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

Good afternoon, everyone, and welcome to the Mutares Earnings Call for the Full Year 2023. On the call today, the CEO, Robin Laik; and the CFO, Mark Friedrich, will present the results and most relevant events of the full year 2023. After the presentation, they will be available to answer your questions. The presentation shown is available on the Mutares website after the call. Before we start, I would like to remind you that this presentation contains forward-looking statements, including projections which may not develop as currently expected. I, therefore, kindly ask you to take note of the precautionary warning about forward-looking statements that is included in the materials on the website. Now let me hand over to Robin Laik.

Yes. Good afternoon, dear shareholder, dear bondholder. My name is Robin Laik, and I'm under the Founder, the CEO and the main shareholder of Mutares Group. And today, we are very happy that we can present to you a very successful 2023. And before we start into our presentation, I would like to explain again what is Mutares really doing. So when we started this business 15 years ago, we wanted to go to big corporates and as these big corporates still have assets that are underperforming. While the key strength of Mutares, what we are doing is that we enter with an own team into these companies. And this is our DNA. Our DNA is that we want to come into companies of big corporates, carve out of big corporates, which are not performing. And then to these companies, we enter with an own team. And the team takes over a key management position, can be a CEO position, can be a production manager, can be a sales manager, can be a controller and that's what we are doing. So you see here the landscape where we are today. So we have 11 European offices, but we have also now an office that we are planning in Chicago and [indiscernible]. And we also spoke about India now. So we want to be known as the guys who know how to do it. So we like to have the saying, first in mind, first in choice. When the big corporate decides to exit the company or to close down a production site, we think if we want to go to them and tell them it's always better before you decide to close down a plant to sell the plant to Mutares, to sell the company to Mutares. First in mind, first in choice, this should be Mutares. So in which companies do we invest? The first segment that we do invest is automotive. Automotive is our suppliers for BMW, for Mercedes, for Stellantis, to worldwide OEMs that we are supplying from our automotive subsidiaries. The next company and that's based here in Germany in the beginning, so it's a very engineering-driven company. So we have many engineers on board. And this is our sector, Engineering & Technology, machine tooling, where we have a lot of machine tooling guys in our team. The third sector is a service business, where we do service business. And lastly, we just opened up a new sector, which is Retail & Food. And the target company that we want to buy is a company which should have like EUR 100 million to EUR 750 million in sales. And we want to be known as the guys who can do the turnaround. So how are we structured as a group? So today, we talk about 250 people. Out of this 250 people, more than 150 are operational consultants. And when we acquire these companies, we send our own consultants into these companies. And by this, we do generate already today a consulting income of EUR 10 million. And this is important for us, for this is a resilient business model. This is a consulting business. And if we want to grow our business, this number of consultants will as well grow. The second source of profit is when a company's turnaround, they can pay us dividends. So we have this consulting income. Then we have dividends and the third column that we have is exit proceeds. And when we are sitting together in 2008 -- '18. So 10 years after we have started with the Mutares adventure, and at that time, here you see the figures of 2020. But in 2018, we had 3 years in a row, EUR 1 billion turnover and EUR 20 million net income. And then we said, how can we grow this business? And in 2018, we decided until 2028, this company should have a EUR 10 billion turnover and a EUR 200 million net profit. And we are very happy and grateful that we can announce that even today, we are talking about a EUR 5 billion turnover company and a EUR 100 million net profit company. And this net profit that we talked about is composed out of these 3 pillars: consulting income, dividends and exit proceeds. And as you can see here, we want now to have new targets, and you see that we also have new targets when it comes for you, shareholders also to the dividend. So we had before -- we had a minimum dividend of EUR 1 and base dividend. And now we talk about a EUR 2 dividend that we want to pay to our shareholders each year. And this year, as it was a very successful year, we decided to go for a EUR 2.25 in dividend. So we want to let participate all the players, which are -- all the stakeholders, which are involved in this Mutares story. So how do we generate our profit again? And we clustered all our portfolio into 4 different sectors. The first sector is the acquisition phase. So the company's cash losing and what we in general do we go to the seller, which should be a big corporate, and we ask the seller to give us a strong balance sheet. This is the start of the Mutares journey. So we ask them, can you give us funds that we can do the turnaround, and this is cheaper for you, big corporate, then it closed down and it is cheaper for you than do it by yourself. For in many cases, these big corporates have tried already. They sent external consultants and they tried everything, but it didn't work out. And then our secret starts, why is -- what is our USP? It's an intervenership. And we enter them with our own teams into the acquisition phase. So we have a cash out for a purchase price, but then we have cash in for day 1, we sent our consultants in. The second time is then the realignment phase. So the team is already in and we bring back the company to breakeven that. In general, we buy companies, let's assume EUR 100 million in sales, but EUR 10 million of losses. And we get them from the seller in many cases, a balance sheet which allows us to have like 12, 18 months until the company is cash flow positive again. That's the time which we call realignment. And then we come to an optimization stage. In this stage, optimization, we'll think about how can we develop sales? Can we buy maybe another company to enter a new market? Do we have the product which we need? What can we do to grow the business? Optimization stage, in many cases, then we take our consultants out and bring them in the new -- challenge them to a new company and then it comes to harvesting. Harvesting a time when we can take dividends when we get exit proceeds. So this is the life cycle of Mutares. And over all of these life cycles, we said on holding level, we wanted to achieve EUR 100 million. That's what we promised you, to the shareholders and that's what we delivered. Over the last years, we over delivered on our own premises. And here, you have an overview about our portfolio. And you see here Automotive, Engineering & Technology, Goods & Services and Retail & Food. And I would like to name some of the companies to give you some flavor of what we are doing. So we talk about Steyr Motors. So we sent our team in and the team there are doing their engines for special vehicles. And the quality was bad. The pricing was not okay. We had tough times for -- before it was COVID, then there was a raw material price increase. And when we entered, the company has decided to go into different kind of products, which were not needed by the market. And then we concentrated our product portfolio. And in the beginning, in many cases, we have to bring the cost down. So we had also to talk to our employees very openly and tell them, here in this case, it's too expensive, we need to take out people. That's what no one likes to do, to reduce overhead costs. But in this case, it was necessary. And then we went to our customer and our customer even didn't want to see us. So we had -- we scheduled a dinner before we asked them the operational meeting in the morning and the customer didn't want to show up. They were really unsatisfied with the quality and the delivery of our product. And then in this evening, we listened and we tried to understand what is really your issue. And then we assured them that we will be able to produce the quality that they need that we will invest into the R&D facilities. And then we achieved to bring a company which was cash losing today to a company which has 20% EBITDA and is running quite profitable. Maybe another company that I want to name is Conexus. Conexus is a company in the high voltage, which we acquired in Italy from Safety Group, and where we put in Marco and other individuals, we are then turning around the business, which is in this energy market. And just yesterday, we announced that we bought now from Alta, a company in Poland, our first Polish transaction that we did. I'm very happy for Dominic and the team there. But we are able to grow now this business, which is running quite profitable with a 10% EBITDA margin. And then you see Retail & Food, the last sector that we just opened, where we bought several companies out of last year and which are also quite development. For us, when we buy these companies, for us, it's important that we do not buy only in Germany. That's why we are really a worldwide player today, but we don't want to be dependent on risks, which aren't only on one market, only at one stage. So we buy early cycle, we buy a late cycle and we buy noncyclical businesses. This gives us a balance when it comes to the operational risk of the market. Some key figures. Maybe the companies, we are quite in active front. So we bought 16 companies last year in all over the sectors. So we bought, for example, Glaserne Molkerei in the dairy industry, where we produce milk, butter, cheese and sell it mainly in Germany today. Then we bought many other companies, as you can see here, some really substantial brands. So for example, where now we are owners for Peugeot Motorcycles. It's a 2-wheeler business. And we also increased our bond, but you can see that the bond is now a EUR 250 million bond in total. And all of this with the new dividend strategy, with the achievement of the promises that we delivered really on our promises. We were able to be now included in the SDAX, which is for the team, of course, a very nice appreciation, and we are also able to sell 7 companies last year. And here, what influenced, of course, our results of last year is Special Melted Products. So Special Melted Products was the company bought in the U.K., and we sent our team and we said, run an individual to run the business together with many others, Thomas, in the finance department, Dario in the safety department. So we had a very strong sales team there. But we were able to bring the quality back on track. This is what we are doing. So we are producing their special steels, which are used in the aviation industry and which is also used in the nuclear power plants. And the company, when we bought it was a EUR 20 million company with more than EUR 10 million of losses, EUR 20 million pension sitting on the balance sheet. And when we entered everyone, especially my Supervisory Board told me, Mr. Laik, don't buy this company. But then we were -- we looked at the markets and we knew that aviation industry, this is an industry which can come. We were quite advanced in improving and the quality for the turbine. Rolls-Royce was one of our biggest customers. And then we sold this company to an Italian strategic for EUR 160 million -- more than EUR 160 million, we were able to have less exit proceeds. And this was also the reason why we had these nice results last year for the exit. It was 1 of the 3 pillars very nicely worked out last year. With Ivo and the British team, we were able to generate this high exit proceeds. And very happy that in our market segment, especially in the U.K., we were awarded to have the best turnaround in the U.K. Another company where I was on the 100 days meeting this week. We flew in there on Tuesday morning. This is a company called Efacec. Efacec, a company that we bought in Portugal. And they are doing transformers, but they are mainly responsible for the electric diversification and the distribution of electronics in Portugal. And this was a state-owned company, but as you can see here, huge losses due to inefficient projects that they have taken. And our team there is now concentrating on the projects for future, for example, we do the electronic charging systems for the highways. And we do here also transformers for the nuclear power plants and what we did here in the beginning. We concentrated on the main issues, what is core of our business. And from this basis on, we have now a very strong pipeline in place. So order intake was substantial, and we are very confident that this will be what is [indiscernible] Mutares in the years to come for we see a very good order intake, we see a very good backlog and we see that the turnaround plan that we did there is quite substantial. And so what is key? What is key in all of these cases that I present to you? Is that we go there with our own team. All of this is only the team who can make the turnaround. And these are not external consultants, this is us. This is a very direct approach. So we take -- as we take over in many cases, the key management positions. It is not an external passive fund. We are the active investors. We are the guys who enter into the companies and we do the turnaround by ourselves. And by this, I would like to hand over to Mark. Thank you.

Thanks, Robin. So starting the financials with again the overview of the financials and the development over the last 3 years. And what you see here pretty much is that we continued our way of growing the Mutares group in a very decent pace of approximately 25% to 30% each year in revenues, reaching EUR 4.7 billion in 2023. And more important for us also, we see the development of the adjusted EBITDA. That's improved year-by-year. Even though we added a lot of loss-making -- by nature loss-making entities and portfolio companies to the group, we still were able to improve the adjusted EBITDA to a positive level of full year to EUR 3.5 million, showing the development -- the underlying development in the portfolio towards a positive contribution here, and we will see it in the segments in more detail where we performed really well and where we have added a lot of loss-making entities and can work on it in the next couple of months. The financials of Mutares holding here also pretty much follow always the group financials with revenues, consigning revenues, reaching more than EUR 100 million. And the run rate is approximately EUR 120 million based on the development of the full group here. And the net result, Robin already explained it, quite dominated by the biggest exit in Mutares history of S&P, reaching also more than EUR 100 million. For fiscal year 2024, we already guided here for approximately EUR 6 billion in group revenues. And again, net income of 1.8% to 2.2%, resulting in the EUR 108 to EUR 132 million of net income of the holding. The development quarter-by-quarter reveals a bit that it fluctuates more than we would like to see it here. You see that the development, especially in Goods & Services is the most stable when it comes to positive contribution here. Also compared to last year, still pretty much doubled. And on the other hand, here, we see the biggest turnaround in Automotive & Mobility. We'll explain it in more detail on the next page where we did here, which is a substantial turnaround, but still a way to go. Let me go to the details of the segments, starting with the biggest segment in terms of revenue, almost EUR 2 billion here. And you see that we were actually quite active in the segment but still have only 5 groups. And on the right side, you see that we added more than EUR 700 million of revenues through acquisitions, and that's mainly due to the other acquisitions that we did for FerrAl United and HILO Group at the end of the year, because we strongly believe that in this segment, size matters. And that's why we have invested so much in the buildup of FerrAl United that combines more than EUR 1 billion of revenues run rate. And we strongly believe that this is the right way forward. Also, HILO Group was pretty much substantially increased in the end of 2023 with the 2 add-ons that we did here. On the other hand, we saw some really, really good development in the transformation and restructuring of SFC and LMS, both part of the Amaneos Group. And therefore, we ended here with an adjusted EBITDA of EUR 3.3 million compared to minus EUR 49 million in 2022. Moving on to Engineering & Technology segment, where we have added quite a lot and sold quite a lot over the last 18 months. You see it in the first bullet point here on the right side that we have acquired a lot of entities, NEM, Guascor, SMP and so on and divested also a lot. Therefore, quite a mix here, credit movement in the segment and quite an interesting segment. Because here a couple of entities that we have here in the segment that are really in a good way, namely here, the NEM Group, also Guascor, quite improved now in the beginning of 2024, and Robin also explained already Efacec and Steyr, especially Efacec quite heavily influenced the adjusted EBITDA in Q4, so quiet -- 1st of November because we had to restart pretty much the production was quite empty and the amounts here are quite substantial. So what you see here are pretty much on the left as the adjusted EBITDA for full year is almost only Efacec. And then Goods & Services, the best performing segment, quite a broad range here of different portfolio companies. You see that the adjusted EBITDA almost doubled. And here, we see or saw in 2023, some decent development at Terranor and Frigoscandia already sold here, but also Ganter and a quite positive when it comes to the development of a handful of other companies that we added to the segment, namely here, GoCollective, but also REDO, Conexus and again, the Terranor Group. The last segment, the one that we newly formed here out of Goods & Services, the Retail & Food segment, where we had with Lapeyre, Keeeper, Fasana, 3 companies that we already had in the Goods & Services segment, and you see the 3 acquisitions that we did here that contributed only a bit to the overall revenue in the segment because the acquisitions were closed mostly in the second half of the year. And we saw here still some headwinds in the market for Lapeyre. And on the other hand, a good development at Keeeper and Fasana and the promising development, especially at Glaserne Molkerei and Prenatal. Coming to the last page and the current life cycle, we see actually a bit like always, it looks quite sound, and you see pretty much that we did a lot of acquisitions here. That's what you see in realignment, lots of companies combining EUR 2.2 billion of revenues and substantially negative in 2023, and we will take out here a couple of entities and move them on to optimization in the Q1 presentation. Because optimization here also a lot of pretty much well developing entities, EUR 1.7 billion of revenues here. You see already the newly formed HILO Group in there. and the combination of them [indiscernible], profitability reached a positive level. And then in the end, we have just a handful of assets in harvesting, most likely also for Q1, we will here see a bit of change adding a couple of companies and having here less revenue than last year because we sold part of the Donges Group. But again, a quite positive adjusted EBITDA due to the performance of the companies that you see here. And with this, I already hand back to Robin.

Yes. Thank you, Mark. For me also, this is a moment where we can say big thank you to Mark. I mean, Mark already 12 years with the company, since 9 years the CFO. And when you have a company which is only EUR 1 billion, and today, we talk about a EUR 5 billion company, it's a lot of work when it comes to year-end accounts. And Mark, what you did here together with your team, Simon, and many more is really incredible strong. And thanks a lot for all of this work. What we are doing and that's maybe for you as shareholders, we are really the guys who are on the ground. We fly into these companies. We take over responsibility and what we have shown, and this is for U.S. shareholders or at bondholders is a very attractive access to the private equity market. What we are doing is private equity. But based on a family business, based on a business which is still in the hands of entrepreneurs. And our dividend strategy speaks for itself. We are always increasing our dividend. We had several years now, EUR 1, then EUR 1.50, then EUR 1.75. And this year, it tops with EUR 2.25. I think the development of the share speaks for itself. We want to be super high transparent. This is also important. So we buy a lot of companies also from state. So as mentioned, Efacec for example, from the Portuguese state, where the Finance Minister of Portugal. He told me before we acquired, "Mr. Laik, you are now in charge for so many employees. I help you, I give you a strong balance sheet, I give you even a cash dowry. But what is for me important is that you are now in charge but you are quicker, you are more entrepreneur, you will make it happen." And of course, we are long-term substantially orientated. So this is, for us, I think key and for you as investors, as bondholders. But we believe that we have a resilient business model, which is growing. And as mentioned, we want to be the really worldwide player. Before I always said I wanted to be -- or we wanted to be the German #1 in private equity, and we were awarded by Focus Money 3 times in a row to be the best private equity company in Germany. But what our target is, of course, is that we are the worldwide player when it comes to development to growth in both and sales and a number of companies that we acquire and in profitability on holding level. So what we want to report in future, and that's what we did in the last years, we want to show what is our net results on holding level. And this result of EUR 100 million that we achieved now, this was a dream many years ago, and now we have new dreams. And I want you, of course, to follow us in this development, as I can show you here, we have already set a target for this year. The 3 acquisitions in the beginning of the year, we think that we will be able to increase our sales number. but we also want to increase our result level, net result on holding level, which is based on the 3 pillars, which is based on consulting, on dividend and exit proceeds. And our long-term target when it comes to the dividend, we already mentioned that we want to pay out a minimum of EUR 2 in the future, and we are quite positive that this is achievable. Thanks a lot for your attendance. And by this, I would like to hand over to the operator.

[Operator Instructions] And the first question comes from Marie-Therese Gruebner from Hauck Aufhäuser Investment Banking.

Congrats on this fantastic year, first of all. If you -- if I may, I have a few questions I would like to ask one after the other because otherwise, we all get lost. So -- do you hear me, first of all?

Yes. No, it's very difficult to hear you.

Okay. Sorry about that. Now can you hear me better?

Very interrupted.

Okay. I hope it's better now.

Now it's better.

Okay. Yes, my first question pertains to the guidance [indiscernible]. Can you give us at least an indication of the breakdown between dividends, consulting [indiscernible] proceed you are budgeting in that figure on the holding guidance, net income level for the guidance, please?

Yes. Marie-Therese, it was still interrupted. So I repeat what I understood. So you were asking for a bit more color on the input factors for the guidance of the holding, right?

Exactly, yes. The breakdown, if you can give us an indication, yes.

All right. So the revenue that we foresee for the holding will be around EUR 120 million. And based on this, we came to the net result and the underlying assumption here is that we have net proceeds of more than EUR 100 million from exits. And therefore, the start into the year with Frigoscandia, where we have already more than EUR 50 million was quite good. So we are hyper there and have started a handful of other exit processes so that we are quite confident with communicating this guidance that we have here in the presentation.

That was clear. Can you give us maybe -- you said that consulting revenues were EUR 100 million in [indiscernible] at the end of last year. Is this the amount we should assume for '24? Or should it be a bit more?

For '24, you should assume EUR 120 million.

Okay. Okay. And then on the -- maybe upcoming exits or companies that you've been trying at least to sell in the past for example, La Rochette, is there any update on that one? And then also any -- can you comment anything on any pending exits maybe in Q1 or Q2? Q1, we had already Frigoscandia, but Q2.

Actually, we don't want to go to the detail here. This is confidential information. But you can assume that the companies which are harvesting we are checking regularly, whether we are able to have a good buyer. And we are not in a situation where we are like a typical front where there's an exit pressure. We try to sell the companies as we are a stock listed company when we believe this is a right price.

Okay. Understood. And then last one on my end, if you can comment on any upcoming deal activity in China and the U.S. where you recently established a presence. And that will be it from my side.

Yes. So we are looking in the U.S. into different companies. There's 1 automotive supplier turnover like EUR 200 million cash losing to typical Mutares business model, and we are also looking in China to an automotive supplier. So in both countries, I think that we are -- that we will have at least 1 deal to be announced in this year.

[Operator Instructions] As there are no further questions, I give the floor back to Robin Laik and Mark Friedrich. Over to you.

Yes. This is it today. Of course, the time to say thank you to our employees worldwide. We have achieved now a fantastic result. We are growing, and this is only possible due to you, due to your immense dedication to the companies. Thanks a lot. Thanks for you as shareholders and as bondholders for your trust. We promised and we delivered. And that's the target for us. We have ambitious targets, and we want to grow this business. And I hope that you stay with us and that you help us to fulfill our targets. Thanks a lot, and speak to you soon. Thank you. Bye-bye.

Thank you very much for participating in this call today. We wish you a great rest of the day. Until next time, goodbye.