Q1 2025 Wendel SE Trading Statement Call Transcript

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

Question: Joren Van Aken - Degroof Petercam - Analyst : I have a couple of questions, but I'll start off with three, and then I will go back into the queue. So the first one is the multiple compression in the private portfolio. Could you give us some idea whether this was across the board or whether there were some particular companies that were more hit by this multiple compression? And was the multiple compression in any way impacted by the fact that you added or removed any peers from the peer set? So that's the first one. Secondly, on Scalian, we've seen the organic decline of 11%. Have you seen any signs of recovery in this sector yet? And should we pencil in a bit of improvement in H2, for example? Or is that already -- is that still too early? And then finally, on the leverage and acquisition part, because we know that you want to further expand your asset management business. But since you are at the LTV of 17%, I'm a bit wondering what is now the way forward? Does it mean that you first need to sell something because -- before you can buy something new? Or would you be willing to go beyond the 20% LTV level temporarily to acquire, for example, an asset management business? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 1:00PM, MWDP.PA - Q1 2025 Wendel SE Trading Statement Call Jerome Michiels - Wendel SE - Executive Vice President - Third Party Asset Management Business, Director of Wendel Growth Thank you, Joren. So I will take your first two, and then I will hand it over to Benoit for the question on leverage and acquisitions. In terms of multiple compression, so the change is not reflecting any change in the sample of peers that we use. We rarely changed the sample that we use. If so, we might discard one, add another one, but there has been nothing taking place this quarter in terms of changing the samples. Is it across the board? Or is it focused on any specific companies? It's pretty much across the board. I mean, it took place at -- I'm looking right now at my backup, and it's really about the same magnitude for each of our companies pro rata of their respective net asset value. So it's really across the board. We've seen a little bit, as I said, at the asset management side at IK, but this is less important as the value is less important as well. But if you were to, say, apply a percentage of change to each individual net asset value driven down by the change in multiples, I think you would be certainly looking at the same type of impact, maybe a little bit more conversely at -- not conversely, but at Scalian because, as I said, of the environment, the peers in the sector of engineering and IT have suffered a little bit more than those that we are using for our other companies, I would say, which is a good segue to your second question about the environment. Well, it's very difficult to foresee the future there. We have not seen any sign of improvement yet. What we are seeing is that the business with the large customers at engineering and within the core sectors of Scalian like aerospace, like defense, like utilities is doing well. I mean, there is still some good growth there. What is more problematic is the smaller customers that I think are more cost conscious and reconsider their projects. And we've also experienced some headwinds in automotive, as you can imagine. There was one peer that released its results recently that actually withdrew their guidance for 2025, only gave a guidance for the next quarter, saying that they can't see beyond the next quarter and revising pretty significantly their guidance for the second quarter compared to what they had put out for the whole year. So I think this gives you a sense of how difficult the market is and how difficult it is to predict any recovery. We are very confident that there will be a recovery at some point because those projects cannot be delayed indefinitely. There is also a very good backdrop of investment in aerospace, mobility, electrification, et cetera, and also a very good trend of digitalization, a sector that we are quite active on. So this will generate opportunities for sure, and there is a secular trend there, but the current market is more challenging than it used to be, and we don't really see any uptick. We haven't seen any uptick recently, but we will continue and update you on this as well. So on the third question about leverage and acquisition, Benoit?

Question: David Cerdan - Kepler Capital Markets - Analyst : I have a couple of questions, please. The first one is regarding the fair value of your asset management activities. What is the value return for your stake in Monroe? Is it the initial investment? Regarding your objective for the asset management activities, can you explain how you expect to drive your fee from EUR100 million to EUR150 million by 2027? What are the levers to reach this objective? Is it just driven by the expansion in the assets under management? Or do you see some other way to achieve this objective? And for the asset management, which peer do you use to value Monroe and IK Partners? And last question is regarding your unlisted assets. For which one do you think that it could be very difficult to protect the margins in 2025 on the back of a very poor start of the year? Thank you. Jerome Michiels - Wendel SE - Executive Vice President - Third Party Asset Management Business, Director of Wendel Growth Thank you, David. Difficult question there. But I'll start with the first one, which is simple. In terms of fair value that we've retained in our net asset value for Monroe, this is the acquisition price. We closed the acquisition on March 31, so on the very day that we put together this net asset value. So we have used the value of Monroe. Going forward -- and this will address your third question -- we will be using market multiples. That's what we do for IK Partners. So we yet have to select a sample of peers for Monroe Capital, but our valuation team has been working on that already, and we'll finalize that for the next net asset value, which will be June 30, and we will be, at this point in time, quote-unquote, in mark to market. In terms of IK, the peers that we are using -- well, as you know, we are not disclosing the names of the peers that we use, but you can expect -- what you could expect to find in this sample is European alternative asset managers of a certain size with a business model comparable to IK Partners. So this is what we've been using, and this is what is driving the slight change in multiples that we've seen on our asset management valuation. The objective of EUR450 million by 2027 is based on what we expect in terms of organic growth, both from IK and from Monroe. We -- as I said, there is a very strong momentum there in terms of revenues and fee-related earnings. So this is based on the growth that we expect. Your last question on the unlisted assets and our ability to defend margins in 2025 on the back of a more volatile environment. I think it's a bit early to tell. As I said, we haven't seen any significant change in terms of business or margins over the first quarter. What we have looked at in detail is the individual exposure of our portfolio companies to parts of the economy that could be affected by the tariff on a direct basis per se, and we are seeing very little exposure there. And we -- some of our companies have already taken action to contain a potential higher-than-expected decrease on those places where they have exposure to tariffs. So we'll be very focused on that, and we are very focused on that. But I think it's too early to tell whether there will be a significant impact. From a direct standpoint, we don't see -- don't expect any. But obviously, if we are moving into recession territory, that is a different conversation. So we'll come back to you on this and I've asked the management team of our companies, well, they have -- they know they have to address that and have been already quite proactive in addressing that and working on contingencies should the climate be more difficult.

Question: David Cerdan - Kepler Capital Markets - Analyst : Okay. And just to finish on Scalian, in your net asset value, are you -- have you got a valuation still positive for Scalian? Jerome Michiels - Wendel SE - Executive Vice President - Third Party Asset Management Business, Director of Wendel Growth Yes, of course, David. It's still positive. Yes, yes, of course. Yes. As I said, the market is difficult, but we are still looking at a positive value, yes.

Question: Joren Van Aken - Degroof Petercam - Analyst : Okay. I'm back. Two more questions from my side. If we look at slide 7, you show like the table with all the revenue growth split out between organic and scope and FX. So for example, for CPI, we see plus 5.8%. We see an FX impact of minus 0.9%. I suppose that this FX impact is just the FX on a company level for CPI itself, right? Because if I look at the euro-US dollar exchange rate over the quarter, the translation FX impact between dollar and euro should be larger than 0.9%. So what I'm trying to get at is the revenue in euro terms would be flattish for CPI, if I understand correctly. Is that a correct way to look at it? So that's the first one. And then the second question is on IK Partners because that company reached a hard cap for its flagship fund. I find that to be very impressive in the current environment for alternative assets. So could you give us an idea of maybe of the performance of the previous vintage of that strategy? Was that top quartile or, for example, Q2 that could explain the very strong fundraising of this next vintage? Thank you. Jerome Michiels - Wendel SE - Executive Vice President - Third Party Asset Management Business, Director of Wendel Growth Thank you, Joren. On your first question, the -- on slide 7, the revenues that -- and the changes broken down by organic scope and ForEx are at the company level. So foreign exchange at CPI minus 1% relates to the move in other currencies than US dollar because CPI is US dollar -- US dollar as a functional currency. So this reflects the change in other currencies than US dollar that they have exposure to. CPI has a very large business in the US. They do have exposure to international markets as well, so this is what you can see there. But maybe to address your specific question on the dollar, when you look at Bureau Veritas, for instance, you will see 0.4% negative FX impact, which is pretty small because there has been no major impact from the dollar over Q1. The depreciation of the dollar has occurred since April 2. But before that, Q1 2025 shows very little deviation compared to the average dollar rate of Q1 2024. So no strong FX impact there. There might be more based on the current levels of the dollar, if it were to prevail at these levels for the next two months, May and June, I think we will be looking at Q2 foreign exchange impact more negative than what we are seeing here. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 1:00PM, MWDP.PA - Q1 2025 Wendel SE Trading Statement Call You've asked about the success of IK Partners. Yes, this is a pretty impressive result. I agree with you. I think it's a function of the very high quality of the investment process of IK, their track record, which is really impressive. They are obviously one of the best investors within their space, which is European small to mid-cap and the performances that they have shown on the predecessor funds are such that limited partners have re-upped their commitments, and new limited partners have joined as well. I'm not at liberty to comment specifically on the realization or on the IRR that they have generated, but they have been very good. And they have been also -- I think this is one key feature, which has been important -- which is important in the investors' minds recently in terms of distribution. This famous DPI ratio is really something that IK focuses a lot on, and they have been able to generate DPI that are very good and position them as the top quartile investors. Moreover, I would say that recently, given the uncertainty that is currently at play in the US environment, we have seen some US investors looking at increasing their exposure to Europe, which is, I think, something that will be beneficial to IK because, as I said, this firm is really one of the best firm around, if not the best, when it comes to small to mid-cap equity investing in Europe. And this platform is very strong. IK X reached its hard cap, but there has been also some very good momentum at both small cap and partnership, which is -- which are two other strategies of IK as well as a continuation vehicle that they managed to raise also over the quarter.