Mutares SE & Co. KGaA

Good afternoon everyone and welcome to the Mutaris earnings call for the full year 2022. On the call today the CIO Johannes Laumann and the CFO Marc Friedrich will present the results and most relevant events of the full year 2022. After the presentation they will be available to answer your questions. The presentation shown is available on the Mutaris 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.

Good afternoon, good morning, good evening, all of you. A very warm welcome to our conference call for the financial year 2022. I'm very happy to be able to kick off the presentation by introducing you to a new record year of the history of Mutaris in 2022. Also later on, looking forward into 23, which looks very promising that we will continue that we deliver what we promise. So I will guide you through company, remind you again on our business model. And then my colleague, Mark Friedrich, will take the financials before I will close the sessions on the outlook. So a small intersection, faces should look familiar, are unchanged. Unchanged is also the shareholding we currently have as a management and supervisory board. And we are very happy with that. We have no plans to change that. We have no plans to divest this. We have no plans The deal is this. On the contrary, I think we believe in the company and you will see when it's possible that this share potentially also might increase in the weeks and months to come. Let me take you to the key highlights of 2022. And I think we again, we delivered what we promised, we delivered what we said, and we delivered also what you out there expected. So on the transaction buy side, we conducted 13 buy side transaction, which is more or less one a month as we did. All over our segments, all over sizes, all over our countries. We'll come to that later on as well. On the sell side, we conducted six sell side transactions. The largest one was the Nordic sell side transaction. And the year we finalized with the Rol de Boer sell side transaction, which we sold to Turntide, a strategic player from America. When we look at the portfolio development, and Mark will go a deep dive into that in the financial segments, we face three challenges in 2022, which are very obvious, but I would like to remind you on this. So the first one was the start of the war beginning of 2022 in Ukraine, which also consequently had obviously an impact on certain other things, like the energy prices, which significantly increased. Just to give you a flavor, in part of our companies, energy-heavy companies, we saw increases of energy costs of 300% to 400% compared to previous year. And last but not least, the whole supply chain topic, the whole global supply chain topic, shortage of material, especially also on the outdoor business, constant change of call-off, constant change of production planning from the OEMs, of course, causes also some difficulties in the market. No significant capital market transaction happened in 2022. However, we already did the preparation for the refinancing of the bond, the Nordic bond facility, which we just striked a couple of weeks back with a refinancing of the existing facility and a slight upgrade to 100 million. Overall, Mutaris Holding has 200 people, has grown to 200 people, which is another increase of 40 to 50 people. Mutaris Group, close to 20,000. And this is our key asset. That's why I want to mention it here. And I think it's also a good moment to thank these guys and girls for the contribution and for what's happening on the growth side. So without our people, without our employees, without the team spirit we have, It would never be possible to have this steep and really unique growth path. We are going since 2019 and we are following what we said and we delivered what we said. So thanks to the guys, thanks to these 190 plus people and thanks to this 19,000. Without them, I couldn't present you the results I'm presenting you. For this call, I would like to give you a little flashlight of the Nordics. So, the Nordic office in Stockholm was created in late 2020. And I think the path we have set here proves our concept of we want to be local in order to grow the business. We want to be local in order to make transactions. And what you have seen, what Karl Kistenmacher, who is leading this Nordic enterprise, And what Carl has done with his team, have eight transactions signed. We have built up a team of 12 professionals, M&A and operational. We have opened up the Helsinki office again and have our main one in Stockholm. And we have a business and operation which is above a billion of turnover. And with Nordic, we have conducted already and proved the concept we have already conducted our first exit in nordic so a very very strong development and nordic stands for 20 of our total business at mutaris group so um i would like to give you this flashlight because also with frigo scania with terra no with palmier with arriva which is a a business predominant in denmark acquired from deutsche bahn transaction will be closed the mid of may We really, really have a very strong footprint there. And we are one of the key players or the key players in the Nordic market when it comes to turnaround. So in a very short period of time, a super great achievement from our team in the Nordics. Very happy to see that. Let me quickly go in our business model, and I would like to cut it in a slightly different manner than we did before, to not annoy you. So on the numbers, we still have the target of 2025, where we want to be at 7 billion, and then the 125 to 150 million of profitability on holding that income level. And this guidance is confirmed. I am super confident that we will achieve that, that we again will deliver what we promised. Mike will go a little bit detail and later on we also see the 2023 guidance more in detail. But let me focus on the left side, what we do and why we are so successful and what is the basis for all these numbers. So we have now opened with Warsaw our 10th office in Europe. We are all over the continent, and we want to be the number one when it comes to turnaround special situations in the European market. And by doing this, we want to have a position in order to decide if we want to make the transaction or not. And maybe a quite interesting story. We are currently working on a deal in France where we got to know from the advisors before we got granted exclusivity on the buy side. There was one of our competitors asking if we are in the deal or not. And by a positive signal from the advisor that we are in the deal, our competitors pulled out because they believe if we are in the deal, they will not win it. So this is a great sign. This is the first in mind, first in choice DNA I would like to have in the team and I would like to have as a perception. Then the three diversified segments, the outer segment, the engineering technology and the goods and service. This is a really great driver also from a risk mitigation point of view, not only from a cross where we see different segments, early cycle, late cycle, but also from a risk mitigation. And when you see, and Mark will come to that later as well, The auto segment was under heavy pressure in 2022. So it lost almost 50 million in operating result. However, what we see is this has recovered now. So Q1, we see quite a strong income on the auto business, which we expect also to continue in the rest of the year. So the diversification of our segments is good for the buy side, it's good for the sell side, but it's also really good for the risk diversification within the portfolio after acquisition. On the company side, I think we have moved our sweet spot up. So 100 million company in turnover up to 750 is what we say, this is the area where we are in. And when you see the buy signs of 2023, if you see Moltex, if you see Chimas, also if you see Arriva, which is going to be closed now in May, those are all businesses in the two, three, four, 500 million turnover size. So this is our new sweet spot where I think we operate in all the countries quite successfully. And this is, for me, the Mutaris DNA. Corporate carve-out, European headquarters, three segments, company sizes in this range. And this DNA is something we will always respect and we will not let go, because this is what made us strong and which, in my view, also will make us even stronger. On the next slide, I would like to give you a little bit how we interpret this on a daily basis and how we take decision on a daily basis. So, our DNA is the European focus, the turnaround, and at the end of the day, the three segments and the size of the companies. And whatever we invest, whatever company we acquire, we ask us the question, can we support the DNA? Can we support our targets? Can we support our guidance? And what we want as a kind of a gatekeeper is, whatever we invest, can we make seven to ten times the return over the life cycle? And the investment is roughly in 10% of the cases, it's a purchase price. In 90% of the cases of our investments, we talk about commitments. We talk about equity injections at closing date in the company. We talk about providing financing lines at a certain period of time for restructuring effort. So this is the investments we take. And the decision based on this investment is, do we get 7 to 10 times our money back? And then we start off in the first phase, which we call the realignment phase. And the realignment phase is the heavy restructuring phase, where we put our forces together. We put our consulting team, more than 140 people, as we speak today, are flying out on a Monday, are returning Thursday or Friday back to the families and trying to fix So I believe the first six months after acquisition, those are the crucial months in order to separate the company, to carve it out and to make the important steps to turn it around. And then the second one is the optimization phase, what we call. This is when the companies turn around and we are able to provide dividends to us. And in 2022, we had some very strong dividend payers, which are at the end of the optimization phase or even in the beginning of the harvesting phase, which also contradicts positively to the return of the 7 to 10 times. And then last but not least, the exit proceeds. The exit proceeds are coming over our average holding period, which is three to five years. And you will see later on the outlook that 2023 is the year where the, let's say, the adopted Mutaris way of working, which happened in the mid of 2019, that this pays off now. We have the strongest sales pipeline ever. Because we started to grow 2019, 2020, 2021 heavily. Since then, we make one transaction a month on average. And this one buy side transaction a month, when you respect the holding period, this is now what it starts to materialize in 2022. So later on, you will see 2023 will be a super strong year when it comes to the exit. And we have already done four. in the first four months, so I'll come to that later. But it's important to understand, when we acquire, and that's a day-to-day decision of Robin, Martin, and myself, do we get the money back seven to ten times? Firstly, we take it back through our consulting management fees, which is predictable, we know exactly what we want, and here we will be in 2023 on a run rate above 100 million. Optimization is the dividends taken out of performing portfolios and last but at least exit proceeds when we provide an exit and when we conduct an exit after we have finalized our holding period when we come to our portfolio and i We'll only deep dive in a few. You see a quite good leverage on automotive, engineering technology, and goods and service when it comes to the turnover. You see the balance, what I said before, on early cycle, late cycle, non-cycle. And this is basically the development, how our portfolio looks today. And let me pick out one of each, which I would like to mention. So the first one in the automotive, I think it was also public, it was announced, it was launched, was the Amaneos Group. A group where we focus especially on the e-mobility when it comes to plastic injection molding parts. We had a new kid in this segment, we had a new kid in the blog. more than 1.2 billion of turnover, and this 1.2 billion are all over the world. So we are on every continent, India, Asia, US, South America, Africa, and especially also Europe. And we have all OEMs on our customer back. So this is the new kid on the block. And I think the lounge and taking the synergies and introducing this to the customers, I think Mathieu Perri, who's running this as a CEO, has done an amazing job when it comes to this. Second segment, engineering technology. I think here I would like to highlight in 2022, we acquired two businesses from Siemens Energy. Siemens Energy itself in a transformation, typical seller. putting themselves up in a new strategy, half businesses, which doesn't fit the strategy, complex carve out of a large corporate, not maybe the most agile company in the world, but we made it happen together with them to carve out the business. And I think especially NEM, which is a business in the Netherlands, and we acquired and we combined with the Balkadur Group, I think this was a big, big effort to carve it out, to make it happen. And it already materializes in 2023 positively on the holding level. And I think Fatmeh Vesely from the operations team there did a fantastic job in order to put all this on the street and put the horsepower there. And then last but not least, goods and service. And I'll obviously take LaPair here because a lot of questions from the shareholders are running through that. So I use the opportunity. So LaPair is performing to budget. In 2022, we exactly met the budget, what we have now. put ourselves there in 2021 as the numbers. We see a very nice development in the main segments of La Paire, so we have stabilized the operations, the plants we have, we have sold the plant, we have consolidated a bit, so the operation is stabilized. We have absolutely skyrocketing improved the customer experience, the shops, the way we're selling products, which is very nicely done. And then, obviously, last but not least, we have really catched up on the CapEx backlog, introducing new products to the market. So I'm very optimistic that 2023 LaPair, for the first time since more than 10 years, will reach an operational positive result of the business in 2023. When it comes to our ESG approach, which is obviously not only valid for the holding, but also valid for all our portfolios, where we try to align our targets and our highlights there, I would like to stress out maybe three things here. if you allow. So first of all, when it comes to the CO2 emission, with LMS, one of our automotive, part of the Amaneos group, it's a big plant close to Frankfurt, roughly 350 million of turnover, main customers, Mercedes, for example, here in Audi. We have put a strategy in place to become this plant, which is a plastic injection molding part, including a full-fledged paint line. We put ourselves a target to put this CO2 neutral within the next five to six years. So this is happening. We work on the CO2 neutrality. This is our main focus when it comes to the environment here. And then the middle segment, I would like to stress out the community engagement. And it's not only what is mentioned here, donation to children's hospice, which we do. I think... Whatever the business does to us and whatever result we delivered, and I know we delivered the best results in history, and I'm also sure that this will continue. We live on the bright side of life, and we should not forget about people who are not there. And our main engagement here in 2022 really, really was our plant in the Ukraine and our employees in the Ukraine, which we heavily supported. And before I come back with the outlook, which will be quite intense and more detailed than in the past, I would like to give you a deep dive and Mark can much better facilitate than I. Thanks.

Thanks, Jan. Coming to the financials, starting with the overall development, we as a group are quite pleased with the development that we saw in 2022. We were able to increase the number of portfolio companies and thereby also increased the revenue of the group to almost 3.8 billion. EBITDA decreased to 180 million compared to 2021. And this is mainly due to the biggest acquisition that we did in 2021 with LaPierre, where we acquired the biggest bargain purchase income of more than 400 million that is included in 2021. More important for us is the development of the adjusted EVTA, so the underlying performance indicator of the existing portfolio that improved substantially, even though we added more portfolio companies to the group, and normally we acquire loss-making companies. And this shows quite strongly that we were able to execute the restructuring programs that we initiated in the different portfolio companies and were able to execute these kind of restructuring programs. In the following slides, I will go into more details when it comes to the different developments in the segments. And here you will see then the different developments of the The holding KPIs, namely the revenue and the portfolio income and net income, pretty much followed the development of the group. So we were able to increase again the revenue that we generate with management fee and consulting to 71 million, so a bit more than 40%. But even more important for us is that the run rate that we already saw in Q4 of 2022 indicates that we have now a portfolio income to expect for 2023 of more than 100 million, much likely to see 110 million in 2023 as a revenue of the holding. Portfolio income increased quite substantially. We were able to generate much more dividends than expected across portfolio. Johannes already mentioned that the dividends are coming from a couple of companies across the lifecycle from harvesting where we have dividends from Terranor, Klesim, La Rochette, but also from companies in the other stages here in optimization and also in the realignment phase. The net income then finally was 72.9 in the range that we communicated all the time. Looking at the quarterly development in the different segments, you see again here that we had a quite challenging environment in the automotive and mobility segment, especially in the first quarter, and saw then a gradual improvement in the quarters here until almost zero in Q4. And this is continuing in 2023, so we are quite quite optimistic to see here the expected ramp up of volumes, but also to see that our restructuring efforts are now contributing to an improved profitability. And when we talk about restructuring, we normally mean that we refresh the management, that we streamline the organization, that we renegotiate supply contracts and we reorganize the shop floor. But in 2022, it was also important and one key element here in the development that we were able to renegotiate the prices with the customers. And there's a bigger time lag between the cost increases and the rollover to the customers in the automotive segment. And that's exactly what you see here. Whereas we were able to roll over the price increases in the goods and services segment much faster. And therefore, we're able to preserve the profitability here in a way better manner compared to the automotive and mobility segment. Engineering and technology was quite stable throughout the year. We would see that there are some companies performing better than others. So there are some lights and shadows in the segment, but overall it was close to zero. Starting with automotive and mobility, here we increased revenue again by more than 300 million, mainly due to the acquisitions, but also saw the organic growth, which came from the increased volume, but also from the increased prices with customers, especially in the Q4. And you see again that we were able to narrow down the adjusted EBITDA close to zero until the end of the year. So these significant cost increases that we were experiencing, especially in the first half of 2022, we were impacting the profitability and then we were able to roll them over to the customers with the countermeasures that we were initiating in terms of streamlining the cost base, were then contributing to the almost breakeven EVTA. Engineering and technology segment, which were quite stable throughout the year, around zero all the time, where we had some companies who are operating in the project-driven businesses, Donges, Baikonur, but also Edicomps and Gemini. And then we have companies who performed quite well, like La Rochette, Tresim, but also the newly acquired entity, Steyr Motors. The profitability that you see here was almost 4 million negative. was impacted quite heavily by the newly acquisitions of S&P, Valti and Quascor. They combined a negative adjusted EBITDA of minus 14. And on the other hand, we had a quite good development in La Rochette, which is the main contributor to the organic growth that you see here. But also at S&P that we acquired in May 2022, and was contributing quite negatively in 2022, but the run rate, especially in Q4, was already improving substantially to a positive number and in Q1 is now fully on track in terms of the budget figures that we have agreed here with the company. And therefore we are quite pleased with the development. And here we have the segment also where we divested Roy de Boer together with Chappie then in January and the Nordic Group. Last segment, goods and services, the segment that was able to roll over the prices, the price increases much faster than the other segments and therefore you see that the profitability improved then in Q4 quite substantially to four percent more than four percent um in these segments we have with lapea the biggest company in the group and especially lapea was also one company who contributed quite positively with approximately eight million adjusted evta to the q4 figure here And on the other hand, we saw also at Frigos Gania, also especially at Terranor, but Kieper and Ganta were also companies that were contributing quite positively and show that we were able to execute the restructuring programs, the optimization programs here, and then also see the fruits of the work that we have done here in the past. Coming to the last view, the lifecycle view of the group, where we always re-cluster the companies into the well-known four phases. So the acquisition phase is the one that we normally have not shown so far. We have only one company in the bucket as of now, which is Arriva. The acquisition from Deutsche Bahn to be closed mid of May, like Johannes said. And then we have the realignment phase, which is by nature negative. because we acquire loss-making companies and it's quite packed and that's good because that means that we have a lot of work to do for the team and also a lot of chances looking forward when it comes into the development in the group until the final harvesting stage. Optimization phase here is a phase where that is supposed to be close to zero. We see here that we were already able to cut down the profitability to minus 1.8. We have a couple of companies in that bucket that are performing well, but also had here with SFC Group and Kiko Ice Age Group, two companies that were from the automotive segment heavily impacted by the trends that I explained before. Harvesting stage, final stage, we see that the profitability increased to almost 50 million in just DBTA in 2022 with just five companies here. With this final stage, we normally signal to the market that we are willing to divest within the next 12 months. And today we also have this slide here in the deck that shows the development along the different quarters and here you see that the optimization phase was able to become positive in q4 also something that we want to see here from the group This was driven by what we saw, especially from the automotive companies that contributed then again, not so negatively like in Q1. And on the other end, we also saw that we were able to narrow down the negative impact in the realignment phase that is attributable, especially also here again to LaPierre. But most important, it shows that the business model works. We are able to acquire loss-making companies. We are able to then bring them to to zero profitability in the optimization phase and then finally also bring them to a positive operating indicator adjusted VTA in the final phase and then we want to divest. So overall, we are quite pleased with the development and the restructuring efforts that we were able to execute and that's what we have seen here in the financials, especially in Q4. And with this, we come to the outlook.