Annual Report
2013/2014
DRIVING
EXPANSION.
ENSURING
CONTINUITY.
MAKING STRONG
COMPANIES STRONGER.

Financial review of Deutsche Beteiligungs AG (commentary based on the german commercial code – HGB)

The annual financial statements are accessible at https://www.deutsche-beteiligung.de/englisch/investor-relations/ a printed version is also available on request.

The management report on Deutsche Beteiligungs AG and the Group management report for financial year 2013/14 are presented combined, in conformity with § 315 (3) HGB in connection with § 298 (3) HGB. The presentation of the economic position of Deutsche Beteiligungs AG is based on an abridged balance sheet and an abridged profit and loss account derived from the balance sheet and profit and loss account as prescribed by HGB. The complete annual financial statements of Deutsche Beteiligungs AG based on HGB are published in the “Bundesanzeiger” (Federal Gazette), together with the consolidated financial statements.

EARNINGS POSITION

Overall assessment: Exceptionally profitable financial year completed

In financial year 2013/14, Deutsche Beteiligungs AG achieved a profit for the year of 65.4 million euros, or 29.8 million euros over that of the preceding 2012/13 financial year (35.6 million euros), for which a total dividend of 1.20 euros per share – consisting of a base dividend of 0.40 euros per share and a surplus dividend of 0.80 euros per share – was paid in March 2014. The main contribution towards the result came from the profitable realisation of an investment (Homag Group AG).

Net result of valuation and disposal: Significant increase following profitable exits

The net result of valuation and disposal is determined by earnings or losses from the disposal of investments as well as write-downs netted against write-ups on investments contained in the portfolio at the reporting date. Write-downs and write-ups are performed at the lower of cost or market and the applicable procedure for reversals of impairment losses. The upper ceiling for write-ups is the historical cost. The net result of valuation and disposal of 58.6 million euros (previous year: 34.5 million euros) largely reflects the two profitable realisations in the course of this financial year (Homag Group AG, Dr. Vogler Group).


ABRIDGED PROFIT AND LOSS ACCOUNT OF DEUTSCHE BETEILIGUNGS AG
(BASED ON HGB)
T€ 2013/142012/13
Profit for the year65,42835,619
Net result of valuation and disposal* 58,590 34,485
Current income from financial assets 11,963 6,791
Fee income from fund management and advisory services 20,093 20,705
Total net result of investment activity90,64661,981
     
Personnel expenses (16,434) (16,499)
Other operating income (without write-ups) 4,002 5,527
Other operating expenses (10,812) (13,975)
Depreciation and amortisation on property, plant and equipment and intangible assets (416) (419)
Interest income 664 807
Interest expenses (1,810) (1,306)
Total other income/expenses(24,806)(25,865)
     
Result of ordinary activity 65,840 36,116
Income taxes (405) (491)
Other taxes (7) (6)

* The net result of valuation and disposal is composed of p/l items “Income from the disposal of investments” (€58.6mn) and write-ups in the financial year of €0.4mn that are recognised in item “Other operating income”. “Write-downs on financial assets” in the amount of €0.4mn were deducted.

 

Current income from financial assets: Higher, after distribution of free liquidity

In financial year 2013/14, we recorded CURRENT INCOME FROM FINANCIAL ASSETS in the amount of 12.0 million euros, which is 5.2 million euros in excess of the prior year’s 6.8 million euros. Income from financial assets contains distributions, typical of the business, of 9.5 million euros from associated companies. These distributions stem from retentions on disinvestments of previous periods, but primarily also from the maturity of securities in which free liquidity had previously been invested. Also recognised herein are profit distributions and interest earnings from portfolio companies.

Fee income from fund management and advisory services: Marginal decline

Fee income from management and advisory services to DBAG funds of 20.1 million euros contains for the first time fee income from DBAG Fund VI for a full year. The previous year’s amount of 20.7 million euros was positively distorted by a special effect of approximately four million euros.

In total, the NET RESULT OF FUND SERVICES AND INVESTMENT ACTIVITY of 90.6 million euros exceeded that of the also very successful previous year (62.0 million euros) by about 46 percent.

TOTAL OTHER INCOME/EXPENSES of -24.8 million euros was slightly below the previous year’s -25.9 million euros.

Other operating income: Decline due to structural change

Other operating income without write-ups declined from 5.4 million euros to 4.0 million euros. In the reporting year, DBG Managing Partner GmbH & Co. KG, a consolidated company, assumed the fund management and advisory activities. Due to this structural change, proceeds from investment management-related reimbursable expenses declined.

Personnel expenses: Stable overall, despite higher performance-linked emoluments

In financial year 2013/14, PERSONNEL EXPENSES remained nearly constant, decreasing by 0.1 million euros from 16.5 million euros to 16.4 million euros in 2013/14. Provisions for performance-related income components, which totalled 8.4 million euros, were significantly in excess of the previous year’s 3.6 million euros. The reasons for this are the profitable disinvestments of Homag Group AG and the Dr. Vogler Group (4.2 million; previous year: 0.1 million for investment performance Coveright) as well as variable components based on personal performance – these were also higher than in the previous year in view of the Company’s improved general performance. The costs for salaries and social contributions declined. Expenses recognised for pension obligations were significantly lower. They decreased from 3.2 million euros to 0.3 million euros; in the preceding year, 1.5 million euros were recognised to account for a modification of mortality tables.

Other operating expenses: Decreased compared with the previous year

Other operating expenses amounted to 10.8 million euros in the financial year, or 3.2 million euros below those of the prior year (14.0 million euros). This item largely contains expenses for the management of investments, meaning the acquisition, monitoring and disinvestment of portfolio companies or fund investments. The largest position in other operating expenses is the external expenditures for screening investment opportunities (partly chargeable to the DBAG funds); these costs decreased from 5.3 million euros (2012/13) to 2.5 million euros (2013/14). Other operating expenses also include numerous smaller items pertaining to costs incurred in the ordinary course of business.

Net interest: Negative due to higher interest charges arising on pension obligations

Net interest was negative (-1.1 million euros; previous year: -0.5 million euros) and once again considerably lower than that of the preceding year. Slightly lower interest income of 0.7 million euros compared with the previous year (2012/13: 0.8 million euros) mirrors the current low interest rate level for short-term investments; balances on current accounts, for example, currently earn no interest at all. The decline in interest income is due to lower interest on tax refunds. Interest expenses (1.8 million euros, following 1.3 million euros) include interest on pension obligations.

Profit of 65.4 million euros for the year

Deutsche Beteiligungs AG posted an annual profit of 65.4 million euros for financial year 2013/14. The previous year’s profit had totalled 35.6 million euros. The Company’s return on equity was 23.2 percent. In the prior year, it amounted to 15.2 percent.

Retained profit of 92.3 million euros

Including the profit carried forward from the previous year and the dividend payment, the retained profit amounted to 92.3 million euros.

ASSET POSITION

The major asset positions of Deutsche Beteiligungs AG are THE DIRECTLY HELD INVESTMENTS that are shown in “Investments”, in addition to EQUITY SHARES IN ASSOCIATES, which, for their part, hold further investments: until 2006, DBAG primarily held investments directly; since then, it holds its investments indirectly as a result of the structure of DBAG funds. Also, noncurrent assets include INVESTMENT SECURITIES; these securities constitute significant parts of the financial resources of Deutsche Beteiligungs AG. Together with cash and cash equivalents, these resources are available for future investment.


ABRIDGED BALANCE SHEET OF DEUTSCHE BETEILIGUNGS AG
(BASED ON HGB)
T€ 2013/142012/13
Liabilities299,304247,225
Equity shares in associates 128,013 121,134
Investments 19,900 43,279
Securities 97,073 57,570
Other non-current assets 1,455 1,307
Non-current assets246,441223,290
     
Receivables and other assets 27,309 18,010
Cash and cash equivalents 23,302 2,309
Current assets50,61120,319
     
Prepaid expenses344385
Miscellaneous assets1,9083,231
Assets299,304247,225
     
Subscribed capital 48,533 48,533
Capital reserve 141,394 141,394
Retained earnings 403 403
Retained profit 92,276 43,259
Equity282,606233,589
     
Provisions16,48113,235
Liabilities217327
Deferred income074

In financial year 2013/14, shares in associated companies rose by 6.9 million euros, increasing from 121.1 million euros to 128.0 million euros. The gain is due to the investment in a new portfolio company (Unser Heimatbäcker), further capital calls for expansion capital investments (DNS:NET, inexio) and follow-on investments in existing investee businesses.

Following the disinvestment of Homag Group AG, the value of directly held investments declined significantly to 19.9 million euros (previous year: 43.3 million euros). Investments are made indirectly, write-ups are capped at acquisition cost, and there were no impairment losses to be recognised.

Investment securities increased in net terms by 39.5 million euros to 97.1 million euros.

Current assets: Significant increase due to higher cash position

Current assets rose significantly in the financial year: at 31 October 2014, they amounted to 50.6 million euros, a gain of 30.3 million euros on the previous year. Cash and cash equivalents accounted for nearly half of current assets at the reporting date; another constituent under this item was a receivable from a portfolio company arising from non-distributed profit entitlements.

Provisions: Higher than in the previous year

At the end of the period, provisions amounted to 16.5 million euros, or 3.3 million euros over those of the previous year (13.2 million euros). Provisions were chiefly made to cover performance- related income components; 4.2 million euros thereof are attributable to the reporting year, and 4.2 million euros were made over the last eight financial years, but are still subject to a payout stop.

FINANCIAL POSITION

Particularities in assessing financial position: Cash flow characterised by irregular outflows

The strong FINANCIAL RESOURCES reported at the end of the period of 120.4 million euros (investment securities of 97.1 million euros and cash and cash equivalents of 23.3 million euros) are available to meet investment commitments. Based on the investment progress planned for the coming three to four years, DBAG will have an average liquidity requirement of some 50 million euros annually; the actual requirement may fluctuate strongly.

Capital structure: No liabilities to banks

In financial year 2013/14, Deutsche Beteiligungs AG financed its activities from its available financial resources. At 31 October 2014, the Company reported equity of 282.6 million euros, which compares with 233.6 million euros at 31 October 2013; dividend payments to shareholders account for 16.4 million euros of that amount. The CAPITAL-TO-ASSETS RATIO of 94.4 percent (previous year: 94.5 percent) remained very high.

COMPARISON OF ACTUAL AND PROJECTED BUSINESS PERFORMANCE

Profit for the year: Profitable disinvestment leads to overachievement of forecast

The profit for the year of Deutsche Beteiligungs AG primarily depends on the extent to which larger capital gains on disposals have been achieved and whether material write-downs are to be recognised due to permanent impairment losses. The profit for the year of 35.6 million euros posted in 2012/13 stemmed primarily from a profitable disposal. We were unable to foresee at the beginning of the financial year whether such a disposal would be possible in 2013/14 as well. For that reason, we had forecast in 2012/13 that the profit for the year would clearly “fall short of that posted for the past financial year”. Totalling 65.4 million euros, it is actually nearly double the previous year’s profit, the reason being that the largest investment by far in the portfolio was sold highly profitably.