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Edited Transcript of MF.PA earnings conference call or presentation 6-Sep-18 9:30am GMT

Half Year 2018 Wendel SE Earnings Call

Paris Sep 11, 2018 (Thomson StreetEvents) -- Edited Transcript of Wendel SE earnings conference call or presentation Thursday, September 6, 2018 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* André François-Poncet

Wendel - Chairman of the Executive Board & Group CEO

* Bernard Gautier

Wendel - Member of Executive Board

* Jérôme Michiels

Wendel - CFO

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Conference Call Participants

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* Christophe Chaput

ODDO BHF Corporate & Markets, Research Division - Analyst

* Elizabeth Miliatis

BofA Merrill Lynch, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Wendel 2018 Half Year Results Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. André François-Poncet. Please go ahead, sir.

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [2]

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(technical difficulty)

Group share was negative EUR 0.9 million versus EUR 31.3 million in the first half of last year.

Turning to the more meaningful net asset value, at EUR 172.7 million, it was up 4.2% over the last 12 months. Of course, this is after a dividend was paid. Jérôme will discuss the financials in greater details during the presentation, so I will turn to Slide 3.

Slide 3 is what we have been up to and keeping us busy since the start of the year. We have, as you know, intended to concentrate the portfolio on the more sizable assets to focus our efforts, our knowledge, our energy where we can generate significant value. So over the last 8 months, we have opportunistic sold or announced the sale of CSP Technologies, Saham and Mecatherm. In every case, we have sold above NAV. The aggregate proceeds of these 3 sales will exceed EUR 0.5 billion, and proceeds will be used to further strengthen our financial structure and give us ammunition to make acquisitions as we see opportunities to do.

Most of our portfolio companies have posted, as I said previously, steady organic growth in the first half, although they have faced currency headwinds like many European companies. Bernard will go into details of all this, but we feel there has been good momentum in the first half.

Since the beginning of the year, we have also endorsed or initiated key management changes in our portfolio companies: notably at Bureau Veritas, BV, where if you look at the executive committee, you have 4 new faces plus another individual who sits on the executive committee but is not formally part of it. So depending on how you look at it, you could say that half of the executive committee is new since the beginning of the year or 40%, but it's significant; Cromology where there's a new Chairman -- Executive Chairman and a experienced CEO in the industry; and Stahl where the forthcoming retirement of the CFO is -- has led to an appointment. These are some of the changes in the portfolio, the more visible ones. At Wendel, as we had explained, we have rebuilt our French investment team, added 3 professionals and generally strengthened our European execution capability.

As you know, our value-creation model is based on internal but also external growth. The companies in the portfolio have announced in the aggregate 22 acquisitions, some of which being quite large like at Allied Universal. As usual, our teams have been instrumental in the decision-making and helped our companies achieve the good deals.

We have achieved all this while keeping an adequate financial discipline. You saw that Moody's have assigned us a first time rating on their side of Baa2, which is one notch above the rating that we have from Standard & Poor's, which is a BBB- and has been at that level since July 2014. So the Moody's rating further enhances our credit profile and supports our long-term positioning.

Switching to Slide 4, portfolio rotation, which I mentioned previously. So just taking them one by one. CSP has now closed. It has been acquired by AptarGroup, which is a leading packaging company. It has generated $342 million of proceeds, $140 million above CSP's valuation in our net asset value as of May 2. The deal was done at 13x EBITDA, and we reported historically EBIT 20.5x 2007 EBITDA, which, I think, most people, most observers would view as the excellent price.

In the case of Saham, we have sold our shares in the holding company for EUR 155 million, has not closed yet. It is pending a final clearance, but it's in good shape. We feel we have an earnout where we can receive 13.3% of any capital gains, which the company may generate if they sell other group activities than the currently contemplated insurance. We expect completion in the second half. The earnout is not a massive earnout. It would be a small sum if any.

On July 31, 2018, we announced that we received a firm offer from Unigrains, which is a French cooperative fund, to acquire Mecatherm for an enterprise value of EUR 120 million, which is about 10x expected EBITDA for 2018 but also 17.1x EBITDA for 2017. It has been a choppy ride over the years at Mecatherm, and we feel we got a good exit under the circumstances. Based on this offer, we would receive proceeds -- net proceeds of about EUR 83 million, which is about EUR 40 million above Mecatherm's valuation in the net asset value as of May 2, 2018.

Portfolio developments -- other portfolio developments, I should say. Incidentally, this is 3 companies out of 13 that are now no longer going to be in the portfolio shortly, which will enable us to significantly focus our efforts.

Portfolio main developments, taking them one by one. At Bureau Veritas, BV, where you can get plenty of information directly from the company and its communication, organic growth was 3.5% for the first half but has accelerated in the second quarter by -- to a growth of 4.4%. The company confirmed its full year outlook at the end of July. It announced a new CFO, François Chabas, who is an internal appointee, a very experienced professional. Half, as I said, half -- almost half of the executive committee members entitled have joined since January 1, and there is a great deal of energy and ambition at the head of Bureau Veritas.

Regarding IHS, the EFCC, Economic and Financial Crimes Commission, released a large part of the frozen sums in Nigeria. This is a positive development, obviously, even though we will only be completely satisfied when the EFCC will have released all of the accounts and all of the sums. And we -- we are convinced after the internal work that had been done by an external investigating firm, accounting firm, that the company does not deserve to have been placed in the situation it has been placed in, and so we are hopeful that it will find its clarification in due course.

Allied Universal announced a sizable acquisition, which I'm sure everybody saw, with USSA, which will enable the company to -- sales to reach and exceed $7 billion. It's a major consolidation move in the sector in the U.S., and close is -- is expected before year-end.

In April, Constantia Flexibles announced the closing of an acquisition of a controlling stake in Creative Polypack Limited in India where the flexible packaging market is expected to grow by more than 10% per annum over the next 5 years.

Tsebo reached an agreement to mend and extend its debt facilities that will provide Tsebo with additional covenant headroom, better terms and more flexibility for a potential acquisition. So we think that's been very positive with Tsebo.

So basically, when you take the 13 companies and you sort of tick down the list, I hope you come out with the sense that there is a great deal of focus and energy being deployed.

So I now leave the floor to Bernard who will be more precise and explicit on the company performance, and he is taking over on Page 7 of the presentation. So Bernard, now to you.

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Bernard Gautier, Wendel - Member of Executive Board [3]

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Thank you, André. We -- yes, let me try to illustrate and go 1 step deeper in the understanding of what happened during the first half of this year in our portfolio companies, and I will start on Page 7 with Bureau Veritas.

Well, Bureau Veritas, likewise its 2 large -- largest peers, has enjoyed the ramp-up or the market growth over the last 6 or, even more, the last 12 months with 2.6% organic growth in Q1 and 4.4% in Q2. They remain #2 in term of organic growth, #2 also in terms of profitability in the market. Why we should all consider that the marine and offshore business had not yet started to recover in H1? In most businesses and geographies, we are maintaining or gaining market shares, and their program of growth initiatives is posting close to 7% organic growth. In terms of reported accounts, they are, of course, impacted by the negative transactional effect -- translational effects, I'm sorry, of several currencies in H1, some of them like U.S. dollar having evolved in the meantime, the other way around, more recently, but we'll see.

They confirmed their 2018 outlook, organic growth acceleration, operating margin improvement at constant ForEx and same guidance for the cash flow generation. That's for Bureau Veritas.

As far as Saint-Gobain, Saint-Gobain, similarly, enjoyed an acceleration of its organic growth, plus 1.6% in Q1, moving up to close to 8%, actually above 8% in Q2, fueled by both, and that's important, prices increase and volumes increase. Their operating income is up by 30 bps. And they have an announced divestment program, representing more than 8% of their total sales, which clearly represent more than usual hygienic portfolio rotation. Unfortunately and contrary to this good operational performance, we have been very surprised, disappointed by the stock price evolution, in particular, over the last 3 months. And in August, we purchased call options on Saint-Gobain shares whose characteristics are identical to the optional component of the exchangeable bond into Saint-Gobain shares that we issued in May '16.

Let's move now to the unlisted assets of our portfolio on Slide #8. So most of them also have enjoyed an acceleration of their organic growth and an increase of their market shares or reinforcement of their strategic position with 2 exceptions. The first one is Cromology. I will come back to it. Cromology, which organic growth remains negative in -- yes, in a recessive market, although a little bit less negative in Q2 versus Q1. But as I said, I will come back to it in a while. For the second one, Constantia, Constantia actually has enjoyed a slow-but-steady improvement of its organic growth for the last 3 semesters in a row. They have also posted better organic growth numbers than most of their peers. But in term of strategic position, we cannot ignore that the recently announced merger between Amcor and Bemis might reconfigure the whole industry structure. The good news, if I may say, is that Constantia Flexibles will move up from #4 to #3 worldwide. But seriously, we will rigorously and precisely analyze in the coming weeks the potential implication for Constantia of such merger in terms of opportunities or risk, of course, if the merger is confirmed and finally closed.

For the others on this chart or in the following chart, Stahl generates 5.2% (sic) [4.2%] organic growth in Q2 versus 3.1% in Q1, acceleration of growth. As I said, Constantia Flexibles, 3.9% (sic) [3%] organic growth in Q2 versus 2.1% in Q1. IHS is posting 14% for organic growth for the first half versus 11% in Q1. And Tsebo remained quite high, around 9% organic growth. NOP remains quite high, around 17% organic growth. And finally, Allied, which has experienced a slight contraction on organic growth from 4.1% in Q1 to 3.1% in Q2 as, at the same time, announced recently the acquisition of U.S. Security Associates in order to build the largest security service group in North America with close to $7 billion in turnovers, $600 million EBITDA margin, which is 8.6%, and more than 200,000 employees. So no doubt that their strategic position is being reinforced to this.

So indeed, as André said previously, a lot of things are happening in our portfolio companies as a result of very intense day-to-day work and fight against competition and also some time against adverse environment conditions. And it pays off. Our portfolio is growing well, strengthening its competitive position and improving its capability and performances.

Let's look at IHS on Slide 9 a little bit more closely. So first point, despite the change in the Nigerian ForEx market structure in 2017 with the setup of the new FX rate, IHS has grown its revenue by more than 2.5% in U.S. dollar and above 14% organic growth. So there's no doubt that it's a successful business model and still a fast growing one. The company has continued to generate cash, just need to look at the debt level. Keeping in mind that the debt at the end of June still contains some -- or is impacted by the fact that some accounts were still frozen. So the company has continued to generate cash between June '17 and June '18, despite the progressive restart of upgrades CapEx and BTS programs in order to fuel future growth. It has also announced the acquisition of Zain towers, Zain towers in Kuwait, which is still not yet closed, but it's coming soon. Finally, the margin we published is slightly impacted, but this is a result mainly of the -- of ForEx effect and short-term temporary impact of SG&A cost increase in order to strengthen the backbone of the IHS organization in anticipation of the future growth.

So now if I focus on the 3 concerns that we are doing in the first half, first one, of course, the frozen accounts by the EFCC and during its investigation. As André mentioned it already, we are -- IHS had $196.3 million at the end of June frozen. A few weeks later, they had only $83.9 million still frozen at the 20th of August. This is very good news. We, the management team and ourselves and the other shareholders of IHS, have worked intensively to make this happen. And we keep pushing hard to make IHS successful in making clear that it's right to get back this money, and we will be satisfied only when we'll get back everything.

The second topic was 9mobile. It's not yet officialized, but we read newspapers, local newspapers in Nigeria. We've seen recently, during the last few days, rumors in local newspapers saying that the expected authorization for the license transfer to the new owner has been granted. IHS management follows carefully the situation and make sure that most of the revenue book are being paid.

On NAFEX and the evolution of the CBN to NAFEX rate, NAFEX, in fact, has been very stable since its creation. And it happens to be a deep-enough currency market to avoid the rise of a new significant gray market so far. So negotiation on another -- on another related topic, negotiation with customers are still going on. And for the rest, we probably need to wait after the next presidential election in Nigeria before any potential positive structural change happens in this currency market.

I move to Stahl on page and Slide 10. Stahl has enjoyed a very good first semester this year. They have started to harvest all the benefits, most of the benefit expected from the acquisition of the BASF leather business, so they're posting close to 28% gross, total gross. They have been able to maintain above 20% EBITDA margins. The slight decrease in EBITDA margin is due partly to the structural margin of BASF leather business, which was more driven by distributors than by direct sales, so it's a normal mix effect. The rest and more than the rest is due to ForEx impact to the weakening of the dollar during the first half of this year. So in other words, I would say that the margin of Stahl has been even slightly improved if we take apart the ForEx impact, and by ForEx, again, I mean only or mainly the dollar weakening during the first half.

The result of the merger is also, operationally on the field, very visible. And the management team now feels more and more comfortable to assess the fact that the cost savings at stake will be above EUR 25 million in total, probably significantly above. So we are observing every month the materialization of this assessment.

The last point on Stahl is that we keep in mind that it's a company with high transformation rate of profitability into cash. So thanks to that, they've been able to reduce the leverage. The ratio is now below 2.5x, which has allowed also Stahl to benefit some hot set-downs on the cost of their debt and despite the fact that in the meantime, they have to pay a part, the cash part of the acquisition of BASF. So all this is good news. Looking forward, we have some slight slowdown in the leather market, but the overall business remained very strong and very profitable.

As André said, finally, and I would like to say a couple of words on this, Bram Drexhage who has been and still and will be still until next year, a very efficient CFO, very successful CFO, has decided to retire, and that's why we have decided and signed an agreement with Frank Sonnemans from Kendrion to replace him as of 1st of June -- 1st of January next year.

Moving to Slide 11, Constantia Flexibles. I would just reconfirm what I said earlier. They're posting 3% organic growth. They posted 0.9% in H1 '17, 0.23% in H2 '17, 0.3% now in H1 '18, so as I said, steady increase of organic growth. They are #2 (inaudible) among the 10 largest competitors which published gross numbers this first half. So that's -- in absolute terms, it remains reasonably moderate growth, but in relative terms, it's quite satisfactory. This is mainly driven by a mix effect and some first price impact during this first -- price increase impact during this first half. They, in the meantime, have also kept working on our external growth to win further strategic position, especially in India, which is a very promising market. They acquired Creative Polypack and closed the deal to build the second-largest strategic position in this industry in India. In the short term, given the currency evolution, it's a little bit more difficult than anticipating, but strategically speaking, they've built a very strong position.

Their leverage is still very low, 2.3x LTM EBITDA, and 2.3 make the assumption that we do not consider MCC shares as potential liquid shares. If we do, the leverage goes down below 1.5x, which means that Constantia has a lot of room for maneuver and will definitely, with the support of Wendel and the other shareholders, think about strategic option for the next quarters based on what happened recently in terms of announcement with this Amcor-Bemis merger, which, I remind you, valued Bemis on a stand-alone basis at more than 11x EBITDA.

Moving to Allied Universal on Page 12. Allied is growing organically a little bit lower than what we expected. But as people say, you cannot be on too many things at the same time, and they've actually been very busy consolidating the market. Since last year, they made a couple of small acquisitions, but more importantly, they've just announced recently the acquisition of U.S. Security Associates. They've announced this acquisition for roughly around 7x after synergy EBITDA level, which is, clearly, in our view, creating some significant value. And they are now targeting an overall leadership in North America in this industry with an above 8% level of profitability. The profitability is improving, plus 8.5%, with growing margin improving month after month. So we are seeing now the materialization of the crystallization of synergy announced at the time of the first big merger.

Finally, in terms of significant size company in our portfolio in listed part -- unlisted part, Cromology on Page 13. Cromology is the biggest disappointment for us during this first half, together with, as we said previously, the stock price evolution of Saint-Gobain. In Cromology, we understand that the market in France has not been good, definitely, worse in Italy. But for us, it's not enough of an explanation, and we have put in place -- we are putting in place with the new management, Pierre Pouletty and Loïc Derrien, a new turnaround plan. The EBITDA is down compared to last year first half. Nevertheless, some price increase have started to have positive impact. As I said earlier, the decline of sales is lower in the second quarter than in the first one, and we see some positive signs. Too early to tell. We'll monitor this very carefully in the coming quarters. But no doubt that the overall environment has been very adverse, as we can see with the direct competitors of Cromology in France and more broadly, Western Europe.

I will finish this tour, this fast tour for unlisted assets with a few words on the other one, the small ones. As I said in my introduction, Tsebo is growing well. The overall growth is 16.2%. The growth has been roughly maintained between Q1 and Q2. This -- the organic growth is around 9%.

NOP is also doing extremely well. They are on a positive wave of their machine tool end market, and it's very positive. It's a nice, very profitable and fast-growing company.

And I would just add one comment about 1 of the 3 ones we have just sold. As I would like to say, a very big thank you to John Belfance and his team at CSP. They've been supported during the last 4 years by a very intense day-to-day work by David Darmon and his team in our New York office to make this story happen. They are moving now into a new phase of their history joining the AptarGroup. John, I wish you the best for the next years but thank you again for the very intense and successful work you've done.

That's it for this tour. I'll be more than happy with André to answer to your questions in the Q&A part. Let's all keep in mind that although our portfolio has been simplified during the last 6 months, basically, it still remain very diversified in terms of geographic and sectorial exposure. And we believe strongly with André that more than ever, today, in the current circumstance of the current environment, it's the best type of balance we should be looking for whatever happens in the rest of our portfolio in the coming quarters or months, we need to remain well balanced in terms of geographic and sectorial exposure.

Now the account numbers and NAV numbers presented by Jérôme Michiels. Jérôme?

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Jérôme Michiels, Wendel - CFO [4]

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Thank you, Bernard. Good morning, everyone. So let's start by the contribution from subsidiaries on Page 17 to go through our half year 2018 earnings. The contribution from subsidiaries came in at EUR 336.7 million, which is slightly below last year. The decrease of about EUR 20 million is the result of the deconsolidation of Saint-Gobain at the end of H1 2017, the sale of labor at Constantia and the mixed results of Cromology this first half. These negative items have only been partially offset by the good growth of the results of Bureau Veritas, Stahl, Constantia and IHS. So altogether, we are decreasing by EUR 20 million on this item.

On the financial and operating expenses side, however, we have been able to reduce significantly the quantum, which went from EUR 120 million negative to slightly below EUR 100 million this year, thanks to the reduction in the cost of our debt and less adverse foreign exchange impacts over the first half. As a result, our net income from operations is slightly up at EUR 240 million.

Nonrecurring items have represented a total expense of EUR 41 million, i.e. EUR 17 million more than last year where we had, you remember, a 40 -- sorry, EUR 84 million capital gain triggered by the sale of our Saint-Gobain shares. Eventually, the impact of goodwill allocation is roughly stable at EUR 83.8 million. And as a result of the above, total net income has reached EUR 115.3 million for the first half. And at group share, it's a net loss of EUR 0.9 million to be compared to roughly EUR 30 million last year. This evolution being the result, as I said, of scope effect and mostly, the deconsolidation of Saint-Gobain.

Let's turn to net asset value on Page 19, which is the most important KPI for our business. As of August 24, the net asset value is just below EUR 8 billion at EUR 172.7 a share. The value of our stake in Bureau Veritas is close to EUR 4 billion, thanks to the good development of the share price of BV over the past month, whereas our stake in Saint-Gobain has been penalized by the adverse evolution of the share price and is now standing at EUR 519 million.

The total value of our unlisted assets is EUR 4,726,000,000, a record level, fueled by the announced disposals at valuations above our net asset value as well as an increase in the valuation multiples of the peer group.

Our net debt is roughly stable at EUR 1,282,000,000, not yet taking into account by the proceeds already received for the CSP transaction or to be received from the disposals of Mecatherm and Saham. As a result, our NAV stands at EUR 172.7, which, when compared to the average share price of Wendel, exhibits a discount of 28%.

Over the past 3 years, as you can see on Slide 20, over the past 12 months, our NAV has been growing on account of the good results of our portfolio companies and the announced disposal. Over the past 12 months, the increase has been plus 12.2%.

In terms of what has driven the increase since May 2018, you have a breakdown on Page 21, and you can see that the main contributors to the growth of our net asset value have been the increase in the share price of Bureau Veritas for EUR 182 million, mitigated by the decrease of Saint-Gobain for roughly half of this amount and the combined impact of the disposals of CSP and Mecatherm for EUR 168 million. Our other unlisted assets have also increased by EUR 124 million driven by the peer companies' multiple mostly, while other items such as foreign exchange, net debt, et cetera, have represented a negative valuation of EUR 104 million altogether.

Over the first half, we have carried on with the optimization of our debt, as shown on Slide 22. In April, we have repaid our 2018 bond, decreasing gross debt to around EUR 2.5 billion and the average coupon to 2.19%. Our LTV currently stands at 13.8%. That is, again, before taking into account the benefit of the disposals of Stahl, Mecatherm and CSP. We have also had a very positive news yesterday, as commented by André, where Moody's has assigned us a Baa2 rating, reflecting the improvement of our financial structure.

As usual, return to shareholders has kept being the focus for us. On Slide 23, you can see that we've bought back 424,000 shares since the beginning of the year for a little more than EUR 50 million. Our average total shareholder return has been roughly 13% per annum, while the Euro Stoxx return has been 4.4%.

Before handing over the mic to André for closing remarks, I would like to announce that we have decided to switch our net asset value calculation date to the end of each quarter. You will -- and you will see all the detail on Page 24 of the presentation as well as in the press release.

André, over to you.

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [5]

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Okay. Thank you, Jérôme. I'm going to wrap up. I realize this is a quite a mouthful because of all the businesses we're in. I guess you're familiar with that. But a few comments.

First, most of Wendel's portfolio companies have posted steady organic growth in half 1 in the context of the currency headwinds that you all know. You saw that we continue to streamline our portfolio that we have taken advantage of very attractive valuations to exit our investments in CSP Technologies, Mecatherm and Saham Group where we have also been very active on management of our portfolio companies at BV, Cromology and Stahl, as examples.

In the coming months, we plan to continue harvesting opportunistically our portfolio. We will give no guidance because long experience in the financial sector has led us to believe that the best outcome is achieved when there is no pressure on you and particularly when people on the other side of the table understand that you're under no pressure. So -- but we are actively focusing on our portfolio, and we will continue to seek to deploy capital and compelling new opportunities, provided they meet our rigorous investment criteria and they offer the potential for long-term value creation.

We will support Cromology's incoming new management to give new impetus to the company, which we feel remains fundamentally attractive, has a number of distinctive positive features and which has disappointed us now for quite a while.

We look forward to closing Allied Universal-USSA and to capture the ensuing benefits of this.

And regarding Saint-Gobain, as Bernard said, we are struck by the share price performance that has been poor since the start of the year, have taken good notes and contributed to, obviously, the announcements to accelerate its strategy and it is an area of focus.

As you can see, we are working hard on the portfolio and ready to move if and when we see opportunity.

Thank you for listening to us, and I -- we open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will take our first question today from Elizabeth Miliatis of Bank of America.

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Elizabeth Miliatis, BofA Merrill Lynch, Research Division - Research Analyst [2]

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This first one would have to be in relation to leverage where we'll be going to very shortly and then the opportunities that unfold. So on my estimate, once you get all the cash from the, hopefully, 3 acquisitions that you've done, [LVI] should go down to about 7%, and net debt should be about EUR 700 million, EUR 800 million, which is well within the confines of where you could reach with net debt. So does that mean that we might be able to see 1 or 2 chunking new assets come into the portfolio? Or you're just focusing on the 5 that we have there at the moment or the K5?

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Jérôme Michiels, Wendel - CFO [3]

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I will answer on the numbers for the LTV, and then André will cover the rest. So currently, LTV is at 13.8%. We expect the level to go down around 9%. I'm slightly correcting what you've estimated there, following the disposals that have been either completed in the case of CSP or expected to complete by the end of this year. In terms of cash balance, we have currently a cash balance, which is EUR 1.2 billion. This cash balance might go up to EUR 1.7 billion by the end of this year. But as you know, we have interest, financial interest to be paid. We also have bond maturities coming up next year. So -- but you're right in saying that the cash pile will be sizable, and we'll have no issue funding the opportunities that we might find.

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [4]

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Yes. In terms of the investment side, perhaps, I should put it in perspective. As a long-term investor, we are interested in continuing to build the portfolio with companies which deserve to be long-term invested in, so to speak. So we have a machine to do that, the New York office, the London office, the French investment team, and when something arises, particularly within the portfolio of the African team, but we don't feel the pressure. Generally speaking, we see risk in the system. One of the risks is the very high level of prices being paid on some -- in the private equity world. Stock markets, you could judge as well as we can, but it's not at historical lows, far from that. So it's really about opportunity. And yes, we could. Do we have something imminent? No, we don't, but we have a number of things that we're looking at, and some are very attractive businesses.

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Elizabeth Miliatis, BofA Merrill Lynch, Research Division - Research Analyst [5]

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Okay. Got it. And then I have one question on Constantia. Obviously, you mentioned the Amcor-Bemis deal. Is something as sizable as that something that you might consider with Constantia? Or are you just continuing to look for the smaller bolt-on acquisitions?

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Bernard Gautier, Wendel - Member of Executive Board [6]

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Focus is obviously to look at bolt-on acquisition, small, midsized ones to reinforce specific geographic -- geographical market shares or access to new technologies. That's the main focus now. But as I said earlier, we cannot ignore what just happened, so we will be carefully reviewing how the rest of the industry reacts to this recent announcement.

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [7]

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Yes. Everybody is going to be

(technical difficulty)

There will also divestitures coming out of this merger probably because it is a very -- it creates -- there's a lot of competitive concerns, so yes, we shall see.

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Operator [8]

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(Operator Instructions)

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Bernard Gautier, Wendel - Member of Executive Board [9]

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We have a question from the webcast. The question is about the portfolio simplification. The question is asked by [Alexandria]. Do you expect, after Saham, Mecatherm and CSP, to sell older assets in the portfolio?

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [10]

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Yes, but completely opportunistically. We have people -- it's widely understood that we're not a long-term investor in Saint-Gobain, just to pick one. Although at the current level, we just bought call options. So since you signaled, we bought them because, obviously, we didn't think these call options were expensive. So we do review each and every one of our investments from time to time and trying to understand within the investment whether it should be simplified, what can be done strategically to better position each one of our companies. And at the broader portfolio level, it's -- it can happen, but there is no pressure.

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Operator [11]

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We will now take our next question from Christophe Chaput of ODDO.

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Christophe Chaput, ODDO BHF Corporate & Markets, Research Division - Analyst [12]

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So 3 question for me, a quick one. The first one is on Cromology. So the question is, what do you expect for this asset in the medium run? I mean, what could you do to return to higher pace of growth and in margin, for sure? Is it restructuring? Is it acquisition? So could you help us a little bit on that item? The second one is on Page 21 regarding the bridge of the net asset value. So you booked EUR 124 million regarding the change in the value of unlisted assets. How much of that is linked with IHS? And is it sizable or not? And the last one is, so during the summer, you purchased call options in Saint-Gobain. Where could I found the amounts in the net asset value? I think it's quite not really meaningful, but just to understand where it is located, please.

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [13]

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Okay. Cromology has some very good brands in France, in Italy, in Portugal, in other markets. It's a very good brand. It has a network, selling network through proprietary distribution. We feel there's a lot that can be done within the company to take better advantage of this. And that's why we brought in a combination of 2 people: Pierre Pouletty, who is in his late 50s, has been the CEO of a very successful French company called IPH, which is in -- basically, in wholesaling and with a network, has managed to multiple networks and has lived in a buyout framework where he's built a company through internal steps and also external growth; and Loïc Derrien, who has more than 12 years' experience at PPG and was running France and a number of similar markets to those of Cromology. So we think there's a lot to be done internally. Longer term, once the company has regained its profitability, there may be some smallish acquisitions but very small and really targeted to sort of fill in the network. But medium to long term, we also think Cromology should be a desirable asset in the paints game. The paints game is not finished. As you know, there was an attempt to buy PPG to acquire Akzo Nobel, which did not go through, but it's a clear sign that there will be more action in paints. There are a number of players from outside the European sphere that want to come in. And if PPG goes after Akzo, the cards will be redistributed. So in due course, once the work has been done internally, we want to be in a position to be a player in this game, either to take advantage of circumstances to exit, we have exited everything else in the former Materis environment, or not. Depending on whether we feel at that time, we can create value. So it's very open. But first step first, we need to fix performance.

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Jérôme Michiels, Wendel - CFO [14]

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On your next question regarding the -- what is related to IHS in the EUR 124 million, we are showing, for the change in the value of our unlisted assets, IHS is about 1/3 of this amount. And this net contribution of IHS is actually the result of pluses and minuses. As you can imagine, we have that type of evolution on all the lines of our portfolio. The multiples have moved slightly down regarding IHS in terms of the peers we are looking at. Net debt has changed. Foreign exchange rate, U.S. dollar to euro has changed. So it's a net result which is about 1/3, so quite negligible in terms of the total growth between the net asset value from May 2 to August 24.

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [15]

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We didn't credit the NAV with the release of the cash from the EFCC, so that's ahead?

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Jérôme Michiels, Wendel - CFO [16]

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Yes, correct. And lastly, your question on the call option on Saint-Gobain, well, it's not going to be valued in our net asset value. This is a minimal amount. Given where the share price of Saint-Gobain is today, the call that we purchased was a small investment, but we believe it makes sense. It makes sense to do this investment, so we are not going to take that into account in the net asset value.

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [17]

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It's P&L. It's not even a rounding error. It's really miniscule.

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Bernard Gautier, Wendel - Member of Executive Board [18]

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There is another question coming from the web from, I guess, it's David, and it sounds like it's a follow-up on the call option on Saint-Gobain. You're asking how much we've acquired. And actually, we acquired as many options as those that were embedded in the exchangeable bond, so we are talking a little bit below 10 million shares. We have purchased exactly the same calls that have been sold as part of the exchangeable bond. And your second question, David, related to that is how -- I mean, what was the rationale to buy these options?

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [19]

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I think there are a number of reasons. Actually, number one, we felt it was opportune given the pricing of the shares, given the low levels of volatility. It was a hedge to our exchangeables, such that if we decide, at point or another, we want to monetize, we can also do that without being short of the option that we sold on the exchangeable. It has a side benefit, which we all think, Bernard and I think is important, which is, in a way, we are becoming normal shareholders again because we -- synthetically, we own ordinary shares, full stop, no calls, so no calls bought in the way one offsets the other. And it's an additional incentive to us to participate as best we can in the -- in making sure the stock price goes up of this company.

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Bernard Gautier, Wendel - Member of Executive Board [20]

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David, you also, if I read well, had a question on the release of the frozen accounts by EFCC asking why. Well, the answer is we don't know why. We didn't know why these accounts were frozen. We're still -- by we, I mean not only Wendel but the management of IHS, has not received any paper or any precise formal information on why money has been frozen and why money has been unfrozen. I can just tell you that the management has worked a lot to put on paper all the arguments saying that this money should not be frozen. And that the shareholders, starting with us, have helped to voice these comments at the IHS level to make sure that the message was well listened to, to eventually generate some reaction.

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [21]

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Yes. We cannot point to the specific effect of this. But as an example of what we did, Bernard was part of the delegation that went to Nigeria with the French President Macron. And as part of this trip, he raised the issue at senior levels in the French -- with the French government and also locally, which I think people were listening carefully because, obviously, the consortium of investors at -- within IHS includes some very prestigious institutions, the World Bank, GIC, KIC and a number of prime fund Investec and a number of prime investors in Africa. And I think the level of dialogue and understanding now that we have established that we saw absolutely no calls for wrongdoing, the level of attention is -- it has been rising. And Bernard, on behalf of Wendel, has been instrumental in making this happen.

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Operator [22]

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We have a follow-up question from Christophe Chaput.

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Christophe Chaput, ODDO BHF Corporate & Markets, Research Division - Analyst [23]

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Yes. Just one quick from me again. On Constantia, because there is actually the deal between Amcor and Bemis, do you receive, let's say, some interest on Constantia regarding other operator?

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Bernard Gautier, Wendel - Member of Executive Board [24]

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We have already answered to this question in our last call, and I will make the same answer that since the announcement of the disposal of the label business, we have, several time, received sign of interest from other players in this industry. It is -- thank you for asking again the question, and the answer is the same. And I must add that the actual announcement of this merger or potential merger has just relaunched some appetite.

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [25]

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Yes. Just one of my findings when I joined Wendel is that we have received interest to each and every one of our assets over some period of time and in different shapes and form. But we -- there's always been interest in each and every one of our assets.

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Operator [26]

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As we have no further questions, I would now like to turn the call back over to your host, Mr. André François-Poncet, for any additional or closing remarks.

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Bernard Gautier, Wendel - Member of Executive Board [27]

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Sorry, we have a follow-up question from -- coming from the web from David Cerdan. What are the risks related to the next elections in Nigeria in February 2019 for IHS?

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [28]

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Well, it's a very broad question. We -- the current situation in Nigeria is that President Buhari has said he will run for reelection. And the usual way it happens in Nigeria that there were some alternates of different kind over time. Without taking any kind of position, I would never do this, and we are not here for that, I would say that viewed by the management team of IHS, the only risk is, in fact, that election preparation triggers some turbulences, eventually turbulences in industry just like it happened in other countries on the same continent in the last decade. The last election 4 years ago of President Buhari was very quiet and successful in terms of democracy process. We just hope that the same thing will happen whoever is elected himself or somebody else to replace him. That is the most important thing for IHS to happen and to be careful of in the next 6, 7 months. The second aspect is the preparation of election is always, in any country, not only in Nigeria, a period of time when a number of administration and a number of organization in a country stop or slow down in taking decisions. So we -- and IHS is a fast-moving company, so they want answers to their questions. They want solution to their problem. And the risk, which is a relative one but still exists, is that the election process, just like in any other country, slows down a number of decision-making process, which impact the day-to-day life of IHS, whether it's about building a new tower somewhere or dealing with topics just like the one we discussed previously on this call.

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Bernard Gautier, Wendel - Member of Executive Board [29]

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André, I think you can...

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André François-Poncet, Wendel - Chairman of the Executive Board & Group CEO [30]

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Well, thank you for your attention, and have a good day. Bye-bye.

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Bernard Gautier, Wendel - Member of Executive Board [31]

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Bye-bye.

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Operator [32]

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Thank you. Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.