EuroBusiness Media (EBM): Wendel, one of Europe’s leading listed investment companies, reports results for the first half of 2016. Frédéric Lemoine welcome. You are the Chairman of the Executive Board of Wendel. To begin, what are your key takeaways from these first half results?
Frédéric Lemoine: Well, the first half of the year has been quite dynamic for our portfolio companies and for Wendel and the portfolio companies had a good and sometimes extremely good performance; I think of Stahl or IHS which have been performing extremely well. They have been dynamic as well for their M&A activity, we have had more than 17 different operations for most of our companies that have been active in terms of external growth, small operations and very large operations in some cases. That’s exactly what we like, companies that are able to grow organically and externally. And for Wendel as such, there has been a very good start of the year. We have progressed towards the goals of our strategy, more non-listed assets in our portfolio notably, 37% now of our value is made of the value of our unlisted assets. We have strengthened our financial structure, notably our loan-to-value ratio has decreased down to 21.6%, a very low level compared to the last ten years. We have committed to remain below 30% at our last AGM and, last but not least, our net asset value has progressed and grown significantly since the beginning of the year, revealing part of the hidden value that we talked about to our investors.
EBM: So quite a busy first semester, a lot of activity, could you give us colour on the activity of your portfolio in this first semester?
Frédéric Lemoine: We have acquired less new companies than in 2015, when there has been a very high level of investment. Nevertheless, we have started a new business in Africa, with our first investment in commercial real estate together with CFAO. We have invested €25 million in a programme of €120 million to create 20 different malls in 8 African countries. Very recently at the end of August we participated in a new capital increase of IHS for $46 million and this is aiming at financing the last acquisitions of IHS. On the disposal side, we have been probably more active with larger numbers, since we have reduced further our participation in Saint-Gobain, down to 6.5%, freeing nearly €1.2 billion of resources to redirect to the unlisted assets. At the same time by the way we have issued exchangeable bonds in Saint-Gobain shares which was quite innovative with a zero coupon. And the third operation at the same time was that Saint-Gobain bought back 10 million of our shares, precisely to reduce their capital. So it was a very good operation which was, I believe, well understood. We needed some resources and at the same time we wanted to remain the major shareholder of Saint-Gobain, supporting their strategy further. We also sold Parcours to Société Générale, our car leasing operations, which was probably not able alone to develop internationally without the support of a larger group, so it was quite a lot of new inflows together with a large dividend that we got from the merger of AlliedBarton and Universal Services of America.
EBM: So you mentioned it earlier, a sustained M&A activity. If we were to talk about the companies which remain within your portfolio, what are the main newsworthy items of this first semester?
Frédéric Lemoine: Precisely the merger of AlliedBarton and Universal Services of America was probably the most visible operation that we launched in 2016. It was really the creation of the leader of the Security Services in North America. They are two large companies, adding together revenues of $4.5 billion, 140 thousand employees. It’s large, it’s essential for the development of the US economy to have safer protection systems for companies, for commercial malls, for universities and, by the way, AlliedBarton before the merger for the first half grew 6.6% organically which really says how important it is in the US. We made other operations, in IHS for instance, they have organised this capital increase to finance their acquisition of HTN, Helios Towers Nigeria, 1,200 towers that they bought in Nigeria to consolidate their dominant position in the country. And - which is also nice - other companies made some small acquisitions, but we like that when companies have the opportunity to grow organically but also by picking some very nice companies that could complement their portfolio, for instance Cromology did that in Switzerland with Jallut’s paints, CSP Technologies bought a company in Atlanta, Maxwell Chase Technologies in absorbing packaging for the food industry. So, 17 operations that have really complemented nicely the portfolio companies.
EBM: How does this activity in the first half fit with your overall strategy, are you satisfied with the direction the group is moving in?
Frédéric Lemoine: Yes, we are, really, after four years of our strategy defined in 2013 we have achieved all our goals. We have invested €2 billion in 7 non-listed companies the way we said we would, in three continents. We are really present in the US, North America and in Africa. Two obviously very different continents, but that ensure the diversification that we said we wanted to target; diversification in geographies, with our presence in Europe, diversification in terms of sectors or in terms of business model. So yes, that’s great, that’s really what prepares the future. We did that at the same time that we strengthened our financial structure, which is absolutely of utmost importance for all our stakeholders. We needed to reduce our debt. We have this loan-to-value ratio down to 21.6%, I think it will help us to really make understand what a long-term investor is. We need a solid financial structure to inspire trust and to be really sure that we can support companies for the long term and we are never in a position where we have to sell or we have to do something that wouldn’t be in the interest of our companies and we also are continuing growing our net asset value which is the purpose of the game.
EBM: Precisely, speaking of you net asset value which, as you said, grew in the first semester as it did in 2015, are you satisfied with the level of your NAV now?
Frédéric Lemoine: We need to grow it further. It’s a good result to have NAV growing 6.9% at the beginning of the year, the reason why it did is not only the share price of our listed companies, but also because in our unlisted assets we are progressively freeing up part of the hidden value that we had, notably since the larger acquisitions that we made in 2015. For a certain period of time we keep in our net asset value the companies at cost and progressively after 12 months following the last transactions, the last acquisition, we valorised them using traded comparables. That’s what happened in August for IHS and Stahl, for the first time they were fully valued with traded comparables and it freed up additional value. This is not done yet for Constantia Flexibles, that will be the case in December, or for Allied Universal which will be valorised using traded comparables in 2017 and it will add up - we estimate something like 10 euros per share - at least at the current conditions. So there is more to come.
EBM: Frédéric Lemoine, Chairman of the Executive Board of Wendel, thank you very much.
Frédéric Lemoine: Thanks to you.
