Good afternoon, everyone, and welcome to the Earnings Call for the First Half Year of twenty twenty. On our call today, Mutaris' CFO, Marc Friedrich and Mutaris' CIO, Johannes Laumann, will present you the results and most relevant events of
the
first half of this year. After the presentation, they are happy to answer your questions. The presentation shown is available on their website. Before we start, I would like to remind you that this call and presentation contains forward looking statements, including projections, which may not develop as we currently expect. I, therefore, kindly ask you to take note of the precautionary warning about forward looking statements that is included in the materials on our website.
Now let me hand over to Johannes Laumann.
Hello. Good afternoon, everybody. We would like to follow the agenda, which you've seen projected, starting with a quick sum up of the business model and activities on the M and A side in the first half year, followed by a quick summary, then financials and outlook, which will be presented by Mike Wittrich, the CFO of the Mutharis Group. Short overview of the business model, which most of you are aware of. We target and a short reminder of our success driver, we target a return on invested capital between seven and ten times over the four phases, which consists of consulting income in the acquisition phase, realignment, optimization and harvesting, which you will see later on, which is basically the life cycle of our investments.
And at the end of the day, the creation of shareholder value is driven by the seven to 10 times ROIC, which we target for our company. What do we do on a day to day basis to achieve that? This is what we call our value creation circle. We do take and evaluate risk by taking over companies in special situations. We request cash funding from the seller.
And in addition, depending on the transaction, if a platform on and on, we also contribute some equity from our side either for certain financing needs for equity strengthen or in add on acquisitions also for purchase prices. Due to turnaround with our own people, we continuously have grown the consulting team. And last but not least, after the turnaround is done, we either go for a strategic and organized sales process or we grow further inorganically through and on acquisitions to finally then come to the seven to 10x return on invested capital, which is our main target. To give you a little bit of track record on the seven to 10 times, which is our target, including the four phases. As we speak, the portfolio we have and which is at least for twelve months in our portfolio has already contributed 4.8x of return on invested capital, which is obviously mainly driven by consulting income and dividends paid out of the portfolio into the Immutaris Holdings, plus the exit proceeds, which are outstanding for potential exits, should then drive to the seven to 10 times.
So what you see is that we have already materialized the 5x almost the 5x cash on return on invested capital without an exit of the company. And maybe let me stress out one more thing, which you see on the bottom of the slide, where it says we want to have an average holding period of three to five years. This is only a certain guidance, but this is, of course, different from portfolio to portfolio, very much depending on how do we want to develop the company and how do we see the best shareholder value creation over the Life cycle. Short highlights of the first half year. We have acquired five new platforms.
And in the following slide, I will show you our total portfolio in a minute. And three add on acquisitions, so a quite intense first half year. I think we are holding the pace of last year and even overachieved that in the difficult times of COVID-nineteen. This is an outstanding performance. We already have realized three exits, so two very small ones.
VectorTea sold its Czech business, and we sold Clam Packaging. And then we sold the restructured bulk of your part in Poland, which was sold to a strategic buyer here in Germany. Restructuring efforts, of course, were heavily impacted by COVID-nineteen, but we made sure also as the Board, we were involved very actively in safeguarding the stabilization of our businesses. And we have achieved that we have brought the whole portfolio through this COVID times. Beginning of the year, we have also successfully placed a EUR 50,000,000 bond, especially for add on acquisition and further portfolio development, where we do now evaluate further an additional €30,000,000 which you have already also seen maybe this morning in the Nantfak.
The general annual meeting decided on a dividend of €1 The outlook for 2020 also looks very positive on this side, and we are still very strongly committed to our sustainable and successful dividend policy and which will be also in 2020 our main target and even maybe overachieve. So a quick summary of the portfolio. You see Automotive, Mobility, Engineering Technology and Goods and Services. We also significantly grown there. Maybe a few highlights on this one.
So the STS group, which is still in the Automotive and Mobility segment, has divested last Friday its Acoustic business to refocus on Plastics and Materials, which is the core business and the main driver of the success. And then let me also point out NxSauce, which is an acquisition of roughly more than a little bit more than 200,000,000 of sales, which is a perfect fit and also have synergies potentials with our Plati group as well as with the Tres de Leonor group. So we will carefully bring those synergies together of these three companies. And then last but not least, our latest acquisition Here on the slide, you see NCC, the Road Operation and Maintenance business, which we acquired and which will be closed most probably by September right at the right time when the winter starts and road operations and maintenance are needed. So this is a business which we acquired from NCC, a little bit above EUR 100,000,000 in sales, and it also strengthens our footprint and focus on the Nordic markets.
So overall, you see also in the numbers later on a quite robust portfolio, which went through the toughest time of COVID-nineteen and a robust portfolio with great exit potentials. And as already said in the annual meeting and in several communications before, we do expect a heavy workload in the second half of the year on the buy side. So we do see great opportunities. We are very selective on this one, but we see maybe the once in a lifetime chance of an outstanding growth also in the second half of the year, which we will work as a team very hard on to achieve that. So far on this one, let me hand over to Mike Friedrich for the financial part and the outlook.
Thank you very much.
Thanks, Johannes. So I'm starting with Page 10 with the overview of the financials for the first half of the year. Normally, I say that our group is impacted by the M and A activities. This is true again first half of the year. But this time, the group is highly impacted also from COVID-nineteen.
We see a significant increase in sales by approximately 40% due to the M and A activity, this time, namely the Baqsity Group, PrimoTEX and the Ruki transaction that is part of the Dongguys Group now, which contributed quite positively to the increase. But on the other hand, we saw compared to the budgets that we had with the group quite shortfall in sales in our existing portfolio due to COVID-nineteen, especially in the month March, April and May. The group EBITDA is impacted by approximately EUR 66,000,000 of bargain purchase income. On the other hand, the adjusted EBITDA is highly affected by the negative impact of COVID-nineteen. We will come later to it, and I will explain a bit more about the phasing of these effects.
Cash and cash equivalents increased due to the bonds that we raised. And the equity of the group decreased due to the increase in total assets, but also due to the loss in the first half of the year. Looking at the overall P and L of the group, you see here again the increase in sales and revenues by approximately 40%, which is quite significantly. All other figures also increase, and we end up with a net result of minus €30,000,000 impacted by, especially in COVID-nineteen and here between EBITDA and net income, there's especially also the depreciations and amortizations, and we had to account for an impairment of approximately EUR 20,000,000 due to the impact of COVID-nineteen. Looking at the balance sheet on the detailed slide for adjusted EBITDA before we come to the balance sheet.
So here, you see the bargain purchase income of approximately million in the first half of the year, slightly lower than last year. So this is due to the adjustment that we already made in the acquisitions and in the accounting of bargain purchases of the transactions that we closed in the first half of the year. The second line is the restructuring and other nonrecurring expense, which is only EUR 9,000,000 in the first half of the year because we were also not able to execute the restructuring measures that we actually had planned for due to the COVID-nineteen. So we would actually have expected more here and had planned for more due to the number of acquisitions that we did. And especially abroad, we were unable to travel there to execute our plan.
So the restructuring and nonrecurring expenses relate mainly to the STS and the Dongle's group. The second or the last line is the deconsolidation effect. You see €1,600,000 meaning that we have a gain of the deconsolidations in the first half of the year, which were by Kedure Polska, Klan Packaging and the Bag City activities in Czech Republic, which were or which led to a total gain of approximately 1,600,000.0. And to give you the adjusted EBITDA, we have subtracted it here. To give you a bit more color about the adjusted EBITDA and phasing, we see that the adjusted EBITDA was and the €60,000,000 that you see here were actually accumulated mainly in February, March and April.
And the month May and June were actually both at already breakeven on adjusted EBITDA level across the group, even including the new acquisitions that normally contribute negatively. Looking at the balance sheet, again, an increase of approximately 16% or EUR 140,000,000 to almost EUR 1,000,000,000. So we are quite confident that we will cross the €1,000,000,000 until third quarter financials due to the acquisitions of SFC and Nextiva. And you see here, especially financial liabilities increased from €120,000,000 to approximately €200,000,000 and that's mainly due to the rate of the bond of 50,000,000 Coming to the segment financials and starting with the segment that was hit most by COVID-nineteen, which is automotive and mobility. And here, we see or we saw across the entire portfolio companies that COVID-nineteen led to a substantial shortfall in sales and almost a significant decrease of up to 35% in sales compared to budget level across the portfolio companies.
But on the other hand, we already see quite steep increase again in sales in June and also in July, again across the entire portfolio with the main increases, for example, here at CECO and Primo Tech, which are on budget level or way above budget level in July. The focus, like Johannes already mentioned, was obviously for all portfolio companies, but also mainly for the automotive and mobility segment on securing the liquidity. And we were able to successfully implement certain measures and were able to to sign subsidies from from governance in France, in Germany and in Italy. Looking at the engineering and technology segment, we have a totally different picture here, with a segment that increased the adjusted EBITDA from minus 7,000,000 to slightly positive figure of approximately 1,000,000. And there's really in this kind of environment, really great success for the group, and that success was mainly driven by Dongas group and the Gemini group.
Both were able to finalize and finish the restructuring of Dongas its first phase of restructuring at the end of twenty nineteen, so that we see the positive contributions in the first half of the year. And with RUKI, the Dongas Group was able to acquire positively contributing assets to adjusted EBITDA, and we are able to start the integration and the optimization of the group in the second half of the year. Baikadura is one company in that segment that was a bit more affected by COVID-nineteen and was actually contributing negatively to adjusted EBITDA of approximately EUR 6,000,000. Coming to the last segment, the goods and services. And here, again, we have a really positive surprise since pretty much all companies in the segment, except for Trefignon, contributed positively to the adjusted EBITDA.
Even a company like Back City that we just acquired at the end of twenty nineteen was able to contribute positively to the adjusted EBITDA. On the other hand, Keeper closed the transaction of Keeper Tableware, the Neptune business from Metzen in February and was starting the integration with the combination of the two. And Keeper was really one of the highlights that we saw in the first half of the year since the company was able to overachieve the budget sales level for the first half of the year as one of the only companies in the group that under these circumstances were able to deliver even more compared to to the budget level. In the end, we saw just an adjusted EBITDA of only minus 1.5 with way higher revenues compared to the first half of the year of 2019. So quite positive segment development here.
Coming to the life cycle statues, which
is
unchanged compared to Q1. But to give you a bit more color here and to explain a bit more what we actually would like to see here. The realignment phase is the phase where where the portfolio companies enter our group. So these companies have to be negative in terms of adjusted EBITDA, and that's exactly what you see here with approximately minus 30,000,000 or an EBITDA ratio or adjusted EBITDA ratio of approximately 7%, which is quite high. But it shows that we are on the right track since we were able to add new portfolio companies to our group.
The companies normally move on to the optimization phase after approximately twelve months. And this is also important that we see a good mix here. We have four companies in the realignment phase. We have four companies in the optimization phase. And the optimization phase should be actually a phase where the companies, portfolio companies included in that phase have a total adjusted EBITDA of at least zero.
This time you see here minus €7,000,000 and I already mentioned that the main contributor negatively, the Bikidu Group is approximately 6,000,000, whereas other companies like Keeper and Saum Pa actually were contributing positively to the adjusted EBITDA. After twenty four months or after more than twenty four months, the companies normally move on to the harvesting phase, and the harvesting phase is final stage like Johannes explained in the beginning. And this is the phase where we actually expect definitely a positive adjusted EBITDA. And this obviously is during these days in the first half of the year. Not true for all companies, but in normal circumstances, it should be that the adjusted EBITDA is positive so that we are able to sell the company for a positive price.
Let's bring you to the outlook on Page 17. We experienced quite challenging environment due to COVID-nineteen, and we believe that this will continue. Nobody actually knows what happened in Q4 or Q1. But we have to prepare ourselves, and we will prepare ourselves for a situation that might change compared to the current situation. But on the other hand, we definitely have the expectation that we see even more M and A activity in the second half of the year compared to the first half of the year, which was already quite active.
And that is one of the reasons why we want to or why we currently evaluate the increase of the bonds of up to 30,000,000 We had in July already two closings. First one was Nextiva, so the Italian post business. And the other one was SSE, an acquisition in the automotive segment from Cooper Standard. And we already had one signing in July, which was Sabo, a company in Germany where we expect closing end of this month. Taking all these acquisitions in one part, we currently see that we are well on track on the targeted sales level that we have set as target for the full year 2020 of more than EUR 1,500,000,000.0.
And looking at a run rate of our current portfolio, we are close to or even above EUR 2,000,000,000 in sales already, and we are quite confident that this figure will grow in the next couple of months. Last but not least, sustained dividend capacity and the attractive dividend policy is always kind of ultimate target for the group. And for this, we pretty much run our M and A activity, run our operations so that in the end, we are able to create shareholder value that we actually want and also to distribute to the shareholders. We actually would like to to see you again, and that's why we sent out and saved the date for the Capital Markets Day. We had the first one last year.
We would like to do again a Capital Markets Day in 2020. We have invited you already. We are not sure yet if it will be a virtual meeting or not. We are definitely looking forward to meet you again in October. And with this, we are through with our presentation and are happy to answer your questions.
Once your name has been announced, you can ask a question. If you find your questions answered before it's your turn to speak, you can dial 02 to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. The first question received is from Holger Stefan of FMC Research. Your line is now open, sir.
Please go ahead.
Good afternoon altogether. Thank you very much for your detailed presentation. At first, I have one question about the bond emission. You have announced a possible discussion about changes of your bond conditions. What are the topics of this discussion?
We like like, to be expected. We we noticed that there are two things in the the bond terms where we believe that that a change makes sense. And the first one is that we want to have a shift of the of the buckets that we have where we are allowed to give commitments to the group or to to partners of the group, but we don't want to increase the overall exposure. So we we shift from one to the other where we believe it makes sense to have it a bit more balanced. So it's first thing, not negatively for the bondholders, we believe even positively.
Second thing is that we want to have a change in also a positive change again for the bondholders about the insolvencies where we believe that we want to enhance our ring fencing model, and therefore, we ask for a change of one clause where we believe that also, again, makes sense for the bondholders, but obviously also for the shareholders.
Okay. Thank you very much. I may come to your figures. You give us a short overview about consolidation effects in the first half, and I try to derive the organic growth development. Is it correct that the revenue of the existing portfolio decreased organically roughly 20% in the first half?
We will give an answer quite soon. We just check immediately. I see 20% is a good guess.
Okay. Then I come to another question. So long. You have first, I think you called the acquisition of Nexon an add on acquisition to Plati. Now it is listed as a platform in your segment engineering and technology.
And you said something about synergies with Plati and with Triphie Unnion. Why do you change it? Have you any further information?
Well, it's not really changed because the synergy potential and that the two companies are contributing positively to each other is still there. So basically, it's an extension of the value chain, which Nexans provides for the Plati product. So we can offer our customer a higher and deeper value chain and therefore, a better flexibility in customer service overall. Why is it a platform shown as a platform investment? We are currently looking also to have it together structurally.
However, in the beginning of company acquired, we would like to keep it separate. Also the fact that actually, Nexans is 8x larger than Plati. So the two companies will be fitted together very soon. For the moment, we it separate until closing. But shortly after closing, it is still the plan to put those two companies together.
Okay, great. And about Savo, I missed some operative figures about this company. Could you tell us some?
It was stated by Jean Pierre that they don't want to disclose those numbers. As Sabo is in platform investments, you can guess about the financial the profitability of the company and the purchase price, what we have to pay. So it is a typical Mutharis deal, a very strong brand. We are very happy with a very competitive process. And this is a great platform to do a buy and build strategy for outdoor and garden with a very strong brand.
I cannot disclose actual figures because the transaction is not closed. Of course, after closing, when we own the company, we can speak about it. Before closing, I can't disclose the numbers. The only thing I can disclose is that it's a platform, and platform investments at Motares are typically coming with a bargain purchase.
Okay. Thank you. I will wait for revenue figures then.
Mr. And Shim, just to come back to your question regarding organic growth. It's a bit less than the 20%, leaving aside also the add on acquisitions of Dongus Group, we see across the portfolio minus 18%.
Okay. Thank you. That helps me very much. Maybe one another further questions about your portfolio development. In your report, you mentioned the investigation of strategic alternatives for UPC.
Can you give us a hint what these alternatives could be?
An add on or an exit.
Okay. That's very, very you think UBIC was, I think, with the environment, complicated business in the last twelve months. You've said that it's now improving in the second half. Why where what's the main source of this improvement? Or where is the main source?
Well, as you know, UBEC is a quite small company, and it's a project business. So one project can really make the year or the financials of this company. So UPEC actually has booked a large order, which is in The Middle East. And this gives us the outlook that UPC will be a will close the year with a positive operating profit. Companies, very small, main customers do sit in The Middle East, where the COVID impact on those projects, it's very minimal.
Either COVID is not there, COVID is forbidden or the projects are very long lasting and the impact is not shown yet. So we the positive outlook on Upex simply comes from the order book and the long lasting projects, which you can predict quite okay ish what will come in the next six to nine months.
Okay, fine. Maybe we can may come to a much larger company. In connection with the acquisition of Rookie, the competition authorities request Dongus to sell a factory in Finland. What are the consequences for Rookie and Dongus regarding revenues and the market position in this country?
The factory roughly made 10,000,000 to 15,000,000 in sales, which we are obliged to sell. It's a normack factory. And the competitive factory of Ruchi, which is much better invested, is 50 kilometers away.
Okay. So it's no problem.
So we don't expect too much an influence on the business, but we are in the process to sell that and meet the requirements of the merger control. And we have time for that in another six months.
Okay. So my last two questions. First, you've only reported SES as a company whose existence is actually not sure. Is Kaiko now safe if the company will get federal credits?
Correct.
Okay. And, Trefi Union is is not, in danger? You I I saw you you made impairments, with an amount of €11,800,000 in the first half?
It's all so correct. The company is quite well financed, has a lot of liquidity. But on the other hand, we saw that the equity position is quite high and that combined with the triggering event and the impairment testing, we came to the result of minus 11 as an impairment.
Okay. Thank you very much.
As we receive no further questions, I hand back to mister Lalman.
All right. Thank you very much for the time and participation. We look forward to the second half of the year. We I strongly believe and we strongly believe it's going to be a successful year. We will follow the path of what we have started in the first half year.
And this COVID was a big challenge in the first six months. However, it was also, in my view, an even greater opportunity for our business to accelerate growth, to accelerate returns, to accelerate profits. And then at the end of the day, will lead to also a potential acceleration of value creation for our shareholders. So thank you very much for participating in the call, and stay safe. Have a great summer, and take care.
Bye bye.
Thank you very much for participating in this call today. Have a nice day.