Deutsche Beteiligungs AG

XETRA:DBAN

Earnings Call Transcript 2019-Q1

[Thomas Franke]

So this is Deutsche Beteiligungs AG again, and thank you.And I will now hand over again to Susanne Zeidler.

[Susanne Zeidler, CFO & Member of the Management Board]

Thank you for your patience from my side too. And once again, welcome, ladies and gentlemen, to our phone call on the Q1 figures of the current financial year.It's my pleasure to present revised and additional information on what happened during the first quarter of the current financial year. I would like to start with some preliminary remarks based on Slide #3 of the presentation you got this morning.The figures in this quarterly statement can only be compared with the previous year's figures to a limited extent, and there are 2 reasons for it. The first one is well known for those who dialed in the former -- in the [indiscernible]. It's a change of accounting for carried interest following BaFin's identification of an error regarding the consolidated financial statements as at 30 September 2015. The effect on the first quarter of 2019 is 1.2 million -- '18 is EUR 1.2 million. I'll try it again. The second reason for limited comparability is that further adjustments were required concerning the measurement of irrecoverable interest receivables from portfolio companies and the amount of income from advising fund VII. The effect on -- of this on 30 September 2018 is EUR 4 million. One thing is important to mention in this context. The feedback effect on earnings-related variable remuneration components of the members of the board of management were taken into consideration.Now I'll start with the first 3 months at a glance on the basis of Slide #4.4 key messages characterized what happened in the first quarter of the current financial year. Number one, the new financial year started with turmoil on the capital markets. This impacted the gross result of valuation and disposal negatively by EUR 48 million. Second, this reflects the less-dynamic economic momentum, which has also been felt by individual companies in our portfolio. However, since most companies are forecasting higher earnings for 2019, the portfolio delivered a contribution from operating performance which was comparable to the previous year. Third, nonetheless, this is not enough to cushion the impact of developments on the capital markets. And last but not least, we continued to invest. The first quarter has seen DBAG Fund VII agree a new management buyout, and DBAG ECF [ has bet net ] on acquisition of BTV only 4 months after the initial investment.Slide #5 summarizes the most important financials for DBAG Group and both of the business segments. I'll come back to these financial on next slide each and start on behalf of Slide #6 with the changes in the portfolio.In November 2018, DBAG Fund VII entered into a sixth management buyout. With this, 56% of the fund's investment commitment have now been allocated. The new investment, Sero Schröder Elektronik Rohrbach or shortly Sero, is a development and manufacturing service provider of electronic components with a focus on the automotive industry, which stands for 80% of sales volume. Again, we acquired the company from the family. DBAG invested in total EUR 11 million for 22% stake.DBAG ECF [ bet first on ] acquisition of BTV only 4 months after the initial investment by bringing in additional equity of EUR 2.2 million. BTV strengthens its market position by acquiring its main competitor Anedis.Some further changes in the portfolio took place after the end of the reporting period. The first one is the bakery chain Unser Heimatbäcker, a portfolio company in the DBAG Fund VI, filed for insolvency on self-administration. This has already been taken into account in the valuation of the company as at December 31, 2018. In addition, we sold our minority stake in PSS, a portfolio company of DBAG ECF, to the majority shareholder. This transaction again has no effect on second quarter income. The sales proceeds will be determined in line with the company's future development. In January, another radiology practice was acquired. This will form part of the Ranova network once the Ranova transaction has been closed. On Slide #7, I'll try to explain what happened, what was the main reason for our negative net -- for our net loss after 3 months of the current financial year by analyzing the result of valuation and disposal, which is shown on the right-hand side of the slide. Slide #7 shows the overall -- the result of valuation and disposal of a negative amount of EUR 23.9 million. And the main negative impact on this figure has derived from the multiples, which was a negative effect of EUR 47.8 million. On the other hand side, and this is the positive message, we have -- this quarter, from the operative development of our portfolio companies we got a positive contribution of in total EUR 21.1 million. It is the sum of change in earnings and change in debt. And this operative contribution from the portfolio companies is slightly above the amount we saw only 1 year before, in Q1 2018.Slide #8. Earnings before tax in the Private Equity Investment segment dropped down EUR 32 million on the prior year period and amounted EUR 22.9 million, and this is mainly due to the negative net result of investment activity. Net expenses fell slightly mainly because of a decrease in transaction-related expenses.Slide #9 shows that net asset value is down by EUR 39.2 million and amount to EUR 432 million at the end of 20 -- of the first quarter of the current financial year. The decline in financial resources corresponds to an increase of financial assets and bridge financing of new investments following the investment activity we saw during the past months. This increase, however, is offset by the negative effect from multiples on portfolio value. This is again shown on Slide #10. The slide summarizes what I mentioned before, the reduction in portfolio value by disposals. On the left-hand side, the third bar refers to the closing of the Cleanpart exit. No further effect on income from this exit because it has already been taken into account in the quarter of the signing of the transaction, which was the fourth quarter of our last financial year.With this, I would like to come to the other business segment, the Fund Investment Services business line, on behalf of Slide #11. The Fund Investment Services segment closed the quarter with earnings before tax of EUR 1.5 million, as against EUR 700,000 in the same period of the previous year. Feed income increased by EUR 500,000 mainly due to transaction-based fees on the new investments of DBAG ECF, where we have another, a different methodology to calculate fees compared with the asset-based methodology in the buyout funds. We have a slightly lower negative balance to -- of other income components, higher personnel costs more than offset by one-off effect we had in the first quarter of the previous financial year. We reported on this intensively. Nonetheless, we see the lack of this effect influences comparability of the figures once again.With this, I come to my last slide, the forecast for the current financial year.The significantly lower valuation from the capital market had, as already mentioned, a highly negative impact on our net income in the first quarter. We informed our shareholders of this in an ad hoc disclosure on 14 January 2019.So the forecast for the current financial year is challenged by prevailing negative development on the capital market. As always, as often mentioned, our forecasts always assume unchanged valuations levels at the end of the respective financial year compared with the point of time of the establishment of our forecast, which was 30 September 2018. So if valuation levels determined, we saw on 31 December 2018 were to be the same at the full year reporting date, 30 September 2019, net income would be down accordingly on the forecast.And I hope you understand that we are not able -- we don't have a crystal ball on our desk. We are not able to predict the year-end multiples of the listed peers to our portfolio companies. This is the main -- the reason why we do not -- why we always make our forecast on -- based on the assumptions that valuation multiples keep unchanged.With this, I would like to close my presentation. And I'm more than happy to answer any of your questions you might have now.Thank you.