Wendel (MF) Earnings Call Transcript

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to Wendel's H1 2023 Results Conference Call. [Operator Instructions] 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 Mr. Laurent Mignon, Group CEO. Please go ahead, sir.

Well, thank you and good afternoon to all of you. Thank you for attending this presentation for the first half result of Wendel. You have the presentation that was -- should appear on your visual. So, let's go for it. I am here with David Darmon, member of the Management Board and I am here also with Jerome Michiels and Benoit Drillaud, our CFO. So we will go through the presentation all of us and we will then go for a Q&A session. So the first half of the year is -- we have a pretty good growth of our consolidated sales. You know that we have -- we are accounting now Constantia Flexible as IFRS 5, so it's exclude Constantia Flexible. So for the company that are consolidated, the growth of the turnover is 6.5% with a 6% organic growth, which I think is reflecting a good health of our portfolio company, a solid growth of company like CPI and Bureau Veritas, a more difficult period for Stahl, but we'll come back to that later on. NAV is established to EUR 163.2 per share, it's overall stable since year-to-date after payment of the dividend. And as you know, we've said that we have received some several binding offers to acquire Constantia Flexible. We have value within this NAV Constantia Flexible based on binding offer received, which is higher value than the one that was used for the March 31st NAV calculation and we are confident that we will -- we will be announced to -- we will be about to announce final transaction within the next few days. We have resulting from all of that a very solid financial position and a very strong liquidity situation allowing us to be confident in delivering the strategy that we've set forth in March. We have made a successful liability management in June, which has allowed us to further extend our bond debt maturity for EUR 300 million. And we have in fact after pro forma, the acquisition of Scalian which was finalized yesterday and the contemplated sale of Constantia Flexible, as well as the dividend received from Bureau Veritas. We have virtually no LTV, so we have plenty of liquidity EUR 2.6 billion and that includes EUR 1.7 billion in cash and RCF of EUR 875 million. We have been very active during this quarter and as I mentioned, Constantia Flexible, but we will -- we received binding offers and again as I mentioned we are confident in finalizing this process. We have bought and acquired Scalian for EUR 557 million equity. The deal was closed yesterday. Wendel [ growth ] invested and committed in H1 EUR 37 million in 3 direct investment and we've done the EUR 750 million exchangeable bond on shares of Bureau Veritas issued by Wendel. We have been an active management of our portfolio companies and as said that we well involve our self significantly in the management of our company as we had a change in CEO's position in Bureau Veritas. I took at the same period, at the same time the Chairmanship of Bureau Veritas. We have a new operating partner that just join us, Maud Funaro, who will focus our self on the digital transformation of our companies. And as you've seen, we've got ongoing dialog with IHS to improve the company corporate governance, aiming to improve toward the best practice of U.S. listed company. Stahl finalized the acquisition of ISG, a leader in high performance packaging coating during this half year. And on its side Constantia acquired Drukpol Flexo in Poland and while the last one, I don't know how to say that, Laszlopack in Hungary, both of them representing something like EUR 45 million sales. And we have also strengthened our organization in order to deploy a strategy to prepare our self to enter the third-party asset management business both with Jerome Michiels who has taken the third-party asset management activity development responsibility here and we hired Cyril Marie, who has been in charge of Strategy and Corporate Development at Wendel and will help us in looking to different opportunities in that area. So I will be ready to answer all of your performance, but what I can tell you is that really, we are ready to continue deploying the strategy we've put in place and given to you in March. I will hand off to David, who will give you a view of the performance of our group companies during the first half of the year. David?

Thank you, Laurent. As you can see on this Slide 5, I'm now on Slide 5, the performance for the group on the first half has been good, with a good organic growth in all of our companies, excluding Stahl. You can see that we had a strong performance at Bureau Veritas, mostly from organic growth with negative financial impact. Stahl had some volume reduction and this was not offset by price increase, which has been pushed by the company, but it was not enough to get to a positive result. CPI is still delivering a double-digit organic growth. We are very pleased with what we see, there is some tension on the employment market in the U.S. for nurses and so this population doesn't have lot of time to get some training. But despite those difficult market condition, you can see that the company did deliver a double-digit organic growth. Regarding ACAMS, as you remember, we did not fully consolidated in 2022 for the first half because we acquired the business halfway through H1 2022, but we wanted to give you here a sense of the growth year-over-year. Let's remember that in 2022, we had an exceptional growth at one customer, which make the 2022 a very high base. And so the organic growth here is only 1%. But when we exclude this exceptional 2022 H1 customer impact, the growth is in a high single-digit for ACAMS. Tarkett published it's numbers, so I'm not going to comment because it's a listed company. Regarding Constantia, I think the important information here is that we did re-classify those results applying the IFRS 5 standard and so does this company is not consolidated in the results that we published yesterday. That being said the results as you can see has been very strong. Constantia is pushing on price increase, is enjoying some positive mix impact as well. And in addition, as Laurent mentioned, the company is now consolidating on a full-year results, its latest acquisitions [ FFB ], Drukpol and Laszlopack. Regarding margins in this complex environment, our group companies managed to maintain strong margins. As you can see here on the right column, as a reminder, Bureau Veritas here is showing its EBIT margin, for the other companies those are EBITDA margins and you can see that our group companies managed to pass through raw material prices and inflation in salaries with margin at 16.2% for Bureau Veritas, above 20% for Stahl despite the volume contraction I mentioned earlier. Regarding CPI, it's still a very high margin, but it's lower than last year. The company made some significant recruitments to prepare for additional growth and so momentary margin contraction. We mentioned that during our last call that it was to be expected, so this is clearly not a surprise to us and it does remain a very high margin level. ACAMS is approaching the 20% EBITDA margin that we mentioned when we made the acquisition, so they are on a good track to get there. We have now the full cost base of ACAMS as a standalone entity. The recruitment has been done and so this is a fully loaded P&L that you see here and a true EBITDA margin as a standalone company. Again, I'm not going to comment on Tarkett, which is a listed company and publishing its own results and comments. And Constantia has seen a very strong first half EBITDA, thanks first for the organic growth I just mentioned, but also some -- some significant margin improvement especially regarding purchasing program which is getting into motion and delivering some good results. Regarding leverage, the group companies continued to deliver over the recent period. You can see that Bureau Veritas is not showing the lowest leverage since it went public under one-time. Constantia is also at one-time leverage despite the acquisitions I just mentioned which were all fully debt financed. So despite the 3 acquisitions, it managed to deliver by a turn, which is quite a performance. Stahl also delivered over the period by almost half a turn despite the ISG acquisition for over EUR 200 million earlier this year. CPI continues to perform well and with the organic EBITDA growth and the cash generation, you can see that the leverage went down from 7 and a quarter to 4.8x, which is quite a performance as well. ACAMS is -- has been quite last year and as a flat leverage and Tarkett is seeing an increase in its leverage with the recent current trading. Now maybe Benoit can go through the H1 results.

Yes, thank you. Good afternoon. You can see that the overall contribution of the portfolio to the net income from operation amounted to EUR 402 million in the first semester 2023. It is 2.9 lower than the first half 2022 and this is mainly explained by Stahl and increasing floating interest rate at the level of the private companies. The financial expenses, operating expenses and taxes incurred by Wendel reached EUR 54 million. It is EUR 5 million below what we reported in H1 2022. In this -- this decrease of financial expenses has more than offset the increase in operational costs. In the non-recurring income, we have EUR 66 million - EUR 67 million, it mostly relates to the portfolio. In H1 2022, we had huge EUR 590 million capital gain on the disposal of Cromology. Moreover in H1 2023, impairment was minimal and stood at EUR 8 million, while we booked an impairment loss of EUR 160 million on Tarkett in June 2022. As a result, total net income amounted to EUR 299 million in the first half 2023, compared with EUR 673 million in the first half of 2022, the difference being mainly explained by the disposal of Cromology in 2022. We can turn to NAV. So what we can see here on a quarterly basis is that in the first quarter, the change was mostly explained by on the one hand increase of the share prices of our listed asset. And on the other hand, the value of our unlisted asset slightly decreased, which is only is a reflection of the decrease of market multiples used for the valuation of these unlisted assets over the period in the second quarter. The decrease is now explained by listed assets mainly Bureau Veritas as IHS had a small positive impact. The very slight decrease of unlisted assets is not significant and is mainly explained by the multiple changes among assets, of course, dividend paid by Wendel in June had negative impact on NAV and if we restate this EUR 3.2 per share dividends in NAV, the net asset value, sorry, is overall flat over the first semester. Okay. So the net asset value was EUR 163.2 per share at the end of June, that displays 2.8 decrease, but if we restate the dividend is almost flat with 0.9% decrease compared to the average price of Wendel on June, the discount is in line with the previous NAV at 41.4%. Let's focus now on Wendel financial liquidity, we are financed at 2.4 average fixed rate and with a quite long average maturity of 5.1 years, of course, this is a great asset for Wendel and its shareholders. It's worth to note that over the last 6 months, we, one, increased our syndicated credit facility that is undrawn from EUR 750 million to EUR 875 million and we have extended the maturity from 2027 to 2028. And 2, we have increased our average bond maturity to 5 years, following a liability management exercise we made in June, indeed, we successfully issue new EUR 300 million bonds with a 7-year maturity and a 4.5 coupon. And in the meantime, we repurchased EUR 90.8 million of our shortest bond that matures in April 2026. You see here that the LTV has decreased a lot over the past years. At the end of June, it was 8.5%, but if we take into account the closing of Scalian, the expected disposal of Constantia Flexible and the dividend received from Bureau Veritas early July, our LTV is non-material. This pro forma level of LTV and net debt are probably the best ones we had over the last 20 years. I leave the floor to Laurent.

Well, thank you, Benoit and let me just conclude before we go to the Q&A session. It has been very a dynamic start of the year. Many boost for Wendel and for its portfolio companies, I don't go through all of those transaction that we've done, but I think that we've put back Wendel on a dynamic mood and moving forward. We are still unfortunately in an uncertain and challenging environment and some of our portfolio company are suffering that, but I think they are going well through it and overall a very positive performance of our portfolio companies. We've done 3 main transaction since we announced the strategy, which is -- and all of them are fully in line with what we said and believe me, everything we will do will be in line with what we said and it is very important. We're sticking always to the strategy we've said. We've done the exchangeable bond on Bureau Veritas which provide to us an additional firepower of EUR 750 million cash to Wendel and that was a smart move because there is no cost of carry of that position, the cost of carry is even positive on that and give us some flexibility and I think give a clear message also on our strategic long-term position vis-a-vis all our shares including Bureau Veritas. 2, we've made, I think a very good acquisition of Scalian, a non-listed company in line with what we say, majority owned in a growth mode with a potential to create significant amount of value. We have -- this is a more than [ 5000 ] ticket exactly in the line of the sweet spot of what we've said as being the type of investment we want to make. We are contemplating the sale of Constantia Flexible, which again I think show that despite the environment you can make, you can sell significant companies whenever they are good companies and I think it's a case of Constantia and David mentioned it and that gives us further flexibility. Today we have no LTV and the ability to implement our strategy. Well, we have said that we wanted to invest EUR 2 billion over the next within the next 2 years in March. We've done EUR 550 million and more will come. We're looking to many opportunities and I think we just don't want to brush, we want to take the right timing in order to do it and the investment we're doing in this period are going to be the one that will create significant value for our shareholders on the long-term. We are considering developing a third-party asset management. We're working very hard and intensively on that and there will be some more to come in the second half of the year in this order. That's what I can say today, we are on the move, we're doing what we've said and it is true that the market environment has not been so favorable for Bureau Veritas over the last quarter, but I think that the recent earnings of Bureau Veritas are showing that the company is doing well and I'm sure that the share price of Bureau Veritas will move accordingly like it did already done on the last 2 days. Thank you very much for listening and now we open to question-and-answer. And as I say, David, Benoit and Jerome Michiels here together with me will answer all your questions. Thank you.

[Operator Instructions] Your first question today is from the line of Patrick Jousseaume from Societe Generale.

First question, I'm not sure I will have answer, but I have to ask it. Could you -- could you comment a bit more on that Constantia, obviously, you're not going to tell us what is the price for it, but could you actually give us the magnitude of the uptick that we have -- that you have applied to the value of the company in NAV. And maybe tell us what type of buyers you have, are they are sector player, are they are private equity or mix of them? And my second question is about Wendel Growth, could you remind us what is the amount of investment, also yes money invested in that company as of [ shortage ] of June 2023 please?

I will leave the floor to David to answer to Constantia, but just one comment on that and I hope you will not have to wait long in order to have more detailed information about it and then David will comment. But one thing I want to say is the offers we receive are at value and value the company and that's how we value it in the NAV of June 20 of June is higher than the value of March, which shows that our NAV is rock solid. The numbers we show are numbers that always are rock solid. This is very important. We've got either listed company or non-listed company value on an approach that is rock solid and there is no doubt on our NAV value. And I want to say that because in this period of uncertainty and so on, you may have sometime question about the NAV of holding companies. And I think one element within Wendel is that you can have full trust in the value that is in the NAV obviously. I pass over to David.

Thank you, Laurent. Patrick, thank you for the question. Obviously in this pending transaction, it is difficult to provide information. It's fair to say that we had a strong level of interest on the company, as I mentioned, it's going very well. But to be more precise on the offers we received, they came from private equity investors and will see the stability and resilience of the company has being very attractive and the fragmented nature of the market being attractive to run some consolidation. So, we cannot make any more comment on that, but to soon up, we shall see.

Hello, Patrick, about your question on Wendel Growth, you inquired about the total amount, it's fairly stable just slightly under EUR 200 million, while talking roughly EUR 40 million direct, little bit less than that and 160-ish on the fund-of-fund side, the fund-of-fund side is slightly down because of foreign exchange and distributions having been slightly higher than capital cost in current markets, there are few investments, opportunities and some distribution.

But most of that will be there in March?

It's -- I think they've been little...

Yes, there is no change, virtually no change versus March apart from the fact that there is some foreign exchange and slightly high on distribution on the fund.

And this is, sorry, sorry -- which is invested or committed?

That's invested, that's the value of -- that's the net asset value in terms of capital call, we are at about 110 capital call and we have like 50, 60 unfunded commitments remaining on the portfolio.

This is from the line of Geoffroy Michalet from ODDO.

2 from me. First one on the recruitment of Mr. Marie, maybe you could give us a bit more of granularity on the kind of mission on the Corporate Development and Strategy. Second, still related to third-party asset management, if you could tell us your thought about the kind of new trend that you let's say discover while you work more on this third-party asset management, I mean the strength of Wendel's profile compared to the multi-channel player in the field.

Well, I think the mission of Cyril strategic and corporate development is pretty clear. He is going to focus himself on finding ways for Wendel to grow apart from the investment activity. So it's -- it's really to look whether we have smart ideas in supporting our third-party asset management strategy, that's pretty clear.

Regarding the strength, you want to take it, David, the strength in the asset management.

Well, I mean, one has to acknowledge that current market environment is difficult for fund raising, I'm sure you been following that some of our peers and I'm sure you will have seen that capital raising is down versus last year and we're talking 35%, 40% and with an increased selectivity from limited partners when it comes to allocating to asset managers. So in this context, you're right in saying that we have a few strengths and one of them being that we have a balance sheet and also that we have some assets. So we are trying to find ways of leveraging that off in a very difficult market environment. As I think Laurent said it already, it's a journey, so it will take time and we are working a lot on this and this is one of the top priorities of Wendel currently, but we need to find our way into this difficult market environment.

But yes, we will come back with more by year-end, but there is I mean -- let us finish the work and we'll come back to you, but yes, we have significant work being done and we're confident that you will have some news by the end of the year.

We'll now take the next question. This is from the line of David Cerdan from Kepler.

Some of my questions have already been answered by you, but I have a question regarding your pipeline of acquisition. What is nature of this pipeline, have you stopped some duty reasons because of the change in the market, also financing conditions?

Well, I think we've got a pretty, pretty good pipeline of transaction and obviously we don't look and go for everything and we've been -- number of potential investment that we've seen is important despite the fact that the market is probably slower than it was a few years ago, but David has a better view of the pipeline there was a few years ago, so we'll give you a little bit more complementary answer to that. Obviously, there is a transaction that we have look and then not pursue because we were not comfortable with the investment [ decis ] and although we've been -- we're still and contributing actively. This is in many areas, boost in Europe and in the U.S. and we're confident that we can pick the right thing, but we don't want to rush. We have a position where we can invest in a market where there are not so many people ready to invest, so we have to do it the right way and make sure that we only pick the best. That's really our philosophy today.

From a quantitative perspective that is probably half the volume that we, that were used to see both in Europe and in the U.S. So it's certainly a market with less traction today than a year ago. But from a qualitative perspective, the quality of what we're seeing is actually higher than the average quality that we've been seeing in previous vintages. I think owners of companies with average quality or substantial equity do not dare to put their asset for sale and so what you see trading today are really the best and the best that you -- the best assets people then the portfolio. So it's a mixed bag, smaller number of assets available, but those assets are quite attractive.

Yes and we have no rush to invest, which mean that we can choose and that's really what we're doing. We're looking to all of those good assets that are available for sales or opportunity that we see and we take our time to make sure that we pick up the right one, we pick a gross company with significant potential to develop them self. And I think, yes, we have -- there's good opportunity out there in the market, there are good opportunity, it's not a bad moment to be cash rich in this market.

And just to challenge maybe on the deal flow, do you think that you will be able to finalize one deal fitting with your new investment strategy by the end of this year?

Well, there is no doubt we could, it's a question do we want and that will depend on, again, the study, the quality of every of those ones. So we are again -- we see good quality transaction, we see good quality of companies. Now again we don't want to -- we haven't, we're not a fund. So we are not obliged to invest, we so we'll do it right way, by the way the cash we have is yielding more than our borrowing costs, so we have no cost of carry, but we want to put money at work and we will do it, but we will do it in the right condition. Again, I think being cash rich today is a good position and we can pick up great opportunities, we're looking at them, we're making sure that this is the right one. And I think you can never tell whether you will do a transaction or not. What we want is to make sure that we create good value from that and again this is a good period to do it.

And I have a last question is regarding Bureau Veritas, will you receive the dividend for all the share you own?

Well, sure.

Yes, we'll receive the [indiscernible] absolutely.

Yes, yes.

So it's roughly EUR 120 million from BV, is it correct or?

Yes, this is correct.

Yes, yes.

EUR 123 million - EUR 123.8 million.

And after the deal with Scalian and the exit from Constantia Flexible, you will -- your leverage will be close to zero?

Close to zero.

So we can calculate the value of your stake in Constantia?

Well, you will probably know without making calculation whenever we will make, announce the finalization of the deal. So -- but you can make a rough calculation depending of where you put close to zero number.

We'll now take our next question. This is from the line of Arnaud Palliez from CIC Market Solutions.

I have 2 in fact. The first one is on the ACAMS and CPI. I would like to know -- I suppose that the value of this -- of these assets is lower in your NAV at the end of June than at the end of December. So I would like to know if it's a consequence of the lower dollar or if it's also in the evolution in the multiples you are taking into account, so that's the first question. The second one is on Bureau Veritas and it's a question maybe to the Chairman of Bureau Veritas. In H1, there was basically no bolt-on acquisitions made by Bureau Veritas, you've also highlighted that the gearing, the financial gearing of Bureau Veritas is low. So I would like to know if we can expect if it was just a temporary situation that M&A was a bit frozen due to the change in CEO or if we can expect some more bolt-on acquisitions in the coming months for Bureau Veritas.

Let me answer the second one and then I will pass on to David and or Jerome. On Bureau Veritas, effectively the leverage is very low, I mean below one. And as you know and you've mentioned rightly, there is a new CEO, a new Chairman. So we think it's the right timing to sit down and think about where do we want to lead the company. This is a work in progress. So it's not the right timing to make significant acquisition, but what is certain is that today the capacity to and the velocity of Bureau Veritas has probably never been as strong as it is today. You may have some small bolt-on acquisition, but we will -- I think it's important that we keep the capacity of the elevators to make M&A in the right strategy. So we're more in a period where we are thinking about how do we want and where do we want to move this company forward and then we have the ability and the velocity to the means and the ability to do M&A.