MBB SE

XETRA:MBB

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Unknown Attendee]

Good afternoon, everyone. Welcome to today's earnings call of MBB SE following the publication of the financial half year figures of 2024.

The CEO, Dr. Constantin Mang, will speak in a moment and guide us through the presentation and the results. After the presentation, we will move on to a Q&A session, in which you will be allowed to place your questions directly to the management.

We're looking forward to the presentation. And with this, Dr. Mang, the stage is yours.

[Constantin Mang, executive]

Thank you, [ Judith ]. And good afternoon.

My name is Constantin Mang. I'm CEO of MBB. And I'm looking forward to presenting our half year results to you today.

As always, I'd like to start with a very quick recap on what makes MBB special. MBB offers long-term succession solutions to Mittelstand companies. And the way to do this is pretty unique because, first of all, we are a family business ourselves. And that means we share the same DNA with the businesses that we want to acquire. Secondly, we [ have plans with the ] capital markets; and that's why I'm here today. And that's why 3 of our subsidiaries are also stock listed and actually will also all have their earning calls with Montega today. Thirdly, we have a long-term focus. When we buy a company, we don't have an intention to sell but to develop and the grow -- and grow the company for the long term. And lastly, we focus on sustainable businesses because we believe that the sustainability is one of the greatest growth trends of the next decade.

And with that introduction, let's jump right into our half year results. And as you can see on this slide, we really had a firework of EBITDA growth in the first half year.

The largest absolute increase was definitely Friedrich Vorwerk that increased their EBITDA from EUR 14 million to EUR 24 million in the first half year compared to the last year. Relatively speaking, Aumann's EBITDA growth was even stronger with 88% growth from EUR 8 million to EUR 15 million. And that leads to the really incredible growth of the MBB Group EBITDA, from EUR 32 million last year to EUR 56 million this year, which corresponds to 75% increase.

And 2 things about this increase, for me, really stand out. The first thing, and that's why -- what you see on the next page, is that this growth has been carried by all 3 segments of MBB. As you know, we divide our business in the Service & Infrastructure business, in the Technological Applications segment and in the Consumer Goods segment. And all 3 segments actually saw a significant increase in profitability this year. The second thing, and that's what's shown on this page, is that, during the course of the first half year, we actually saw the EBITDA growth accelerating. What you see here is the comparison of the first quarter in 2024 to the second quarter in 2024. And just from this quarter to the next quarter, revenues grew by 27% and EBITDA grew by 46%. And that leads to this really record quarter for MBB with an EBITDA of EUR 33 million and a margin of 13%.

And now let's take a look what the drivers are behind this growth, and let's start with Friedrich Vorwerk.

As you know, Friedrich Vorwerk provides energy infrastructure for the energy transition. And in the first half year of 2024, the company has seen quite a sharp increase in profitability. In Q2, EBITDA margin rose to 15%. And as many people have, rightly so, doubted that these kind of margins will be sustainable for forward -- going forward, I think that the higher order backlog and the momentum that we are seeing at the moment actually point in -- to the right direction and probably leave room for further margin increases.

As you see here, order backlog reached a record level of EUR 1.2 billion. And that's the market demand at the moment is mostly driven by the electricity segment, to build new power lines in Germany that are necessary to distribute the wind energy from the North to the South of Germany, but going forward, we also see massive investments into -- if you could go back on the previous page. Going forward not in the presentation but in terms of time, we will see additional, massive investments into the hydrogen infrastructure in Germany. Just a few weeks ago, the network providers in Germany have released their plans to invest more than EUR 20 billion into a hydrogen pipeline network. And Vorwerk is one of the few players that has the capabilities of building such an infrastructure. So we really see lots of momentum on the demand side.

And the good news is that Vorwerk has been able recently to attract more employees since the general labor market in Germany continues to weaken and especially in construction sector. And that's where Vorwerk is, at the moment, able to attract new capable employees to help them fulfill this growth. And as you see, the growth in the second quarter was at 27%. And that's the reason why the company also increased its forecast for the full year and now expects more than EUR 410 million in revenues.

On the right-hand side of this page, you see DTS. And DTS provides IT security solutions for German mid-market companies. And also DTS sees some very high order momentum. As you can see, the second quarter had a growth of 17%, with 14% EBITDA margin, but actually, for the second half of 2024, DTS might be up for even better development. And I could imagine that we see a few positive surprises, also because there's a large regulatory push in the EU. It's called NIS2. And that requires every entity, it can be companies or public entities, that are [ in the furthest sense ] related to infrastructure that they invest heavily into cybersecurity. And I think that this is a great opportunity for DTS going forward. The EBITDA margin of DTS is actually expected to grow further by increasing share of their own software.

And now we go to the next page, where we see Aumann and Delignit.

And Aumann, as we saw at the very beginning, also had a very strong half year and also a strong quarter, with EBITDA margin region now 11% in the second quarter and revenues growing by 22%. On the demand side, what we are seeing at the moment is that some OEMs are revising the time line of their e-mobility rollout. And that leads to a temporarily weaker demand, but I believe that there is a lot of catch-up potential because no OEM actually questions the transition towards e-mobility. To be frank, I also think it's not possible to go back to combustion engines. I think this transition will continue. What OEMs are doing right now is to maybe push forward a little bit the time lines because of their own technological problems, and in the case of Volkswagen mainly software problems, but obviously also because automotive demand by the consumer is, at the moment, a bit weaker amid the high interest rates.

So what I think we are currently seeing is a temporarily weaker demand, but the investments into new e-mobility platforms by OEMs will continue. And I'm sure that the catch-up will happen and Aumann will benefit from it. And the big advantage is that Aumann has a very high order backlog. Aumann is completely fully booked out for the next month -- or 12 month, I would say. And Aumann also has net cash of EUR 117 million, giving them lots of growth opportunities, both organically but also through M&A, to increase the shareholder return of the company.

On the right-hand side on this page, you see Delignit. And also Delignit feels the lower demand in the automotive industry right now. For Delignit, the caravan sector of the automotive industry is the most relevant one. And here we see weaker demand, especially after the strong post-COVID years where many people bought caravans. It seems that, in the first half of 2024, caravans [ like the ] VW Grand California are not the vehicles that or the investments that consumer are focusing at the moment. Nevertheless, Delignit expects demand to recover in the second half. That's what the OEMs are signaling to us. And therefore, I believe and the management of Delignit believes that the forecast that Delignit gave at the beginning of the year is still absolutely achievable.

On the next page, you see our Consumer Goods segment with our 2 companies Hanke Tissue and CT Formpolster. And here we have the picture that Hanke Tissue actually had a very good first half and also a very good second quarter of 2024. And EBITDA margins are back to their high levels where they used to be -- well, they were a bit lower in the last 2 years. And we also see a moderate revenue growth.

For CT Formpolster, on the other hand, the demand in the furniture industry; and the mattress industry, which is the important market for CT Formpolster, was a bit weaker in the first half year and especially in the second quarter where it was significantly weaker. What we're seeing right now, however, is that demand rebounds, so order intake in August is actually very promising. And what we expect here is a much stronger second half of the year.

In total, when we look at the next slide, we see that overall revenues in the group grew by 9% and reached EUR 467 million. And the EBITDA of the group grew by the 75% that we've seen at the beginning and to a 12% EBITDA margin. If we now compared the second quarter of this year to the second quarter of the last year, that's what's shown on the next page, we see that revenues grew actually by 16% to EUR 262 million. And EBITDA grew by 83%. So that's the acceleration I was talking about before. Compared to the previous year, it becomes even more obvious because we see this increase of 5 percentage points in the EBITDA margin.

If we go on the next page, we see that, for the full year of 2024, we expect revenues to grow to EUR 1 billion for the first time in our history and adjusted EBITDA to be above 10%. Previously, we expected 10%, but if you look at the figures right now, especially in the second quarter of 2024 where we had 13% EBITDA margin, I think it becomes quite obvious that we will surpass these 10% margin that we originally forecast.

Going one page ahead, you see that, over the last 18 month but also especially in the first half year of 2024, we invested a lot in the shares of MBB companies. The right column shows the investments we did in the first half of 2024. And there you see that, through a buyback offer, we invested EUR 38 million in MBB shares. We increased our stake in Vorwerk and invested 10% -- sorry, EUR 10 million in Vorwerk shares. And Aumann had its own buyback program where they invested EUR 6 million. And that adds up to EUR 54 million that in the first 6 month of 2024 were invested into our own group companies.

On the next page, you see that, nevertheless, our cash position is at a very high level. In fact, over the group, we have EUR 424 million in cash, of which almost EUR 280 million of cash are in the holding MBB SE. And of course, this cash is going to be used for new acquisitions.

If we go on the next page, what we see is that the climate for new M&A activity has improved in our eyes. Because as you know, the high interest rates make it more difficult for financial investors to get financial leverage. MBB itself is used to usually not using a lot of financial leverage. That's why we are less affected by it. Our equity-based financing approach makes us more competitive these days. And I think, as M&A valuations are coming down this year, and that's what you see on the graph on the left side -- and we are going to see more M&A activity both for add-on acquisitions in our portfolio but also for stand-alone acquisitions.

And with that, I'm very happy to answer any questions you have regarding our first half year figures.

[Unknown Attendee]

Thank you for the dive into the numbers.

We will now move on to the Q&A session. [Operator Instructions] And so far, we don't have any questions.

[Constantin Mang, executive]

Everyone is on a vacation, [ it seems, yes ].

[Unknown Attendee]

Yes. Now we have one hand up. Mr. Marinoni?

[Ralf Marinoni, analyst]

Yes. I've got a question regarding your Hanke Tissue company. Is it fair to assume that EBITDA margin is in the double-digit area on group level? And do you think that -- this positive? And if so, do you think that this development is sustainable and does not benefit from, let's say, a onetime effect?

[Constantin Mang, executive]

Yes. First of all, that's a very fair assumption. That's exactly where the EBITDA margin is, in the comfortable double-digit space. And to be honest: This is what we have usually seen before the whole turmoil on the energy markets. Producing tissue paper consumes quite a lot of energy and other raw materials. And these were fluctuating a lot in the last 2, 3 years; and that made it difficult for Hanke to earn its usual double-digit EBITDA margin. As you saw on one of the pages I showed at the beginning, actually the last year was pretty difficult for Hanke since they had made contracts for energy purchases in advance. And it was therefore not as easy as it usually is to really see double-digit margins, but before these last 2, 3 years, it has been pretty stable. And what we expect right now is that we continue this stability in double-digit EBITDA margins going forward.

[Unknown Attendee]

And we have some more questions via chat. Do you [ discuss ] to buy Aumann shares this year?

[Constantin Mang, executive]

Well, Aumann have its own share buyback program. I showed it at -- on one page that they acquired just in this year EUR 6 million of own shares. And that, of course, also meant that our share in Aumann increased further. We are now at roughly 50% and we feel comfortable with that share at the moment. The trade-off is always, if we now increase the share further, we also [ crowd out ] a little bit the free float, which we don't necessarily want to do, so I would say, at the moment, we feel quite comfortable with the share in Aumann that we have.

[Unknown Attendee]

One more. Can you please quantify the personnel increase of Vorwerk? Can Vorwerk grow without subcontractors as they did in the past?

[Constantin Mang, executive]

Well, let me start with the second question. And Aumann (sic) [ Vorwerk ] has always used subcontractors and will do so. The question is -- will continue to do so. The question is what are they basically using the subcontractors for. And I think that the majority of the work in the most simple, let's say, digging processes and the more construction work that they do will always be outsourced. And Vorwerk needs to focus on the really high-value, accretive activities in the high-voltage electricity field but, of course, also in the high-pressure gas sector or hydrogen sector where not as many people can be substituted by external sources.

In terms of total figures, I would say we are not quite where we need to be, but I mean we see an increase of around 7% over the last year. So we are getting ahead, but I think what's more important is that the current momentum is right. I mean not so much maybe the, I think, around 1,800 employees that they have at the moment but that right now Friedrich Vorwerk seems to be -- seems to have a good momentum and sees a lot of potential to attract more people. And 1 or 2 years ago when other construction sectors were doing well as well, we didn't see the positive momentum that we wanted to see. And we also -- or Friedrich Vorwerk invested a lot in their [ employer brand ]. And I think these investments are starting to pay off, and that's why the outlook is much better in that regards.

[Unknown Attendee]

And Dr. Mang, can you give further insights into your M&A pipeline? Do you still expect to announce an M&A transaction this year? Can you give an update on your public market fixed-income and equity investments?

[Constantin Mang, executive]

Well, we have a -- so starting with the M&A question, right? We do have a very good pipeline. I mentioned that valuations are coming down, and that makes it also more interesting for us to invest in new companies. Over the last 2 years, we were not doing any major acquisition, as you all know, and instead, we decided to invest into our own portfolio. I showed the figures since the beginning of last year, over EUR 100 million in fact. And that was, I think, the better investment. If you look at the multiples that we saw of Friedrich Vorwerk last year and the growth opportunities that we saw with the company, it was difficult -- a difficult benchmark for every new company that we considered to add to our group to be more attractive. And at the moment, though Friedrich Vorwerk is still a very attractive company, for sure, and -- we also see companies in the M&A market that have much more reasonable valuations. And therefore, I think the likelihood has increased both for add-on acquisitions but also for the -- for completely new stand-alone targets.

In terms of our stock portfolio. I mean you see them in -- you see our investments in the balance sheet. There is no major change to the previous quarter. Of course, the market turmoils yesterday affected us, similarly to the broader market. As you know, we do have a large-cap public equity portfolio where we have around 1/3 of our liquidity in the holding. And that moves with the market, but I think that that's pretty much what you would expect. And -- yes.

[Unknown Attendee]

Do you expect major acquisitions already in 2024? And are you talking to targets?

[Constantin Mang, executive]

Yes, we're definitely talking to targets. And it's always a bit difficult to make timing forecasts for M&A transactions because they are so binary. And whether they happen or not is a pretty white -- black-and-white decision, but I think the potential is definitely there, that we do a major acquisition this year. Concerning add-on acquisitions, I'm actually quite confident that we will make bolt-on acquisitions in the coming month. We have a few quite advanced discussions there, so there I'm very confident. And on the stand-alone acquisition front, I think it's also well possible that we will make a major acquisition in the course of 2024.

[Unknown Attendee]

[ Which dimensions ] regarding revenue and EBITDA [ has DTS to ] fulfill to be ready for an IPO? And when could an IPO take place?

[Constantin Mang, executive]

So -- and to be honest: We -- I mean I get these questions quite regularly, but we are not planning an IPO of DTS and have also not set any specific KPIs that would be -- would have to be met in order to do an IPO. At the moment, we really think that DTS has a great development they had of itself. And to be honest: We would like to participate from this development as much as we can. And that's why we are not thinking about selling a single share in DTS at the moment. And we also haven't set specific benchmarks when we would consider that.

[Unknown Attendee]

"Dr. Mang, the liquidity positions is really strong since years. The free float of MBB shares is not huge. There are no major acquisitions in sight, so why don't you pay a EUR 10 dividend instead of carrying the cash; or buying back stock, which would reduce free float even further? Congratulations to the numbers."

[Constantin Mang, executive]

Well, I would, first of all, disagree that there is no acquisition in sight. I mean I've discussed it in the last few minutes that I am actually quite confident that we will see further acquisitions. So it's not that we are lacking the fantasy of investing the capital and achieving similar returns as we have with our current subsidiaries, so I don't quite agree with the -- sort of with the statement at the beginning of the question. And if it was true that we didn't have any fantasy for major acquisitions, then I would totally agree. I think then we would have to think about returning our cash to the shareholders because we are not here to just accumulate cash, but that's not how I look at things.

[Unknown Attendee]

And we have one more question via audio chat. Mr. Marinoni?

[Ralf Marinoni, analyst]

A follow-up question regarding DTS from my side. Dr. Mang, you mentioned that there is a regularity (sic) [ regulatory ] push regarding companies to invest into IT security. Maybe you can give us some more details on this topic.

[Constantin Mang, executive]

Yes, for sure. It's an EU regulation that is called NIS2. It suggests that there has been a NIS1, and that's actually right. NIS1 actually required larger companies in the critical infrastructure field to fulfill certain cybersecurity hurdles. And the idea behind it was to make, for example, the European energy infrastructure less prone to attacks from other countries. NIS2, however, extends that to, first of all, a wider scope of companies, so we are not only talking about whatever power plant anymore, but it's a very wide field of who is part of infrastructure, any hospital, for example, health care providers, these kind of thing. And secondly, it lowers the hurdle regarding the size, so even smaller companies are now very quickly falling under this new regulation. And that means they have to fulfill certain obligations.

First of all, they need to sort of prove that they have a cybersecurity strategy. And the first step for DTS is actually helping the companies to assess where they are standing in terms of cybersecurity and creating a map on where they are standing and what areas of their security infrastructure are good and where they need to improve. And that's, of course, a very important first step for DTS to get into the conversation with these companies and then develop with them new concept of how to improve their cybersecurity infrastructure. And that's why I expect a lot of market opportunities coming out of this new regulation, for DTS.

[Ralf Marinoni, analyst]

Okay, understood.

[Unknown Attendee]

And we have 3 more questions from the chat. You commented the order backlog of DTS. Do you expect further increases in EBITDA reached in half year -- in the second half year?

[Constantin Mang, executive]

The -- well, absolutely speaking, of course, yes. Margin-wise, I also think that there is room for a further increase. I -- compared to last year, DTS was already able to increase its margin, especially in the second quarter by 1 percentage point or something. And I could imagine that this kind of growth will continue in the second half as well. There's definitely more room for improvement regarding the margin as the share of software business is increasing.

[Unknown Attendee]

And do you have -- bought some crypto assets in the past? Or are you planning in the future, from the cash?

[Constantin Mang, executive]

Well -- and for all the listeners who know us for a while, we do actually have some physical gold on our balance sheet and -- but that also mirrors a little bit our risk aversiveness in these regards. And we definitely do not own crypto assets, yes. We cannot weigh them and not put them in the safe and this is not something we invest. We have this portfolio of equities, as we discussed before. We also, of course, invest in bonds, especially government bonds. And I would say each of these positions are around about 1/3. At the moment, we have more bonds on equities and of -- 1/3 of our liquidity in the holding, but we don't have any crypto assets, no.

[Unknown Attendee]

And one more question. Do you continue to support or might even increase your support for Delignit in the current market turmoil?

[Constantin Mang, executive]

Well, I mean what we are seeing at Delignit is a temporarily difficult market environment. I mentioned before -- and the caravan market was very strong over the last years. And at the moment, it seems consumers are not as interested at -- in the caravans anymore, but that doesn't mean that Delignit as a company is not as interesting anymore. I think the -- first of all, the demand for caravans and light commercial vehicles comes back. And then there are also different business areas in which Delignit is actually performing pretty well. And as you know, the have -- they also supply sectors like the rail industry. And I think that the company as a whole has a very good future ahead of itself. And therefore, we completely believe in Delignit. And we don't intend to do anything else with our holding.

[Unknown Attendee]

In the meantime, we have received no further questions. I will hold the room a few more moments so you have a chance to let us know. And it doesn't look like that. We therefore come to the end of today's earnings call. Thank you for joining, listening and your questions. A big thank you also to you, Dr. Mang, for your presentation and the time you took to answer the questions.

Should further questions arise at a later time, please feel free to contact investor relations or us.

And with this, on behalf of MBB SE, we wish you all a happy day. Take care. And bye-bye.

[Constantin Mang, executive]

Thank you very much.