Full Year 2024 Eurazeo SE Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Nicolas Vaysselier - BNP Paribas Exane - Analyst : Hi, good morning. Hopefully, you can hear me well. I just had three questions, please. The first one would be on the portfolio returns for full year '24. It seems like the earnings growth dynamics are pretty good, but you still had compression of valuation multiples at some assets in H2, which is a bit in contrast to what we have seen at peers that have reported. So could you elaborate a bit more on what has driven those multiple compression in H2? And more particularly, could you elaborate a bit more on Worldstrides, what's happening at that company that made you adjust lower the valuation? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 06, 2025 / 8:00AM, EURA.PA - Full Year 2024 Eurazeo SE Earnings Call My second question would be on fundraising. It seems that you have a pretty busy pipeline for 2025. I would like to have a bit your thinking on the quantum of that fundraising. Do you think the pipeline underpins a continued progression in gross fundraising versus 2024? And my third question, a bit more specifically on that pipeline. It's more some confirmation, but I understand the real estate strategy used to be a portfolio strategy on your balance sheet. How much could we expect for this fund? Thank you very much. William Kadouch-Chassaing - Eurazeo SE - Co-Chief Executive Officer, Member of the Executive Board Thank you. I will take the first question, and Christophe will comment on fundraising. Just maybe on the third question, we are in the process of launching the fundraising of our real estate fund. And so at this stage, we haven't communicated on the target. But earnings growth was effectively strong across buyouts and in fact, across the board. And it did not translate into value creation at the portfolio level for the reasons I've mentioned and you highlighted, which is that we benefited from this earnings growth with relatively stable multiples across the board for most of the companies that we consider in the portfolio, yet we had, again, a few limited adjustments. Sticking to buyout. There are two assets I mentioned, Worldstrides, 2RH, and there are three much smaller assets within the Brands portfolio. This is what we're talking about in a portfolio of 50 assets. Worldstrides is effectively the more significant. So this is where we have adjusted significantly the multiple. In fact, the operational performance in Worldstrides is okay. It is disappointing relative to its initial business plan. This company has been affected significantly by the COVID, recovered thereafter, but not to the point that it has reached the business plan. And what this does translate into is not per se an operational issue, it translated into a capital structure issue because this company has been levered. And as you would imagine, at some point, you may be ending with a rather tense capital situation unless your earnings picked up. And this is where we are. The company has reached a number of its liquidity covenants. We are in the process of renegotiating the total capital structure. And it was only fair according to the IFRS 10 rules and the IP rules to consider that we needed to value this company for the risk that potentially we go into a distressed sales process. That's why we did a EUR275 million markdown, which explains the bulk of what we've done through the buyout. So it's really an asset that was a legacy asset, invested at the wrong time, but nobody could potentially foresee the COVID, which is faced with a capital structure issue and for which we adjusted markedly the multiples resulting in what I've said. Now there is a case where should we exit favorably from these negotiations, maybe there is a bit of value increase to be expected, but we are cautious people, and we don't want to bet on it.

Question: Nicolas Vaysselier - BNP Paribas Exane - Analyst : All right, thank you very much.

Question: Joren Van Aken - Degroof Petercam - Analyst : Yeah, good morning. A couple of questions. First, it was mentioned that Brands was being divested. So does that mean that this strategy will not have a follow-up vintage going forward? Similar question, I think, for Venture, I don't see Digital 5 in the pipeline. So will there be a next vintage for that one? And then on growth vintage number four, which is in the pipeline, what is the target size there? Thanks. William Kadouch-Chassaing - Eurazeo SE - Co-Chief Executive Officer, Member of the Executive Board Okay. I'll take the first question, and maybe Christophe will tell you about the venture and the growth fundraising. As we said, I think a couple of quarters ago, we consider that there is limited scope for a successful fundraising on the back of the US brands so-called strategy. Consumer is not exactly the topic of the day. As you see in our buyout, but also in infra, in debt, in secondaries, we are a firm that invests mostly in B2B sectors across the board, including in health care and environmental solutions on top of tech-enabled services or specialty financial services as a case in point. So we've refocused really the investment approach somewhat away from consumer. But on top of that, I mean, the investment we've made in the US on this strategy, which was very US focused, do not completely reflect our ambition to be more relevant to our clients in terms of value proposition. We want to be seen as a leading European investor with in certain sectors where we are strong, of course, capacities to invest in the US or Asia, but mostly we have European centric strategy. And lastly, there was a mixed performance. So what we had said is that portfolio, we want to protect its value for the balance sheet, for the balance sheet owners, or the shareholders. And so we have a team that is dedicated to managing the assets there and gradually exit from these assets.

Question: Joren Van Aken - Degroof Petercam - Analyst : Very good. Thank you.

Question: Alexandre Gerard - CIC Market Solutions - Analyst : Good morning, Christophe. Good morning, William, and thank you for that presentation. Three quick questions on my side. So the first question is related to performance fees in 2025. So you said that exit should come back to 25%, close to the historical average. What does that mean for performance fees and from third-party performance fees in particular? So that's my first question. Second question, you said that you, of course, you reminded us that you exited Rhone and MCH recently. So what about IMGP, IM Global, which seems to be performing well. Can you comment on your willingness to retain 50% stake in that company? And can you also remind us the valuation of that stake? And my last question is related to the ongoing industry consolidation, of course. Are there any corporate development initiatives that you might take in 2025? And can you remind us also your financial flexibility to do these types of small bolt-on M&As? Thank you. William Kadouch-Chassaing - Eurazeo SE - Co-Chief Executive Officer, Member of the Executive Board Thank you. So I'll take those ones. First on performance fees, we should see an increase in the performance fees going forward given the strong pipeline of exits we have. But let me say that it is not exactly going in sync with the amount of assets sold in a given year. Because to recognize from an accounting standpoint, the performance fees from third party, you need to have funds which have reached a certain threshold, the threshold being distribution plus hurdle already paid to your LPs, to the third-party LPs. So generally speaking, we are talking about crossing rule of thumb, 1.3 times cash on cash in a fund. So if you take for example, EC IV, where we are in the process of completing the sale of Albingia. Post this one, we'll be at 1.1. So it will take probably one or two more assets so that we can recognize the full backlog of performance fees. Overall, given the volumes and given that the pace of exits have accelerated in '24 and should be sustained in '25, we should see another increase in third-party performance fees, but maybe not to the extent that we reach already the midterm target. IMGP, very good asset, very good management, very good return for Eurazeo. Eurazeo did not acquire this company, Eurazeo accompanied the greenfield development of this company, and it was a wise move made by the team, and we continue to support the development of IMGP. As you can see, we benefit from it. So for us, it's very different from Rhone and MCH. First of all, we are a controlling shareholder. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 06, 2025 / 8:00AM, EURA.PA - Full Year 2024 Eurazeo SE Earnings Call Second, it performed very well. And yes, you may debate whether this is absolutely core to private markets. We're not talking about private markets. We're talking about high alpha generating asset management, but more on liquid underlying. US, Europe, credit rates and equities. What we like about IMGP beyond its performance is the fact that it also gives an option for both the management of IMGP and for the management of Eurazeo to think through what type of products may emerge at some point between combining some liquid and less liquid underlying, particularly for the wealth segment. So right now, I mean, it's a bit of a kick start of this type of discussions. It's too early to say. At the end of the day, we'll see how it develops, but we keep the two options of remaining a shareholder and developing IMGP benefiting from it or potentially realizing that asset at some point if we are not convinced about the synergies. Right now, we are very happy. Valuation, I mean, the best thing you can do is take the metric and apply a multiple. We don't give you the multiple you should apply to Eurazeo FRE overall. But I think it's fair to say that this is probably the best way. You have the pattern of growth in revenues. You have the pattern of growth in margin and FRE. So I think we give you the keys to value that asset. And there are some benchmarks also in the industry of listed comparables for specifically this type of business models. And I think your third question was more on M&A. First of all, you said bolt-on. If we were to do M&A, let's be clear, we will not go back to buy minorities, unsignificant businesses that do not move the needle, but yet are associated with a lot of hassle and integration issues. And so if we do something, it would be material to at least one strategy of the group. As we said with Christophe many times, our plan is an organic plan, but we accept that the industry is now consolidating and that in the story of building a leading platform across mid-market in Europe, maybe we could accelerate the pace at which we reach a certain scale in some strategies by acquisitions. So that's the type of things that we're evaluating with Christophe, with our Board and shareholders. But should there be anything imminent, of course, we would be talking about that rather than commenting it in general terms.

Question: Alexandre Gerard - CIC Market Solutions - Analyst : Okay, thank you. But can you just maybe remind us your financial flexibility, how much money to be raised for that? William Kadouch-Chassaing - Eurazeo SE - Co-Chief Executive Officer, Member of the Executive Board That was part of the question. We have ample financial flexibility. If you look at the net debt at the end of 2024, we're talking about a gearing ratio of 17%. So if you may look at it in different ways, but it is an implicit strong investment-grade ratings. We're not rated, but with that type of gearing, which is very reasonable, it gives us ample flexibility. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 06, 2025 / 8:00AM, EURA.PA - Full Year 2024 Eurazeo SE Earnings Call On top of it, let me remind you that our plan is to generate excess cap over through the period of 2024, 2027, we said EUR4 billion, EUR7 billion exits, EUR3 billion reinvestment, EUR4 billion is the excess cap, of which priority is to distribute back EUR2.3 billion to shareholders. I mentioned earlier the increase in dividend as well as the share buyback program, but that leaves a buffer of cash we will be able to recycle through M&A should we find the appropriate target. Again, financial flexibility wouldn't be the problem. The question is more, as Christophe highlighted, are there a platform that we are happy and confident we can integrate for a successful growth together.