Mutares SE & Co. KGaA

Good afternoon, everyone, and welcome to the Mutaris Earnings Call for Q3 2023. On the call today, the CEO, Robin Lyke, and the CFO, Mark Friedrich, will present the results and most relevant events of Q3 2023. 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 Robin Lyke.

Yeah, good afternoon, dear investors, dear ladies and gentlemen. My name is Robin Lyke and I'm the founder of the group. And today we are very happy to announce very strong results. But before digging into these results, I wanted to share with you again, what do we as Mutaris really do? So we are a company that takes over underperforming companies from big corporates. This is our USP. And we go to these big corporates And ask them, do you have companies that do not work? Companies that are cash losing. Companies that are not core anymore. And then we enter with a team of about 140 people, operational manager, into the company. And then we want to make the turnaround to make the company profitable again. And our target is that we are, when it comes to these carve outs of big corporates, first in mind, first in choice. It should be Mutaris. Before a company decides, a big corporate, whether to close down a plant, whether to exit the plant, we want to be the ones who are selected. And you see here the development and turnover of our company. So I recall that when we had been in 2018 together, we developed a plan. We said we want to have a guidance. And at that time, 2018, we said until 2028, We want to have a company which achieves 5 billion euros in sales and 100 million net profit. This was the original target, our guidance for our plan, a 10 years plan to 2028. And when you look at our results now in Q3 of this year, we already achieved 100 million net profit. So how does this profit come from? Where does it come from? Actually, we have three sources of profit. The first source of profit is we send our own consultants into these companies and we generate revenue with an in-house consulting team. So this is the first source of profit. The second source of profit is that we do take dividends out of companies which are profitable. And the third source of profit is that we take exit and we have exit proceeds when a company is turned around and we are able to exit. And with these three different sources, our projection is that this year our profit will be between 92 and 112 million euros on a yearly base. But the target, our guidance, our long-term target is that we want to achieve 10 billion euros in sales and 200 million of net income on holding level. So where do we buy companies? So our corporates that sell us companies, they are mainly in Europe today. And that's why we have head office companies all over Europe, so we are really pan-European player. And what kind of companies do we buy? So today we have four segments. The first segment is an automotive supplier. So this is what we as, being originally a German company, what we like. Machine tooling, engineering, this is what we like. The second, it's the second segment where we do invest, is industries. Third segment is consumer goods. And then we, we define now a new segment, which is retail and food. And in these, these four segments, we want to invest. So this is our, our keys, key investment criteria when it comes to segments, when it comes to turnover. So in the beginning, my, my first, our first transactions, the companies was 5 million years in turnover. So I acquired a sunglass producer from UX company, which only had 5 million years in sales. What we buy today are companies between 100 and 750 million euros in sales. Why? So when we send our team in, the leverage is much higher. If the turnover is higher and we can do much more to bring efficiency back on track in these companies. And we want to be the guys seen and known as the turnaround investors. All of our operational companies are held wire shelf companies. So Mutaris per se doesn't buy these companies themselves. They are all bought via shelf companies. That means that the losses, the operational losses of the companies do not influence the result of the operational holding where we generate this year the 100 million net profit. Maybe coming to the life cycle of our transactions. So in the beginning, we go to the big corporates and we ask them, do you have underperforming assets? And then we have the acquisition price that has to be financed. But in 90% of the cases, we ask the seller, can you give us a strong balance sheet? A balance sheet which is rich of cash, which has assets like fixed assets, machinery, where there are premises involved, also a strong working capital. Why do we ask for a strong balance sheet? So assuming the company does 100 million euros in sales and 10 million of losses when we take over, then we have to pay for the turnaround. And in this turnaround phase, we try to take all cash or a lot of cash which is sitting on the balance sheet to do the restructuring, to bring the company back on track. This is what we call realignment phase. And in this realignment phase, we send our consulting team in and we generate already our recurrent ongoing turnover with our consultants. This is, for us, our use piece, our backbone of our business, is our operational team. And we want to increase this team. When we did our guidance in 2018, we had only 30 operational consultants. Today, we talk about 140. And our target is to increase this operational team to make the turnaround happen. Then we are in the stage of optimization. This means the company is now back on track. is already working profitable. Then we think about how can we improve the turnover? What can we do to make the company even more profitable? And that's today I had an investment committee in the UK. Then we look on what could be a potential add-on acquisition to make the company even more profitable. So this could be a situation where we do add-on acquisitions. This can also be a case where we distract cash, where we get dividends of companies which are overperforming. And then we come to this harvesting stage. And harvesting means that we, from day one, when we buy, we have an investment committee. And in this investment committee, we already think, before acquiring a company, we think about who could be the natural buyer, finally. And we do decide, we always, when we invest into these companies, one euro, our target is that we want to get seven to ten times the money back. And when we do these investments, then we try to understand who could be the best buyer. And in the harvesting stage, company is profitable. Company is back on track. Then we want to exit. And we had this fantastic access of special multi-product, a steel producer in the UK, which was in the aviation industry, which we could acquire, sell for more than 150 million net proceeds in Q3 this year. So this is our portfolio today, which achieves an annualized 6 billion. And I want to take you with me on a journey on the budget meetings, which are just now. So maybe on the left side, I want to explain Peugeot Motorcycles. So this is a company which we acquired from Mahindra. And we not only acquired Peugeot Motorcycles, we also have the right to use the brand name Peugeot. And we have had our budget meeting there. The company was heavily cash losing when we entered. And then we took a team. So we have our motorist consulting, which is like 10 in this case, really French individuals, which took over. And we took a very strong manager, Eric, who was working 30 years within Peugeot. And then we entered to the budget meeting. And then I asked, what is the key message that you give to the people? How do you make the turnaround happen? And then I was told the people are very proud to work for Peugeot, for the brand, the heritage of the brand is so strong in France. But what you have done, Mr. Light, is fantastic. You took an operational manager, Eric, and he went down to the shop floor and he helped the people to bring efficiency to the production. And by doing, taking over this company, in the beginning, we had to lay off people for, there was too much cost involved. But then we were able now to launch five new products, which are today also e-mobility. So this gives you a sniff what we are doing when it comes to these Peugeot motorcycles. The next big step is now to bring this company back in the Asian market for this two-wheeler business. It's very much demanded, asked for, especially in Asia. Then coming to engineering and technology. And here I would like to mention Steyr. Steyr Motors is a producer of engines for special vehicles. And the company was also heavily loss-making when we entered. And the customer were so disappointed that no new offer was placed. And then we had with two individuals of Motaris, Julian and Sergei, we had two guys, one was the CEO and one was our sales manager who went to the biggest customer. And to explain that in these times, and we have really difficult times, for energy costs went up. We had this inflation. And all of these problems, so they asked for really for a price increase. But what finally was achieved by bringing back trust on the quality of our product is that we were able to increase the turnover by 30%. By bringing back trust, by bringing back, for us it's important when it comes to these automotive, but also engineering technology that we are best in class when it comes to price, that we are best in class when it comes to logistics, but that we are also best in class when it comes to quality. And that's what this team achieved. Going on to goods and services, we just came back from our Oh, a theory Palmier business where we do service business. So asset light business, we have a cleaning company. We do also have the company, which is not only doing cleaning, but also security and which is also doing kitchen and food for, for example, for schools. And both of the companies were able to increase the turnover and to make it on a profitable base. This is always when we, when we take, take over, but our target is we take the motorist people. And we have very skilled Finnish employees there, Mika and Mikael, who helped us to do the restructuring. But then we also were able to hire the right CEO, which is a very experienced CEO in Asteri and as well in Palmyra, who then makes the turnaround really happen and makes the company strong that we are then in a situation where it's already optimization. And coming finally to retail and food, So we decided to have this new sector for us, for we see now that consumption is difficult all over Europe, and we see a lot of deals which are, where the companies are in trouble. And so we just recently signed , which is, which has several stores in the Netherlands. And our target is now to bring back to a kids' fashion and a toys brand, to bring back profitability into the own stores that we own. And all of this, what we do, is very much based in all of the sector by entrepreneurship. When we take over, it is our target that we are the CEOs. that we are not an external consultant. We are not the external McKinsey guys. It's our company. We are the shareholder. And that's what we try to bring into these companies. We tell these companies that we want to run these companies from now on, like every individual runs his own household, that you cannot spend more than what's coming in. And that's exactly what we do over these four sectors in today, a company which achieves annualized 6 billion euros in sales. This is the example of Peugeot motorcycles. And you see here the brand was so strong. We are a very leading manufacturer. But of course, what was not done is to come to these new launches of five new vehicles that we introduced in the market. And our growth potential, you see here on the right side, is quite tremendous. The company losing 15% of EBITDA will be profitable in 2024 in year-next budget. Yeah, what has happened in 2023? So at first we did, on the buy side, we had communicated 12 transactions. So our team is very business. Within 11 European countries and now also within Shanghai, we do have the target to buy at least one company a month. And that's what we already achieved for this year. You see here on the left side, the companies that we closed already, Gläserne Molkerei, Redo and Seltzer. And we have had some signings, also an automotive company, CIO Automotive. And Stuart, this is on the signings. That means we are not on closing. We are not inside. Then on the sell side, we recently sold Sabo, but also special melted product. And just to give you some flavor, when I introduced to my supervisory board and to our investment committee a special melted product, no one wanted to buy this company. This was a company heavily cash losing with a lot of pension sitting on the balance sheet. And what our team did there, within only 24 months, we introduced the right CEO and the right operational team. We went there with 10 individuals and we were able to increase turnover, which was only like 20 million to more than a hundred and EBITDA, which was strongly negative to more than 10 million. And that's why we were able to sell this company. to an Italian investor for more than 150 million net proceeds. And our target is that we don't want to stop, right? You see our expansion. Our target is that we want to grow now into China, but also into the US where we want to open up a new office within the team. And by this, I would like to hand over to our CFO, Marc Friedrich.

Thanks, Robin. for the introduction and the highlights. Robin already touched a couple of our portfolio companies and what we are currently doing. So pretty much looking back at the financials of Q3 and year-to-date September, we see that we have a very decent development comparing it to last year with approximately 30% increase in group revenues and a full turnaround of our KPI adjusted EBTA, where we have reached now almost 20 million. We will go in detail why the Q3 figures are negative in terms of adjusted EBTA and why it's lower in terms of revenues for the group. And on the other hand, the holding, the Mutaris holding was influenced obviously by the closing of the exit of S&P, where we see here the net income now more than 100 million for already Q3. We already included also some adjustments on the variable compensation of the team so that we have included already here some cost increases and are feeling quite comfortable. We're still communicating that we are within the range of 92 to 112 million for the net result of the full year. Looking into the different segments that we show here for the first time, including retail and food as a separate segment as communicated In Q3, we see here especially the automotive and mobility segment that had set back compared to the previous quarters, especially in revenue, more than approximately 60 million less. It's a bit by nature that we have a weak Q3 because we have the summer break in our core countries in Europe and therefore a bit lower activity in the different participations. Nevertheless, looking ahead, Robin was already touching a couple of the entities. We are quite confident that we see a bit of a pickup here, some one-off payments that we expect also in segments for Cost increases from customers so that we are confident to see here a better adjusted EBTA in Q4. Engineering and technology also, but by nature, a more stable segment together with goods and services, the ones that are contributing positively all the time. And then we have retail and food where we have now carved out part of the portfolio companies from goods and services. And this segment is quite dominated by LaPierre where I will explain a bit more. once we look into the details here overall compared to last year that's i think more important we see the turnaround in the adjusted dbta and that is pretty much across a lot of portfolio companies and in the current budget tour we also see that the teams are doing tremendous job in the portfolio companies by adjusting the cost base so that we have a sound fundament where we can then see the companies also growing looking forward into 2024. Running through the individual segments, starting with automotive and mobility, which is now the biggest segment by revenue with more than 1.3 billion. That will even increase more since we have closed now a couple of transactions for the Ferry United Group, namely the Celsa transactions, CIE and Valor just recently, so that the Ferry United Group is the most dominating portfolio group in this segment. We see that back compared to Q3, but are confident that this will pretty much turn around in Q4 again. Then coming to the next segment, engineering and technology, where we see quite a decent development in NEM in the integration with Baikadur and also quite a nice performance of the Dongus Group. Then we see here still S&P that this has been sold now in September or closed in September. and we have 80 Comps and Gemini. This is a group where we currently look for add-ons, just at the investment committee today, and think that this is something where we have a platform that we can start with in looking into add-on acquisitions from now on. Then we have here Steyr Motors that Robin explained in more details. Guasco Energy, a company where we have a bit of homework to do, but still we think that the market is there, especially abroad in the US that we want to enter. Also with our Motaris branch in 2024, and then we have Klesin that runs also quite well and also looking ahead will run quite well. Goods and services, currently the most profitable segment that we have. Here also quite a broad range of different industries that they are operating in and countries that we see here. We have been in the Nordics two weeks ago and visited Arriva and Asteria and Palmyra. Looks all well. Just yesterday we talked about Ganta, who is in the construction business that they provide for pretty much engineering projects. services when you want to build an office or a new store showroom and they they see some headwinds but still they feel very good position to increase revenue looking forward in 2024 and then we have here redo that we also visited in finland where we see that the team has touch the right topics and are confident looking ahead into 2024, that this will also be run quite well by the team. The newly implemented segment retail and food with the first acquisition, namely here Glazer in Germany, and the old companies Zabo, Fasana, Keeper, and Lapeer. This segment is pretty much dominated by the development of Lapeer due to the size of Lapeer and the adjusted EVTA that you see here pretty much, especially in Q3, mainly comes from Lapeer since they are operating in the construction industry and this industry is hit hard by the increase in interest rates. The team is currently preparing pretty much the adjustments that are necessary to adjust to the new environment, and we are quite confident that also here we see a nice development looking ahead into 2024. Summing up my presentation here with the lifecycle now filled with the entities and the figures. So overall, we are still convinced that it looks quite sound. We have a bit of traffic here in the realignment phase, so quite full in terms of number of entities. But like I said, I think we saw that teams have done really a very good job in starting and executing the turnaround initiatives. And therefore, we think that looking ahead, we will see some uplifts into the optimization. Overall, the financials that you see on the right side look pretty much as a picture that we communicate all the time. So loss making in the realignment phase. at least break even overall in the optimization phase and substantially positive when it comes to the final harvesting stage where we have some nice assets, especially in this phase that we want to divest, but also I think in the other segments where lifecycle stages, we see some portfolio companies that we believe are on a very good track and maybe an attractive investment for external potential acquirers. And with this, I hand back to Robin for the closing of the presentation with the outlook.