Altamir SCA (LTA) Earnings Call Transcript

Good morning, and welcome to you all. Welcome to Altamir's half year results presentation. I will now hand over to Maurice Tchenio, Chairman and CEO of Altamir [indiscernible] ; and Éric Sabia, our CFO.

Thank you very much, Claire, our Investor Relations Manager. So first of all, I'd like to draw your attention to the fact that we are breaking new ground this year because until now, we've been holding SFF meetings in person, and we've decided to hold them as webinars. So we're breaking new ground. So please let us know if this new way of doing things suits you because we'd be happier to have you in person, but recent experience has shown that people find it very hard to get around. So we've decided to opt for the webinar. I don't need to introduce you to Altamir, which was created in 1914. So we are getting close to 28 years old for Altamir. I'm going to start my presentation by focusing as we usually do on the private equity market and in particular, buyouts in Europe. And as you may have read in the press, the figures this time confirm what we've been reading in the press, namely a significant drop in investment volume with EUR 73.5 billion invested in buyouts in the first half of the year. This is obviously a far cry from the EUR 350 million and EUR 470 billion invested in the 2 record years of '21 and '22. But if in the second half of the year '23, which is quite likely, we achieved the same score as in the first half. We'd be back to the scores of the years 2017 to 2018 back, let's say, to normal since '21 and '22 were exceptional years in terms of investment. In terms of divestments, the drop is even more significant. The market has virtually ground to a halt with EUR 50 billion in divestments compared with EUR 168 billion last year, which was already a very bad year and EUR 250 billion in 2021. But here, again, if we were to double the volume of divestments in 2023, we'd still be a long way from the figures for 2017 and 2020. I would remind you that in private equity, there are two other types of exit, IPOs and recapitalizations by refinancing debt. And obviously, these two sources of financing are also drying up at the same level as what we see here in terms of mergers and acquisitions. In this context, how is your company performing? They're in line with the market, you might say. The first thing I'd like to point out is that we've returned to growth -- taking into account the dividend paid in May, our net asset value is up by 0.9%, which is much better than the minus 2% -- minus 2.7% of the first half of 2082 driven by EBITDA, which is up by 1.4% compared with 14.9% last year but you'll see that this 1.4% by the time Eric comments on the bridge has a very significant impact on portfolio value creation. Divestments were in line with the market with EUR 12 million divested compared with EUR 85 million in the first half of last year, only two new investments compared with five in the first half of last year and EUR 38 million invested compared with EUR 95 million in the first half of last year. Our cash position has obviously shrunk accordingly, since if we invest more than we divest, it obviously makes a difference. So if we look at this on Slide 14, when we look at the details, you can see that the EUR 12 million in divestments in the first half of the year, broken down into EUR 7.4 million for two full divestments and EUR 4.5 million for partial divestments are a far cry from the record figures of 2021, of course, but of 2022 and even of the '18, '19, '20s so it's going to take some time for us to get back to a significant volume of divestments. So in detail on the next page, the EUR 7.4 million comes mainly from the portfolio companies of the Apax LLP funds with two complete exits. Duck Creek Technologies, where overall, we made 5.1x our stake and the divestment of Shriram, which is a nonfinancial bank in India, where we only recovered a little less than our cost. In terms of partial exits, we refinanced 4 or 5 companies, resulting in EUR 4.7 million proceeds. In terms of new investments, the situation is a little more pleasant with EUR 30 million in new investments in two new transactions and EUR 7.4 million in additional investments. It's going to take some of '21 and '22 years and after the two odd years. In detail, a total of EUR 37.7 million was invested in like EUR 30 million the first investment of the Apax LLP fund in which, as you know, we have subscribed EUR 254 million. So this fund is now up and running. And from now on, all new investments made by Apax in London and the United States will be made through this vehicle. IBS Software is a leading provider of SaaS software solutions for the logistics and tourism industries, including airlines, travel agencies and cruise lines, a software sector that is well known to Apax LLP. The second investment was made through Apax -- Apax France, mid-market DICKS, which, as you know, has been renamed 72, and Infranio is a major player in the European engineering market, specializing in diagnostics and consultancy in the field of infrastructure asset management, in particular, to remedy their aging and the impact of climate change on their integrity. So it's a double crew. Since on the one hand, it's obviously a financial investment, but it's also an investment that takes an ESG approach to climate change. [indiscernible] added to these two new investments is a further EUR 1.2 million, which is the final amount we invested in Vitaprotech a recent investment by Apax 72 mid-market that we had underestimated at the time of a previous report. In addition to these investments through the Apax LLP and Apax 72 mid-market funds, we also account for investments through our own funds. Ultra Rogerson, in which we have invested EUR 30 million is currently 60% invested and has made 21 new investments over the half year for a total of EUR 2.1 million. Apax global vendor in which we have invested EUR 40 million, made one new investment during the half year and is currently 16% invested Apax Digital One, which we're not talking about, made no new investments in the first half, but the company is fully invested at 100% Apax Digital II or made a new investment and is currently 18% invested. And finally, Apax development in which we invested EUR 15 million, EUR 20 million in Apax Digital II has made a new investment and is now fully invested. In terms of follow-on investments, there is, in fact, a figure of EUR 7.4 million, but this is, to some extent, skewed by the fact that we made a negative adjustment to reflect the fact that this time, we had overestimated the amount we were going to invest through Europe snacks in bird snacks by EUR 3.8 million. So in reality, we made EUR 11.2 follow-on investments. And the vast majority, 2/3 are for in a development perspective, EUR 2.3 million to facilitate the migration of Odigo into SAS, EUR 1.5 million in Crystals buildups, EUR 1.3 million at Newtek to finance an acquisition, likewise, EUR 1.2 million in destinies buildups and so roughly 2/3 and the rest. The 1/3 is more defensive in Vocalcom, Matches fashion and by Air Medical. So all this translates into -- we show you on Slide 19, the evolution of net asset value per share. So after almost 10 years of uninterrupted growth since December 31, 2021, our ANR has been falling. Although we're pleased to note that in the first half of the year, we've picked up again. The drop is mainly due to the payment of dividends, of course, where we paid out around EUR 40 million in dividends each year. So as regards the change from 2022 to 2023 on June 30. I'll hand over to Eric, who will explain the bridge on Page 20.

Thank you, Maurice. How did we go from net assets at the end of December to net assets at the end of June. The first reason is value creation. We created EUR 35.4 million in value over the half year, representing a return of around EUR 2 million, 6% on NAV at the end of December. This value creation was negatively impacted to the tune of EUR 8.3 million by an unfavorable currency effect, mainly linked to the evolution of the dollar. Since we created value over the half year, we had to book the provision for additional carried. So the provision for carried had a negative impact on sales of just under EUR 3 million. We also had to pay direct and indirect management fees i.e., all direct and indirect fees for Altamir in the portfolio amounting to just over EUR 21 million. We have a positive financial result this year, whereas it was negative in previous years of EUR 0.6 million. And as Maurice mentioned, due to the payment detachment and payment of the dividend in May this year for EUR 39.4 million. This has a direct impact on net assets, and we arrived at net assets at the end of June of EUR 1.284 billion. If we look a little more closely, and I'm sorry, I forgot to mention something on the previous slide. I'd like to draw your attention to the fact that we had to book an adjustment on the 2022 accounts and which impacts the creation of value by EUR 12.7 million, it's a correction of 2022. It has no impact on net assets. If we now zoom in on the value creation achieved over the half year on Page 21. Highlights include the traction of the consumer sector, which created value of EUR 49 million, mainly due to Europe snacks and Tom, which contributed EUR 14 million and EUR 34 million, respectively. The healthcare sector accounted for EUR 5.6 million, mainly due to mental beta and rodent stock, respectively. And these two positive effects were partially offset by the tech and telco sector, which fell by EUR 12.2 million mainly due to the decline of the three companies you see at the bottom: Vocalcom, ThoughtWorks and InfoVista fortunately partially offset by the strong half year growth of Marlink and GreyTech. Lastly, in the services sector, there was a decline of EUR 7 million, i.e., a negative impact of EUR 7 million on value creation, mainly due to Entoria, which you can see at the bottom of this page. If we now focus on value creation on the unrealized capital gain side, i.e., the unrealized part of value creation over the half year, it is entirely linked to EBITDA growth. Even if we only have 1.4% EBITDA growth over the half year, this figure conceals disparities, which still enable us to post value creation and an effect of EBITDA growth of EUR 150 million over the half year. The multiple effect over the half year is practically nil at EUR 5 million and the fact that we have slightly lifted the portfolio and reinjected cash and the effects of management packages have a negative effect of around EUR 100 million, which brings us to a figure of EUR 48.1 million of value creation on the part we still had in portfolio at the end of June. On the right-hand side, you can see the change in portfolio value at the end of December -- from the end of December to the end of June, and we can see that since we have, as Maurice was saying, made few sessions and yet we have continued to invest and create value. The portfolio has grown by 5% compared with December 31 to stand above EUR 1 billion for the first time, we are now at EUR 1,541 billion. On the next slide, Page 23. This is an indicator that we monitor closely and I would remind you that we try to be systematically invested to the maximum because being invested to the maximum enables us to maximize value creation over the long term, and we are at EUR 105 million as on 30 June in the company's net worth. But what cash is this figure? 105%. Sorry 105% of net worth at the end of June, but this figure is a little skewed. Since we can see that the portfolio is stable at EUR 943 million versus EUR 941 million at the end of December. This has more to do with the fall in net worth from EUR 946 million to EUR 901 million, impacted mainly by the dividend. On Page 24, we present the different valuation methods we have used for the portfolio. And we can see that at the end of June, 90% of the portfolio is valued using market comparables. 6% of the portfolio is at cost and the weighting of listed companies is 4% versus 5% at the end of December, thus stable overall compared with 6 months ago. Page 25 shows the trend in uplift, which was not significant over the half year with very few sessions 6 and 7, respectively. So even if the figure remains positive, there's no particular mention to be made of uplift. On the next page, Page 26, we present the residual commitments at the end of June, which amount to EUR 670 million and of this figure, practically EUR 115 million have already been invested by the funds in the portfolio, both the 72 mid-market funds and the Apax LLP funds, EUR 115 million have already been invested but not yet called up at Altamir level as financed by credit lines. And these EUR 670 million can be broken down into the three blocks, the 2019 allocation for EUR 377 million and the 2023 allocation for EUR 254 million plus a small remainder on the previous allocation. You have all the details on the slide if you want to go into the figures in detail. On the next page, Page 27, we show you the cash situation. We estimate that Altamir has the appropriate financing and that we are in a -- we have a cash position in the parent company financial statements of EUR 51 million. And to this EUR 51 million, EUR 115 million in credit lines, which break down into EUR 75 million for Altamir and EUR 40 million for our dedicated SPV, and we are currently working on increasing these credit lines from EUR 115 million to EUR 135 million. I'll now hand over to Maurice, who will tell you what's been happening over the last 3 months.

Thank you, Eric. So first of all, we'd like to remind you that we have very little or virtually no exposure to Russia and Ukraine. Since this conflict is unfortunately still going on. And as far as post June 30 events are concerned, the only really significant news is a second investment through Apax LLPs on [Z] fund in a company called [Palex], which is an independent distributor of innovative med tech products for public and private hospitals and laboratories in Southern Europe, Spain and Italy. If you don't mind, we're now getting down to the nitty-gritty of what makes your company so valuable, namely the quality of its portfolio. First of all, on Page 30, we present you with an overview of 68 portfolio companies. I would remind you that portfolio companies only include those held by the Apax LLP or 72 funds and held as direct co-investments but do not include companies held through the Apax Digital I and II or Ultra Rock Global, [indiscernible] X3 or Apax development funds. There are a considerable number of companies here still. We're only counting the ones we're presenting to you the 68 companies with a value of EUR 1,541 billion, as Eric was saying a moment ago. So this EUR 1.541 billion breaks down into 17% in what we call direct investments, either investment in Tom or co-investment alongside the Apax LLP or 72 funds, 54.4% through alongside 72 and 27.1% alongside the Apax London funds and then 1.3% alongside the Ultra Rock Global funds. This amount will obviously increase over time. As far as the breakdown of the portfolio is concerned, we present it to you by sector. So you can see that it's fairly balanced with tech and telco still leading the way with 43%, followed by consumers since here, we're at fair market value. And so with the strong appreciation of Tom and the strong appreciation of Europe snacks, the weight of consumers has obviously increased, Services remain at 22% and healthcare is at 6%. And by vintage, by age, the portfolio is quite well diversified, as you can see. And so this is very important for managing exits. And finally, from a geographical point of view, 70% of our business is in Europe. So in this presentation, we don't just look at where the head office is but where the business is deployed. So if I take an example like Marlink, where the company was headquartered in France but generates most of its sales worldwide, it's not sales in France that are taken into account all Europe, but sales broken down by geographical area. So we have 70% in Europe, 22% in North America and 8% in the rest of the world. I would remind you that this figure is subject to a constraint since Altamir is a venture capital company, and we are, therefore, obliged to have at all times more than 50% of our portfolio invested in unlisted companies in the European Union, which creates a constraint in terms of geographical diversification. As you know, Altamir's strategy is to invest in growth companies, and our way of demonstrating this factor was to compare the EBITDA growth of our portfolio companies with that of the 35 nonfinancial companies in the CAC40 Index. You can see that historically speaking, it's true that the gap has narrowed over the last 2 years well since 2002, 2003, but things will soon get back on track. With regard to portfolio growth for your information, we have given you a breakdown of the portfolio explaining that of the 68 companies, 36 of them, representing 84% of the value add cost or 88% at fair market value experienced positive sales growth in what is, as you know, a turbulent world. The figures are a little less positive, but almost the same, 32 companies representing 68% of the portfolio at cost or 78% at fair market value saw their EBITDA grow and 21 of them, representing 9% at fair market value saw their sales or EBITDA grow by more than 20%. As far as the evolution of enterprise value multiples is concerned, as for debt multiples, you can see that the situation is settling down, i.e., the valuation multiple is slightly down at 14x versus 14.35x but on a broader sample of 88% versus 77% at December 31, '22 and the debt multiple continues to rise slightly but again, with a much larger sample size of 94% versus 85% at December 31, '22. Another way of looking at our portfolio is to look at the 20 largest investments, which represent 73.6% of the portfolio's net asset value at fair market value. So I'd like to draw your attention to two things. Firstly, the fact that Tom today carries a very significant weight at 15%, 15%, 7% due to its performance and despite the fact that we've already recovered 40% of our cost, and then we're back to relatively balanced levels. And I'd also like to draw your attention to the fact that of the 20 companies, only two of them, namely Infovista, which is valued at EUR 45 million against a cost price of EUR 50 million. And then [Tauria] is valued at EUR 34 million against a cost price of EUR 54 million. These are the two companies that are valued below cost while all the other companies are valued above cost and often very significantly so, although when grouped by sector, all sectors are in the black. So as usual, I'm going to comment briefly on the performance of the 20 biggest companies in our portfolio, organized by sector. So if I start with the telco sector, I'll remind you that Destiny is a provider of secure communication solutions in the cloud for innovative companies, mainly in the IP channel. As you can see, the figures are very pleasing with 26% growth in sales and 24% growth in EBITDA. But what's interesting to note is that Destiny, which started out in Belgium is now the leader in Benelux, the leader in France, the leader in Sweden and Denmark and has just penetrated Germany. So the company is developing extremely positively, both organically and through external growth. Marlink I would remind you, is a company we have exited and reinvested in alongside Providence. The company also continues to perform extremely well with 20% growth in sales and 30% growth in EBITDA. All market segments are growing, and most importantly, as you know, Marlink by satellite capacity and then buys it wholesale and resells it retail, mainly to ships, and there's a disruptive phenomenon in satellites, known as low orbit. And so Marlink has introduced StarLink into its offer in order to protect itself against this technological evolution. GreyTech, which distributes software for the building and architecture industry and which has two activities. Firstly, it is the world's leading distributor of Autodesk software, which is the world leader in this field and which has its own activities, its own complementary software continues to make very encouraging and significant progress with 19% growth in sales and 69% growth in EBITDA. [indiscernible] , which operates in an extremely small geographical area, Holland has seen much less market growth although actions are underway to develop the company, both geographically and in terms of its product offering. And the company's working on acquisitions. In Fovista which is the most negative situation in our portfolio after a very successful year, which ended in June '22, had a very disappointing year, which ended in June '23, and with a 23% drop in sales. I would remind you that InfoVista sells software, but in the form of licenses to telephone operators who have stopped investing and so this immediately translates into a very sharp drop in sales. So very strict measures have been taken on the one hand to reinforce the management team with a new manager and new managers at the head of these companies. And on the other hand, an in-depth work to review the go-to-market and the whole cost structure. Odigo very good news. You know that the investment thesis of Odigo which is a leader in solutions for cost thesis was to transform this company which had been selling license equivalent, if you like, into a SaaS company. So the migration has now been completed, since 95% of the eligible base has been transformed into SaaS resulting in significant cost reductions and, of course, greater customer satisfaction. The downside of this is that the management team has been very absorbed by this migration and has not been able to develop sales as much as we would have liked. But now that the migration has been completed, the focus will be on both cost reduction and sales growth. Vita Protect is a new investment for the 72 funds. Well, the company is performing according to plan with sales growth having returned to 8% and the company is working on both organic growth and acquisitions, of which it made a small one in the first half. Xperio is also a reinvestment since we sold our company to Vitruvian and reinvested. Let me remind you that Xperio's investment thesis was that of a global provider of managed Internet access to the cloud and that it was selling at the time we invested mainly through telephone operators. The investment and value creation thesis was based on going direct to the end companies without alienating the telephone operators. And this thesis succeeded perfectly since you can see that at the end of June 2023, 75% of the order book was direct with the companies. What's more there has been a shift towards high value-added products, which are also growing faster than simple products. EBITDA is not growing as fast as sales as we continue to invest in our sales force to deal with customers directly. [APC] The company is a European leader in CRM software. The start-up was a little sluggish, which is why the arrival of a new management team a new director should help boost the company's performance, but it has no debt and is in a very fast-growing market. So we have nothing but positive hopes for it or. In Services, [AEB], I remind you, is a world leader in ingredients and services for beverages and food products. mainly wine despite a 2% drop in sales and stable EBITDA, the company performed well as wine production in the Southern Hemisphere fell by 15% to 30% compared with previous years. So in a declining market, this was a very remarkable performance. Optive is also a recent [ 72 ] ten investment in the field of mechanical breakdown management. And here again, the company is in line with its plan with its investment thesis despite a market -- despite a very, shall we say, challenging used car market. In services, Crystal is one of France's leading wealth management advisers. I would remind you that wealth management advisers today only account for around 10% of French wealth management that they are in the process of taking market share from the banks, but that this is an extremely fragmented market. And that Crystal's investment thesis was to consolidate this industry 23 acquisitions have been made, resulting in significant growth in sales but on the other hand, EBITDA remained stable as we are investing heavily both to integrate these acquisitions and to set up the organization needed to manage a group that has tripled in size in the space of 2 years and [Tori] is another area of concern for us. It is, as you know, France's second-largest wholesale broker specializing in health and provident insurance for self-employed managers and employees of small- and medium-sized businesses. The company made a bad acquisition 2 or 3 years ago, financed mainly by debt, which led to a significant drop in EBITDA, a drastic turnaround plan was, therefore, put in place which is yielding results since you can see that after 2022, which was up the first half of 2023 is up in terms of both sales and EBITDA. But today, the company's debt is too high in relation to its EBITDA level. And so discussions are underway with lenders, which has led us to revise entorious valuation downwards and even below its cost price. Ensure Partners is an insurance broker in the United States that is growing both organic the leader. You can see that the machine call it European rental sanitary facilities. The company continues to make significant progress in both sales and EBITDA, a major source of satisfaction. PIB Group is a U.K.-based specialist insurance group, which again operates both through organic growth and above all, through acquisitions, 67 of which have been made since the February investment by Apax LLP, resulting in sales growth of 30% and 15%, respectively, and EBITDA. [ Store door ] Mark Corio, Strongly in Italy and EuroVivo in Germany is the European leader in affordable jewelry after 30% growth last year the company continues to grow at 10% of sales when the market is flat and is growing its bidders at 2% because inflationary factors have not been passed on in prices. The decision that was taken was to keep prices constant in order to gain market share, which you can see by the 10% growth in sales. The other good news about Tom is that, as you'll recall, at the same time, as we reinvested in Tom, we bought Agatha at the bar of the court, which we bought in partnership with another partner at 5 years to 50. We bought out this partner and now Agatha is a wholly owned Tom subsidiary. Above all, the main reason we acquired Agatha was because of its activities. It's a very well-known brand in Asia, particularly in China, Japan and Korea. And so we've restarted activities in China in a very significant way. I'll tell you more in the next report. Europe snacks has been given back its real name, which we used to call snacks development and has regained its true identity as you know, Europe snacks is a European leader in private label savory aperitifs, given inflation, private labels are on a role. And so Europe snacks is well up to the challenge. What's more? We've just added an acquisition in the U.K., Burt Snacks, which has already strengthened our position in the U.K., where we're expecting major synergies. And so Europe Snacks is now the undisputed leader in France, Spain and the U.K. in private label snacks. Moving on to the health sector. Mental Better a provider of outpatient care for mild-to-moderate mental health disorders in Holland, which had previously suffered last year from both therapists and customer absenteeism has returned to a normal level of activity and what's more Mental Better has just acquired its #2 competitor, so that's why you see sales and EBITDA growth of 23% and 36%, respectively, of which 17% has been achieved in organic. Finally, Candela is a company of Israeli origin, but which works essentially on the American market, selling equipment for beauticians and the company continues to perform very well. Although it suffered in the first half of the year from its exit, it was one of the few companies with exposure to Russia from its exit from the Russian market. That's it. I've covered the 20 companies in the portfolio, as you can see apart from [Ventauria] and InfoVista's portfolio of 20 companies is doing very well overall. And if I look at the 68 companies as a whole, there are still only one or two matches, fashion and vocal comm, which are the focus of a great deal of attention from our management teams. From funds, if we now turn to Altamir's performance compared with its benchmark, first of all, in terms of changes in its net asset value, you can see on Page 39 that over 10 years, Five years and 1 year, Altamir has outperformed LPX Europe only over 3 years. We've fallen a little behind in the last 3 years, but I hope we'll close this gap soon. Our dividend policy remains unchanged, and we have generally paid out 3% of net asset value since 2014. Taking into account the discount of around 20% this gives a yield of around 4% to 4.5%. As for Altamir's performance in terms of total shareholder return, i.e. the evolution of the share price, including the dividend, you can see that without exception, Altamir also outperforms the market. Altamir outperforms both the LPX Europe and the CFC mid and small and quite significantly over 1, 3, 5 and 10 years. So in terms of objectives, you'll recall that at the end of 2002, I decided no longer to present objectives for the coming year, but rather taking into account the cyclical nature of our business to reason on an average over the next 5 years. And so we're halfway there since we're 2.5 years into fiscal year '12 grew fiscal year, went through 1 and 6 months into fiscal year '12. So we're halfway there. In terms of divestments, I had forecast an average of EUR 230 million, despite the fact that we only made EUR 12 million in the first half of the year, and we're now at EUR 282 million over the 2.5 years, despite the fact that we've only achieved 1.4% in organic growth and external conclusion for the 2.5-year period where you must level because we manage was section, which is to invest alongside the Apax funds, even though Apax France has been renamed 72. Our strategy is to support growth companies to give a shareholder we have a highly diversified double-digit, as you have seen, [ 1,000,541,068 companies ] not counting the companies in the funds. There is no leverage. There is no debt at the level of the central structure even if there is debt and we have a conservative portfolio valuation policy, since you can see that uplifts are always positive. We have a rigorous cash management policy, and you have an experienced management team and a very attractive tax situation. Since we pay no corporate income tax and shareholders, provided they meet certain conditions also benefit from very favorable tax treatment. So Eric, Claire and I would like to thank you for your attention and look forward to seeing you at our next meeting. Our next webinar will call it which will comment on the September 30 accounts. That's right.

No for annuals next year in March.

We look forward to hearing from you and welcome your questions, comments and suggestions. we wish you a pleasant evening.