Earnings Call: Q1 2021

May 12, 2021

Matthias Stoybbel here, CEO of Aurelio's Equity Opportunities. Welcome to our earnings call for the 1st quarter 2021. Thank you for dialing in. I'm here in the Munich office together with my colleague, our Vice President for Financials, floor and Minkl. He will lead you through the numbers in a minute, but let me maybe start with the highlights, what did keep us busy in the Q1 of this year. First of all, we are very pleased with the financial performance of our audio companies and therefore also of the consolidated numbers or how this did translate into the consolidated numbers. We have seen already a really solid and rock performance in 2020, especially the Q4. The operating EBITDA was lifted. And therefore, what we have seen now in the Q1 is that this was not only due to year end effects, but also this is a sustainable impact and sustainable strong performance of our portfolio companies. Year. So therefore, quite pleased with the operating EBITDA of nearly EUR 56,000,000 which reflects an increase of 125 percentage points compared to the Q1 in 2020. This was mainly due to our, of call existing portfolio companies, which are with us since some years already. As you know, all the companies in the growth phases are normally typically of those who are more profitable as they have received some treatment and where we are more advanced when it comes to the improvement of this portfolio of companies, but also our strategy, slightly adopted strategy in the recent years that we will start investing in more profitable companies, is now paying off, and this is also where we can see the strong operating EBITDA is based on companies just recently acquired like JKN, like Natus, DistroLEc, but also NDS or REVO Suite Solutions. Quarter. Typically, a strong operating EBITDA leads also to an increase in the net asset value. Therefore, The net asset value in the Q1 did went up by did go up by 7 percentage points compared to the year end 2020 and is therefore reflecting the very strong performance of the portfolio companies. Besides taking care of our portfolio companies and everything on the holding level. Of course, one initiative which did has a where we have a strong focus on is the transparency initiative, which we launched in last autumn. So especially, we were now focusing on the commenting of the net asset value. Florian will give you some more color in a minute. And also going forward, we will do a more detailed report on the financials in the first and the third quarter. As you are used to from the half year and full year numbers, this is something we will also build up on and give you some more details when it comes to the Q1 and Q3 in the near future. Quarter. Needless to say, if you have seen our announcements in the last couple of weeks months that we had a really transaction heavy Q1, eight transactions so far have been executed. Besides our sweet spot investments in our own platforms and add on acquisitions, We have already seen 3 co investment deals with our the fund, which is now close to up and running. And this is part of our strategy to expand into even more profitable and therefore slightly more costly companies here as well. But nevertheless, where a strong operational treatment is needed, which means carve out situation and also operational improvement afterwards. This is where our rigorous task force will come into play. And we are quite optimistic that we will see more of this co invest deals Vistafund in the near future. So overall, a very solid performance. And therefore, also the outlook for the full year 2021 year remains very or we remain very confident. Now I would like to hand over to Florian, who will lead you through the numbers. Thank you, Matthias, and also a warm welcome from my side to our conference call for the Q1 of 2021. We came out with the Q1 figures this morning. So now let's have a look at the numbers beginning on Page number 5. Total consolidated revenues came in with approximately €810,000,000 a slight decrease in comparison with the last year number. This is mainly related to our exits in 2020, in particular, Bertram Books, Metz, But also our hotel chain, Gotel, which was sold in Q1 2020. The consolidated revenues on an annualized basis are almost unchanged compared with the previous year. The EBITDA of the combined group is down to €74,000,000 after roughly €123,000,000 in 2020. This is mostly related to the lower bargain purchase in the last quarter or bargain purchase of 0 in the last quarter. As all of you probably know, we always have 3 different sources of earnings. A bargain purchase is shown in our P and L when the purchase price we paid for a newly acquired company It's below the net assets or the equity we acquired. And with regard to the acquisitions we had in Q1, No bargain purchase have been booked so far, but a goodwill was booked. The last year number was Approximately €72,000,000 And maybe one comment in addition to that, The closing of the Peppa deal is planned for the Q2 of 2021. And for this transaction, We are expecting a bargain purchase again. The restructuring expenses went down from EUR 26,000,000 EUR 90,000,000 and reflect the good operational performance of our portfolio in the last quarter. So we went we end up with a very strong operational EBITDA Of €55,700,000 for the Q1. That means the last year operational result is more than doubled. This number underlines again our statements we made back in March when we had our conference call for the year end figures. So our portfolio has came through the COVID-nineteen pandemic very well. And even if the revenues didn't increase compared to the Q1 of 2020, This shows that we acquired the right companies and made the right decisions with respect to all of the companies that were offered to us in 2020. And generally speaking, it's not our main goal to increase revenue only or to focus on revenue and Buy as many company values as possible, but to identify the right companies with potential from an operational improvement point of view and especially to create shareholder value at the end. The cash decrease It's mostly coming from, yes, typical working capital swings in Q1. Additionally, we made some add on acquisitions With lower double digit €1,000,000 purchase price. Moreover, we are always running Through a distinct working capital management process at year end. And as mentioned, therefore, this development in Q1 is typical for us in the Q1 of the year. So we end up with roughly €360,000,000 as of March 31st, There of approximately 1 third, so approximately EUR 120,000,000 It's free holding cash, so non operating cash and one part. So approximately €29,000,000 will be spent next week for the payment of the dividend. And even if you deduct an additional cash reserve of approximately €30,000,000 or €40,000,000 we still have €50,000,000 up to €60,000,000 cash Available for upcoming new acquisitions this year. Finally, the equity ratio went Up again to 24.3 percent after 21.3% at year end. On the next slide, Page number 6, you have the hopefully well known cut through our portfolio, An additional insight we introduced back in 2020 as part of our transparency initiative. This table shows the revenues and EBITDA by sector, by stage of the portfolio status and by vintage. The main topics here or the main messages here, when we come to revenue and EBITDA by portfolio status As well as by vintage, you see that 50% and more is coming from the companies on the improvement stage as well as companies With a holding period of more than 36 months, respectively. This is, yes, what you normally would expect that the oldest part of our portfolio is in charge of the majority of our EBITDA distribution. And this is also a kind of proof that the business model Also very interesting is that the new acquired companies, so companies In the growth sector or with the holding period of less than 18 months significantly accountable for the EBITDA as well. This again reflects the good operational performances of the 2020 acquisitions. Now let's have a look at the net asset value of our portfolio on Page 7. In comparison to year end 2020, the total NAV went up to EUR 1,000,000,76 €700,000 a significant increase of more than 7%. This Positive development affects all sectors, while the segment Other stays more or less unchanged. The overall valuation leads to an NAV per share of €36.17 after €33.67@yearend20 20. And now let's have a deeper dive Into the different sectors and of the NEV and move on to Page number 8. This slide is completely new and I would say an outstanding new insight into our portfolio because you will find detailed explanations regarding the NAV development of the different sectors, also as a next step As of our transparency initiative, as Matthias already mentioned. So the increase In the Industrial Production sector, from roughly EUR 343,000,000 up to EUR 370,000,000 EUR 370,000,000 an increase of 8%. This is mainly related to the good operational performance of last year acquisition Sentia with its divisions of mineral fiber, siling tiles and grid systems that we bought from Knauf International. In addition to SENTIA, we still have a very good positive development of VAG, our supply of water wells for our water structure with product facilities in Europe, China, the U. S. Moreover, the stock price of our listed portfolio company, Andreas, went up compared to year end 2020. But there's also room for improvement Because the valuation of Simfluxes, our manufacturer of aircraft seats, is still 0 after they filed for administration in 20 2020. Besides that, the valuation of the 2020 acquisition Convertatech, A manufacturer of converters and electronic components for the wind power industry is still very conservative. Furthermore, the valuation of GKN Wheels and Structures, our manufacturer of highway wheels still based on the purchase price we paid. And at half year twenty twenty one, we will form of our 1st DCF valuation for this portfolio company. Let's move on to the Retail and Consumer Products segment. There we also have an increase of approximately 7%, up from €345,000,000 to also approximately €370,000,000 This is due to the very strong operational performances of our last year acquisitions, Nides and DistroLEC. Nides is, as you already may know, a wholesale of entertainment, electronics And Household Appliances, distrolect as a multichannel retail enterprise with its focus on digital sales and shipping of electronic components. Both companies were bought last year from the Swiss listed Debt Gila Group. Furthermore, the new acquired Movement Group, an add on acquisition of the Danish Connexus Trade Group is valued at purchase price. And additionally, there's yes, in general, an overall positive retail market outlook due to the progress we have in terms of vaccinations and decline in corona incidences. Also on the other end, due to the COVID-nineteen pandemic and the related lockdown scenarios, We're still facing a challenging economic environment for Office Depot. Last but not least, we have our last operating sector, Services and Solutions. Here, we see a Significant increase of 28%, roughly from €82,000,000 up to €104,500,000 This is mostly coming from our 2021 add on acquisitions of GSB Gersbau, An add on of our BPG Building Partners Group located in Berlin and of AltaRestore, second add on acquisition in this sector made by our fleet operator and management service provider, Rivos, in the UK. As I already stated, the sector Other stays unchanged compared to year end 22 to year end to last year. As you probably know, the value of the sector other mainly consists of the cash of the listed Aurelius equity opportunities and the other non operating holding companies. Furthermore, the treasury shares Of Aurelius, I'm sure it as well as our brand company. And the nominal amount of the corporate bond, the so called Nordic bonds The last bullet point on this slide, Yes. We would like to mention that in addition to our new commenting on the NAV development, we would also like to inform you already today That beginning with the Q3 this year, we will also publish a full set of financial numbers, including balance sheet and P and L at each quarter end. So this full set of numbers, including comments, will replace the press releases as our Q1 and Q3 reportings. So again, a next step for more transparency. Okay. Then I would like to move on to the last slide with numbers, Where we have Slide number 9, where we have the table which presents the NAV by vintage. You see that the largest chunk of the NAV is coming from the oldest part of our portfolio companies. So companies that have been with us For more than 36 months, this part reflects roughly 40% of the total NAV. And in addition, you will find some more, yes, generally informations about the NAV calculations, but probably All of you are already aware of them. So the NAV is still based on the DCF model. We used the actuals as of March 31, including the budgets for the portfolio companies till year end 2023. We still assumed a very conservative growth rate of 0.5% and end up with a WACC of 10.8% in average. This WACC is almost the same as at year end and still includes risk premiums for almost all of our portfolio companies. That means that there is still a lot of potential in our NAV just from a WACC perspective. Questions that already took place this year. Thank you, Florian. Yes, some of them you might know already. We have introduced you to already some weeks ago when we have announced the full year numbers for 2020. Nevertheless, what you can see on Page 10, we have announced some months ago that I would like to put even more focus on the add ons as this is definitely one of the bigger levers we do have when it comes to the improvement of in net asset value and operational performance of our portfolio companies. And this is what is reflected here. So we have seen 3 add on acquisitions in 2021 already. 1 was the MVMT Group, around about €20,000,000 of additional revenue. But even more important and quite impressive BOSS Synergy operational EBITDA, which will be added to our portfolio company, Connexus Trade. Quarter. We have seen also another add on acquisition for our building partners group, the scaffolding business, GSB, Keruspaub, based in Germany, around about €8,000,000 very interesting add on acquisition as it is another and then an additional geographical expansion and therefore mix overall the equity story for GSP, even more an interesting one. And also, REVOOS has acquired Autorestore, I will talk about in a minute. We have seen one smaller exit of a part of our portfolio company of Office Depot, which has sold its Italian business to a French strategic investor. And of course, we will still do our platform investments as we have done with Schupe, typical top out situation from Basco and U. S, Michigan U. S.-based bigger enterprise with roundabout €12,000,000 of market cap, so therefore, sweet spot still for our REO's equity opportunities. Quarter. On the next slide, we have spoken a lot in the last sessions about Deco Investment Fund. So the fund, altogether, around about €500,000,000 in size. This fund will invest in more profitable companies, bigger companies, but nevertheless, in pretty much the same segment, which means cap out situation, special situation with a lot of operational treatment needed. But as I mentioned, bigger in size, year for a little bit more costly, more equity needed to acquire such companies. And this is the reason why we have decided as mention of our strategy. We would like to co invest to take the advantage of co invest together with the fund on a deal by deal basis and have therefore committed EUR 150,000,000 as an Aurelio's equity opportunities to be invested in the upcoming years alongside the Fund. The three deals you will see here, I will talk about in a minute in more detail. These are the typical sweet spot deals for the funds. They are all somehow headquartered in Europe. They have a long strong track record, have been healthy underlying market. There are carve out situations. Therefore, a lot of operational treatments and operational involvement is needed, and all of them are profitable and therefore exactly what the fund and therefore we were also looking for. Rippe, on Page 12, we have discussed or we have spoken about already at the last session when we were introducing you to the 2020 numbers. We're the producer of shower enclosures based in Germany. As I've mentioned before, typical blueprint case for Aurelius Equity, stand alone deals as a platform investment roundabout €70,000,000 in size. It's a very interesting niche market. Some keywords here is, of course, sustainable and barrier free shower areas instead of bathtubes. This is where Rupert took advantage of already in the past, and this is something we do expect to go on further and or even accelerate this trend. Quarter. And in addition, it's a very fragmented market, so you do see a lot of normally typically low co players, not too big in size family owned businesses, very fragmented. And therefore, our strategy will be that TUPE will become supplier of choice when it comes to renewing or investing in the bathroom and therefore, not only shower enclosures, but we could think about a lot of different time equipment, which is needed in the bathroom. This is where this niche market, healthy underlying market, growing market and the very heterogeneous supplier landscape is ideal scenario for us to play our buy and build strategy here. Panasonic, on the next page, Page 13, roundabout €230,000,000 in size. The first deal we have done together with the Fundus Eco investment, talking here about the overall consumer batteries business of Panasonic in Europe. Businesses headquartered in Belgium and has a manufacturing site also in Poland as well. It's a very profitable business as of now already and a very strong footprint in the renewable and rechargeable batteries business, which we do expect to become an even more and faster growing subsegments in this industry, quarter, also driven by different green deals or part of the green deal of the European Union. So therefore, well positioned, and this is where we would like to take advantage of when time. Our operational task force will, together with the Fund, make this company even more successful and even more profitable. Bring Frigo, the carport from the Norwegian BOSS specialist in Temperature Control Logistics based in the Nordics. Deal we have spoken about already last time, revenue of approximately EUR 250,000,000 in size. And therefore, again, very, very typical capital situation for Aurelius. There's a lot of improvement potential left on the table so far. Page 15, let me talk about this in a little bit more detail. This is an add on acquisition for Ribos, where we have acquired Autorestore. It's takeoff out from Belleron, around about €12,000,000 in size, but quite interesting geographical and also strategic expansion for REBOS. This company, AutoreStore, is one of the leading provider of mobile accident party repair services based in the UK. They are acting with roundabout 130 mobile repair vans and providing this repair services to B2B customers, including insurance and fleet management. And therefore, of course, also it's a very interesting, not only from a senior cost synergy point of view, interesting add on, but also from a growth potential for REVOZ, as to get access to additional B2B customers. On the next page, the third acquisition we have done as a co invest together with the Fund. It's SSE contracting. So it's one of the biggest M and E contractors in England, Wales, Scotland, but also in Ireland, providing mechanical electrical Rail Street Lighting and High Voltage Engineering Services, so mainly to some regional local municipalities in the UK and in Ireland. And therefore, well positioned to become a winner of the meta trends which are out there, like electrical vehicles charging topic and also the accelerated path of thinking about smart cities. This is something where SSE is very well positioned. They have a very long lasting customer relationship basis. And we do expect that this will become a growth story in the near future. Also here, we have seen a lot of in a very heterogeneous, nevertheless, landscape of suppliers. So there are still a lot of smaller suppliers, typically more local suppliers, and therefore also a very interesting platform for 2 add on acquisitions then sooner than later. Quarter. This brings me to the situation of the overall portfolio on Page 17. Quarter. As you know, this is most of you might notice this chart already. On the x axis, you will see the year when we have acquired a company. And on the y axis, you can see the different stages of maturity, so from improvement phases to the optimization and growth phases. Typically, the companies which are in the growth phases are the more profitable companies as they are with Aurelius since some years already. And if there wouldn't have been corona, some of the companies maybe wouldn't have been here on this chart anymore as they would have been exited already. Of course, these companies are typically the ones who will where we are thinking on a regular basis about when is the right moment for exiting this company. Time. Of course, this was all postponed by 12 to 18 months due to corona. But we do expect that we will see some quarter, actually, maybe already by end of this year, but definitely some next year already and then even bigger ones in the year 2023 and afterwards. And also the net asset value, therefore, is that we can see at the bottom left hand corner the newly acquired companies are also contributing to the operational EBITDA in the Q1 in a very strong way, which means they are very profitable already. Companies we've mentioned like Sentia, GKN, DistroLEc, Natus. So a lot of them quite profitable already, but nevertheless, still in the improvement phases, which means there is still a lot left of different improvement measures we will implement in the near future. And then when it will come to the optimization in growth. This is, therefore, become hopefully even more profitable. We'll still focus, as outlined before, we have a strong focus on add on acquisitions. I think for nearly all of them, we have a very well filled pipeline to do add on acquisitions. And despite lift the operating EBITDA of the existing portfolio companies as you can see them here, also more to the north in the near future. Quarter. This brings me to the last slide of our presentation, the outlook. One. Based on the numbers we were discussing or we have introduced to you, we still are very confident when it comes to the full year 2021 financial year. So we the outlook remains very positive. We do have a strong field pipeline for doing acquisitions in all the three segments. So platform investments for Aurelius Equity Opportunities only, add on acquisitions for our existing portfolio companies and co invest together with the fund in the more profitable and bigger deals. We will still keep on working on our improvement and transparency initiative on the transparency initiative, which has been launched. So some more insights from Fluor and our development on the net asset value outlook of how call. We will give you more colors on the numbers for the 1st and the Q3 of the year in the future as well. And still some more bullet points we are discussing internally and hopefully will come up with in the near future and therefore make sure that you will get an even better understanding of our business model of our portfolio companies and therefore, the overall performance of Aurelius. And as just mentioned some minutes ago, I would expect that we will see some smaller exits most likely by end of this year and then stepping up to the more midsized and then even bigger ones than in the following years, 2022 and following. Thank Thank you very much at this moment in time for listening, and then we will come to the Q and A session. Thank you. We will now begin our question and answer session. First first question. Question. Our first question comes from Gerhard Orenas, Berenberg. Please go ahead. Your line is now open. Yes, good afternoon. A couple of questions, please. My first question is I'm a little bit surprised with all the acquisitions you made in Q1 that you didn't have a bargain purchase. In the P and L, could you explain why that is? Maybe it's a timing issue. And second one also was more towards the NAV. The significant effect from writing up Maybe send this trail from purchase price to what the operating value you think is right now? Or has it already been as an operating entity in Q4. And my third question is on the core investments. How will they Hit the P and L and how will they be accounted for in the NAB please? Okay. Thank you, Gerhard, for your question. Maybe let's start with the last one. I had some difficulties to get the first question, so maybe you could repeat it in a minute. But maybe let's start with the last question you raised, the co invest and how this will be translated into our balance sheet and our P and L. Flooring. Yes. Let me take this question. Well, right now at the moment, we are also discussing with KPMG with our auditors How to balance or how to account the 30% stake in the core investments. But they should be valued at fair value through profit and That means that there will be valuations made on a quarterly basis by 3rd party, So by the fund. And then we will then book our 30% stake into our balance sheet. I don't know yet if the or if we will have a complete new balance sheet item, but I guess it should be under our financial assets in the balance sheet. So no consolidation because there's no control with respect to the definitions Of control under IFRS 10. So in general, we have no power over the industry, and therefore, we Have to book only or account our 30% stake. In your NAV valuation, would you have a separate line as well for this time. Will it be in other? I guess you will take the same external valuation quarterly and put it into your NAV with a 30% stake? Yes, exactly. So there will be an additional line in our NAV with the core investments. Question. The question was about the bargain purchase. There was no bargain purchase item in Q1, Q1 even though you made a lot of acquisitions. Yes, you have to consider that most of the acquisitions besides the add on acquisitions have not been closed yet. And this is the reason why there was no bargain purchase so far. We do expect a bargain purchase in the Q2, but as there were no closings so far no closing of the platform investments, only the add ons we do not expect, but we haven't seen a bargain purchase in the Q1. Okay. And maybe I'll repeat the second question as well. Nedis and Gislek, has that gone from purchase price to operating valuation? Or was it already valued as an operating business in Q4? No, it was already valued at fair value, so not at purchase price at year end 2020. Okay. So this is the organic development You booked in Q1 for the year. Yes, exactly, exactly. Okay. Thank you. Thank you, Gerald, please go ahead. Your line is now open. Hi, good afternoon, guys. Can you hear me? Yes, we can hear you well. Good afternoon, Brian. Fantastic. Good afternoon. Well, great to hear from you and great progress. Just two questions. The first one is asset prices are going up. And have you put more assets into the auction process? So you mean on the acquisition side or on the sell side? On the disposal side. Okay. No, we do not think that it is still the right moment in time to gain the maximum value for our portfolio companies. Why? Because there of course, there were all somehow there were some adjustments based on corona. We have especially the companies in the growth phases. They are all haven't been too much impacted by corona, but nevertheless, of course, there are some adjustments. And so therefore, we think to really make sure that we will gain the maximum value for these companies, we need to show some steady state months of current trading, unadjusted months current rating. And therefore, we think that the right moment in time to think about starting the structure process is by the end of Q3, so which means we will maybe see some exits, smaller one in the Q4 and then beginning of next year again. Thanks, Matthias. That's very clear. And I love the transparency drive. When it comes to transparency, have you thought about any Further thoughts about uplisting onto prime standard and maybe entering the CDAC? Yes, of course, it is something we are considering internally on a regular basis and discussing it internally as well. To be honest, there is there are some there are two sides of the metal when it comes to go to another standard or other market segment. One. First of all, what we are doing right now, we think the right thing to do is that we really make sure that we will increase our transparency and give as much color as possible to our investors without that there is a requirement necessarily from the market segment. So let's talk about the prime standard, for example. Of course, there are some requirements. And of course, we do know very exactly what exactly they are. So we will take this as a kind of a benchmark and think how can we get close to this transparency as it would be required in the prime standard. Without it, we have to take all the additional administrative effort. And we will do the work in this direction, getting close there. If we will do this uplifting ones, to be honest, it's still not fully discussed or decided. And we haven't received further questions. I will hand back to the speakers. Yes. Thank you very much for listening and for dialing in. Thank you very much for your questions. I hope you are as pleased as we are with results for the Q1. Be reassured that we strongly have a strong focus, of course, besides our portfolio and executing the pipelines, which means transaction in our pipeline, making sure that we will do some further acquisitions, keep a strong focus on the transparency initiative as well and the overall generic development of Aurelius. Thank you very much for listening, and have a good afternoon. Goodbye. Bye.