EuroBusinessMedia (EBM): WENDEL, one of Europe’s largest listed investment companies, just reported profit for 2007. Jean-Bernard Lafonta welcome. You are the CEO of Wendel, what are your comments on the company’s performance in 2007?
Jean-Bernard Lafonta (JBL): All the companies in which we are [invested] performed well in 2007. And altogether at Wendel we had an increase in the recurring net income which is of 12%, year on year, which is a rather good performance. We had over that year 2007 two parts in the year, and the second part was obviously concerned by significant turmoil in the markets. Despite those difficulties we were able to make, with a high level of success, the IPO of Bureau Veritas in October, and we did it in very successful conditions, got out from that 1.2 billion euros of cash. And we also decided to invest in Saint Gobain, with a major stake, giving us a significant principal shareholder’s position and we are convinced that we will be able with that to implement a successful development strategy inside Saint Gobain.
EBM: How does the Bureau Veritas IPO at the end of last year fit into your strategy and what is your outlook?
JBL: This IPO was an important step in Bureau Veritas’ development. We have very significant ambitions for the next five years. We want to multiply by 2 the size of Bureau Veritas and increase the net income by 15 to 20% per year - which is very significant - over the next 5 years. We think that 2008 is in line with that ambition and we are in a position, which is with 63% of the capital, completely involved in the implementation of this strategy.
EBM: You floated Legrand’s shares almost two years ago to the day, what are your intentions concerning Legrand today?
JBL: I think that Legrand today has characteristics of growth potential, cash flow generation, resilience which are above what we thought when we did the IPO of Legrand two years ago. And it is due to part of their activities in emerging markets - 25% - and in high growth segments of the business, such as automation for example, which represents something like 35% of their sales. And altogether we think that they are in a better position today to evolve with a good profile in more difficult markets, if any, in 2008 and 2009.
EBM: As you know, there are recurring market rumours about your intentions to potentially sell your stake in Editis or Stallergenes. What would you respond today concerning these rumours?
JBL: Regarding Stallergenes, they developed a pill, a product which is very promising. They need an agreement from the European authorities to be able to commercialise that pill, and of course there is a significant challenge, which is being able to have an optimisation of this commercialisation. This can be achieved through a partnership with a significant pharmaceutical laboratory. They are currently working on that and this can have implications on our ownership in Stallergenes. So this is a question of development for Stallergenes, which can have implications. Regarding Editis, I think that they made very significant improvement in their income - in their operating income - they come to a level of 93 million euros in 2007 coming from around 50 million euros in 2004, so this is quite significant as an improvement. We think they still have a lot of potential due to small sized bolt-on acquisitions and publishing developments, as they were successful in implementing that in the previous years, and we received some specific interest from French and European publishing groups. This interest is backed with financing which looks serious, so we need to look at that as it is in our mission, but of course we’ll compare that with the interest of staying inside Editis, which in our view is also quite significant.
EBM: You recently built up a significant stake in Saint Gobain, a publicly traded company. The market was not always very clear on why you wanted to take such an important position in a publicly traded company. What is your rationale for the Saint Gobain deal and why do you think it will create value for your shareholders in the next five years?
JBL: At the end of 2006 we said publicly to the market that we could play our role of being an industrial, long-term shareholder with a precise view about the potential improvement inside a company, either in a private or in a public company. And we said that because in our view the prices in the private equity market had become excessive due to the level of leverage which could be put inside these companies. And we viewed by comparison the companies in the public market as being rather more attractive in terms of valuation. We decided to invest significantly in Saint Gobain after a deep analysis of the market positions of this company, which are very attractive, and the potential for improvement of this group, and we decided to invest on a value which, in September, was reasonable in normal market conditions. So we decided to make a significant investment, having a significant position inside the capital of the company, in order to be the principal shareholder, in a capital which is spread over a very important number of shareholders, in order to get a position inside the board, inside the governance, which allows us to play our role in helping to develop a strategy which will create value for the future.
EBM: As you mentioned, after initially centring on strategy, the discussions with Saint Gobain’s management quickly moved on to negotiations over corporate governance. What was your objective and how is the agreement you just recently made with Saint Gobain’s management an important step in your investment in Saint Gobain? Is this different from how you usually proceed when making other investments?
JBL: The agreement we achieved with Saint Gobain after, some months of discussion, gives us three board members, creates a strategic committee which will be a committee involving the general manage -- the CEO of Saint Gobain -- ourselves and independent board members. That will be an efficient committee in order to work on the strategy and potential for developments. We think this is exactly the kind of governance we have, for example in a company such as Legrand, where we have three board members and a strategic committee and we are part of the remuneration committee. So we have the leverage in order to work efficiently and discuss with management in order to focus on the strategic plan and what can be improved in the strategic plan, which is exactly the kind of things we want to do.
EBM: As Saint Gobain’s share price has declined, the market has been questioning your timing on this transaction and the market has also been wondering about your ability to finance the deal, which is highly leveraged. What would you reply today on this issue?
JBL: We structured the financing in order to be able to face the volatility of the market and we have 40% of the financing which is protected with a put. And we have an exposure with non recourse margin loans - which are 3-5 year loans - of 2.3 billion euros. And out of this 2.3 billion euros, our risk if the value of Saint Gobain stocks went to zero - which is not the most likely case - of maximum 1.5 billion euros, and in front of that 1.5 billion euros we have 1.3 billion euros of cash available inside Wendel, plus the public stock of Legrand and Bureau Veritas. So we have a very high level of liquidity and no short-term risk, which is the important thing in the present context. Having said that, the financing we have on Saint Gobain is 3-5 years and the financing we have inside Wendel is between 2011 and 2017 for the bond we have in the market, which is a long-term maturity. So we have long-term financing which is in line with the duration of investments in which we invest.
EBM: Since last we spoke three months ago, credit markets have continued to deteriorate. What is your sentiment today about the current environment and how does it affect your ability to make disposals and new investments today?
JBL: I think that the major difference is that we know in the present market -- with the preceding situation before summer 2007 -- that banks have practically a credit potential which is very limited, and this has implications on the ability to make new investments. In that sense, the investment we made in Saint Gobain is an answer to that situation. On the other side, when you want to sell, I would say that in the present context it’s easier, for companies of high quality, to find industrial players rather than financial ones.
EBM: Jean-Bernand Lafonta, CEO of Wendel, thank you very much.
JBL: Thank you.
