Luxempart S A : Inside Information / Ad Hoc Information - Luxempart Annual Accounts 2021 - EN

ACTIVITY REPORT

ACTIVITY REPORT

François Tesch Executive Chairman

I am pleased to comment on excellent 2021 results and to congratulate the whole team of Luxempart for its outstanding performance. ese good results also had a very favorable impact on the share price by reducing the discount versus net asset value, thanks to improved communication to the outside.

Great aention was rther given to strengthening Luxempart's investment team. ree young talents of different nationalities were recruited over the year to develop inhouse investment expertise, and a CFO and a senior executive with extensive experience on the German private equi market should join Luxempart shortly to complete the new executive team at Group level. ese successl new recruitments also show that Luxempart offers interesting career opportunities based on its long-term investment strategy, with headquarters in Luxembourg, but with a strong presence in its three neighbouring countries, which represent its core markets for direct investments.

I would also like to thank Jo Santino, member of the executive commiee, for his outstanding contribution to our Group for over 20 years. Jo has been instrumental in developing Luxempart's activities in France, Belgium and Italy, as well as in seing up our strategy for nd investments.

OUR INVESTMENT STRATEGY

In accordance with what we stand for, we thrive to deploy our investment activity based on a two-pillar strategy.

Our core business is the Direct Investment activity, which focuses on deploying an average € 50m per transaction in growing, profitable companies located in our core markets. Such investments target continuous growth for the companies we invest in and long-term returns for our shareholders. That is why we consider investments over longer terms with no predefined exits. This is the main differentiating factor to classic private equity funds operating in our space.

Such investment projects can be realized in both public and private companies under the form of leveraged buyouts or growth capital investments (with no external debt) and can grant Luxempart either minority or controlling stakes in the company.

The strategy in the Direct Investment activity has been developed many years ago, but has evolved as follows since 2020. Given the size of our net asset value, it was decided to increase the average investment ticket to € 50m, with a lower limit at € 25m (but with a view to increase investment over time), in order to have a meaningful impact on our net asset value. Also, in order to be able to actively create value, it was decided that all portfolio companies, whatever capital stake Luxempart holds in them, should grant us adequate governance rights. Such rights should enable us to contribute to shaping our portfolio companies' strategy and to assess its implementation in a timely and professional manner. We are able to give active and hands-on support.

Over the year 2020, we have reviewed our portfolio under the light of this revised strategy and have taken a number of arbitrage decisions that will lead to a streamlining of the portfolio.

Hence, our objective is to manage by the end of 2023 a more concentrated portfolio, composed of ca. 20 companies that all fit the above-mentioned criteria and present recurring profitability, significant growth prospects and good visibility. This portfolio will continue to contain both public and private companies.

The second pillar of our strategy is the Investment Funds activity.

Historically, this indirect investment activity was centered on four long term relationships where Luxempart has been among the cornerstone investors of these funds in Belgium, Germany, France and Italy. Their investment activity was to a large extent complementary to our Direct Investment activity, which even resulted in Luxempart sometimes co-investing alongside these partners.

For three of these funds, our intense and long-lasting relationship, their performance, track-record and their development perspectives have led us to continue to actively support them in the future and possibly support them with co-investments fitting our Direct Investment strategy. It was also decided to dedicate additional means to the Investment Funds activity in order to allow it to double its size by 2025, by re-investing proceeds received and by tapping into existing cash reserves of Luxempart.

The target is to commit between € 75m and € 100m per annum to 5-8 new funds. However, the overall objective of the Investment Funds activity was set to become a means of diversification, and not anymore to rely exclusively on these historic relationships.

Thus, Investment Funds has started since late 2020 to internationalize its new commitments by focusing essentially on North America and (more marginally) on Asia. It not only commits investments to mid-cap buy-out and secondary funds, but also diversifies to seek investment opportunities in compelling earlier stage venture and growth funds, sometimes complemented by smaller, more passive co-investments.

FIRST RESULTS OF THIS REVISED STRATEGY

DIRECT INVESTMENT ACTIVITY

In Direct Investments, the streamlining of the portfolio is well underway. Alongside our growing investment activity, we have initiated since 2020 not less than 16 sales processes. All these disposals were realized with capital gains in line with our long-term IRR objective, and the vast majority achieved valuations in excess of their last known book value.

As of December 31, 2019, our Direct Investment portfolio contained 43 lines3. As of December 31, 2021, this number has been reduced to 334, therein 6 new companies that have been acquired in line with the above-mentioned strategy (Enoflex and SNP in 2020, Sogetrel, iMGP, Pflegebutler and Evariste in 2021).

There is still some streamlining to be performed to reach our stated target of ca. 20 lines of Direct Investments by the end of 2023, but a number of sale processes currently under preparation, as well as one signed sale in February 2022 lead us to believe that this target is achievable.

The average value of our investments is increasing as well. While at the end of 2019, only 8 portfolio companies were valued above € 30m, this number has increased to 12 in late 2021.

Besides performing well in terms of financial results, our portfolio is well balanced in terms of exposure to industrial sectors, and is increasingly balanced between our core markets (Belux, DACH and France).

INVESTMENT FUNDS ACTIVITY

The Investment Funds activity also applies its revised strategy. In 2021, Luxempart has taken € 98.3m5 of commitments to new relationships. Only 18% of such new commitments are to be deployed in Europe, the rest being mainly in North America, Asia, or on a global scale. Furthermore, the new commitments relate to 50% buy-outs, 42% target growth equity investments while 8% are dedicated to venture funds.

Thus, at the end of 2021, our cumulated commitments (both invested and un-called) in Europe only represented 78% of total commitments (down from 89% in late 2019). In terms of strategy, venture and growth funds now represent 15.6% of cumulated commitments, up from 10.7% in late 2019.

MAIN EVENTS IN 2021

PORTFOLIO PERFORMANCE

Our NAV has shown a significant increase in 2021, by 27.4% over 2020. Both activities contribute to this increase.

In Direct Investments, the significant increase is mostly attributed to the strong operational performance of our portfolio companies. In 2021, our portfolio companies have grown their key financial aggregates6 by a strong 31.4%. This growth rate is higher than the overall growth in our NAV, and shows that the increase stems mainly from operating performance. Indeed, the average valuation multiple for the Direct Investment portfolio stands at 10.3x EBITDA 2021, a multiple that can be considered as reasonable, given the prevailing market environment. It should be noted that this multiple does not include the listed lines within this portfolio.

Besides the significant growth in profitability from our portfolio, such increase has also led to a significant cashflow generation in the portfolio. Even though some portfolio companies increase their indebtedness, most instances can be explained by acquisition opportunities seized in 2021. A significant majority of our portfolio companies have reduced their net debt or affected their cashflow in projects that should allow to seize future opportunities.

3/ Including 7 companies managed in the Investment Fund activity, but within funds over which Luxempart exercises at least co-control:

Bravo Capital Partners I and ICP

4/ Not counting 2 lines, Marlink and Vivalto, where closing of transaction will only occur in 2022

5/ excluding € 67m taken with Armira and Bravo Capital Partners in the past and which were contractually formalised in 2021

6/ EBITDA, except for companies in the financial services sector, where the computation is based on operating result

Finally, it should be noted that at Luxempart level, a significant portion of the NAV increase has translated into cash. Indeed, the various exits from portfolio companies have allowed us to register capital gains over NAV as of December 31, 2020 in excess of € 122m. This means that more than 26% of our increase in NAV is related to realized transactions, and not only to portfolio revaluations.

The Investment Funds activity has also enjoyed very strong growth in its NAV. On the one hand, the portfolio is in a build-up phase, with total investments in 2021 amounting to € 60.8m. It has furthermore benefitted from a strong revaluation of its portfolio lines that translate the overall improvement in the economic environment.

In Investment Funds as well, 2021 was a year that has seen a number of exits. In our Belgium-focused fund ICP, the run-off has been pursued with two landmark exits (Baobab and NMC) generating significant capital gains and distributions. Within Armira, the sale of our portfolio company Boxine to a listed SPAC renamed Tonies SE, has contributed to a strong re-rating of the Armira funds value, since Armira still holds a significant stake in Tonies. Other funds have also had significant capital redemptions contributing to the NAV growth of Investment Funds.

Performance Direct InvestmentsPerformance Investment Funds

INVESTMENT ACTIVITY

In Direct Investments, we have deployed € 205.6m in 2021, mainly across 4 investments. One, Sogetrel, had already been committed to in late 2020, but was completed in January 2021. We have also invested in iM Global Partner in late April, Pflegebutler just before the summer, and Evariste in November 2021. Furthermore, we have also reinforced our position in two listed companies, that are part of our cornerstone lines and to be held for the long term: SNP and Technotrans.

All these investments fit our investment strategy as described here before. They enjoy significant growth perspectives, execute an active strategy to accelerate such organic growth perspectives by an active acquisition policy, and are well-managed, translating into recurring profitability. These investments were made with a view to commit to the long term, in sectors that show growth perspectives based on secular trends that shape European economies.

You will find hereafter a short description of each of these new investments.

• • Luxempart stake: 10.9%

• • Luxempart investment: initially € 25m + up to € 15m additional investment agreed

• • Sales 2021: ca. € 850m

• • Luxempart stake: < 10 % (direct and indirect)

• • Investment (direct and indirect): € 22m

• • Sales 2021: ca. € 69.4m

HELPING AN OUTSTANDING MANAGEMENT TEAM GAIN STABILITY AND SUPPORT INTERNATIONAL EXPANSION

• • Sogetrel is a leading French player in the design, building and maintenance of telecom networks

• • In addition to this activity, and based on its core competencies, it has diversified in fast-growing service segments centred on electronic security and "smart city" initiatives

INVESTMENT THESIS

• • Strong past growth due to roll-out of fibre optic networks. Future growth to come from 5G mobile networks

• • Significant growth perspectives in diversifications with important commercial synergies

• • Potential for internationalisation through buy-and-build

• • Unlock "entrepreneurial motivation" of the management team that is now majority shareholder in the business

INVESTING IN THE NATIONWIDE ROLL-OUT OF A LEADING REGIONAL CARE OPERATOR

IN GERMANY

• • PflegeButler is a leading regional ambulatory care operator offering an innovative alternative care-model consisting of serviced living and ambulatory day-care, all under the same roof

• • The model combines high-quality service preserving self-determined life and highest quality of care normally offered only in nursing homes

INVESTMENT THESIS

• • Grow organically by opening new homes

• • Acquire and integrate another competitor and roll-out PflegeButler business model

• • Succeed a roll-out in several German regions

• • Luxempart stake: 7.2%

• • Luxempart investment: initially ca. € 25m + additional investment for add-ons (ca. € 4m already deployed)

• • AuM December 2021: ca. € 34.3 bn

• • Luxempart stake : 40.0%

• • Luxempart investment : € 86.8m

• • Sales 2021 in excess of € 500m

JOIN TWO OUTSTANDING INVESTORS IN A GLOBAL, FAST-GROWING FINANCIAL SERVICES COMPANY

• • iMGP is a global distribution platform for top-performing asset management products. It selects entrepreneurial asset managers and invests in them through minority stakes

• • Then it distributes them on its own platform and increases their revenues by adding Assets Under Management

INVESTMENT THESIS

• • Asset Management follows secular growth trends (ageing population, financing of retirement models)

• • iMGP has a strongly differentiating business model, fostered by Eurazeo and Amundi

• • Allows to enter into symbiotic relationship: iMGP increases Assets Under Management of Partner through distribution capacities and Partner increases iMGP's top performing product range

• • Target to attract 6-10 Partners over the coming 5 years and deploy additional capital

SUPPORT AN ENTREPRENEURIAL FAMILY OWNED COMPANY IN ACHIEVING NATIONAL COVERAGE AND PREPARE FOR INTERNATIONALISATION

Evariste is a French multi-solutions construction Group organised as a federation of SMEs. It provides services related to:

• • infrastructure works

• • green spaces management

• • specialised interim for the construction industry and

• • hygiene and cleaning services

INVESTMENT THESIS

• • Cyclical business but with strong development prospects due to large infrastructure projects in France 2024 Olympics, Grand Paris...

• • Luxempart's long term approach particularly suits such cyclicality

• • The group has based its development on federating SMEs, by offering an alternative to large corporations if an entrepreneur wants to sell. Long and successful track record in acquisitions

• • Luxempart is to support such strategy and will help internationalisation through its network

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