Eurazeo SE
PAR:RF
Eurazeo SE
PAR:RF
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[Interpreted] Ladies and gentlemen, hello, and welcome to the Eurazeo conference on figures for Q1 2020. And I'm now going to give the floor to Philippe Audouin, Director General of Finances at Eurazeo. Gentlemen, you have the floor.
[Interpreted] Thank you. Welcome to all, and thank you for coming here today for the publication of our sales figure for the first quarter 2020 at Eurazeo. I hope that you and your close relatives are well, first and foremost. And before I present in detail the activity of Eurazeo in the first quarter of 2020, I'll just say a few words. First, Eurazeo took very quickly the measures that were necessary to ensure optimal health protection while maintaining most site -- production site and activity. In terms of operational management, we took special attention to preserving the cash flow and controlling cost in each of our companies at the same time. Activity at Eurazeo for this quarter resisted well in spite of confinement, and I'll come back to this in a few moments, and this shows the strength of our diversified model. The management commissions stemming from our asset management activities have even seen growth in the first quarter, considering fundraising in 2019. This activity is very resilient by nature, and most funds that we manage are closed funds with durations from 5 to 10 years long. Finally, our balance sheet is very solid with over EUR 350 million for net cash flow at the end of March, and a credit line was confirmed of EUR 1.5 billion that was renewed at the end of 2019 for at least 5 years and possibly going up to 7 years. We drew EUR 400 million on this credit line, which brings our gross cash flow to EUR 750 million. The strength of this balance sheet allows us as of now to be very reactive to support very selectively the companies that need it and later seize opportunities of investments that will arise. Let's come back to these different points. First, the economic sales figure of Eurazeo recorded a limited decrease of 4.5% on constant scope of Eurazeo for the first quarter 2019. We did a good beginning of year with an increasing sales year by 8% at the end of February before being impacted at the beginning of March by confinement measures linked to the COVID-19 pandemic. The decrease in March is minus 25%. To better understand the impact of the crisis on our portfolio, we categorize our activities within 4 categories according to the current impact and potential impact of the health crisis on their activity and potentially on the adjusted net asset value. So the first category, that represents most of the share of the portfolio, 35% to 40% of NAV, is resilient activities that are little impacted short term and that have high revenue -- recurrent revenue levels and are limited consequences of the pandemic -- exposure to the pandemic, and for instance, so mass consumption services and products. The second category, which represents 25% of NAV, is companies that -- so are subjected indirectly or so temporarily impacted by the impacts of confinement. The third category, 15% to 20% of NAV, which are companies here that are directly impacted by so overall confinement of populations, and -- but that should pick up again very quickly once confinement is loosened up. And finally -- and this especially with the companies linked to mass consumption. Finally, category 4, these are companies that are directly impacted by confinement and where the picking up of activity should be more protracted. So in this last category, we have companies that are very strongly impacted, mostly the -- so traveling and leisure segment, which represent 20% to 25% of our NAV. And so variations of sales figures on the semester confirm the relevance of this categorization and resilience of most of the portfolio. If we exclude the last segment, so traveling and leisure, the sales figures of the last -- of all the other companies, which represent about 75% to 80% of our NAV in value, would have been stabled on the quarter with a limited downturn in the month of March at only 7%. An important point, these figures do not take into account the sales figures of Eurazeo Growth companies, which were not consolidated because we are usually minority stakes, but these companies recorded a growth of over 60% in weighted average on this quarter, thanks to their digital native positioning. The second important point has to do with our investment policy, which has continued to be selective. Starting in March, our investment activity slowed down because of the economic uncertainty that we're all aware of. Over the course of the quarter, the Eurazeo Group invested EUR 455 million, including EUR 147 million that were funded by the own funds of Eurazeo. Eurazeo Growth was particularly active with a total of close to EUR 150 million invested to help the growth of companies such as Back Market, ManoMano or Vestiaire Collective. These investments, which are part of the launch of our Eurazeo Growth III Fund, allow Eurazeo to help these companies to continue growing. And they've continued growing, and their growth has even gone up, for some of them, in the -- over the recent period. Eurazeo Growth has become significant and represents 12% of our NAV, which is the equivalent of EUR 770,000 and with EUR 1.2 billion in AUM. This has been a significant part of our third-party management growth, and we've become a major actor in Europe in this expanding market. We have disposed of EUR 220 million over the course of the first quarter, including EUR 57 million, which are part of Eurazeo's own funds. Among these disposals, Eurazeo Patrimoine, our real estate unit, had its first disposal, so it's an important disposal. And we got -- we disposed of the entirety of CIFA, which is one of the top European consumer goods group in Aubervilliers. And the disposal of this transaction represents 2.2x the initial investment with an IRR of roughly 18%. We have continued to benefit from the growth of our asset management activity, and we have AUM of EUR 18.8 billion. As of March 30, 2020, this is divided between EUR 12.6 billion for third parties and EUR 6.2 million for NAV. In compliance with our methodology, our assets are not part of a quarterly revaluation. As of March 31, 2020, our NAV per share was at 78.4%, which represents the variation in our cash flow and the mark-to-market of our listed companies, Europcar and Farfetch. These 2 companies represent today 2% of our NAV. As of the end of March, there was a decrease in the share of Europcar, which was compensated by our NAV and -- in the NAV by the increase in the share price of Farfetch. We have also seen, in terms of fundraising, that we've raised EUR 283 million over the first quarter, including EUR 150 million over the first quarter outside of 2019, outside of the closing of Eurazeo Capital IV. The group has a pipeline that is well stocked in terms of all different asset classes for the first quarter to come. So given uncertainty on the macroeconomic level, we have a strong likelihood, however, that certain fundraising initiatives will have to be pushed back 6 to 9 months. So the revenue tied to management commissions, which are recurring, are increasing from -- by 21% to EUR 57 billion, rather. And this is under the effect of funds raised in 2019 at a record level, which shows our resilience. The revenues tied to performance commissions have been limited over the quarter because of an absence of large disposals. After the closing, 3 events have to be highlighted. In accordance with the agreement signed in 2018, Eurazeo exercised its disposal option -- rather, it's call option for 10% of the additional capital of Idinvest Partners. And this transaction has brought our stake to 80%. The closing of this operation should happen in the next quarter. MCH, a Spanish management company that we had acquired 25% stake in last year, had its first closing of a new fund MCH V. And lastly, the signature of the Eurazeo China acceleration fund, in partnership with China Investment Corporation and BNP, took place. So what shall we say by way of a conclusion? The world has changed significantly over the first 3 months of the year. The measures that have been taken in many countries have impacted the economic situation and created a lot of uncertainty. In this context, the Eurazeo model, founded on diversification and the diversification of assets in particular and of our locations and our funding sources, while being founded on a solid foundation, this model, together with the involvement and responsiveness of all of our teams, has allowed us to limit the negative impacts, and that is a testimony to the results -- the results we've seen are a testimony to that strong model. So this is our long-term vision both in terms of operations and investments, and this is what's going to allow us to support our companies in the future over the long term with discipline and with respect for our governance. Thank you for your time.
[Operator Instructions] [Interpreted] First question from David Cerdan.
[Interpreted] Hello? Do you hear me?
[Interpreted] Yes, hello, David. We hear you. Speak loud and clear, please.
[Interpreted] Okay. I'll try. So I'd like to come back to what was said at the end of the conference on prospects. Could we know a little bit more on the evolution of revenue for the month of April, please? So that's the first question. Secondly, in terms of reinvestment in assets that are detained by Eurazeo today, have you taken stock of the needs of companies that are maybe at the most vulnerable that represent 20% to 25% of the portfolio? And is there any need to reinject cash? And if so, to what extent? So that's the first part. And also, could we have -- so an adjusted value of the current portfolio and current value of these companies, have you so updated the business plans and assets of these companies? And last question on dry powder. This was at EUR 3.8 billion in April. And here, you mentioned EUR 1.5 billion. And so I just wanted to check and understand why there was a decrease in this figure.
[Interpreted] Thank you, David, for these questions. So dry powder is simple. It's simply the effect of investments that were conducted since the beginning of the year that I mentioned at the beginning of my presentation, which consumed part of this dry powder. So in terms of prospects for April, we didn't communicate any information on April. Obviously, we could so assume that the month of April is going to increase the gaps between so these -- so as of April was impacted by very expensive consignment over the whole month, and so companies that are directly impacted by consignment will be more affected in April. And the companies that were resilient so are still progressing in terms of the -- so digital growth, for instance, companies, as I mentioned. And they will be continuing showing the resilience and even progression in this context. So that's what I can say for April. We will, of course, make a more detailed assessment during our next conference in April, which will show us for -- excuse me, the next month for April, which will allow us to assess the impact in April and see how our companies will have been able to come out of consignment and pick up activities, which we hope will ultimately allow them to go back to normal. Now your second question in terms of cash investments, are we following this closely? Yes, of course, we are since the beginning of confinement, very first day. This was our first point of attention. We have not put any figure down in stone, and of course, things are constantly evolving. What I can tell you today is that the amount of reinvestments that we're considering within the portfolio for Eurazeo SE is actually quite limited, first, because, as I said, we have a fairly important share of our companies which is not or very little impacted by the crisis; and secondly, among those that are impacted, many of them had that availability of credit lines and -- that were not drawn entirely. And for most of them, they already had their own investment options, which preclude having to call upon their shareholders. And so overall, we expect consumption of resources for Eurazeo that's going to stay quite limited on this part. Now third question in terms of readjusting the value of portfolio, we did not do this valuation at the end of March because it wouldn't be reasonable, I believe, to do this at the end of March, considering the visibility that we have on the situation of these companies that is most likely going to evolve. We don't know how long confinement is going to last in some places or the loosening up and activities picking up. But we are looking into this very closely since the beginning of the crisis to think and try to identify the methodologies that are most relevant for the -- so the NAV that we will communicate at the end of June. What I did tell you will allow us to make a few assumptions in this respect what's the percentage of the NAV that represents each category of assets. And it's not necessarily any less detailed or wrong than the more complicated calculations that we could have done by really assessing every single asset of the different companies.
[Interpreted] Another question that I may have gotten. So Idinvest in terms of 10%, could you give us the purchasing price?
[Interpreted] We will communicate detailed information. But what I can tell you is that with our agreements with managers and partners of Idinvest, so the purchasing conditions were already determined in the agreement that we signed in 2018, and so no questions in this respect. If you remember, we bought the first 70% of Idinvest on the basis of assumptions that we believe are cautious. And the second tranche will be applied in 2020 and the last for '20 -- the end of 2020.
[Interpreted] Next question is from Pierre Bosset from HSBC.
[Interpreted] Philippe, can you hear me? I want to ask the question in a different way. Can we have the breakdown for the companies that have discussions underway with partners? What about the credit lines that are going to be obtained? Could you give me some more details on these issues?
[Interpreted] This is something we're studying closely, as you can imagine. Our company's assets are being studied with -- in close partnership with our central office team. We're following each situation very closely. There are certain companies that we will have covenant issues with in the months to come. And for most of them, the covenants have already been negotiated, so we're not expecting any major issues on that front.
[Interpreted] Next question from Alexandre Gérard.
[Interpreted] Philippe, I hope that you can hear me all right. I have a question about the EUR 400 million in terms of credit lines. Is this just a safety precaution? I think you already have EUR 500 million in cash flow at the end of December. Second point has to do with Idinvest. The 10%, we haven't taken it for the moment. Regarding the remaining -- the 20% that's remaining, is the percentage going to apply moving forward for 2021? Could you tell us more about the option or the call option that you have? For iM Global and for another company, you have 60% and there's 30% remaining. Regarding private debt, have you noticed increases in flow rates for companies? Could you tell us about that? And last question, I've understood from our previous conversations that you were interested in another asset class structures -- structured asset class. This is tied to mid-cap companies in North America, the types of companies that manage third-party assets. I have another question. I haven't understood the point having to do with the change in the methodology of NAV calculations. Can you go back to over that point?
[Interpreted] Alexandre, would you repeat your third question, please?
[Interpreted] Yes. It had to do with the private debt. Have you seen any default rate increases that might impact the performance of private debt funds managed by Idinvest?
[Interpreted] To respond to your first question, in February, when we could feel the crisis coming on, we reevaluated our ability to react quickly. For now, we haven't had to undergo any changes, so this has not been used. It's a safety cushion at this stage, you could say. Second point, this is going to apply to 2020 and 2021 figures. That's regarding your second question. I'll go back to the call option. We don't have default rate problems. We've been investing mainly in senior debts in very strong companies with solid capital. Idinvest does a lot of screening, so we haven't looked into that kind of activity. Fourth question, structural impact, yes, this is something that could impact us. Eurazeo having an investment in the U.S., this is something we could look at. And we may be able to talk about this in the future, but nothing is looked at over the short term. And regarding the NAV calculation methods, it's going to be complicated on June 30 to calculate it because of the different company situations. Different organizations have started giving guidelines on this topic. What will be relevant, what we'll have to do is to try to capture in this NAV revaluation values of our assets. I'll explain what I mean. A company that's been impacted by the confinement, the quarantine, that is part of our category 3 group, might be able to go back to business at a similar level to its precrisis level. But for a company like that, it wouldn't make sense to see the short-term crisis impact from mid-March to mid-May, for example, as anything other than an unusual impact. So maybe we'll factor that into the EBITDA. However, if there are a lot of changes, there could be an impact on the debt because the company might have looked to external funding. However, for companies whose business models might be questioned right now in our portfolio, we have to be careful about this in the future. We don't have that case right now. We might have a valuation impact that's more long-lasting. So what will happen is at the end of June, we'll have to determine which NAV revaluations have to happen. We've always been careful about the NAV that we've posted, and this is not going to change, but we're going to have to differentiate. So we've started thinking about these methodology points and start sharing our thoughts on this within the group. Last point, regarding the options, we're not looking in particular at MCH in negotiations. And iM Square, our stake is increasing alongside our capital increases, and that's what had led to our increase in our stake for iM Global.
[Interpreted] Next question will be in English.Next question is from Madam [ Miliatis ] from Bank of America.
I have two. Firstly, on the valuations. I know that you apply discounts to the valuations given that it will cushion some of the potential revisions that we'll get at June. Are you able to give us some indication as to how big these valuation discounts are? Are they 10%, 30%, 50%? That would be really useful. And then secondly, given what's happening in the market and all the portfolio revisions we're seeing from some of your peers, and I know it's your methodology not to revaluate Q1, but if are you able to give us an idea as to why you potentially didn't revise Q1.
There is a little bit pause if you're going to be on mute. So we try to set up the most appropriate valuation for each of our assets on a generally conservative way. And that's been confirmed every time we've been selling an asset, which has been an opportunity to externalize even value in these assets. And so that would be the general role for the future, having in mind that Eurazeo has a unique strength, which is the fact that we are not obliged to sell an asset either to repay a debt or to repay a limited partner, which enables us to sell an asset. When we think that the timing is appropriate, we are not bound to sell at a bad timing for our assets. Concerning the frequency of valuation, we have consistently applied over the last 12 or 13 years a half yearly valuation of our assets. Given the level of uncertainty in the valuation of company, we think that this process is appropriate. We do it very thoroughly with support of external appraiser. So it's a very important process. And our choice is rather to do it 2 times the year in a very thorough way rather than doing a quick update on a quarterly basis, which is not, in our opinion, as relevant. That is probably particularly true this time, given the lack of visibility that we can have in the current economic environment.
[Interpreted] We are now going to take the next question in French. Mr. Mourad Lahmidi from Exane.
[Interpreted] Yes. Mourad Lahmidi, Exane. I have 3 questions. So first, I think you mentioned valuation of Eurazeo Growth for the first semester of EUR 750 million. At the end of the year, it was EUR 687 million, if I believe. And so there's an evolution, which comes mostly from injections of -- from -- on the part of Eurazeo. And so that's my first question -- and or value creation.Now second question. On the calculation method of an NAV, so the 12 months preceding, that we apply a factor of 5.2, I believe. And so in terms of the market situation, this is cautious. But here, we would end up overevaluating. But you mentioned a methodology change. So are you going to put yourselves on forwards or for risk? Is that right? And third question is on Idinvest. How do you value the minority stakes of Idinvest in the development ratio or in the other liabilities under NAV?
[Interpreted] Thank you for these questions. Now first, valuation of Eurazeo Growth, I confirm what you said. Evolution is linked to the roundtable that we took part in since the beginning of the year. And we have indeed continued following our companies, and we had a conference a few days ago on this subject, actually. Second question on the methodology of the NAV, this goes back to the point that I mentioned before. Considering the very special situation, while respecting as much as we can the methodology that we usually apply and which is described in our reference document, we will see how we can take into account, while respecting recommendations of the ISM and other public bodies, the different calculation elements. What I can tell you in terms of the different factors, they were under these stock factors before the crisis, and we came back to -- closer to that mark in the crisis. Now more specifically for Idinvest and Eurazeo development, we take into account, only in terms of value, the part that we -- the share that we hold in Idinvest of 70% to date, and the 30% remaining are not taken into account at all.
[Interpreted] We have no more questions for the time being. [Operator Instructions] We have one more question in English. The question is in English. We have one question from Mr. Christopher Greulich from Berenberg.
Yes. There are two from my side, please. So firstly, you announced at the end of last week -- last year, sorry, a strategic review of your Europcar stake. So I was just wondering if this is finalized now or if the review is still progressing. And secondly, yes, can you share any fundraising targets for the full year of 2020?
Thank you, Chris, for these 2 questions. I will disappoint you, but you will not be surprised for the full year because, as you know, we do not give guidance. Regarding the strategic review of Europcar, we are still in a mindset where the process that we have undertaken should go on. But as you can imagine, given the lack of visibility, it's been on hold for the recent past. We still have contact with some potential parties, but we'll resume talks probably after summer. Europcar will be working in the short future on a new strategic plan, and of course, that will be a relevant element to be taken into account in our discussions. Any other questions? [Foreign Language] [Interpreted] Now if we have no more questions, I will thank you for joining. If you have anything else that comes to mind, any other question or comment, please go ahead and call us. We will be very happy to give you any information necessary. Thanks to all, and have a very good day.
[Interpreted] Ladies and gentlemen, the conference is now finished. Thanks to all for your participation. You can now disconnect.