Detailed statement by Mutares on the Gotham City research report and the short attack as well as the allegations made therein

Munich, September 27, 2024 – The Management Board of Mutares Management SE, the general partner of Mutares SE & Co. KGaA (ISIN: DE000A2NB650) (“Mutares”), has received the report of Gotham City Research on September 26, 2024, and issues the following detailed statement following an initial statement:

The report published by Gotham City Research on September 26, 2024, (“Report”) consists mainly of facts that have already been published by Mutares. However, from Mutares’ point of view, these facts are misleadingly presented and provided with allegations, assumptions and insinuations in order to distort the facts and pursue its own economic interests (short position) to the detriment of Mutares shareholders. Gotham City Research did not attempt to contact Mutares at any time and in particular did not give Mutares the opportunity to comment on the allegations contained herein prior to the publication of the report.

Mutares firmly rejects the accusations made in the report:

Mutares’ business model, which also includes global expansion, requires initial investments, which experience has shown to pay off with the first transactions.
Mutares’ growth strategy includes significant investments in the existing portfolio with the clear goal of a return on invested capital of 7-10x.
Successful Mutares exits in 2022-2024 with net proceeds of over EUR 200 million confirm the Mutares strategy.
All transactions with related parties of Mutares have been carried out and published in accordance with legal requirements.
Mutares is convinced that reporting the net asset value (“NAV”) is not meaningful, as no comparable reporting date analysis is possible due to constant changes within the portfolio companies.
The condensed interim consolidated financial statements as at June 30, 2024, prepared and signed by the Management Board of the general partner correctly show the value of EUR 422.2 million for cash and cash equivalents in both the balance sheet and the cash flow statement.

The Mutares growth strategy of recent years

Mutares has clearly committed to a global growth strategy and has pursued it consistently and successfully since 2020. Mutares is investing significantly, particularly in the Automotive & Mobility segment, in order to drive forward its strategy of a solution provider and consolidator in the SME supplier industry. The aim was and is to be an active market player in this segment and to achieve a relevant size. The years 2020 to 2022 inclusive were challenging crisis years due to the COVID-19 pandemic and the sharp rise in inflation and interest rates. Some successful restructurings were set back as a result. Following the very strong growth and high investments of recent years, Mutares entered a consolidation phase in 2024 in terms of revenue and the number of portfolio companies.

With further internationalization and geographical expansion, Mutares is now selectively continuing its growth strategy: After opening an office in Shanghai (China), the next expansion step in Asia followed with a further location in Mumbai (India). Entering the Indian market is a logical step for Mutares, as the portfolio companies SFC Solutions and MoldTecs (both part of Amaneos) already have activities in this fast-growing market. India, in particular, offers enormous opportunities for Mutares as a target market with strong economic growth expected in the coming years. With the opening of an office in Chicago (USA), Mutares is also taking an important step towards expanding its successful business model to the North American market.

Given its successful expansion into China, India, and the USA, Mutares believes it is well on the way to implementing its successful business model in new attractive markets. The acquisition of CIKAUTXO Rubber & Plastic Components (Kunshan) Co., Ltd. in China, which has already been implemented, underlines the strategic importance of expansion into new markets. At the same time, Mutares is thus underpinning its long-term growth ambitions to achieve consolidated revenues of EUR 10 billion and a net income of the Mutares Holding of around EUR 200 million in the fiscal year 2028.

Against the background of the completed and signed transactions in the fiscal year 2023, the transaction-rich first half of 2024 and the assumptions regarding further intended transactions in the course of this year as well as the plans for the individual portfolio companies, Mutares confirms the forecast for the fiscal year 2024 and continues to expect an increase in revenues for the Mutares Group to a total of around EUR 5.7 billion to EUR 6.3 billion.

Financing strategy and investments in the portfolio as part of the implemented growth strategy

In order to implement the growth strategy, it was and is necessary to make selective investments. Mutares has consistently pursued its growth target in recent years and created two relevant portfolio groups in the supplier market with the FerrAl United Group and the Amaneos Group. This development has required extensive investments. Mutares considers the growth of the two groups to be essentially complete. The focus is currently on consolidation and increasing capacity utilization by consolidating the market. Mutares therefore expects fewer investments in the portfolio in the future and thus lower financing requirements for the portfolio on the part of Mutares.

Following the strong growth of recent years, Mutares is also planning for the other segments with lower average investment requirements for acquisitions. This strategy is already being actively implemented:

In January 2024, Mutares increased the existing senior secured bond with a nominal volume of EUR 150 million and a term until March 31, 2027, by an amount of EUR 100 million to the maximum nominal volume of EUR 250 million. Most recently, a new senior secured bond with a volume of EUR 135 million was placed in September 2024. Mutares is thus pursuing the goal of optimizing the financing structure and the costs of debt financing. The new bond will therefore be used primarily to finance general business purposes and further portfolio growth as part of the company’s international expansion, in particular to finance further company acquisitions.

Exits

In the course of the strategic changes since 2020 and within the typical holding period of the portfolio companies of 3-5 years, the first significant sales of portfolio companies were carried out in the years 2022-2024. With the sale of BEXity, SMP and Frigoscandia Group, which resulted in net proceeds of over EUR 200 million, Mutares has been able to realize significant exits of portfolio companies to strategic investors in recent years.

Prior to this, STS Group AG, of which Mutares was the majority shareholder, was sold to an international strategist (Adler Pelzer Group) in 2021. Since then, the latter has continued to manage the business and integrated STS Group AG into the buyer’s existing portfolio. The sale represents a further clearly positive contribution to earnings, which was achieved through the successful implementation of the business model (buy – restructure – sell).

In addition, after a successful exit, the success of the further operational development of a sold investment is no longer in the hands of Mutares.

Insofar as the report selectively lists exits before 2020 and thus before the implementation of Mutares’ communicated growth strategy, the investments in Pixmania and Grosbill were ultimately unsuccessful. In both cases, Mutares invested without achieving a substantial return. Past experience has shown that 10-20% of acquired portfolio companies perform worse than assumed at the time of acquisition. In such cases, it is not uncommon in the private equity sector to sell the company to the management or a smaller market player that can also achieve a turnaround with new ideas.

The sale of portfolio companies to buyers with whom Mutares has already carried out successful transactions in the past is also not unusual and is evidence of the parties’ trust in each other. This “phenomenon” also occurs on the buy side, where Mutares has acquired companies from the same seller several times in recent years (e.g. Magna, Siemens Energy or Metsä Group).

Transactions with related parties

Mutares defines – in the context of financial reporting and in accordance with the relevant provisions of IAS 24 – related parties as parties that can be significantly influenced by Mutares or over which Mutares can exercise significant influence. These include subsidiaries, including those that are not consolidated, and associates. On the other hand, they also include natural persons with significant voting rights and members of management in key positions such as members of the Executive Board and Supervisory Board and their respective close family members.

This definition and details of transactions between Mutares and related parties are disclosed in the notes to the consolidated financial statements. The definition of related parties in accordance with IAS 24 and the accuracy and completeness of the relevant disclosures on transactions with related parties were the subject of the audit. The auditor issued an unqualified audit opinion on the consolidated financial statements of Mutares for the fiscal year 2023.

NAVs

Until 2020, Mutares provided investors with the so-called NAV, which was based on the plans for the portfolio companies. However, Mutares already announced in the results presentation for the first quarter of 2020 that it would cease communicating NAVs, as the key figure does not fit the business model and is not a meaningful measure for assessing Mutares’ performance.

This decision was based on the following considerations:

It is part of Mutares’ business model to acquire loss-making companies. This includes extensive restructuring and transformation measures that have to be developed and implemented by the operations team with the local management after the acquisition of the portfolio companies.
The NAV, on the other hand, is subject to numerous influencing factors that naturally fluctuate and therefore do not allow any statement to be made about the actual earnings power of the portfolio companies.

The realization of value also depends on the timing of the sale and the strategic interest of the buyer. These factors have a substantial influence on the value of the investments held by Mutares. By focusing on the net income of the holding company, Mutares therefore communicates a key figure that shows the earnings power of the Mutares Group and serves as a comprehensible and verifiable performance indicator for the Management Board and shareholders, as this is also the basis for a possible dividend payment.

“Error” in the half-year financial report for the 2024 fiscal year

The report identified a discrepancy between the cash and cash equivalents reported in the consolidated statement of financial position as at June 30, 2024, and the corresponding item in the consolidated statement of cash flows in the condensed interim consolidated financial statements as at June 30, 2024. According to the consolidated statement of financial position, the item amounts to EUR 394.2 million, while the consolidated statement of cash flows shows EUR 422.2 million.

However, the discrepancy in the items in the published version of the interim financial statements is merely a transcription error that occurred inadvertently during the conversion of the binding financial information into the graphic format for the publication of the half-year financial report 2024 on Mutares’ website. However, the condensed interim consolidated financial statements as of June 30, 2024, prepared and signed by the Management Board of the general partner correctly show the value of EUR 422.2 million for cash and cash equivalents both in the consolidated balance sheet and in the consolidated cash flow statement. This purely editorial error will be corrected immediately and could easily have been clarified upon request.