Philippe Manière : 2008 was a difficult year for
Eurazeo, as the share lost 60% over the year in a context
of very severe crisis. What was your reaction?
Patrick Sayer : This is the worst crisis since 1929. An event of
this magnitude undermines the assumptions made by
companies and investors, much more radically than any
previous troughs in the business cycle. In these rather
exceptional circumstances, we remained true, in total
agreement with our Supervisory Board, to our own model,
which we believe in more than ever: absence of structural debt on the balance sheet of the parent company Eurazeo, assets
diversification, and lastly, portfolio rotation. For example, we
divested Veolia and Air Liquide in 2008 and generated a net
capital gain of €180 million – quite remarkable considering the
market environment.
Philippe Manière : How did you help to preserve the future of
your investments in this ever-changing environment?
Patrick Sayer : While maintaining the strategic direction I just explained,
we adapted our value creation work to these very special
circumstances. Our goal was threefold: to continue growth, to
increase market share and to improve or maintain margins.
We combined sales efforts with cost-cutting plans
implemented in the first half of 2008 at Europcar and Rexel,
and adjusted early 2009. At the same time, we bolstered the
sales force at Elis, anticipating a positive effect in 2009. B&B,
our budget hotel operator, has been benefiting from customer
transfer from higher-end hotels. In all, apart from Europcar,
our consolidated companies all together reported organic
growth of 4.4% in the fourth quarter.
Philippe Manière : Since 2008, the market has been
wondering about the ability of LBO companies to repay
their acquisition debt. Are Eurazeo and its investments
safe?
Patrick Sayer : I can understand such concerns in principle, but we
need to be quite clear on this issue: as at December 31,
2008, none of our consolidated companies was in a situation
where it had to repay its debt ahead of schedule. Going
forward, we have several tools that allow us to adjust the
terms if necessary. For example, Europcar’s debt is primarily backed by its fleet – in this way, its debt decreases
mechanically if business declines and it has to reduce its fleet.
Elis, on the other hand, benefited in the negotiation, at the
time of the acquisition, from the very favorable borrowing
conditions that prevailed just before the crisis. As for Rexel, its
debt now represents a mere 3.6 times its EBITDA whereas, at
the time of acquisition, we were granted financing
representing seven years of earnings – that goes to prove the
progress made so far! Lastly, B&B and ANF, have very little
debt.
Philippe Manière : Finally, wouldn’t it be fair to say that the
market has questioned the very basis of your business in
the current market environment?
Patrick Sayer : The trend today is to indiscriminately discredit all
finance-related businesses. It’s very unfair and no one is
fooled. The chaotic development of a certain kind of rogue
finance should not mask the fundamental collective
usefulness of our business as investors and long-term value
creators, genuine drivers of economic growth! We just need
to adapt our methods to the availability of the different forms
of financing, particularly leverage. On this basis, our model
has never stopped evolving over the past 130 years,
throughout periods of crisis and hazards of History. I’m
therefore not worried about the future…
Philippe Manière : Nevertheless, the profitability of your
business owed largely to your ability to obtain credit
inexpensively! How can you preserve satisfactory rates of
return… when leverage is less accessible and more
expensive?
Patrick Sayer : Your reasoning would be true if the value of the
companies that we may want to acquire had remained
unchanged! In fact, many companies are now being
negotiated at exceptionally low prices. They represent
attractive opportunities – not to mention the fact that the
value of our investments will increase significantly when we
emerge from the crisis: at that time, we will benefit from
business growth, improved operating performance of
companies and a return to more normal valuation multiples.
Furthermore, lower use of leverage will mechanically reduce
the risk profile of our investments during this rather peculiar
period. In the longer term, we shall necessarily revert back to
a situation where leverage will be more available and less
expensive: central banks have initiated this trend by sharply
reducing their key rates.
Philippe Manière : But in the current turmoil of early 2009, is it
still possible to make plan, to invest?
Patrick Sayer : We do still have many plans at Eurazeo, believe it! But
it seems rather foolhardy to invest until we have more visibility.
It’s dangerous to acquiring too early! When the time is right,
we shall have all the necessary resources: on March 26,
2009, when Eurazeo closed the accounts for the full year
2008, it had €1.6 billion in financial resources including €288
million of remunerated temporarily collateral cash, and a
credit facility of €1 billion. This strike force will allow us to carry
out new investments, but also to support our subsidiaries in
any external growth opportunities that will certainly emerge.
Eurazeo is a solid company.
Philippe Manière : You chose to maintain the payment of a a solid company dividend for 2008 despite a net loss of 61 million for the
year. Considering the environment, is that a reasonable
decision?
Patrick Sayer : Eurazeo has more than €1.9 billion in distributable
reserves – in other words more than twenty year’s worth of
dividends at the level we are paying out this year. That just
goes to show how reasonable we are… In fact, the dividend
is an important criterion for many of our shareholders, and we
want to take into account this legitimate concern. But,
beyond that, it must be understood that the results of a
company like ours can vary a lot from one year to the next
because they depend on the divestments that were made.
This does not reflect the regularity of our value creation work,
which does justify a regular dividend. Subject to the
agreement of the Shareholders’ Meeting, we will however
propose a payment in shares for this year, which will allow
shareholders to reinforce their holding on very good terms,
and Eurazeo to preserve is cash reserves.
Philippe Manière : How do you explain that your optimism was
not unanimously shared, judging by the spectacular
decline in Eurazeo’s share price in 2008 and early 2009?
Patrick Sayer : Many investors have been worried about all that has
been said since the beginning of the financial crisis (credit
squeeze and more expensive credit, market shutdown, etc.).
This explains why, independently of the intrinsic value of their
holdings, companies such as Eurazeo suffered from this
unjustified, yet understandable desertion. The drop in the
valuations of a certain number of our investments, or that of
their listed comparables, also fueled these concerns. We
remain convinced that the leadership positions of many of the
companies that we control, Europcar, Rexel or Elis, actually
deserve a premium compared to their competitors. First of all,
we are not sellers in the short term. Our investments should therefore be measured with a view of their long-term valuation
and certainly not with a view to their liquidation value! In
March 2009, Eurazeo found itself in an absurd situation where
its stock market valuation was lower than the sum of the value
of its listed assets plus its available cash! This amounts to
assigning no value to all unlisted assets, which is nonsense,
especially since our NAV per share amounted to €44.6 on
March 24, 2009.
Philippe Manière : More, generally, what are your thoughts on
this economic and financial crisis and what lessons have
you drawn?
Patrick Sayer : This crisis calls into question many paradigms. It is too
early to predict what the post-crisis world will look like. But we
cannot indefinitely continue to aggravate the major
imbalances that we have tolerated for so long, demographic
upheavals, income inequalities, environmental disorders. All
necessary steps must be taken to correct these major
failures. On our side, we have launched, through our
Sustainable Development project, a very serious assessment
of the economic, environmental and social impacts of our
businesses, both for Eurazeo and for each of the companies
we control. We intend to identify the potential for
development and to help the companies structure their
reflections and initiatives regarding environmental and social
issues. In this way, we are also making our modest
contribution to this vast reconstruction project that has only
just begun…
