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

A very warm welcome to our Q3 earnings call today here in very exciting and also a very challenging time. Let me guide you through the agenda, starting off with a repetition of our business model, then I hand over to the Q3 financials to Mark. And then we have in the new former, the portfolio update and today's guest is the President of Efacec, Christian Klingler, who will join us then later in the presentation, and then I will give you an outlook to close the presentation of today. Let me remind you on our business model and our mission, values, vision and our goals. At the end, our mission is to transform distressed companies. And what we see today is that, especially industry segments like construction, like chemical, also like auto, obviously, are really distressed segments, distress sectors, which are really, really into at the moment and where we see great opportunities at the end of the day. Overall, I will mention our vision, our goals, as I described before, we are buying garbage companies, and we are trying to look for the diamond, find the diamond, work on the diamond and sell a diamond for maximum shareholder value creation. Investment highlights. Quick repetition. Distress carve-out out situations. I think we have proven that over the past years and years. We want to look for turnaround distressed assets. So with our operational workforce with 160 people we have on the ground to make the company tomorrow a little bit better than it is today. We are operating in the 4 segments, which you're familiar, the auto segment, it's engineering technology, infrastructure and special industries and goods and services. And at the end of the day, we want to turn around the business, and we want to buy cheap and sell expenses. But let me elaborate a little bit more on the geographical expansion, the latest one, which we have announced that we're going to Tokyo, that we're going to Japan. We have just -- I'm coming just back from the notary on the establishment of the entity in Japan. We have found an office in Japan. We have found a leader of Japan, who will start in Q1 2026. And our motivation for Japan was this is an industry which exactly represents the segments and sectors where we are in. So we will see a lot of opportunities in Japan, but also from Japanese corporate outside Japan where we need to be in Tokyo in order to facilitate the deals. That's in the auto segment where the Japanese industry is strong. It's in the heavy equipment where they're strong. It's in the energy equipment, also around O&G. And finally, it's in the logistics segment. All these segments, all these industries where we, as Mutares performed very nicely and very well over the past years. That was our motivation to open up our Tokyo office, and I'm super excited that in Q1 '26, we're going to start our operation there. Let me describe quickly and we stick a little bit longer here on how we work on a day-to-day basis. So we take a decision of an acquisition. We take a decision based on is it the right industry? Is it the right size? Do we know how to operationally turn around? And at the end, do we make 10x cash over the holding period? So we have the acquisition part and still for the remaining year, I do still expect three -- at least three acquisitions on the buy side here. And then we speak on realignment. The realignment is the heavy restructuring part, which we are doing. We are going into the company with our operational team, and we're trying to make the company better. It's not always going in and saving costs. It's also improving, for example, customer quality, improving the product we have, going in the product portfolio. So we recently acquired a company from NBIX where they have a plant in Romania, where one of our OEM customers, we produce the components for them there. And when we entered, we found a product line, which was the main product line of this facility, which more than 100% scrap rate. So 100% scrap rate, this is basically the death of every business and of every plant. This is what we found. And Sebastian and the team over there did a fantastic job to reduce it further down and make the customer happy. So the customer is replacing the new model with us again and even extend they're ordering here. So this is the effort, the operational effort we take on the realignment. In the optimization, we really create value. Realignment, we saved the company optimization, we create value. We grow the company, we grow the customer base. We try to improve the costs. We conduct potentially, if needed social plans as well. And here is really the creation of the value. And then last but not least, we're harvesting. We exit. We exit the companies, which we have done the heavy realignment where we have done the value creation we want to exit. And still this year, I do expect three exits at least on that side regardless any capital market transaction, which could happen. And maybe on the acquisition and harvesting side, let me add one comment. Apparently, it's very difficult to plan on a timing perspective, an acquisition and plan on a timing perspective in exit. However, there are so many different things which have an influence on that. And at the end of the day, a lot of transaction activities, it's like buying Christmas gifts. A lot of transaction activities happens in the last part of the year. It's like the 23rd of December when you still hunt for your Christmas gift. And this is why we see a lot of transaction activity on acquisition and sell side as well in quarter 4 in November and still in December, what I said. And maybe the timeline is not what we can influence too much, but what we can influence is the transaction security, and we will deliver the deals by the end of the year. And coming to the Q3 financials, I will hand over to Mark for a deep dive here.

Thanks, Johannes. So as always, it's a pleasure to run you through the key financial year-to-date, Q3 here. And as always, starting with the overview page of the four main KPIs that we have guided for, for the full year. And as already did the last time, we have also included here the key or the -- the relevant KPI that drives these financials that we guide for here below the financials. So starting with group revenues, we have -- compared to last year, an increase of 20%, almost EUR 5 billion. Main impact, obviously, as always, the acquisitions that we have done throughout the year. And especially the big ones, Magirus, Buderus that contributed quite a lot. EBITDA also influenced heavily by this. We have reached more than EUR 700 million added in Q3 here, another EUR 100 million, a bit more than EUR 100 million due to the acquisitions closed in time [ to ] near that were done here. And on the other hand, we also have normally an EBITDA, a positive impact also from the harvesting side. Here, we have done an exit of Terranor and the partial exit of Locapharm. The adjusted EBITDA, also the key financial that we guide for when it comes to the operational performance of our group has improved in Q3, even though since the majority of our business is still in Continental Europe. It's normally a weaker period of the year with August in between or July, also in between here. But still, it improved more than EUR 25 million in Q3 here, ending the full year or the year-to-date, Q3 here was a bit more than EUR 60 million in losses, which is quite normal due to the size of the acquisitions that we have done now in the last couple of months. Here, the adjusted EBITDA, I just want to repeat is also influenced by the positive development, and we will hear that also from us later on in the portfolio update, but also in the following pages. We're looking at the different segments by the progress of the existing portfolio that is in realignment and optimization, but also negatively influenced by the acquisition since, as Johannes just said, we acquire loss-making entities. Finally, looking at the holding KPI, the net result, net income has compared to half year increased a bit more than EUR 10 million due to the partial exit of Terranor Group and partial exit of Locapharm. We have reached now more than -- more than EUR 80 million. And like Johannes said, we want to progress here also towards the end of the year. We're delivering more exits. And compared to last year, you see that we have improved P&L quite a lot. Looking at the new segmentation in the overview here, we see that automotive and mobility is doing actually quite okay, especially SFC Group has delivered also in Q3, quite a positive result here, reaching now EUR 90 million, and this has improved just in Q3 by EUR 12 million. The focus is clearly on optimizing the footprint, adding selectively sell some entities that help to overcome the existing challenges of the portfolio. And on the other hand, the global footprint remains clearly critical. Also, we have to accept that pretty much everybody -- everybody's strategy is to produce local for local. That means we also need to have a footprint, yes, we need to have something in Europe and in Asia. Then looking at engineering and technology, also a segment that has when you look at the comparison to Q2 financials improved quite significantly now in Q3 with adding approximately EUR 25 million of adjusted EBITDA in just Q3. And this was driven by pretty much almost every company that is in the segment, but here, especially also by the big ones, Efacec, Donges and Guascor. In this segment, we also had Clecim that could finally be closed here in Q4. So it's left -- this is purchase price, positive purchase price, we also communicated in the press release that we have here achieved our target of return on invested capital. Looking at infrastructure and special industry that is pretty much the newly formed segment here, which is substantially negative, which is okay because here, we have, especially Magirus and Buderus, which are big having annualized revenue of more than EUR 300 million both and by nature, also then contribute substantially negative here. But you see also in comparison to last year that this segment has been boosted pretty much by the acquisitions that we have executed here in the recent months. Then the final segment, Goods & Services, that is a segment where also we have here the highest negative EBITDA mainly driven by the headwinds that we have still across Europe in consumer spending. And here, this is mainly driven by the majority of the retail and food companies that have been trusted into the segment. On the other hand, we also see some promising development at Itera, GoCollective and Pioneer. And in total, this ends up with the figures that you have seen on the page before. Then coming to the life cycle, you see that it's pretty much quite crowded at the top in the harvesting phase and at the bottom in the realignment phase, which are pretty much dominating the group. But in between, we have the big companies, F. UNITED Amaneos, especially here together with Lapeyre. So that's why you see a big revenue share in this bucket. But -- on -- in the harvesting phase, we have here a substantial number of companies that are pretty much ready for exit. You see also here that we have reached a decent level of adjusted EBITDA, so profitability here. And on the other end of our value chain and realignment, we have quite a lot of companies here. And in total, they sum up for more than EUR 100 million of losses in adjusted EBITDA, which is okay, which is typical. It's approximately 10% of negative adjusted EBITDA. That's what we normally see also in the acquisitions that this is the level that we acquire. And with this, I already hand over back to Johannes for the portfolio update.

Thank you, Mark. And let me give you a little deep dive on the portfolio update. As we speak and prior to the acquisitions and sell side, what I have just said before, we hold 5 companies in the Automotive & Mobility segment, 10 companies in engineering technology, infrastructure and special industries, 6 companies were still Buderus is in, where we have conducted the exit in -- officially in October. We're closing that happened. And then Goods & Services with 13 companies which is the consolidation of Goods & Services from retail and food, as Mark just said. Taking the deep dive on the first one. And maybe let me, basically, the harvesting optimization and realignment, repeat again. So everything you find in harvesting is either in preparation for exit or in execution for exit. Everything you find in optimization is the value creation after having restructured the company. Everything you find in realignment is to stabilize the company and make them survive. So those are the three phases we have it in. But at the end of the day, this is what we go through. Quick snapshot on each of them in the segments. So Amaneos plastic injection molding business, interior exterior. I think we have done just recently a very, very nice order intake from a large truck maker here in Europe. It's a lifetime project of EUR 3-digit million in turnover. And it's for one reason, very important because it was the largest entry ticket to the truck market. So Amaneos was really focusing on passenger cars, and this was the first significant order on the truck we have received in the truck segment and so our strategy of diversifying from passenger to truck really paid off here very, very nicely. Overall, you saw the Q3 figures, it's a challenging environment, but we believe we are very nicely set here. And we have on one of the other plant and one of the other product lines, we have a lot of challenges. But on the other hand, I think overall, we can be quite okay-ish happy with the automotive mobility. When we come to Engineering Technology and later on, you will hear Christian Klingler on the Efacec portion. Let me point out here the Donges Group, where, at the moment, Donges Group is a combination of Donges SteelTec, which are making steel structures predominantly in the infrastructure environment and then a building material company for walls and roofs which called IP. And what we see is we see the largest order book in history. Infrastructure projects are coming in, international development are coming in Middle East, super strong here, U.S. super strong here, but also the German and Austrian market on infrastructure project when it comes to bridges and when it comes to other infrastructure, buildings are really pushing the order intake here. The management around Wolf and Andrew, I think, have conducted here a very, very nice job so far in the year 2025. When we look at Infrastructure & Special Industries, we have heard last time a lot about Magirus when Fatmir Veselaj, the CEO, was here. Let me focus quickly a bit on Terranor. Terranor just announced the Q3 numbers. We still hold more than 70% of the shares. We have IPO-ed that in Q3 last year, which you see in the numbers. We still hold the shares. We have a very large order work, very nice tender season coming around in Sweden, where we have very promising order intake ahead of us. And then last but not least, the first sites from the first signals from benefiting from the governmental spend based on that they entered the NATO in the Nordics, in Sweden and Finland. And that they apply to invest into the infrastructure. We see the first signals also that, that turns into revenue, order intake and profitability for the company. So we are quite happy with the development. Q4 is always by far the strongest quarter. Signals are good to achieve the guidance, signals are good to achieve the order intake and segments are very good for the month and years to come. So we're very happy of having that. Obviously, as a financial investor, we are opportunistically in selling further down our 73% of the shares. And last but not least, goods and services, as Mark was saying, here, we speak about the Goods & Service and the retail and food part. Let me pick out there Alterga, which you find on the very bottom Alterga is a network infrastructure company in Poland. I think we have done a very nice restructuring there. So team [ Tibu ] and the team has done a tremendous job on Alterga. We used the tailwind of the market quite nicely. So Alterga, for example, one of the companies where our original business plan was over exceeded by far compared to what we thought when we acquired a company, and we'll certainly move in 2026 closer to the harvesting phase. And with that, I think the deep dive of this quarterly earnings call is the Efacec Group and with very lovely welcome Christian Klingler, President and friend.

Thank you very much.

And Christian will take over now for the group.