Eurazeo / 2019 Universal Registration Document

Risk management Risk factors

FINANCIAL RISKS 4.2.3 Equity market 4.2.3.1

HIGH Risk that a prolonged decline in theequity market affects Eurazeo's NAVand fundperformance.

A decline in the equitymarket islikelyto negativelyaffectEurazeo: eitherdirectly due to the value of its listedportfolio companies; • or indirectly,through stock market comparables used to set the value of unlisted portfolio companies - with a negative effect on the Company’s • long-term NAV. As ofDecember 31, 2019, Eurazeo isonlyslightlyexposed to equitymarket risk - the consolidated net acquisitioncost ofits portfolio of listed investments (IFRS) - is €253.2 million as ofDecember 31, 2019. The proportion of listedinvestments inNAVhasreducedsignificantlyin the pasttwo years, from28%(end-2017)to under4% (end-2019). Unlisted securitiesare valued primarily on the basis ofcomparable multiples. Such multiplescan be based on market capitalization or on recent transactions,whichby definitionare sensitiveto changes inthe financialmarketsandeconomic conditions. The establishment of a panel of comparable companies necessarilyinvolves estimatesandassumptions, insofar as itrequires reliance onpertinentcomparability criteria. As part of the valuation of the Company's NAV, the fair valueof these unlisted securities is measured twice annually (using the methodology presented on page 333), in accordance with the IPEV (International PrivateEquityValuation) guidelines. Accordingly, by theirvery nature, andhowevermuch caution isused in determining them, valuationsmayprove to be verydifferentfrom the exit price.To reduce this risk to an acceptable level, a number of internalandexternaldiligenceshavebeendefined. Valuations are based on a rigorous internal process, the resultsof whichare reviewed by independent appraisers on thebasisof a multi-criteria approach, at the closeof eachyear andhalf-year. Potentialeffects Negativeimpacton NAV andlatentfundperformance • Negativeimpacton financial statements (depreciation of listedequity) • Examples of risk mitigation measures Very lowrelative proportion of listedcompaniesin the investment • portfolio HIGH Risk that Eurazeo’s performance is affected by cash flow difficulties likely to occurin one orseveral portfolio companies due to the consequences of the COVID-19crisis and/ora decline in economic conditions. Eurazeo musthave sufficient financial resources at ll timesto finance not only its day-to-day operationsand its investmentcommitments,butalso to maintain its investment capacity. Itmanages liquidity risk byconstantly monitoring the duration of its financing, closelymonitoring the financing terms of its investments, ensuring that i alwayshas available credit facilities, diversifying its resources andregularly rotating its portfolio.Eurazeo has a €1.5 billionrevolvingsyndicatedcreditfacility maturing in 2024 (with two one-year extension options). Thisfacilityprovides Eurazeo with significant financial flexibility. Eurazeo alsomanages its available cash balance withprudenceby investing it primarily in liquid money-market investments. Ithas cash-management agreements in place with its investment vehicles in orderto optimize the centralization andmobilizationof available resources. Acquisition debt is ecured under loan agreements containing the usual legal and financial covenants for this typeof transaction,providing for early repayment ifundertakingsare breached. Itshould be noted thatsubsidiaries'debtsarewithout recourseagainst Eurazeo'sbalancesheet. However, within the framework of insolvency proceedings, creditors maysometimes attempt to invoke the responsibilityof the parentcompany, which is the head company of the Group. Inaddition, Eurazeo monitors its investments’ compliance with bank covenants very closely.Stress tests are conductedondifferentbank covenantsandportfoliocompanyliquidity. These tests are based on scenarios which take into account the potential effects ofthe COVID-19epidemic andassumptions regarding economic conditions. The main maturities for mostof the Company's investmentsare long(average maturity in 2024),andthe capacityto retainor extend these facilities is hinged largelyon marketforces.As maturitiesapproach or in the event of renegotiationwellbeforematurity( e.g. short-termeffects linked to the COVID-19epidemic), investment teams take action upstream to negotiate th extensionof the financing, the implementation of alternative resources or the optimization of investmentexitscenarios. Finally, Eurazeo SE's cash position is strong(over€533 million cash at end-2019 and a confirmed credit facilityof €1.5 billion)andcould support portfolio companies for short-termneeds, andalso seize investment opportunities. Potentialeffects Portfolio company liquiditycrisis • Breached covenant • Impact on Eurazeo’s cash position, where it is necessary to support a • portfolio company Negativeimpacton unrealizedfundperformance • Examples of risk mitigation measures Long finance maturity • €1.5 billioncreditfacility • Stress tests on portfolio companies, andmanagementplans • where applicable Available cash • Prudent methodology to set valuations of non-listed portfolio • companies, andnotably the stock market comparables used Liquidity atportfolio company level 4.2.3.2

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2019 UNIVERSAL REGISTRATION DOCUMENT

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