Mutares SE & Co. KGaA (MUX) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to our earnings call for the financial year 2020. On our call today are CFO, Mark Friedrich; and the CEO, Johannes Laumann, will present you the results and most relevant events of the financial year 2020. After the presentation, we are happy to answer your questions. The presentation shown is available on our website. Before we start, I would like to remind you that this call and presentation contains forward-looking statements, including projections, which may not develop as we currently expect. I, therefore, kindly ask you to take note of the precautionary warning about forward-looking statements that is included in the materials on our website. Now let me hand over to Johannes Laumann.

Good morning, good afternoon, and good evening, everybody. Welcome to our presentation of the annual results 2020. A warm welcome from my side. Hope you guys had a good Easter break, and we would like to present you shortly and remind you on the business model, our D&A, our guidance and give you a sniff on our track record and then followed by development and financials, which will be presented later on by Mark Friedrich, the CFO. Let me remind you on the guidance and where we stand. In October last year, we put out a guidance to the capital market, what are our midterm targets we want to achieve at Mutares? So the first one was we want to grow the consolidated revenue from EUR 3 billion -- to EUR 3 billion in 2023. Coming from last year, where we closed with EUR 1 billion in sales in 2019, 2020, we closed with EUR 1.6 billion, which is already an increase of 60%. Coming to the holding revenue and holding profit, which develops in 2019, EUR 22 million to EUR 33 million in 2020, which is an increase of 50%. And we aim to be at EUR 60 million in 2023. We want to deliver at 7 to 10x return on invested capital on our assets all over the cycle, which we have already proven end of last beginning of this year with the exits of Nexive, with the exit of the Water Mueller group as part of Balcke-Dürr and with the signing of the SDS Group ag transaction, where all of the 3 transactions were in or above this range, which we have set as our target. We want to have a growth in dividend that we want to have a sustainable dividend, where we set our target of having EUR 1 of base dividend and additional performance dividend, which we fulfill in 2020 by paying out EUR 1 as base and EUR 0.50 performance dividend for the exit of Nexive. And last but not least, we want to be a leading brand in the turnaround industry in Europe. And we want to grow our group. We want to grow our consulting business, where we have set a target to lead to 140 people in the consulting business in 2023. We increased from 40 people 2019 to 70 people in 2020 and we have a strong plan to increase further this year to roughly 100 people in this practice. So overall, we are absolutely on the right track. Concerning our guidance, we have made a big step towards the achievement of the goals. And I think this is a very satisfying outcome of the year 2020. Let me remind you on the basis on the ground of Mutares. Not only being our self perception of being turnaround heroes, we also have increased our local presence. We opened an office in Madrid, and we opened an office in Stockholm in Vienna in 2020, where we already see very good developments on the pipeline side, buy side as well as sell side. We extended our sweet spot coming from a midsized company, which we focus on EUR 50 million to EUR 500 million of turnover. I would define our sweet spot now in the range of EUR 100 million to EUR 300 million in sales, coming to that. And last but not least, the integration of ESG criteria became more and more in the focus and we really strike to meet the standards, meet the target for sustainability goals we have set for ourselves and -- which are beyond minimum standards. Giving you a little sniff on the track record because I think it's a quite amazing track record over the last 24 months. And I think this is also a good moment to thank our people, to thank the team who made this amazing work and who made this track record happen. And I think I'm speaking here also on behalf of the entire Board and the entire senior management here. We headed a strong path of success. So we accomplished 21 acquisitions. We were very active on the add-on side. We throw further the diversification of our portfolio, of our assets. And at the same time, we also did the risk mitigation by really growing our 3 pillars: automotive, engineering and service, more or less with the same speed. We exited 7 companies, repurchased EUR 1.9 billion in revenues in the last 24 months. This EUR 1.9 billion came along with almost 10,000 people. We have significantly increased our offices in 2019 and 2020. And by the end of March, we have increased our market cap by more than 200%. And this was the number of the end of March. Today, this is even a little bit higher. And as of today, we are having the all-time high record in share price. When we look at our portfolio, and here, you can clearly see the diversification and risk mitigation in the 3 pillars. We have the Automotive & Mobility, which is an early cycle and had a very strong hit in the 2020 Q1, Q2, Q3 due to COVID. We have Engineering & Technology, which is a late-cycle where the hit came a little bit later. And we have Goods & Service where we try to mitigate the risk where we have noncyclical businesses under our wings. And the second thing, which is -- which becomes obvious on this slide is that we have reestablished with a very, very strong path, our French practice. So I believe France is a good market for us. We have positioned the new Mutares approach after having some disappointments in France. We have purchased 4 companies recently, which you see here as Clecim, La Rochette in the Engineering & Technology sector as well as Lapeyre and as well as Carglass Maison, where we have the closing as we speak. So this is a very strong case, very strong country coming back in 2020. And I would like to reestablish Mutares as a very strong and reliable partner for the French corporates. And the third point, which is the takeaway of this is especially on the companies who are long in our portfolio and taking into account current market conditions and current strategic approaches in order to readjust their portfolio and grow their portfolio. We also do see great exit potentials in the next 12 to 18 months on our existing portfolio, which we will try further, and we will strike a deal. At the moment, we believe it's the right time for the right price. Quickly summarizing the highlights before I hand over to the financial part to Mark Friedrich. I think on the acquisition side, we have proven the 2019 and even over exceeded. We still dream and aim for 1 transaction per month. And as we speak at the moment, I think we are on a very good track, 3 buy-side signings, 2 further acquisitions. And there is a lot more to come. The pipeline has a reliable portfolio in it. So you will see us striking the one or the other in the next weeks and months. Operational process, what we saw on the development of the portfolios, which will be also seen then in the figures later on, but also drive the exit potential is that the second half of the year and there, especially the fourth quarter came in extremely strong in the businesses, and we saw first recovery of the losses COVID based in the first half. So also there, we are driving in the right direction, and we want to use the momentum and one or the other portfolio to strike for a deal on the exit side. With that, I would like to hand over to Mark and going into the financial.

Thanks, Johannes. So hello from my side also. One key milestone for the development in 2020 was clearly the raise of the bond, first time on the Mutares Holding level, which added pretty much EUR 70 million to the shooting power to develop the Mutares Group for the investments in add-ons, in acquisitions and the portfolio. On the other hand, the development of the group also contributed to the net income at holding level, where we were able to increase the sales, so our consulting income and substantially increased our net profit at the holding level to EUR 33 million that came in then with a bit more than 2% of group revenues, which was one of the key pillars as a guidance that we communicated in October, where we said that we want to have 2% net result on holding level based on group sales. That brought us to the decision, to propose a dividend of EUR 1.50 to the annual shareholder meeting, which will take place in May. And Johannes has already mentioned that part of that dividend, the EUR 0.50 is a performance dividend based on the transactions and dividends we received in 2020. Looking at the key financials and in line with what we communicated in October, for the first time, we present some holding figures, clearly on the first page here. Starting with the group figures. Revenues increased by more than 50%, EBITDA increased more than 40% -- more than 50%, almost 100% here. But on the other hand, adjusted EBITDA went in the opposite direction, which is clearly a good sign due to our business model, and we will see it later where this comes from. On the other hand, Mutares holding consulting revenue increased more than 40% due to the increasing number of portfolio companies where we have to do a lot of work now with our now 70 consultants. And on the other hand, the management fees, which also includes the dividends that we receive from the portfolio again increased substantially from almost 50% to EUR 65 million -- EUR 66 million. We have included in the backup, the group P&L and the group balance sheet and we believe that it's more interesting to look at the different segments and different portfolio companies, and that's why we start with that. First, with the Automotive & Mobility segment, where we saw a substantial decrease in activity in the first half of the year due to the lockdown and closure of the plant. On the other hand, we saw a very strong recovery in the second half, which is also kind of holding on in Q1 2021, where we see that the diversification across the different industries, the different countries and also, especially across the different OEMs as customers helps us very much to really develop that segment and to see a very strong recovery in 2021. A key milestone in that segment is clearly the sale of the SFC group, which will take place in the first half of 2021, where we will lose a cornerstone asset and we are working on different transactions to add to that segment, again, very well-known cornerstones in 2021. One last remark, the acquisition of the SFC Group, a group that is operating also in India and across Europe was the transaction with the biggest paging purchase in history of the Mutares group with approximately EUR 60 million. The segment, Engineering & Technology was, for a long time, quite stable, but then we had to acknowledge that especially Europe was hit by the lockdown since the service guys could not go to the sites. And therefore, we saw that also here, the organic revenue development was negative. On the other hand, we were able to close the transaction of Nordic in the beginning of April, which was contributing significantly positively to the adjusted EBITDA and also the acquisition of La Rochette was really good transaction from our perspective since this company is developing quite fast, and we strongly believe that we will see a very fast turnaround. Last segment where we see the highest M&A activity was segment Goods & Services, where we added some big companies, some big groups, namely here, Nexive, BEXity and Terranor, which all are more -- having more than EUR 100 million in sales. On a full year basis. So that's what you pretty much see here in the development with revenues north of EUR 400 million. On the other hand, the adjusted EBITDA was substantially negative, mainly due to the Nexive group, but also the [indiscernible] group. On the other hand, especially BEXity and keeeper plasitcs were able to deliver revenues on budget level. So quite resilient against the COVID-19 development in 2020. And therefore, also contributing positively to the adjusted EBITDA. Coming to the famous life cycle stages where we see that pretty much everything that we explained now results in a very well diversification of the portfolio across the different life cycle stages. We have now 9 companies leaving aside Nexive in the realignment phase and had 9 companies as the realignment phase at the end of 2020. And we will adapt the stages for the Q1, and we'll see that a lot of companies that we currently show here in the realignment phase, will move on to the optimization since we see here a really nice progress in the restructuring phases, especially at the company's SABO, Terranor and Lacroix. We actually expect that the companies or the bucket optimization is closer to breakeven. We were not able to deliver that in 2020, mainly due to the Balcke-Dürr. We sold here the good performing part of the Balcke-Dürr in 2020 and closing of '21. So it was not a surprise to us. And we will work on having the optimization bucket closer to 0 or even positive as it was in 2019. Looking at the right side, we wanted to show you that we, as the Mutares Holding has revenues across all stages here. Due to the business model, obviously, the major part comes from the realignment phase since there are the majority of companies, and that's our core business to sent in our team in the restructuring phases in the beginning. So almost EUR 20 million of the EUR 31 million of consulting revenue came from the realignment phase. And you see that we don't take off the hands once the company moves on to optimization and harvesting both stages also contribute approximately EUR 20 million to the consulting revenue. And with this, I hand over back again to Johannes for the closure.

Thank you very much, Mark. As a summary, quickly for this session before we continue with the Q&A part. I think what we see is that operationally, our companies have a strong comeback on the COVID-19 effects, which we saw on the first half in the second half of the year. And of course, the discovered impact gave us a great opportunity on the M&A side, and we had the loads of activities in 2020 and already started with lots of activities in 2021, and this will also continue. We had already 2 closings with Clecim and EXI on the buy side, we had 2 closings on the sell side. We had 2 signings, La Rochette and Carglass Maison, while Carglass Maison is in the closing today. And we have one signing on the sell side, which was the well-known by the audience STS Group ag exit and the sale to other person. We have a target annualized revenue, including the signed acquisitions of today, $2.2 billion already secured. So any additional swing will come on top here for 2021. And we are well on track with our guidance, with our target of having the group revenues, $3 billion holding revenues $100 million, 2% of the group revenues, so $60 million as holding net income. So we are well on track there, and we have made a big jump in 2020 towards the target in 3 years from now. And we have hold our promise having a sustainable dividend of EUR 1 at the baseline, and we will let you, as the shareholders also participant in the success of an exit, in that case, Nexive, with another EUR 0.50 per share. So with that, I would like to close the presentation of the annual report 2020. I would like again to use the opportunity to thank the whole team for the great contribution and already the wonderful start in 2021. And it's really a strong team effort and happy to be part of the family. Thank you very much. And now I would like to hand back to the moderator to facilitate the Q&A.

[Operator Instructions] The first question is by Alina Koehler of Hauck & Aufhäuser.

I have 2 questions actually. One is you said that you target a size of an upstream of around 100 people by the end of this year. Would this mean revenues, holding revenues of around EUR 50 million? And then secondly, you've been really active in France. How large is your ops team in France, in particular? And do you think you will grow it in France or in Italy and outside of Germany more than you do inside of Germany?

Thanks for the question, Alina. The addition to the operations team is pretty much really across Europe. We currently look to find people, especially in the Nordics, since we want to prepare for the growth there. We also have added a handful of people in Italy, and a handful of people in France. And on the other hand, also look to the East to Poland, where we have a lot of facilities. And we learned from lockdowns that it clearly makes sense to have operations people in the countries and therefore, we reinforce the idea to blow the team steadily across Europe and all offices in all countries. The second question was how large the operation team is in France? It's something around 10, and we want to grow it and it will grow because we signed the contract in May to 15.

And maybe adding a word there, which I've said earlier, I think France is for our business with the people and the knowledge we have in the country. In my view, and as you know, I'm only on Board since 2019 in the Board here, a very, very good opportunity for the future growth. And I think we have had quite a comeback in 2020 in France, which we want to stabilize and make it a success now. So this is a very important market for me in 2020 and 2021.

And regarding the question, what we expect for consulting revenue in the holding based on the growth of the team, it will be something around EUR 45 million.

Currently, there are no further questions. So I hand back to you for the closing.

Well, then thank you very much for the participation today. We will stay in touch with one or the other line. You will hear from us soon. And I'm happy to host you today together with Mark. Stay safe, stay healthy. And hopefully, the majority of you guys, we can meet shortly in person after overcoming the pandemic situation. Thank you very much. Take care. Bye-bye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.