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

Good afternoon, everyone, and welcome to the Mutares Earnings Call for H1 2024. On the call today, the CIO, Johannes Laumann; and the CFO, Mark Friedrich, will present the results and most relevant events of H1 2024. 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 Johannes Laumann. Please go ahead.

Thank you very much, and a very warm welcome to our H1 2024 call. I'm very happy to be able to present you this call and be back in the best leadership team, I believe, is existing in the world. So let me take you a little bit to the general intro, and then Mark will present the highlights and financials, and I will close the session with the outlook. So we have 3 of us in the management team, Robin, Mark and I. You are familiar with Lennart, joined on July 1 in the team. And we strongly believe that with that team, we will manage our target. We will manage our targets. We will manage our growth story, and we will manage our success. Still, we are all highly committed to the success of Mutares. Together with the Supervisory Board, we still hold 36% of the shares. So there's a full alignment of interest from us, with all of you, our various shareholders. We constantly grow. We grow our business, we grow our portfolio, but we also grow our presence in the world. So next to the 12 Mutares offices in Europe, we have opened after Shanghai, now also Mumbai in India and with Chicago, also the first office in the U.S. The holding itself more than 250 professionals, the vast majority here are the operational workforce, the operational taskforce going into our portfolios. Very briefly, what do we do, what do we stand for and why we're very successful and why we are strongly committed that we will be successful? More and more, and part of our success story and growth story is based on the global expansion of the focus we had. So growing from Europe outside into the world gives us -- the growth gives us the profitability, gives us the success what we have. We always come from the center of Europe with 12 offices, and then as I said, Chicago, Shanghai and Mumbai complements very well. This should not be the end of the story. So we still see great potentials in the Asian region. We still see great potential in the Western U.S. region, and we see potential in the North of South America. That region to grow further. Besides the geographical footprint and the geographical growth, we also diversified our segment. We have 4 segments now, Automotive, Engineering & Technology, Goods & Services, as well as Retail & food. And with a diversification, we always have the opportunity. We always have an opportunity to sell, and we always have an opportunity to buy. And at the moment, the Automotive sector -- segment is the biggest segment within the 4. But the idea of this segmentation is also to get a little balance. So we are quite committed that the balance will also in the future go more into a leveling without sticking out one segment here through exits and to further growth in the other segments. Target companies, there we say between EUR 100 million and EUR 750 million. However, I think when we look back, our sweet spot was in the range of EUR 20 million to EUR 30 million. Today, I would say our sweet spot is EUR 200 million and above where we operate. And also the perception of the market is a different one. So a quick story from yesterday. Yesterday, I received a call from a very large global bank asking us if we are interested in a carve-out situation, a global carve-out situation with a size of USD 2.5 billion in turnover. So the market recognizes in the meanwhile, Mutares as boys and girls who can handle these kind of challenges. So I think the perception in the market, the sweet spot we are in between EUR 200 million and EUR 500 million, which I would say, in turnover, are really, really successfully perceived. And then on the turnaround, I think with our operations team, we have the best what you can get in the market. And more and more, we also see that this perception also comes from third parties who want to hire our operational team for their needs, which we don't do. They're only there for in-house consulting. And we significantly base our success of the development of our portfolio on this close to 200 people working in the operations here. So overall, we stick with the DNA. We stick with who we were, who we are and who we want to be. We want to be from a European to a global player, but we stick with the segmentation. We stick with an increase, but we still stick with our sweet spot, and we want to be the guys who make the operational difference in the company and not a pure financial play. So what are we good at? And why are we sure we're going to make 7x to 10x cash on every transaction we do. So I believe we are good in acquisition. For me, I call them it's our deal machine. So my M&A teams globally are -- it's a complete deal machine, and we are making more acquisitions than anybody else on the continent. So on the acquisition side, we find creative solution. We are a solution provider for companies, for big corporates carving out. We are the guys to go when it comes to carve-out situations in a turnaround spot in Europe, and we want to expand that now also to Asia and the U.S., and we already made our very first successes overseas. We are good in carving out businesses, and we are good in putting it stand-alone, and we are good in restructuring business. This all happens in the realignment phase with our operational taskforce going in. This is what we as Mutares are good in. We are good in the optimization. We are good in the buy and build, and we are good then to find the right moment to divest and harvest from the exit proceeds. I recall a couple of years back when we started our growth journey, Robin, Mark and I, we were always faced with a situation that can you deliver exits. You can buy, that's good, but can you deliver exits. And I think especially in the last 12 months with the exit of S&P, with the exit of Frigoscandia and with other exits to come, which are in the hot phase at the moment, we certainly delivered exit, and we delivered the full cycle, and we delivered what we promised. And this is what we are good in and why we are confident to make 7x to 10x the cash we invest into our portfolio. When you look at this portfolio, on an annualized basis, we are currently striving for EUR 7 billion of turnover on annualized base throughout the different segments. So Automotive still the largest one, but followed now by Engineering & Technology, where obviously, Serneke and Magirus are in -- 2 acquisitions, which are not closed yet, but significantly contributed with more than EUR 0.5 billion of turnover into this segment. So something we really believe and is strong in the growth. Let me speak a little bit quickly about Serneke, which is an operation we recently signed, and we expect closing -- we expect closing, hopefully, still this year. Mark will say a little bit more about the portfolio, but Serneke is one of the leading construction companies in Sweden. And what we currently see is that the Nordic markets are still strong. The Nordic markets are not waiving. And so we firmly believe in this investment, which I think we did a fantastic M&A deal on this one, and we have great operational potential to make this company shine again. And then we are one of the dominating players in the construction industry in Sweden. And this is a great opportunity, we bought, perfectly fit to the spot, undermanaged turnaround situation, size-wise in our sweet spot, fits perfectly into the Engineering & Technology segment. I think we will have a lot of fun and joy with this Serneke investment over the next couple of years. Let's dive a little bit more into details, come to the key highlights of H1 and the financials.

Thanks, Johannes. And today, it's a pleasure to also explain the highlights of H1 before I come to the financials. I want to start with the transaction activity, which is clearly a major part of our business. So with the 11 acquisitions, we were again quite active. And you see here that with Magirus, Sofinter Group, Serneke and fischer automotive, we were able to acquire or about to acquire well-known brands and big portfolio companies. On the other hand, with the acquisition of PRINZ Kinematics, KmB, and Cikautxo, we again executed on our add-on strategy for the Automotive segment. Greenview is for us the first acquisition in Northern Ireland. Eltel business in Poland, that is pretty much similar to our Conexus business, where we have positive experience. And with FSL Ladenbau, we were able to execute an add-on for Ganter, which is in the Northern part of Germany. And then we had also Temakinho, where we want to test the water, being more in the food market and then closer to the end customer. On the sales side, in the first half of 2024, we were able to sign or close 5 transactions, where clearly Frigoscandia stands out and dominates also the holding financials and where we want to obviously deliver more. Johannes already said it on this end. We'll see in the next couple of months, also in 2025, then more pretty much symbols here, where we want to talk about them later in the year or next year. One element on the transaction activity that is contributing to our geographic expansion is actually fischer automotive because fischer automotive has a footprint in Europe but also footprint in the U.S. and in China. And that pretty much [ fuels ] especially the U.S. expansion, where we have high hopes. And we have started the expansion already before we signed fischer and closed it in July. And here, I want to give a bit more highlights here about the 3 markets outside Europe. And starting with China. Our Head of China is already working on China for about a year now, and that's actually what we already see. We have now a couple of portfolio companies in China. The pipeline is there. The team has ramped up now to more than 10 employees in China. We pretty much covered with almost all positions and look forward to also execute here more stand-alone acquisitions in the country. You see here that we are quite strong in Automotive & Mobility, which is also for now the segment where we see most of the transactions, where we see more and more local customers. But on the other hand, we are obviously hoping also to provide our solution to the other segments. A market where we have high hopes for is India. We have now completed the setup of Mutares India. We have found the office. Johannes will visit the office in Q3 now. We have already here quite positive experiences with especially SFC Solutions as part of the Amaneos Group, but also MoldTecs builds up here a plant that is supported by SFC. And we are also here active with Efacec. And this is a market that is pretty much dominated by a future where a population that looks forward into a future that can be only better than today. And this is something where, obviously, we also want to be of help here with our solution of providing restructuring expertise that was necessary, especially in SFC Solutions here and are strongly convinced that this is going to be a growing market also for Mutares. Then the U.S. is also a region or the Northern American market as a region that is covered now by Mutares with the Chicago office, where we have also now found the Head that is familiar with Mutares business model, where fischer forms the first footprint that we acquired. And we were also able to acquire an add-on for the FerrAl United Group in the U.S. in the beginning of July. So after the end of the quarter. You see here that from an Automotive perspective, we are actually quite active in Mexico. That's why we want to see this here as a Northern -- North American market and not only the U.S. On the right side, we have here some ballpark numbers where we strongly believe that this will be detailed more in the next couple of months once we will see more acquisitions to come and the brand of Mutares picking up. Robin and myself have been there in the beginning of the year, visiting the team and the feedback is quite positive about our solution that we can bring here into the market. And with this, I already want to proceed to the H1 financials and pretty much start with the group and where we see that the trend continues. We have a bit more than 15% revenue growth here in the group, heading up now to EUR 2.6 billion. We stick to the guidance of EUR 5.7 billion to EUR 6.3 billion for the whole year. You see that the EBITDA and adjusted EBITDA remain positive but not as positive as in Q1. And that is something where we want to remind you also that the Mutares business model is to acquire loss-making entities that dragged down in the beginning, the adjusted EBITDA. And that's exactly what we see here in Q2, where we have companies that contribute substantially negative due to our business model in Q2, and we will see it in the different segments. And on the other hand, also some of the existing portfolio companies were having a very good Q1 and were pretty much pausing in Q2, and we will look forward to the second half of 2024, where then should pick up again. Revenues of the Mutares Holding are pretty much on track to what we said, approximately EUR 120 million of consulting revenues for the full year, and the net income of the holding is EUR 53 million, quite positive due to the exit of Frigoscandia in Q1. And we also here confirmed our guidance of EUR 108 million to EUR 132 million based on our current knowledge and the current ongoing exit processes. Then starting with Automotive & Mobility. And here, maybe to highlight here besides the individual companies that we see the current trend in Europe still of having not the same stability in call-offs as we saw in the past. This is still the same as we said it throughout the last couple of months. And on the other hand, we also see that here that the capacity needs to be adapted in the European market downwards. And that can be only to either optimizing the footprint or shutting down through an insolvency what we already saw that competitors did this in the market. And we are here to help the OEMs to take over some programs that they want to relocate then and want to be also obviously of help when it comes to add-on acquisitions that we consider reasonable and fairly priced for our groups. When looking at the different portfolio companies, you see that the adjusted EBITDA here for Q2 is about breakeven. And we have different trends and different profitability levels across the group that is due to the current status of the portfolio companies. And starting with the Amaneos Group, where we have LMS that prepares currently for the ramp-up of new programs that they won in the past. So future looks quite bright. And on the other hand, we have here the SFC Group in the cluster that performs -- or that is on the way to reach really average margins that are at the top of the industry, especially when it comes to outside Europe, where we strongly believe that these markets will also develop quite fast. The company is also able to win big programs for the future, pretty much from all the relevant OEMs that they have contact to and is considered as a partner for some of them. On the other hand, we now did a lot of add-on acquisitions for FerrAl United. And here, we have a lot of work in front of us when it comes to the optimization and the integration of the group. Same goes pretty much for HILO Group, where we closed 2 add-on acquisitions around year-end and now need to combine them and optimize especially the footprint and make them grow outside the core markets, Germany, but especially in the Eastern European part or in China. The Engineering & Technology part and segment performs well in Q2. It's a bit also a segment that has seasonality. So Q2 is bringing more services into the different portfolio companies. And here, I want to highlight Efacec that we acquired in Q4 2023, and pretty much the supply chain was dried up and the company was not able to produce on a constant basis. And the team here has done a great job in pretty much investing into the pipeline, not to the supply chain pipeline in order to bring up here the output and therefore also the sales. And this is already paying off what we see here quarter-by-quarter as the company has improved, and also going forward for the rest of the year, we strongly believe that they are able to deliver what they have promised to us. Guascor Energy, a company that is in the energy infrastructure market has also delivered a turnaround in the first half of '24 compared to '23. So we are strongly convinced that this company will proceed on that way. And then also in the energy infrastructure business has -- or was able to execute the projects better than expected, and therefore, were able, even though to have to -- with less revenues to deliver a higher margin than expected. And then we have Steyr Motors in the bucket that pretty much outperforms month by month, and every plan is pretty much outdated 4 weeks later. Goods & Services segment that is all the time going well and has done a step forward in Q2. You see it here with the adjusted EBITDA of EUR 6.6 million in Q2 compared to pretty much 0 in Q1. Here, we have also a variety of businesses that perform very well, namely here, Palmia, Conexus, also the former Arriva bucket, so GoCollective, MobiLitas and ReloBus and especially also here, Terranor, which is progressing all the time quite steadily upwards. And this is a business that we pretty much like. It's not too capital-intensive. We have here now added Eltel in the segment, which pretty much does the same as Conexus that is performing well and also looking forward already into next year where the order book is almost filled. Last segment, Retail & Food. And here, we have 2 companies to highlight. First one is keeeper. Keeeper is going very well after the investment that we did here in the past is reaching double-digit EBITDA margins now and also for the rest of the year looks very promising. On the other hand, we have Lapeyre in the bucket, which is pretty much the company that dominates still the segment where we have challenges in the core market in France, where customer confidence and spending is not going up, rather going down. And therefore, the team has worked on a substantial cost-cutting program that is under implementation and also has invested in sales initiatives that are supposed to kick in latest in '25. That brings me to the current life cycle of Mutares. And here, again, to repeat that we acquire loss-making businesses that are clustered then in the beginning in the realignment phase, the first phase or the first 12 months, where the companies are loss-making, and that's what you exactly see on the right side. And then we have the bucket in the middle, the optimization phase, where the companies stay 12 months to 24 months and should be around 0. And in this bucket, we have now 12 portfolio companies clustered. And some of them are actually performing quite well and are closer to harvesting. And some are pretty much at the edge and have a lot of optimization and restructuring work in front of us, FerrAl United that are, therefore, closer to realignment. And here, we want to highlight that also out of this bucket, we can divest and not only out of the harvesting where you see the profitability is positive and should stay positive also, where we want to generate exit proceeds or dividends. So we feel actually that with that portfolio quite okay, the diversification looks good in terms of distribution and potential for the holding to divest or generate dividends in the next couple of months in '24 and the years to come. And with this, I hand over back to you, Johannes, for the close.

Thank you so much, Mark. And last but not least, I would like to give you a little bit an outlook much more than a weather forecast, which is extremely hard today in Munich. We as Mutares, we believe, in short, our investment summary. We have a focus on growth, growth in turnover, growth in profitability, growth in geographical footprint, growth in number of people. So this is, I think, what drives our success, what drives out -- what has driven our success in the past years and which will drive also towards our target in 2028 to come to the EUR 10 billion of turnover and at least the 2% of profitability, EUR 200 million holding profit. This is all based also on a successful track record and proven industry knowledge. I think in the past couple of years, you as shareholders, you as stakeholders have seen that we stick to our word. What we said is what we did. What we promised is what we delivered. And this is what we stand for and this is what we will stand for in the future as well. When you look at our share, when you look at our bond performance, I think we met expectations of the investors. We still have the great alignment of interest with our shareholders, which also results objectively in an attractive dividend every year. We have set the base dividend of EUR 2 out. We have paid [ EUR 2.25 ] last year. So that remains also attractive. We give a high transparency now SDAX-listed. I think with us, you know what you get, and you can read what you want to know, and you can ask what you want to know. We are sustainable oriented. I think we have proven it out. And at the end of the day, it's Robin, it's Mark, it's Lennart and it's me, what you get. And we manage this company like the entrepreneurs of the last years, and we will continue to manage the company in the successful way we have. And at the end of the day, we call it here, attractive access to the private equity market. I think with us, with our share with Mutares, it's basically an indirect investment and direct investment of companies. And this is a little bit of beauty compared to a fund. This is the beauty compared to other evergreens. This is the beauty of being stock-listed. You can basically participate in direct investments of the companies, which we manage like it would be our own. And I think in the past, you see what we have delivered. So thank you very much for today. Already, we invite you all to our Capital Markets Day, which will take place in October. So check it out on the website. And we are now open for any kind of questions in the heat of Munich here. Thank you so much for joining us today. Back to the moderator.

[Operator Instructions] And the first question is from Stefan Augustin of Warburg Research.

Yes, gentlemen, and welcome back. Glad to see you again, Johannes. I have 2. The first one is actually, you mentioned a couple of companies in the hot phase. Do you think we need to wait until the fourth quarter to see a material deal? Or is there anything possibly to be expected a little bit earlier? That would be the first question. And the second question, as if, let's say, the automotive industry is quite in some trouble with, let's say, not knowing if they go fully into e-mobility or make a full tilt back. Do you think you need to contribute substantial amounts of cash to any of your subsidiaries in aligning, let's say, capacities?

The first question is difficult to answer, but my tendency is yes. But obviously, an exit process, you never have on a daily basis under control, but we have running exit process with quite good demand. So we're expecting still exits this year and hopefully also in Q3. On the auto side, I think what you said is exactly what I meant before, we had always chances. I think the uncertainty in the automotive market and the complete -- well, I wouldn't say complete, but it's a little bit of chaos in strategy of companies, also changing strategy of companies is our advantage also on the buy side. And is our advantage on the sell side where companies trying to focus on their core business. So what we see on the buy side process is that -- our pipeline is more or less swamped with auto and mobility tickets we can shoot. And on the exit side, we have really detailed and focused interest on our assets, which we evaluate further. So I think this is on the chances on buy and sell side. And then as Mark was saying before, I mean, we are consolidating. We are putting together large groups with Amaneos, but also especially with FerrAl in the past 12 months to 18 months. And obviously, this doesn't all come for free. But we believe in putting a group together, which is first too big to fail and which has the ability second to be the last man or woman standing, which brings at the end a lot of contribution for us and then ultimately also for our shareholders. So we believe in the strategy. Does it require potentially a little bit more investment? Yes. Is it a big chance on the buy and sell side at the moment, this chaos in auto? Yes. And I'm also very happy to be back.

[Operator Instructions] I will leave the line open for a couple of moments. Okay. As there are no further questions, I give the floor back to Mr. Laumann and Mr. Friedrich.

We said it all. Thanks for joining and enjoy the summer. Happy vacation if you don't have it, and we see us back in Q3 or the Capital Markets Day. Thanks. Bye.

Bye.

Ladies and gentlemen, thank you very much for participating in this call today. We wish you a great rest of the day until next time, and goodbye.