WEBVTT 1 00:00:07.600 --> 00:00:11.750 Hello and welcome to the third stage of this journey, 2 00:00:12.050 --> 00:00:16.510 the final stage for world Tour. Throughout the mining industry, 3 00:00:17.450 --> 00:00:22.230 the focus is on the relationship between E S G on one hand 4 00:00:22.610 --> 00:00:26.950 and shareholder value creation. On the other hand, is it the conflict? 5 00:00:27.370 --> 00:00:29.070 Is it the positive relationship? 6 00:00:29.930 --> 00:00:34.630 You remember the tour started in Australia, Australia, a little bit in Canada, 7 00:00:35.290 --> 00:00:37.630 Rio Tinto, Rio Tinto and Alcan, 8 00:00:38.290 --> 00:00:42.590 and we have observed the impact of exploding a sacred 9 00:00:43.020 --> 00:00:46.190 cave. Abor Cave in Australia. 10 00:00:46.790 --> 00:00:51.670 Relationship with stakeholders is absolutely the essence of the S of 11 00:00:51.910 --> 00:00:55.710 E S G. Later on we moved to Asia, Indonesia, 12 00:00:55.850 --> 00:01:00.630 an extremely fast growing and exciting country in which there is a company 13 00:01:00.630 --> 00:01:04.670 whose name is Bian Resources extracting coal. 14 00:01:05.250 --> 00:01:09.830 As far as ESGs concerned, call is definitely not the best reputation, 15 00:01:10.370 --> 00:01:15.270 but the company has an interesting perspective about sustainability and 16 00:01:15.270 --> 00:01:20.230 we had the opportunity to discover an interesting strong personality of the 17 00:01:20.230 --> 00:01:25.110 king of coal, the end of the tour take place in the north of Europe, 18 00:01:25.370 --> 00:01:29.910 in Finland, with an extremely interesting company also in the mining industry. 19 00:01:30.260 --> 00:01:32.230 Meso, not extracting, 20 00:01:32.250 --> 00:01:36.470 but producing the machines which are devoted to extraction. 21 00:01:37.760 --> 00:01:39.590 Brief history about the company, 22 00:01:40.290 --> 00:01:44.590 the origins of the company date back to middle of the 19th century, 23 00:01:45.290 --> 00:01:48.630 but they are very important moments. 1999, 24 00:01:48.650 --> 00:01:51.110 the merger between Val and Roma. 25 00:01:51.540 --> 00:01:56.070 Both companies are in machinery, equipment for wood, 26 00:01:56.410 --> 00:02:00.270 for fibers, they're going to merge and they have to find a name. 27 00:02:00.530 --> 00:02:04.670 The names they are going to find is meso coming from a contest 28 00:02:05.170 --> 00:02:06.150 inside the company. 29 00:02:07.100 --> 00:02:11.670 Meso in finish means wood grows a very interesting 30 00:02:11.770 --> 00:02:15.910 animal, uh, operating and flying somewhere around in Finland. 31 00:02:17.010 --> 00:02:19.590 But there was also something more important which happened, 32 00:02:19.590 --> 00:02:24.590 which is they moved the strategy from forest to mine under the 33 00:02:24.630 --> 00:02:25.460 Cabernet, 34 00:02:25.460 --> 00:02:30.070 very well known in Finland is Nokia and Nokia also started 35 00:02:30.330 --> 00:02:35.310 in the forestry business but exploiting not machinery for 36 00:02:35.470 --> 00:02:40.230 exploitation and the, they moved to telecommunications. As you all know, 37 00:02:40.250 --> 00:02:43.950 we all had an Nokia in our life in our hands. 38 00:02:44.330 --> 00:02:45.710 The company was a leader. 39 00:02:45.900 --> 00:02:50.710 Once upon a time in a telecommunication mobile business as far as equipment 40 00:02:50.710 --> 00:02:52.910 is concerned, life change a little bit. 41 00:02:53.020 --> 00:02:57.310 Another very important moment in the history of the company and quite recent, 42 00:02:58.250 --> 00:03:02.400 the merger between Meso, not 100% of meso, 43 00:03:02.420 --> 00:03:06.800 but the minerals part of the business with Uto tech 44 00:03:07.030 --> 00:03:11.600 further was a kind of the merger from part of meso to Meso 45 00:03:11.600 --> 00:03:16.240 minerals. And then there was a transaction which was a north stock transaction. 46 00:03:16.420 --> 00:03:20.720 The two businesses merged, but one was merged bigger than the other. 47 00:03:21.590 --> 00:03:24.320 Meso was about 78% of the shares. 48 00:03:24.740 --> 00:03:27.240 Uto tech was about 22% of the share. 49 00:03:27.240 --> 00:03:29.960 So it was not a merger between equals. 50 00:03:29.960 --> 00:03:32.440 You remember that in mergers between equals, 51 00:03:32.630 --> 00:03:35.000 there's always one which is more equal than the other. 52 00:03:35.020 --> 00:03:38.640 You remember the La Halim case for example? No. 53 00:03:38.640 --> 00:03:42.920 In Jesus case there is no ambiguity. Meso is much larger than Uto tech. 54 00:03:43.460 --> 00:03:44.520 So as a consequence, 55 00:03:44.900 --> 00:03:48.680 the company became meso uto tech and very recently 56 00:03:49.710 --> 00:03:54.400 meso. You remember in the oil and gas industry, Chevron, Chevron, Texaco, 57 00:03:54.870 --> 00:03:58.440 Chevron, Texaco, you know Chevron. Total, 58 00:03:58.930 --> 00:04:03.680 total fina. Total. Total. You know who the winner is. 59 00:04:03.930 --> 00:04:06.440 Let's start with a few words about meso. 60 00:04:06.850 --> 00:04:11.400 There are different businesses depending on the sub segments, 61 00:04:11.810 --> 00:04:13.800 aggregates crashing, 62 00:04:14.190 --> 00:04:17.800 screening for construction and businesses like that. 63 00:04:18.540 --> 00:04:21.480 The number one in the business operations, 64 00:04:21.480 --> 00:04:25.880 which is minerals and it is the origin of meso by the way. 65 00:04:25.980 --> 00:04:28.000 So they don't do the extracting by itself, 66 00:04:28.000 --> 00:04:32.640 but they sell the machinery and equipment thanks to which you can extract and do 67 00:04:32.640 --> 00:04:34.960 the first processing of the materials. 68 00:04:35.940 --> 00:04:40.440 Metals dealing with metals and transforming the metals. 69 00:04:40.780 --> 00:04:43.720 That's the third part, which is by the way, fast growing. 70 00:04:44.340 --> 00:04:48.800 But what the company wants to insist on is the development of services. 71 00:04:48.980 --> 00:04:53.120 The consequence of the quality of service is that we very much reduce the period 72 00:04:53.120 --> 00:04:57.880 during which the machine does not work, does not operate. This is service, 73 00:04:58.070 --> 00:05:02.600 quality of service and this is absolutely phenomenal in the development of the 74 00:05:02.600 --> 00:05:07.560 company because it's about stable free cash flows in a business which is 75 00:05:07.580 --> 00:05:12.360 by itself cyclical of course related with all these 76 00:05:12.600 --> 00:05:13.390 businesses. 77 00:05:13.390 --> 00:05:17.840 Consumables which are linked with the activity and the usage of raw 78 00:05:18.080 --> 00:05:22.040 materials. Financials for 2022, total sales, 79 00:05:22.430 --> 00:05:25.960 5.3 billion euros. So it's not a small company, 80 00:05:25.990 --> 00:05:30.920 it's not a very large company. It's more than its customers by the way, 81 00:05:31.340 --> 00:05:36.160 but it is very significant company in which most of the business comes 82 00:05:36.160 --> 00:05:41.080 from minerals activity and the business is spread everywhere on the 83 00:05:41.080 --> 00:05:43.480 planet. Looking at the sales by geography, 84 00:05:43.540 --> 00:05:47.000 you understand that it's completely spread, 85 00:05:47.050 --> 00:05:52.040 which is quite interesting in terms of recurrence of business 86 00:05:52.050 --> 00:05:52.883 operations. 87 00:05:53.540 --> 00:05:58.240 Now there is something which is very important services account for almost 88 00:05:58.610 --> 00:06:03.440 50% of the revenues and this will have a very significant 89 00:06:03.700 --> 00:06:07.000 impact on the cost of capital on the valuation of the company. 90 00:06:07.230 --> 00:06:11.640 Another very interesting figure as far as revenues are concerned is planet 91 00:06:12.440 --> 00:06:17.240 positive sales. There is a huge e ESG impact of this figure. 92 00:06:17.830 --> 00:06:22.080 It's 1.3, 1.4 billion euros out of 5.3. 93 00:06:22.080 --> 00:06:26.720 It's quite significant and there is a huge impact on the E S G 94 00:06:26.720 --> 00:06:30.600 commitment of the company. I will discover that a bit later. 95 00:06:30.980 --> 00:06:35.920 The company prefers to communicate on abda as an operating income ratio. 96 00:06:37.180 --> 00:06:41.960 ETA is earnings before interest taxes and amortization. 97 00:06:42.580 --> 00:06:47.440 So after the depreciation of tangibles and before the amortization 98 00:06:47.580 --> 00:06:52.520 of intangibles because sometimes the amortization of intangibles does 99 00:06:52.720 --> 00:06:57.640 not reflect the true evolution of the value of these intangible assets. 100 00:06:58.350 --> 00:07:01.280 This is what they decided to communicate on and it is 101 00:07:01.640 --> 00:07:06.040 13.8%. Of course when we make the valuation later on, 102 00:07:06.040 --> 00:07:10.720 we'll use a bit D because it's about cash, it is financial communication. 103 00:07:10.860 --> 00:07:15.640 The firm insists also very much on service and service on 104 00:07:15.640 --> 00:07:20.080 service. So they want to grow the service activity. Again, 105 00:07:20.520 --> 00:07:25.440 cyclical industry service is much more stable and service is 106 00:07:25.440 --> 00:07:26.440 absolutely fundamental. 107 00:07:26.500 --> 00:07:29.920 The day you want also to sell your equipment to the customers, 108 00:07:31.030 --> 00:07:34.520 they insist on product development. And why is it so important? 109 00:07:34.550 --> 00:07:36.640 Because of course it's about innovation, 110 00:07:37.600 --> 00:07:41.360 introducing new features inside the machines and so on and so forth. 111 00:07:41.900 --> 00:07:46.360 But also because with product development you can put some 112 00:07:46.940 --> 00:07:51.840 ESG practice in the machinery which has a strong impact on your 113 00:07:51.940 --> 00:07:53.680 own ESG commitment. 114 00:07:54.050 --> 00:07:57.040 Scope three and this will be developed later. 115 00:07:57.980 --> 00:08:02.080 Now you remember I would like to talk about ESG and value. 116 00:08:02.290 --> 00:08:06.920 Let's start with cap and evaluation and we are going to use a very traditional 117 00:08:06.920 --> 00:08:07.610 method. 118 00:08:07.610 --> 00:08:12.000 Enterprise value is free cash flow discounted at the weighted average cost of 119 00:08:12.000 --> 00:08:15.200 capital. In order to calculate the enterprise value of the company, 120 00:08:15.700 --> 00:08:18.280 we need to figure out the free cash flow and the wac. 121 00:08:19.170 --> 00:08:23.680 Let's start with a free cash flow. You remember the traditional formula, 122 00:08:23.730 --> 00:08:26.280 which we use the free cash flow to the firm. 123 00:08:26.590 --> 00:08:31.400 It's about ebida EBIDA minus working capital requirement 124 00:08:31.720 --> 00:08:34.000 increase minus capital expenditures. 125 00:08:34.540 --> 00:08:38.800 And there are some tax impacts on ebi dda on tax savings, on depreciation. 126 00:08:39.110 --> 00:08:42.840 This is a basic formula. Once you know the free cash flow, 127 00:08:42.860 --> 00:08:47.000 you can calculate the enterprise value discounting the free cash flows at the 128 00:08:47.000 --> 00:08:51.480 whack when the free cash flows are smoothly growing at G percent 129 00:08:51.480 --> 00:08:52.560 starting from now, 130 00:08:53.020 --> 00:08:56.640 you can calculate the enterprise value is kind of continuity. 131 00:08:56.830 --> 00:09:01.720 It's the same formula is used for a company which is already at maturity or when 132 00:09:01.720 --> 00:09:05.480 you want to calculate the terminal value of a company which is growing today, 133 00:09:05.650 --> 00:09:10.160 first stage and then gets to kind of maturity a little bit later on. 134 00:09:10.580 --> 00:09:14.640 So immediate maturity or terminal value in the future. 135 00:09:15.060 --> 00:09:16.840 Now where do we find the parameters? 136 00:09:17.100 --> 00:09:21.320 The company is providing a list of parameters for its 137 00:09:21.450 --> 00:09:22.520 impairment test. 138 00:09:23.060 --> 00:09:27.920 You remember the value test for the intangible assets the company 139 00:09:27.940 --> 00:09:29.800 is producing by business, 140 00:09:30.110 --> 00:09:34.800 some anticipation of sales growth over a period of four 141 00:09:34.800 --> 00:09:38.480 years, so it's 6.941, et cetera, et cetera. 142 00:09:38.980 --> 00:09:41.640 So then you can forecast the sales of the company. 143 00:09:41.860 --> 00:09:46.680 The company is also communicating any big D range for these three businesses. 144 00:09:47.200 --> 00:09:51.920 A growth rate for the terminal value calculation, 2% for each and every of them. 145 00:09:52.500 --> 00:09:56.000 And the company's also communicating on the W purpose business. 146 00:09:56.820 --> 00:09:59.360 The W is the same 9.2%, 147 00:09:59.420 --> 00:10:03.320 but it's very interesting to get this information before you start the 148 00:10:03.320 --> 00:10:06.920 calculation. If you don't look at the future, but you look back at the past, 149 00:10:07.070 --> 00:10:09.160 what about the revenues by segment? 150 00:10:09.940 --> 00:10:13.560 You understand that as a percentage to total revenues, minerals, 151 00:10:13.710 --> 00:10:14.640 it's quite stable. 152 00:10:15.060 --> 00:10:19.840 The one business which is growing in importance in the revenue calculation 153 00:10:20.380 --> 00:10:21.440 is metals. 154 00:10:22.020 --> 00:10:26.560 In the past it was growing at a higher rate than the other businesses. 155 00:10:26.580 --> 00:10:29.960 In the future it's going to be the same. Just a comment on that. 156 00:10:30.110 --> 00:10:33.680 It's a lowest return on sales, commercial profitability, 157 00:10:34.510 --> 00:10:39.320 EBIT on sales. Now minerals is constant, metals is growing, 158 00:10:39.380 --> 00:10:41.200 it is at the expense of aggregates, 159 00:10:41.200 --> 00:10:45.960 which relative to the total sales is reducing a little bit. 160 00:10:46.430 --> 00:10:50.320 Once you get all these figures and forecasts, what can you do? 161 00:10:50.660 --> 00:10:52.120 You have the growth per segment. 162 00:10:52.860 --> 00:10:57.160 You start with the current sales and revenues and you grow them. 163 00:10:57.710 --> 00:11:01.160 Then you can grow aggregates and minerals and metals. 164 00:11:01.220 --> 00:11:02.920 You get a figure in the end. 165 00:11:03.100 --> 00:11:07.600 You compare the figure in four years time with a current figure and you can 166 00:11:07.620 --> 00:11:08.960 deduct from that. Uh, 167 00:11:09.430 --> 00:11:14.280 cagr 7% is the average annual growth rate for the whole 168 00:11:14.280 --> 00:11:19.200 company and 7% is much less than the last two 169 00:11:19.200 --> 00:11:23.680 years, which we could observe during which the growth rate was more than 170 00:11:23.680 --> 00:11:26.840 25% each and every year. But you know, 171 00:11:26.840 --> 00:11:31.720 growing at 25% each and every year is something which is probably not realistic 172 00:11:31.720 --> 00:11:32.553 for the future. 173 00:11:32.820 --> 00:11:37.560 We are in a cyclical industry and we have to take into account the fact that 174 00:11:37.730 --> 00:11:39.080 maybe today it's higher. 175 00:11:39.330 --> 00:11:44.080 Maybe tomorrow it's going to be a little bit more moderate but still driven by 176 00:11:44.220 --> 00:11:45.880 you remember services. 177 00:11:46.620 --> 00:11:51.080 So the average annual growth is introduced in the model 7% 178 00:11:51.700 --> 00:11:54.560 and then in model we need also the ebida. 179 00:11:55.520 --> 00:11:58.600 I took the midrange for each and every segment. 180 00:11:59.520 --> 00:12:02.160 I calculated the EBIDA at the end, 181 00:12:02.450 --> 00:12:05.200 total EBIDA divided by sales and revenue, 182 00:12:05.290 --> 00:12:09.160 which gives me a figure which is 16.5%. 183 00:12:09.700 --> 00:12:11.000 So in four years time, 184 00:12:11.160 --> 00:12:15.200 e BDA will represent assuming the forecasts are right, 185 00:12:15.470 --> 00:12:17.800 16.5% of the revenues. 186 00:12:17.820 --> 00:12:22.200 And what is very interesting is to compare this figure with the current one 187 00:12:23.210 --> 00:12:27.800 today, E B D A to sales is about 12.5%, something like that. 188 00:12:28.020 --> 00:12:32.840 On the graph you can observe that sales are growing a p D as a percentage to 189 00:12:32.840 --> 00:12:36.720 sales is fluctuating, but it's far from 16.5%. 190 00:12:37.630 --> 00:12:41.120 Then you try to figure out where it can come from. 191 00:12:42.070 --> 00:12:46.640 Then revenue grows. What about expenses? Cost of sales. 192 00:12:46.950 --> 00:12:50.960 Cost of sales is a right hand scale. It's quite constant. 193 00:12:52.390 --> 00:12:55.280 Left hand scales of the graph. Sales and marketing, 194 00:12:55.850 --> 00:13:00.160 quite constant research and development quite constant. Ah, 195 00:13:00.160 --> 00:13:04.920 general and admin down but wise it down because the company had 196 00:13:05.280 --> 00:13:08.280 identified and implemented synergies, 197 00:13:08.750 --> 00:13:12.520 they were implemented after the merge and it's quite straightforward to 198 00:13:12.520 --> 00:13:16.480 understand that the GNA figure as a percentage of revenue is down because of 199 00:13:16.990 --> 00:13:17.823 synergies, 200 00:13:17.980 --> 00:13:22.080 but now you will have to explain to the investors community how you are going to 201 00:13:22.360 --> 00:13:27.360 increase from 12.5 to 16.5. It's no more about synergies, 202 00:13:27.670 --> 00:13:32.200 it's probably about economies of scale, but it has to be probably developed. 203 00:13:32.340 --> 00:13:35.360 Now we have revenues and we have a bid. Uh, 204 00:13:35.550 --> 00:13:38.280 what is missing in the calculation of the free cash flow, 205 00:13:38.470 --> 00:13:42.600 capital expenditures investment and what is associated with that 206 00:13:42.840 --> 00:13:47.600 depreciation and amortization and also the working capital requirement 207 00:13:47.860 --> 00:13:50.840 and the delta has a change in the working capital requirement. 208 00:13:51.300 --> 00:13:54.360 During speaking to calculate working capital requirement change, 209 00:13:54.660 --> 00:13:59.280 we take a normal figure and we multiply that by the growth rate. Growth rate. 210 00:13:59.300 --> 00:14:02.560 We know working capital requirement we need to calculate, 211 00:14:03.570 --> 00:14:05.720 let's start with CapEx and dna. 212 00:14:06.540 --> 00:14:08.640 If you observe the last four years, 213 00:14:08.820 --> 00:14:13.040 you understand that DNA was a bit more than capital expenditures, 214 00:14:13.950 --> 00:14:15.440 then CapEx went down, 215 00:14:15.740 --> 00:14:20.560 DNA went down and they are seemingly converging toward something which is about 216 00:14:20.700 --> 00:14:24.320 2.5%, which I am going to take as an assumption. 217 00:14:24.770 --> 00:14:28.360 There is no major reason why this figure would increase. 218 00:14:29.140 --> 00:14:34.120 You remember the company wants to reinforce its activity in a service in a 219 00:14:34.120 --> 00:14:34.953 spare part. 220 00:14:34.960 --> 00:14:38.720 Business and spare part is not about consuming manufacturing footprint. 221 00:14:39.130 --> 00:14:43.960 There will be another impact which will be on a cash conversion cycle. 222 00:14:44.940 --> 00:14:47.840 So CapEx depreciation 2.5. 223 00:14:48.220 --> 00:14:49.960 Now working capital requirement. 224 00:14:50.510 --> 00:14:55.200 When you look at the cash conversion cycle in days of revenues you observe that 225 00:14:55.630 --> 00:14:59.920 inventories plus receivables minus payables is a positive figure. 226 00:15:00.620 --> 00:15:03.360 But interestingly, accounts receivable and accounts payable, 227 00:15:03.580 --> 00:15:06.880 we are compensating each other. So the net is zero, 228 00:15:07.260 --> 00:15:12.000 but the company has to pay for is invent inventories and of course it's growing. 229 00:15:12.470 --> 00:15:14.520 It's growing because of services. 230 00:15:15.180 --> 00:15:19.840 So services does not consume CapEx services consumes inventories. 231 00:15:20.260 --> 00:15:24.600 You need plenty of invent inventories located close to the 232 00:15:24.930 --> 00:15:26.880 mines, close to the customers. 233 00:15:27.420 --> 00:15:31.120 Now we have in our hands all the figures we need to calculate the free cash 234 00:15:31.130 --> 00:15:31.890 flows. 235 00:15:31.890 --> 00:15:36.320 Let's move to the weighted average cost of capital weighted average cost of 236 00:15:36.320 --> 00:15:40.560 capital means weighted average first financial structure, share of equity, 237 00:15:41.090 --> 00:15:43.720 share of debt, then cost of debt. 238 00:15:44.500 --> 00:15:48.560 We can calculate an app upfront interest rate that's not that difficult 239 00:15:49.210 --> 00:15:53.520 after tax and then we have to calculate or estimate the cost of equity. 240 00:15:53.580 --> 00:15:58.200 In the cost of equity you have the risk for interest rate, you have the beta, 241 00:15:58.300 --> 00:16:00.920 the risk coefficient, systematic risk coefficient, 242 00:16:01.300 --> 00:16:05.160 and you have the equity market risk premium which is different between 243 00:16:05.160 --> 00:16:08.280 shareholders return and sovereign debt return. 244 00:16:08.300 --> 00:16:10.200 If I may say dam, 245 00:16:10.470 --> 00:16:14.720 Iran is producing a figure which is 6% no matter the figure. 246 00:16:14.870 --> 00:16:18.880 It's a range which is quite normal for western countries. 247 00:16:19.100 --> 00:16:22.680 So let's take 6%. What about the gearing first? 248 00:16:22.980 --> 00:16:26.320 The financial structure of the company is very interesting to observe. 249 00:16:26.850 --> 00:16:31.000 There was quite a lot of debt in the balance sheet a few years ago and the 250 00:16:31.360 --> 00:16:35.680 strategy of the company was definitely to reduce the gearing to reduce the 251 00:16:35.790 --> 00:16:40.520 financial leverage of the campaign and it was quite successful with an immediate 252 00:16:40.860 --> 00:16:45.280 impact on the rating of the company. A few years ago, 253 00:16:45.780 --> 00:16:47.280 May, 2021, 254 00:16:47.860 --> 00:16:51.640 the rating of the company was triple B minus, 255 00:16:51.770 --> 00:16:56.600 which was close to speculative grade and the perspective 256 00:16:56.700 --> 00:17:00.200 of the company was negative for s and p. 257 00:17:00.860 --> 00:17:05.560 Now in May, 2022 standard and PO announcers that they moved from negative 258 00:17:05.780 --> 00:17:10.360 to stable February, 2022. 259 00:17:11.060 --> 00:17:13.560 The rating is still triple B minus, 260 00:17:13.860 --> 00:17:17.320 but the perspective moved from stable to positive 261 00:17:18.090 --> 00:17:20.960 April, 2023 a few weeks ago. 262 00:17:21.550 --> 00:17:26.480 Then the rating moved from triple B minus to triple B stable 263 00:17:26.480 --> 00:17:27.960 perspective. Of course. 264 00:17:28.980 --> 00:17:33.160 Now it's very interesting to observe that this is a consequence of reducing the 265 00:17:33.160 --> 00:17:38.160 in depthness of the company. Triple B is investment grade, 266 00:17:38.380 --> 00:17:40.560 but it's not AAA far from that. 267 00:17:41.020 --> 00:17:45.680 So it's very likely that the company will not increase its debt and its gearing 268 00:17:45.770 --> 00:17:50.640 again and its leverage so that the company remains investment grade 269 00:17:51.130 --> 00:17:53.520 reasonably stable and safe. 270 00:17:54.010 --> 00:17:56.680 Today if you observe the financial structure of the company, 271 00:17:57.460 --> 00:18:02.360 the net financial debt represents 10% of the market value of 272 00:18:02.360 --> 00:18:06.840 faculty in terms of equity debt structure is 91%, 273 00:18:06.990 --> 00:18:07.920 9%. 274 00:18:08.340 --> 00:18:13.120 And this is what I am going to use to calculate the work risk free rate. 275 00:18:14.020 --> 00:18:17.920 Europe a few years ago, zero, zero, 0%, 276 00:18:18.620 --> 00:18:20.120 it was quite exceptional. 277 00:18:21.060 --> 00:18:25.040 Now the central bank decided to increase very much interest rates in order to 278 00:18:25.040 --> 00:18:28.560 reduce inflation. So today we are at 4%, what do we take? 279 00:18:28.710 --> 00:18:33.520 Zero or 4% to calculate the W thanks to which I 280 00:18:33.520 --> 00:18:35.880 can evaluate the financial performance of the company. 281 00:18:36.650 --> 00:18:41.160 These last years I took the risk free interest rate at that time 282 00:18:41.160 --> 00:18:42.640 sovereign debt 0%, 283 00:18:43.220 --> 00:18:47.800 but now if I want to discount free cash flows for the future, I can't take 0%. 284 00:18:48.110 --> 00:18:53.040 4% is probably a high figure today as the figure is quite high in order to 285 00:18:53.040 --> 00:18:55.320 reduce inflation once inflation is down, 286 00:18:55.570 --> 00:18:59.320 it'll be probably a lower figure between zero and four. 287 00:18:59.800 --> 00:19:04.200 I took 2% to calculate the WA to discount cash flows. 288 00:19:04.870 --> 00:19:08.000 It's just an approximation and a gas estimate. 289 00:19:08.850 --> 00:19:13.640 Let's move to the beta. You can observe in the graph the beta in the long run, 290 00:19:13.820 --> 00:19:18.360 but what is very relevant is the last years ever since the company 291 00:19:18.690 --> 00:19:23.640 merge with uto tech and then where do you observe the beta is 292 00:19:23.790 --> 00:19:27.480 down? The beta is down, can be interpreted different ways. 293 00:19:27.660 --> 00:19:31.880 My interpretation is that the company is moving toward services. 294 00:19:32.580 --> 00:19:36.960 Of course the beta is significantly higher than one because they are not in the 295 00:19:36.970 --> 00:19:39.200 operations, they are in the equipment. 296 00:19:39.300 --> 00:19:41.920 If you remember the telecommunication industries, 297 00:19:42.460 --> 00:19:46.320 telecommunication operators have a beta which ranges between 298 00:19:46.770 --> 00:19:51.760 0.3 and 0.7 0.8. But the telecommunication equipment, 299 00:19:51.820 --> 00:19:54.200 the Nokia, the Herson and so on and so forth, 300 00:19:54.330 --> 00:19:59.320 their beta is much more than one because when there are some fluctuations in 301 00:19:59.320 --> 00:20:00.880 the macroeconomic conditions, 302 00:20:01.340 --> 00:20:05.480 the telecommunication operators are keep on generating free cash flows and the 303 00:20:05.570 --> 00:20:09.320 CapEx are interrupting. So for the telecom equipment companies, 304 00:20:09.510 --> 00:20:13.280 it's very brutal. This is why low beta, high beta, 305 00:20:13.550 --> 00:20:16.920 same story for the mining industry. Significantly more than one. 306 00:20:17.420 --> 00:20:22.200 Now the consequence of reinforcing the services activity for the company is 307 00:20:22.200 --> 00:20:24.040 what you reduce volatility, 308 00:20:24.540 --> 00:20:29.480 you reduce the sensitivity to macroeconomic conditions because accidents 309 00:20:30.120 --> 00:20:35.000 problems in the machines which created with definitely operating the business. 310 00:20:35.660 --> 00:20:40.440 And this is my interpretation why the beta is down Now I took a 311 00:20:40.510 --> 00:20:44.240 beta of 1.5 because it seems to stabilize around 1.5. 312 00:20:44.750 --> 00:20:47.120 I've seen somewhere a beta of 1.3. 313 00:20:47.630 --> 00:20:51.840 It's a speculation considering that it's going to move forward down. 314 00:20:52.460 --> 00:20:55.480 My opinion is we keep 1.5 for the time. 315 00:20:55.750 --> 00:20:59.640 What I just explained is very consistent with the financial communication of the 316 00:20:59.640 --> 00:21:00.473 company. 317 00:21:00.740 --> 00:21:05.680 How are we going to deliver value for the shareholders or synergies 318 00:21:05.980 --> 00:21:10.880 you reduce cost, improving profitability, quite the same, growing, accelerating, 319 00:21:10.900 --> 00:21:13.360 et cetera. Reducing volatility. 320 00:21:13.920 --> 00:21:16.640 Reducing volatility is stable. Cash flows, 321 00:21:17.020 --> 00:21:21.840 stable cash flows because of service stable cash flows is lower beta, 322 00:21:21.970 --> 00:21:26.400 lower beta, lower work, lower work higher value. 323 00:21:27.110 --> 00:21:31.720 This is quite interesting how business is correlated with value. 324 00:21:33.100 --> 00:21:37.520 Now we can make the calculations because we have all the figures and with all my 325 00:21:37.520 --> 00:21:40.800 parameters I found a W of 9.2%, 326 00:21:40.800 --> 00:21:44.160 which is exactly the same as a [unknown] which was communicated by the 327 00:21:44.160 --> 00:21:48.280 company. It might be considered as pure coincidence or whatsoever. 328 00:21:48.750 --> 00:21:53.520 What it means is that the order of magnitude is quite okay 329 00:21:53.710 --> 00:21:57.360 with 9.2%. Now we take the cash flow, 330 00:21:57.780 --> 00:22:01.960 we discount them at 9.2%. We take into account the terminal value. 331 00:22:02.060 --> 00:22:06.240 It gives us the enterprise value minus debt divided by the number of shares 332 00:22:06.240 --> 00:22:07.060 outstanding. 333 00:22:07.060 --> 00:22:11.440 The fundamental value of one share with these calculations is 9.5 334 00:22:11.850 --> 00:22:12.720 euros per share. 335 00:22:13.550 --> 00:22:18.440 Then we compare that with the actual stock price average 2022 336 00:22:19.010 --> 00:22:20.280 8.3. 337 00:22:20.540 --> 00:22:25.440 So the stock price of the company on the average in 2022 was lower than 338 00:22:25.740 --> 00:22:26.920 the fun value, 339 00:22:26.920 --> 00:22:31.240 which was quite consistent with the parameters which were provided by the 340 00:22:31.240 --> 00:22:34.120 company. But today recording this film, 341 00:22:34.340 --> 00:22:37.080 the current stock price is 10.6 euros, 342 00:22:37.250 --> 00:22:42.240 which is more than the figure which is consistent with the figures provided 343 00:22:42.380 --> 00:22:45.200 by the company. Interestingly, 344 00:22:45.460 --> 00:22:47.880 the credibility of the company is up. 345 00:22:48.780 --> 00:22:51.440 So the I impairment tests are credible by themselves, 346 00:22:51.940 --> 00:22:56.520 but the financial communication of the company is also credible at least as far 347 00:22:56.520 --> 00:23:01.160 as financial statements, financial forecasts are concerned. 348 00:23:01.520 --> 00:23:04.640 A few conclusions for this first part on valuation, 349 00:23:05.220 --> 00:23:07.400 the current stock price is consistent. 350 00:23:08.340 --> 00:23:10.520 The assumptions are provided by the company. 351 00:23:10.860 --> 00:23:12.680 The stock price is consistent with that, 352 00:23:13.210 --> 00:23:18.200 which again demonstrate that the company has a credibility When it talks 353 00:23:18.200 --> 00:23:19.033 to investors, 354 00:23:20.360 --> 00:23:23.720 interestingly the price incorporates some sales growth 355 00:23:24.730 --> 00:23:29.040 7% at a lower level than their current growth. 356 00:23:29.500 --> 00:23:32.240 That's normal because it's a cyclical business. 357 00:23:32.580 --> 00:23:37.160 But very interestingly also the markets trusts the ability of the company to 358 00:23:37.190 --> 00:23:42.120 move its EBT to sales ratio from 12 something to 359 00:23:42.150 --> 00:23:46.400 16 something so trusts the ability of of the company to generate through 360 00:23:46.400 --> 00:23:49.840 productivity improvements, economies of scale, whatever, 361 00:23:50.180 --> 00:23:55.120 an increase of the BDA by 4% from 12.5 to 362 00:23:55.120 --> 00:23:58.000 16.5. This is quite a big leap forward. 363 00:23:58.300 --> 00:24:01.360 You remember that any time I propose you a film on a company, 364 00:24:02.120 --> 00:24:06.440 I make the link between the return on capital and market to book return capital 365 00:24:06.480 --> 00:24:11.480 employed EBI over a capital employed market to book enterprise value divided by 366 00:24:11.480 --> 00:24:15.560 capital and blood relative value creation. There's a parallel, 367 00:24:16.260 --> 00:24:20.640 but what is very interesting is to confront the market to book as it is the act 368 00:24:20.940 --> 00:24:25.600 one with the calculated one as if there was no 369 00:24:25.700 --> 00:24:28.320 growth in the free cash flow calculation. 370 00:24:29.420 --> 00:24:34.240 And then if the market to book act four is more than the no growth, 371 00:24:34.260 --> 00:24:38.400 it means that the market is integrating some growth in evaluation, 372 00:24:38.530 --> 00:24:40.280 which is exactly what we observe. 373 00:24:40.900 --> 00:24:44.840 We have the actual market to book and the no growth market to book. 374 00:24:44.900 --> 00:24:46.640 The difference is explained by growth. 375 00:24:47.460 --> 00:24:52.240 So again and again what is provided by the company we are going to 376 00:24:52.240 --> 00:24:57.080 grow sales by 7% is not only in the figures provided by the 377 00:24:57.080 --> 00:24:58.880 company, it isn't the stock price, 378 00:24:59.100 --> 00:25:02.440 it is in the relative value creation of the company. 379 00:25:03.140 --> 00:25:07.960 But now you remember that for Rio Tinto it was exactly as the other way around. 380 00:25:08.940 --> 00:25:13.640 Up to 2016 there's a perfect correlation between return on capital 381 00:25:14.420 --> 00:25:18.880 market to book, no growth market to book and so on and so forth. 382 00:25:19.300 --> 00:25:21.240 But starting in 2017, 383 00:25:21.780 --> 00:25:26.200 the company's performance is going up and the market to book of the company is 384 00:25:26.200 --> 00:25:27.033 plateauing. 385 00:25:27.510 --> 00:25:32.120 It's very interesting to observe that today the return capital employed of Rio 386 00:25:32.170 --> 00:25:37.080 Tinto is 40% when the return capital employed of Meso is 387 00:25:37.080 --> 00:25:39.680 less than 20%. But in the meantime, 388 00:25:39.740 --> 00:25:42.760 the market to book for meso is 2.51. 389 00:25:42.760 --> 00:25:47.640 It's only two four Rio Tinto Meso Act tool is more 390 00:25:47.640 --> 00:25:52.000 than no growth. Reio Tinto, no growth is much more than act. 391 00:25:52.660 --> 00:25:57.520 So we understand that the credibility gap is absolutely opposite from one 392 00:25:57.520 --> 00:25:58.600 company to the other. 393 00:25:59.530 --> 00:26:03.760 Using the same discounted free cash flow calculation with some reasonable 394 00:26:03.760 --> 00:26:04.593 parameters, 395 00:26:04.620 --> 00:26:09.360 you find a phenomenal value of one share Forio tin two of 190 to 396 00:26:09.360 --> 00:26:13.160 $200 per share. The current stock price is $60. 397 00:26:14.020 --> 00:26:18.040 The difference in terms of values, about $200 billion, 398 00:26:18.730 --> 00:26:23.200 which is something which should be in the pocket of the investors and it's 399 00:26:23.200 --> 00:26:27.600 nowhere. If you go back now to the second company buy and resources, 400 00:26:28.300 --> 00:26:31.840 you remember that there was a quiet mixed feeling about the company. 401 00:26:32.230 --> 00:26:33.720 They are in the core business. 402 00:26:34.110 --> 00:26:36.600 They say we don't communicate on scope three of course, 403 00:26:36.600 --> 00:26:39.680 because scope three is a disaster for the core business. 404 00:26:40.030 --> 00:26:42.800 They communicate very much on scope one, scope two, 405 00:26:43.070 --> 00:26:47.880 what we are doing locally is a good job for the stakeholders, for the company, 406 00:26:48.260 --> 00:26:53.160 for the enterprise, for the shareholders, for the workers, for the suppliers, 407 00:26:53.180 --> 00:26:56.600 et cetera, et cetera. Scope three are, scope three is not good, 408 00:26:57.020 --> 00:27:00.120 but basically we are producing electricity at a low price, 409 00:27:00.120 --> 00:27:02.600 which is good for the life of everybody on the planet. 410 00:27:03.700 --> 00:27:07.600 You know my opinion on that. But what is interesting is to observe what, 411 00:27:07.600 --> 00:27:09.600 what the market opinion is on that. 412 00:27:10.140 --> 00:27:14.160 And basically you have a market to book act four versus market to book, 413 00:27:14.220 --> 00:27:17.000 no growth. Sometimes one is higher than the other, 414 00:27:17.000 --> 00:27:20.280 sometimes it's the other way around. What is a current situation? 415 00:27:20.740 --> 00:27:25.680 The current situation is that the no growth market to book is a bit higher than 416 00:27:25.680 --> 00:27:26.513 the actel, 417 00:27:26.620 --> 00:27:31.520 but the act actual skyrocketed last year and is getting closer and closer to the 418 00:27:31.540 --> 00:27:32.373 no growth. 419 00:27:32.620 --> 00:27:37.440 So it seems that buy and resources is in the middle between Meso and 420 00:27:37.780 --> 00:27:38.613 Rio Tinto. 421 00:27:39.500 --> 00:27:43.600 Rio Tinto because of its terrible practices for us, 422 00:27:44.030 --> 00:27:48.560 society in Australia is very much penalized by the investors. 423 00:27:49.430 --> 00:27:51.960 They have a very different relationship in Canada, 424 00:27:52.380 --> 00:27:56.640 but basically what the market is paying is behavior in Australia. 425 00:27:57.540 --> 00:28:00.680 Now what do you observe here? We are in the same industry. 426 00:28:00.820 --> 00:28:05.720 The mining industry with reputation as far as ESGs concerned 427 00:28:05.780 --> 00:28:08.480 is generally speaking quite negative, 428 00:28:08.780 --> 00:28:12.920 but they are very different practices from one company to the other. 429 00:28:13.660 --> 00:28:15.440 So what makes a conclusion? 430 00:28:16.180 --> 00:28:19.000 Is it the industry itself or is it the firm? 431 00:28:19.940 --> 00:28:24.840 You remember that Reio Tinto is very questionable about ESG practices. 432 00:28:25.750 --> 00:28:29.120 Bian is insisting on us. And what about meso? 433 00:28:29.510 --> 00:28:34.440 Meso is providing plenty of information communication about its SG 434 00:28:34.440 --> 00:28:35.260 principle. 435 00:28:35.260 --> 00:28:40.120 We have a strong commitment on S B T science based targets and 436 00:28:40.120 --> 00:28:42.720 we provide plenty of SBT initiatives. 437 00:28:43.240 --> 00:28:47.120 S B T I as far as climate change is concerned, 438 00:28:47.380 --> 00:28:49.200 we have a commitment which is net zero. 439 00:28:49.200 --> 00:28:51.600 Plenty of companies have commitment for NetZero, 440 00:28:51.660 --> 00:28:55.840 but in 2050 their commitment is 2030. 441 00:28:56.580 --> 00:28:59.840 We are not just having a look at greenhouse gas emission, 442 00:28:59.900 --> 00:29:02.280 but also look at water consumption, 443 00:29:03.110 --> 00:29:06.080 recycling of materials, recycling, 444 00:29:06.420 --> 00:29:11.240 remanufacturing in order to reduce the consumptions of scare 445 00:29:11.720 --> 00:29:15.480 resources. Of course, as far as is concerned, 446 00:29:15.580 --> 00:29:20.560 we are a manufacturing company and we produce equipments which are a little bit 447 00:29:20.560 --> 00:29:24.320 dangerous to operate. So as far as we are concerned inside the company, 448 00:29:24.740 --> 00:29:26.920 safety is not a compromise. 449 00:29:27.620 --> 00:29:31.040 So basically we take very much care about our people. 450 00:29:31.310 --> 00:29:35.320 They communicate on the work related injuries. Unfortunately, 451 00:29:35.450 --> 00:29:38.040 there was a fatality in 2021, 452 00:29:38.410 --> 00:29:42.080 known in 20 19, 20 20, 20 22, 453 00:29:42.380 --> 00:29:46.800 and you see that the rate of injury is declining 454 00:29:46.810 --> 00:29:47.880 throughout the years. 455 00:29:48.180 --> 00:29:52.880 So it's absolutely phenomenal and they communicate on that. Now back to E. 456 00:29:53.060 --> 00:29:57.880 In the E S G, you know scope one is direct inside. 457 00:29:57.970 --> 00:30:01.000 Scope two is indirect. Inside Scope three oh, 458 00:30:01.000 --> 00:30:02.440 scope three is the rest of the planet, 459 00:30:02.580 --> 00:30:05.880 but scope three is upstream and downstream. 460 00:30:06.420 --> 00:30:09.360 As far as upstream is concerned, it's about suppliers. 461 00:30:10.180 --> 00:30:14.960 You remember that some companies, they reduce their scope three subcontracting, 462 00:30:15.460 --> 00:30:20.280 so they transfer the manufacturing and the greenhouse gas from 463 00:30:20.570 --> 00:30:24.840 their own scope one to the scope three upstream, which is a scope. 464 00:30:25.020 --> 00:30:27.840 One of their suppliers don't do that. 465 00:30:28.180 --> 00:30:30.200 So we work with our suppliers, 466 00:30:30.300 --> 00:30:35.080 so we all together reduce greenhouse gas and carbon emission. 467 00:30:35.340 --> 00:30:39.440 The result is not in outsourcing, the result is in doing the job. 468 00:30:39.790 --> 00:30:42.240 What about scope three downstream? Ah, 469 00:30:42.240 --> 00:30:45.880 we have plenty of product development. You remember, 470 00:30:46.670 --> 00:30:49.240 it's not only services but it's also product development. 471 00:30:49.340 --> 00:30:52.800 And product development is very much E S G focusing. 472 00:30:53.340 --> 00:30:57.880 We have an offer which is planet positive. What does it mean? Planet positive? 473 00:30:58.340 --> 00:31:01.760 It does not mean that we slow down the growth in emission. 474 00:31:01.760 --> 00:31:05.320 It means that we absolutely reduce the emissions. 475 00:31:05.510 --> 00:31:09.640 This is why you can be net zero because there will be some positive compensated 476 00:31:09.670 --> 00:31:13.560 with a negative. And as a consequence of this planet positive offer, 477 00:31:14.140 --> 00:31:17.920 we are contributing to pushing back the overshoot day. 478 00:31:18.140 --> 00:31:22.400 You remember the overshoot day 28th of July, 2022 479 00:31:23.020 --> 00:31:26.680 is a day in the year where the planet starts consuming itself. 480 00:31:27.460 --> 00:31:32.360 It was 31st of December a few years ago, nights 28th of July. 481 00:31:32.900 --> 00:31:35.280 If we can push a little bit the date, 482 00:31:35.350 --> 00:31:37.800 it's going to be good for the sustainability of the planet. 483 00:31:38.580 --> 00:31:43.040 Though the company is very much focusing on that and communicating. 484 00:31:43.940 --> 00:31:47.480 And what is very interesting is that you remember 1.3, 485 00:31:47.580 --> 00:31:51.320 1.4 billion euros out of 5.3. 486 00:31:51.550 --> 00:31:52.680 It's not negligible. 487 00:31:53.150 --> 00:31:56.880 Last year we observed a growth in the revenues of 25%, 488 00:31:57.420 --> 00:32:02.080 but growth in planet positive offer was 50 plus percent. 489 00:32:02.820 --> 00:32:06.000 So definitely we are pushing in the right direction. 490 00:32:06.780 --> 00:32:11.040 The companies doing a lot in terms of esg 491 00:32:11.900 --> 00:32:16.880 and the company has a very strong reputation on a shareholder's perspective. 492 00:32:17.980 --> 00:32:21.760 You remember the phenomenal question, which is a subject of these films, 493 00:32:22.120 --> 00:32:25.320 relationship between e, ESG and shareholders. 494 00:32:25.860 --> 00:32:30.040 Are we working against each other or we working together? 495 00:32:30.220 --> 00:32:34.680 Is it a positive relationship? Is it a conflict and negative relationship? 496 00:32:35.380 --> 00:32:40.040 Of course there is no immediate, simplistic, straightforward answer. 497 00:32:40.820 --> 00:32:45.560 You understand that in some industries there is a potential conflict between e 498 00:32:45.740 --> 00:32:47.560 sg and shareholder value creation, 499 00:32:48.260 --> 00:32:51.400 but there is something which is much more important than the industry you are 500 00:32:51.400 --> 00:32:55.560 working in. It's the behavior of the company. It's a purpose of the company, 501 00:32:55.590 --> 00:32:56.880 it's its mission statement, 502 00:32:57.030 --> 00:33:01.040 it's the objectives of the company and if the company is properly organized, 503 00:33:01.800 --> 00:33:03.000 whatever the industry, 504 00:33:03.590 --> 00:33:07.600 then there is a positive relationship between creating a lot of value for the 505 00:33:07.600 --> 00:33:08.090 shareholders, 506 00:33:08.090 --> 00:33:12.920 which is widely accepted and appraised by investors and be good for the planet, 507 00:33:12.930 --> 00:33:16.600 which is an extremely good news. Thank you very much.