasingly involved on the cyber part of certification as you might be aware, that you made an acquisition, I think, in 2021 in the company called Secura, and out of which they are extending their cyber offering. But to have precise numbers, I think you should reach out to the company directly because they don't have the exact information.

Thank you. We have now, I think, 2 more questions by phone.

We will now take the next question. It comes from the line of Alexandre Gérard from CIC.

First question is on IHS. We very rarely talk about IHS because they always publish their numbers with the delay. But the SOX has been rebounding sharply recently. Can you start maybe to feed a renewed interest from investors on that company? Can you tell us about their maybe a noticeable positive and negative achievements recently? So that's fine. My first question. Second question is on Stahl. I must admit that I'm a bit lost regarding the like-for-like, I would say, ex-ICP trading for the full year. How do you see the revenues and EBITDA for the full year ex-ICP up or down compared to 2022? And my last question is on the Wendel lab. Have you seen any material changes in the valuation of some of the assets included in the Wendel lab for the first quarter of the year?

Thanks, Alexandre. So regarding your first question on IHS. Yes, you're right, the stock has been increasing quite strongly and even stronger since the end of March, we -- I referred in my presentation to plus 15% between end of December and end of March, when I look at the current levels year-to-date, it's up 50% at $9.4 and change today, which mostly results from better-than-expected 2023 guidance. I think 2022 results came very much in line, these were strong results but anticipated by the market. But I think 2023 guidance came at the top of the range of the Street consensus. Do we see more interest from investors? Difficult to tell. I think the trading volumes have been on the rise, for sure, since the IPO. So it's now less thinly traded than before, but it's still -- we are still looking at really small volumes -- the free show is limited. We always said and told you that it will take a few quarters before the market gets more confidence in the ability of management to deliver on their results. It's happening gradually. Nigeria remains a difficult place despite the general election that took place recently, there are still some -- a lot of issues and some of them still pending. If you think of the dual currency, for instance, it's still open. And it's certainly a key question mark for investors when looking at IHS. But on the execution side, results were good. They extended the majority of their facilities, they refinanced locally. They are really doing a good job at managing the capital structure and executing on the strategy. So based on this strong elements of execution and results, it has lift the share price, and it has been good. I hope it will continue. Regarding Stahl, you acquired about the budget for this year, which is a nice try from you, Alexandre, but I'm not going to be more specific on that, whether it includes or excludes, I think, the only thing I can tell you is that Stahl still has very healthy margins. We expect synergies to be generated through the acquisition of ICP, which further complements the position of Stahl in the coatings industry and in a very attractive market. And management is fully dedicated to the integration of ICP. I'm sure you will have the occasion to have a conversation with Maarten as you will, I'm sure, attend our Investor Day later this year. But I can't be more specific about the expectations in terms of budget. Trading is strong. Despite the first quarter which has been softer than expected, as I said, but in line with the main peers and with some encouraging trends at the end of March to be confirmed in the later part of the year. Remaining -- your remaining question on Wendel Growth. What are we seeing when we are very focused on our 3 investments that have been made quite recently. We still see a lot of opportunities with companies experiencing good growth and the best companies are still growing at 50% to 100%. And this is the type of companies we are looking at. Some need to raise and are in discussion with us. But capital raising has been much more limited. As you can imagine, given the environment I think most companies are focusing on their cash situation and do not want to come to the market as the risk down now. I think -- we are very happy that one of our investments and AlphaSense again, at very favorable terms. But I think it's still difficult to raise, especially from these types of transactions, very large except if you have a very, very strong growth profile and a very strong positioning, which is the case of AlphaSense and some of the companies that we see, but there are less situations than in 2021, that's for sure.

We will now take the next question. It comes from the line of Patrick Jousseaume from SG.

Yes. But in fact, my question was exactly the same as the one asked by Alexandre on IHS. So nothing.

Okay. Sure. Thank you, Patrick. Thank you. I have additional questions from the web. Could you come back and elaborate on the trend of valuation of people for nonlisted assets, especially for Stahl and CPI. What is your view on Tarkett as of now? Does it make any sense to keep it listed?

So on Stahl and CPI, as I said, we have -- on Stahl, we have a negative impact related to market multiple. It's -- on CPI negligible, were people were pretty much in line between December and March, whereas for Stahl, we have a market multiple effect, which is more pronounced. But I mean, overall, the value of the private equity investment is down by maybe 2% or 3%. So it's very small. I mean we are looking at EUR 3.4 billion down by 2%. So it's really negligible, but this results from some slight movement in terms of market multiples at some of our companies. The second question was about your view on Tarkett. On the listed status where we have not changed our views on Tarkett. Since the end of the offer summer 2021, we are not in a different state of mind.

Thank you. We have no more questions. Thank you.

Thank you, everyone, for your time and attention, and we will come back to you at the General Meeting on the 15th of June and then at on July 27 for the H1 results. Thank you very much, and have a good day.

This concludes today's conference call. Thank you for participating. You may now disconnect.