Mutares : Annual Financial Report 2023 of Mutares SE & Co. KGaA

Mutares SE & Co. KGaA

Combined Management and Group Management Report for fiscal year 2023

Mutares SE & Co. KGaA, Munich

Combined Management and Group Management Report

for the fiscal year from January 1 to December 31, 2023

1. Fundamentals of the Company and the Group

4. Position of the Company including the asset, financial and earnings position 37

5. Performance indicators and the Management Board's assessment of business

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Mutares SE & Co. KGaA

Combined Management and Group Management Report for fiscal year 2023

1. Fundamentals of the Company and the Group

1.1 Business model and organization

Mutares SE & Co. KGaA, Munich, (hereinafter referred to as "the Company" or also "Mutares") is an international listed private equity investor focused on special situations. After the acquisition, the business model comprises three phases of value creation that portfolio companies usually go through during their affiliation with Mutares: Realignment, Optimization and Harvesting. Accordingly, after the transformation (restructuring, optimization and repositioning) and/or development, the identified value enhancement potential is realized through the sale.

Mutares thus acts like a typical private equity investor for special situations. However, the stock market listing also enables a wide range of investors to participate directly in the business success of a private equity-orientated business model.

When selecting target companies ("targets"), Mutares focuses primarily on the acquisition of parts of large groups (carve-outs) and medium-sized companies in situations of transition. Mutares' investment focus is on companies with high development potential, which already have an established business model - often combined with a strong brand. Against this backdrop, targets with the following characteristics are of particular interest to Mutares for an initial acquisition as so-called "platform investments" - i.e. as targets without direct operational links to a company already in the Mutares portfolio:

• Spin-offs/Carve-outsof Groups
• Sales of EUR 100-750 million
• Established market position (products, brand, customer base, technology/know-how)
• Economically challenging situation or situation of upheaval (e.g. pending restructuring)
• Operational improvement potential along the value chain
• Focus of activities in a core region of Mutares, above all in Europe and increasingly also in China

Mutares is committed to its portfolio companies during the entire time they are part of the Mutares Group and acts as a responsible and entrepreneurial shareholder who actively supports the upcoming change phases - based on extensive, long-term industrial and restructuring experience. The goal is to further develop the portfolio companies, which were unprofitable or unprofitable at the time of acquisition, through organic and inorganic growth and ultimately to sell them at a profit.

The three phases of value creation that follow the acquisition are characterized in particular by the following features:

1. Realignment
   After acquiring targets through its own acquisition companies, Mutares identifies improve- ment projects along the entire value chain in the portfolio companies using its own specialists and in close cooperation with the local management, which in total result in a comprehensive optimization or transformation program.
   1 The term "investment" is sometimes used as a synonym in the following.
2. Optimization

• The management and employees of the portfolio company play a key role in managing the change associated with operational optimization. Involving employees and management in the company's success is an important element of the development strategy for Mutares. Through their close cooperation with Mutares consultants on site, the recovery course of the acquired companies is supported in a targeted manner by bringing in Mutares' extensive

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Mutares SE & Co. KGaA

Combined Management and Group Management Report for fiscal year 2023

restructuring know-how. Even after the successful completion of an initial optimization or transformation program, Mutares continues an active investment management. This includes the continuous improvement of processes and the monitoring of further development progress as part of ongoing close support.

• Already during the operational stabilization of a portfolio company, measures for growth are examined, developed and implemented. These include initiatives for organic growth such as the broadening of the product portfolio through the development of innovative products or the development of new markets and sales channels, partly by means of investments in sales and (production) facilities. In addition, Mutares systematically looks for opportunities to develop its investments inorganically as well: With strategic additions, so-called"add-on acquisitions," the rapid implementation of the planned growth strategy of a focused buy-and- build approach is aimed at.

1. Harvesting
   The sale of a portfolio company in order to realize the value is generally pursued by Mutares within a period of three to five years after its acquisition with the goal of achieving an ap- propriately high return on invested capital over the holding period. Over the entire life cycle (i.e. the period between the acquisition and the sale), the return on invested capital (ROIC) for Mutares should be a multiple of 7-10.

Mutares pursues the private equity-typical strategy of allowing the shareholders to participate directly and continuously in the company's success. Against this backdrop, a sustainable and attractive dividend policy is one of the main elements of the Mutares business model. The net income of Mutares SE & Co. KGaA is mainly derived from three different sources, namely revenues from the internal consulting business, dividends from portfolio companies and exit proceeds from the sale of investments. Sales revenues and dividends (mainly income from investments received in the same period) make up what is known as portfolio income. Due to this diversified revenue structure, Mutares believes that even in a year that was operationally difficult for various investments, it is generally in a position to generate a sufficiently high net income to be able to continue its long-term sustainable dividend policy. Against this backdrop, Mutares sees itself in a position to update its dividend strategy from fiscal year 2023 on in view of the strong growth of recent years, which now provides for an annual minimum dividend of EUR 2.00 per dividend-bearing share. In exceptionally successful fiscal years, the company will also consider the extent to which the remaining unappropriated surplus will also be distributed in the form of a possible bonus dividend when proposing the appropriation of profits in the future.

In addition to its domestic market of Germany, Mutares is present in other strategic core markets in Europe through a total of nine further offices, including in France, Italy, Sweden and Spain. This is intended to ensure a constant flow of deals based on a regional network. In addition, the expansion into China in fiscal year 2023 with the opening of an office in Shanghai and the planned opening of an office in the US in fiscal year 2024 have initiated further geographical expansion.

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Mutares SE & Co. KGaA

Combined Management and Group Management Report for fiscal year 2023

In fiscal year 2023, Mutares added a fourth segment to the previous three segments in light of the strong growth of recent years and with the strategic intention of expanding the target universe relevant to Mutares. Lapeyre, keeeper Group and FASANA were separated from the Goods & Services segment and included in the new independent Retail & Food segment.1 The signing of an agreement to acquire Gläserne Molkerei from the Emmi Group in July 2023 was the first step towards further strengthening this new segment. As at 31 December 2023, the portfolio of Mutares SE & Co. KGaA contains 30 operating investments or investment groups (previous year: 29), which are divided into the 4 segments (1) Automotive & Mobility, (2) Engineering & Technology, (3) Goods & Services and

1. Retail & Food.
2. • Automotive & Mobility:
     The portfolio companies in the Automotive & Mobility segment operate worldwide and supply renowned international original equipment manufacturers ("OEMs") for passenger cars and commercial vehicles.
   • 1. Amaneos2
     2. FerrAl United Group3
     3. HILO Group (formerly: KICO Group and ISH Group)4
     4. iinovis Group
     5. Peugeot Motocycles Group
   • Engineering & Technology:
     The portfolio companies in the Engineering & Technology segment serve customers from various sectors, including the energy and chemical industries, public infrastructure and the rail sector, in particular in the area of plant and mechanical engineering.
   • 1. Byldis
     2. Clecim
     3. Donges Group
     4. Efacec
     5. Gemini Rail Group and ADComms Group
     6. Guascor Energy
     7. La Rochette Cartonboard
     8. NEM Energy Group5
     9. Steyr Motors Group
     10. VALTI6

1. The previous year's figures reported below have been adjusted to reflect the new segment structure.
2. Since fiscal year 2023, the previously separate subsidiaries MoldTecs Group, LMS and the SFC and Elastomer companies have been combined organizationally under the umbrella brand Amaneos.
3. Since fiscal year 2023, FerrAl United Group has combined the previously separate investments Cimos Group, PrimoTECS and Rasche Umformtechnik as well as the add-on acquisitions of MMT-B, BEW, Selzer and Gesenkschmiede Schneider, Schöneweiss & Co, Falkenroth Umformtechnik and Walor made in the fiscal year.
4. HILO Group now combines the previously separately managed portfolio companies KICO Group and ISH Group, including the recently completed add-on acquisitions, into these two portfolio companies.
5. The NEM Energy Group also includes the Balcke-Dürr Group, which was integrated in fiscal year 2023.
6. Valti was sold to the local management at the beginning of fiscal year 2024. As the sale was already highly probable as of the reporting date, the assets and liabilities of Valti were recognized and measured as held for sale in the Consolidated Financial Statements in accordance with IFRS.

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Mutares SE & Co. KGaA

Combined Management and Group Management Report for fiscal year 2023

• Goods & Services:
  The portfolio companies in the Goods & Services segment offer specialized products and services for customers from various industries.
• 1. Asteri Facility Solutions and Palmia Group
  2. Conexus7
  3. Frigoscandia Group
  4. Ganter Group
  5. GoCollective, ReloBus and MobiLitas (formerly: part of the Arriva Group)
  6. REDO
  7. Repartim Group
  8. SRT Group
  9. Terranor Group
• Retail & Food:
  The portfolio companies in the Retail & Food segment are manufacturers and distributors in various industries, including household products and food processing.
• 1. FASANA
  2. Gläserne Molkerei
  3. keeeper Group
  4. Lapeyre Group
  5. Prénatal
  6. TeamTex

1.2 Research and development

The Group's research and development activities are conducted exclusively in Mutares' operating portfolio companies. As a rule, these do not conduct basic research. Product-related development is carried out in particular in the technology-driven investments of the Mutares Group, above all in the Automotive & Mobility segment.

Overall, as in the previous year, the Group invested a single-digit million amount in research and development in fiscal year 2023; capitalized development costs are of minor importance for the Group as a whole.

7 In fiscal year 2023, the previously independent portfolio companies EXI and SIX Energy were merged and now operate under the name "Conexus."

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Mutares SE & Co. KGaA

Combined Management and Group Management Report for fiscal year 2023

2. Economic Report

2.1 Macroeconomic and industry-specific conditions

World

According to the ifo Institute (source: "ifo Economic Forecast Summer 2023," published in June 2023)8, the global economy was favored by developments in China at the start of 2023. A decline in inflation rates was noticeable in the advanced economies over the course of 2023, particularly in the energy and commodities sectors. Despite this development, however, inflation remained at a high level. The restrictive monetary policy pursued by the central banks in response to this development initially had a clearly noticeable dampening effect on the global economy. However, catch-up effects in demand from China, impetus from the recovery from the pandemic and the positive job market situation in the US led to an increase in consumer spending.

According to the ifo Institute (source: "ifo Schnelldienst December special edition 2023"), global industrial production rose in the third quarter of 2023, but this does not yet indicate a sustained upturn. The US economy remains robust and is being supported by consumer spending by private households despite a restrictive monetary policy. In China, possible negative effects from the property crisis are being offset by stimulating government intervention, which means that economic growth accelerated in the third quarter of 2023. Global trade continues to weaken, partly because many companies are reducing their sometimes high inventories of intermediate products instead of purchasing new ones now that the supply chain problems have been largely overcome.

Eurozone

According to the European Commission's "Winter Forecast 2024," the modest growth in the EU and the eurozone in 2023 is largely due to the economic recovery following the pandemic in the two previous years. However, growth stagnated against the backdrop of falling household purchasing power, the slump in foreign demand and the drastic tightening of monetary policy.

According to the ifo Institute (source: "ifo Schnelldienst December special edition 2023"), consumer demand among private households in the eurozone has weakened due to the development of real wages, while industrial activity, particularly in the industrialized regions of Central Europe, is still being impacted by the energy price shock from the previous year. Despite the weak economic situ- ation, this has not affected the European labor market and the unemployment rate remains at a low level. The most recent inflation rate, i.e. in December 2023, was 2.9% (full year 2023: 5.4%) and thus remains above the European Central Bank's (ECB) target figure.9

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Mutares SE & Co. KGaA

Combined Management and Group Management Report for fiscal year 2023

Investment sector

Following record years before the pandemic, the development in the private equity sector showed a downward trend in 2023: based on analyses by the consulting firm PwC, global buyout activity fell from a record high of nearly 11,000 transactions in 2021 to just over 8,000 in 2023, which corresponds to a decline of 27% within two years. The main reasons for this were a challenging macroeconomic environment and rising financing costs due to higher interest rates. Nevertheless, the market is showing some resilience as financial investors are able to benefit from lower valuations.

According to the Bundesverband Deutscher Kapitalbeteiligungsgesellschaften - German Private Equity and Venture Capital Association e.V. (BVK) ("The German Private Equity Market in 2023," March 2024), a similar trend was seen in the German private equity market in 2023: the total investment volume fell from EUR 15.4 billion in the previous year to EUR 10.5 billion. The investments of the investment companies based in Germany in the financing phase of the buyouts relevant for Mutares reached a total of EUR 6.5 billion (previous year: EUR 8.8 billion). The volume of investment sales showed different developments in 2023 in the exit channels that are particularly important for Mu- tares: While sales to strategic investors increased to EUR 1.6 billion (previous year: EUR 1.1 billion), sales to other investment companies declined to EUR 0.9 billion (previous year: EUR 2.0 billion). According to KfW Research, the business climate in the German private equity market was slightly brighter at the end of 2023, but a cautious start to 2024 is assumed.

2.2 Business performance

In the fiscal year 2023, the Mutares Group generated revenue of EUR 4,689.1 million (previous year: EUR 3,751.7 million) and EBITDA according to IFRS of EUR 756.9 million (previous year: EUR

181.5 million). Adjusted EBITDA (as defined in section 5.1) amounted to EUR 3.5 million (previous

year: EUR -32.7 million).

The revenue of Mutares SE & Co. KGaA as the holding company of the Mutares Group result from the Group's internal consulting business, i.e. consulting services to affiliated companies and management fees. The increase to EUR 103.6 million in fiscal year 2023 (previous year: EUR 71.1 million) is a consequence of the enlarged portfolio in connection with the high acquisition activity in the past, which was followed by an increase in operational consulting capacities. Sales and dividends from the portfolio (mainly income from investments received in the same period) result in the so-called "Port- folio Income," which amounted to EUR 112.1 million for fiscal year 2023 (previous year: EUR 139.8 million). As a result, the net profit for the year according to HGB amounts to EUR 102.5 million, compared to EUR 72.9 million in the previous year.

Mutares' business performance in fiscal year 2023 was characterized by the following significant events:

• High transaction activity
  The fiscal year 2023 was again characterized by a high level of transaction activity. All four segments were strengthened by a total of 16 completed acquisitions.10 In addition, agree- ments were signed for two further acquisitions, although the transactions had not yet been finalized as of the reporting date.

10 Cf. the comments in the reports from the portfolio companies (para. 0).

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Mutares SE & Co. KGaA

Combined Management and Group Management Report for fiscal year 2023

The acquisitions resulted in gains from bargain purchases11 totaling EUR 727.2 million (pre- vious year: EUR 262.0 million), which are recognized in other income in the Consolidated Financial Statements.

On the exit side, Mutares successfully completed the sale of seven portfolio companies in fiscal year 2023. Of particular note is the sale of Special Melted Products ("SMP"), which represents the most successful exit in the company's history to date with a cash inflow for the Mutares holding company of around EUR 150 million and income at the level of the Annual Financial Statements of around EUR 130 million. Furthermore, an agreement was signed on the sale of Frigoscandia in fiscal year 2023, and the transaction was finalized in the first quarter of fiscal year 2024 The deconsolidations resulted in gains at the Group level for fiscal year 2023 of EUR 118.6 million (previous year: EUR 31.8 million) and losses of EUR 13.7 million (previous year: EUR 3.2 million), which are recognized in other income and other expenses in the Consolidated Financial Statements.

• Restructuring and development progress
  In a partly still challenging environment, Mutares' various portfolio companies each imple- mented comprehensive operational improvement, transformation or restructuring programs over the course of the fiscal year. In particular, the Management Board considers the re- structuring and development progress at SFC Solutions (part of Amaneos), Terranor, Ganter, Steyr Motors and keeeper Group to be positive, and now sees positive developments in the realization of improvement potential at Guascor Energy, Gemini Rail and ADComms Group as well as Conexus, while significant challenges remain at MoldTecs (part of Amaneos), CI- MOS and PrimoTECS (part of FerrAl United Group), Lapeyre and iinovis. The start to the restructuring of the portfolio companies acquired in the fourth quarter of fiscal year 2023 is largely in line with expectations and is considered promising overall by the Management Board.
• Early refinancing of the bond
  In March 2023, Mutares issued a senior secured bond with a term until March 2027, which was increased by a volume of EUR 50 million in the further course of fiscal year 2023 under an existing increase option to the current nominal volume of EUR 150 million as of the re- porting date. The inflow of liquidity from the issue was used to refinance the bond issued in fiscal year 2020, which was redeemed in full ahead of schedule when the new bond was issued, as well as for general company financing. The bond bears interest at the 3-month EURIBOR (EURIBOR floor of 0.00%) plus a margin of 8.50% and can be increased to a nom- inal volume of up to EUR 250 million during its term. With a value date of January 29, 2024, Mutares then increased the bond by an amount of EUR 100 million to the maximum nominal volume of EUR 250 million.
• Inclusion in the SDAX and the MSCI Germany Small Cap Index
  As part of the regular review of its small-cap index in December 2023, Deutsche Börse de- cided to include the shares of Mutares SE & Co. KGaA in the SDAX as of December 18, 2023. This makes Mutares one of the most liquid and largest listed companies in Germany below the DAX and MDAX in terms of the market capitalization of free float shares. The share had already previously been included in the MSCI Germany Small Cap Index within the index family of the US financial services provider MSCI. The promotion to the SDAX and the inclu- sion in the MSCI Germany Small Cap Index mark further milestones in Mutares' capital mar- ket success story since the IPO in 2008 and the move to the Prime Standard of Deutsche

11 By contrast, the acquisition of Palmia in the 2023 financial year and Polar Frakt as an add-on acquisition for the Frigoscandia Group in the previous year each resulted in goodwill.

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Mutares SE & Co. KGaA

Combined Management and Group Management Report for fiscal year 2023

Börse, which is associated with high transparency requirements, as part of the uplisting in 2021.

• Annual General Meeting and update of the dividend policy
  In accordance with the resolution of this year's Annual General Meeting on July 10, 2023, a dividend of EUR 1.75 per share (previous year: EUR 1.50 per share) was paid out; according to the Company's breakdown, the dividend consists of an unchanged basic dividend of EUR 1.00 per share and a performance dividend of EUR 0.75 per share (previous year: EUR 0.50 million). Taking treasury shares into account, a total of around EUR 36.1 million (previous year: EUR 30.9 million) of the net retained profits of Mutares SE & Co. KGaA were distributed.

In addition, the dividend strategy was updated in fiscal year 2023 and now provides for a minimum annual dividend of EUR 2.00 per dividend-bearing share. In exceptionally successful fiscal years, the company will also consider the extent to which the remaining unappropriated surplus will also be distributed in the form of a possible bonus dividend to be paid separately in the future when proposing the appropriation of profits.

2.3 Reports from the portfolio companies

The following explanations reflect the developments of the individual segments or portfolio companies in the Mutares Group in fiscal year 2023.

1. As described in section 1.1; Management Board assessment from the first quarter of fiscal year 2023, which will be maintained for the remainder of the year.
2. The previously separate investments MoldTecs Group, LMS and the SFC and Elastomer companies have been organizationally combined under the umbrella brand Amaneos since fiscal year 2023.
3. FerrAl United Group has combined the previously separate investments Cimos Group, PrimoTECS and Rasche Umformtechnik as well as the add-on acquisitions of MMT-B, BEW, Selzer and Gesenkschmiede Schneider, Schöneweiss & Co., Falkenroth Umformtechnik and Walor in organizational terms since fiscal year 2023.
4. HILO Group now combines the previously separately managed investments KICO Group and ISH Group, in- cluding the recently completed add-on acquisitions.

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Mutares SE & Co. KGaA

Combined Management and Group Management Report for fiscal year 2023

According to the German Association of the Automotive Industry ("VDA"), the international automotive markets recorded strong growth in 2023 compared to the previous year, boosted in particular by developments in China. Vehicle availability in particular had a positive impact, which had a positive effect on sales figures. Nevertheless, the business environment for the automotive industry remains challenging: in Europe in particular, but also in other parts of the world, geopolitical and macroeconomic uncertainties have recently led to subdued overall economic demand and therefore only modest growth. Energy prices, which remained high in some cases, and further increases in consumer prices also had a negative impact on customer demand. As a result, the pre-crisis level from 2019 was not reached in the European and US markets.

In the segment's portfolio companies, this industry-wide dynamic on the sales side was reflected in some short-term cancellations or postponements of call-offs by original equipment manufacturers (OEMs). At the same time, successes were achieved in negotiations with customers regarding the passing on of cost increases or compensation payments. The sales revenue of the Automotive & Mobility segment for fiscal year 2023 amounts to EUR 1,878.3 million (previous year: EUR 1,081.6 million). In addition to the price increases introduced, the main reasons for the increase were the acquisitions made in the fiscal year, above all Peugeot Motocycles and the add-on acquisitions for the FerrAl United Group (in particular MMT-B) and in the previous year (MoldTecs, Cimos and SFC Automotive France), which were only included in the Group in fiscal year 2022 from the date of acquisition. The EBITDA of this segment for fiscal year 2023 amounts to EUR 232.2 million (previous year: EUR 34.8 million). This includes gains from bargain purchases from the acquisitions totaling EUR 271.6 million (previous year: EUR 86.0 million), in particular from the acquisitions of MMT-B and Walor as add-on acquisitions for the FerrAl United Group. Adjusted EBITDA, on the other hand, was burdened by the above-mentioned influences as well as the still negative earnings contributions from the new acquisitions, which improved significantly compared to the previous year to EUR + 3.3 million (previous year: EUR -49.0 million).

AMANEOS

Mutares established a new and globally positioned Tier 1 automotive supplier under the umbrella brand Amaneos in fiscal year 2023. Amaneos combines the previously separate subsidiaries MoldTecs Group, LMS and the SFC and Elastomer companies in organizational terms, without giving up their legal and operational independence. As a specialist for exterior and interior systems, rubber and sealing solutions as well as high-performance plastic parts, Amaneos has a global presence with production and business sites in key markets for the automotive industry.

MoldTecs is a global supplier of high-performance plastic parts for the automotive industry and supplies all the world's leading OEMs with a comprehensive product portfolio that includes intake manifolds, high-pressure air lines, air ducts and all types of fluid reservoirs. MoldTecs manufactures these products using state-of-the-art injection molding, blow molding and welding technologies at its three European sites in France and Germany. In the course of the Company's transformative global expansion, further production facilities will be required in China, North America and India, which will entail extensive liquidity requirements for which additional sources of financing will need to be tapped. While the new production site in China opened in fiscal year 2023 and has started production and other operating activities, the opening of production sites in North America and India is planned for fiscal year 2024 - assuming successful financing of this production expansion, which has not yet been secured. With the restructuring measures initiated, particularly at the German plants, and the global expansion, MoldTecs Group is expected to achieve a positive operating result only in the medium term after a transformation year 2023, in which sales revenues are declining due to a lack of investment in the period prior to the acquisition by Mutares and profitability is depressed accordingly, as a result of the restructuring measures initiated and the impact of new projects. Against this backdrop, the further development of MoldTecs will be monitored particularly closely by Mutares.

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