Deutsche Beteiligungs AG

XETRA:DBAN

Earnings Call Transcript 2022-Q1

[Roland Rapelius, MD & Head of Investor Relations]

From my side, ladies and gentlemen, I'm Roland Rapelius, Head of Investor Relations. And with me today here is Torsten Grede, spokesperson of the Board of Management; and Mirka Derksen, our Head of Finance and Accounting. Following the recent changes in the Board of Management, Torsten Grede has assumed responsibility for finance on a temporary basis within the Board of Management. So without further ado, I would now like to hand over to Torsten Grede for the presentation. Please go ahead.

[Torsten Grede, Chairman of Management Board & CEO]

Yes. Thank you very much, Roland. Also from my side, a warm welcome, and thank you for joining this conference call. I would go -- spend next 15, 20 minutes going through the presentation. Starting on Slide #3 with the most -- with a snapshot of the development in the first quarter of our financial year '21/'22. We had a very good progress in our investing activities. The lower peer group multiples, after we adapted our valuations to 2022, has resulted in a negative valuation impact we had, where we were able to charge the -- to book the deferred management fees. That led to -- despite that, and I will elaborate about that in more detail a bit later. This results in an increase of net asset value of our Private Equity Investment segment of 4%, and our forecast for the current fiscal year is unchanged. A few words. When we turn to next slide, net asset value comes out slightly above EUR 700 million. The earnings -- the EBT is [ 11.9% ] negative. That reflects the negative valuation effect from the PE multiples, which I just mentioned. The net asset value convert into net asset value per share of EUR 37.46, and the cash flow from investment activities was negative EUR 53.5 million. And that mirrors the good progress on the investing side. Our Fund Investment Services segment. Because earnings before taxes of EUR 3.7 million and the assets under management chain slightly decreased due to some realizations from our portfolio to EUR 2.3 billion, the net income of the group is minus EUR 8.2 million. We go to the next slide. A few words, I would now elaborate on the next slide about the development in our Private Equity Investment segment. We have seen a very dynamic developing M&A market. On the left-hand side of the slide, you see the -- it provides you a snapshot from our CRM system, where you can see that we have a consistent -- as far as quantity is concerned, consistent and continuous very good deal flow since since second quarter of calendar year 2020, after that half year less activities due to the pandemic. And on the right-hand side, you can see that we have seen a record level of buyout transactions being realized in last year. We have never seen such that even if you look further into the history, we would not see similar figures. And you can nicely see on this chart that we have been active in growing market in the last 10 years. When we go to the next slide, change in our portfolio. We were able to sign 2 new investments, [indiscernible] and Intech, both companies, and I will say a few more words on next slide. Both companies from the IT services and software sector. We completed the transactions, the investment in Dantherm and Italian, which you already know, and we were able to complete the disposal of Telio. Besides doing 2 new platform investments, our portfolio companies have been very busy in adding add-on acquisitions, adding further businesses to their portfolio. So we have seen 8 of them have made 14 add-on acquisitions in the first quarter of our fiscal year. A few words about the 2 most recent platform deals, [indiscernible] is our second -- after cloud flight, our second developer of customized software, the fifth investment of our Fund VIII, and we have been able to close the deal in January this year. [ Intech ], also from the IT service and software sector, is providing engineering service and software to industry with a focus on automotive. It's the sixth investment in Fund VIII, and we -- and it was signed in December. Now we would come to some more details with regard to financials in this segment, Private Equity Investments. On Slide #8, you can see the development of net asset value with that increase of 4%, already mentioned, to EUR 704.5 million. The most important part of the net asset value, of course, are the financial assets. And I already mentioned that the increase -- the driver of the increase of the net asset value was the inflow of funds from deferred management fees. If you would a bit more go -- I would like to go a bit more into detail with regard to the financial assets on Slide #9, we see -- when we go to Slide #9, we see the development of the financial assets. When we start on the left-hand side with the financial assets, as of September '21, if we add the interest, deduct other positions from our investment entity subsidiaries. We had recorded a gross portfolio value in September '21 of some EUR 570 million. If we then add the new investments which were closed in Dantherm and Italian, deduct disposals, Telio as already mentioned, and the partially disposal of [indiscernible] after refinancing and some changes in our investment entities, we come out with a gross portfolio value at the end of December '21 of EUR 564.9 million. If we deduct again the current interest and add some other positions, we come out at the financial assets shown to you on the slide before of EUR 532.6 million. I would now like to go a bit more in detail and give you some more insight into the 40 -- EUR 24.8 million change in value, which is the valuation effect in that development of the portfolio value, and we can see that on Slide #10. And the development of the valuation result comes -- can be brought down into -- can be broken down into change of earnings, which was positive, is explained by the fact that we -- in the first quarter or financial year, we base valuations on the budget -- of our budgets of our portfolio companies for the year. So you can see that our portfolio companies expect altogether increasing earnings. Besides that, we expect a positive effect from the development of the indebtedness of the portfolio companies. So that is some kind of -- that is a free cash flow aspect, which, of course, plays an important role in our business model. That, in the sum of that, short of EUR 40 million is the positive operating performance of our portfolio -- at end of December '21. And then we deduct and that is the overcompensation effect. We deduct the change in valuation multiples, which mirrors the fact that we changed the valuation multiples from '21 to '22. And as you know better than me, usually more forward-looking multiples are lower than the more recent multiples. And that with some miscellaneous positions ends up with that, we end up with that EUR 24.8 million valuation effect in the first quarter of our financial year. A few words about the portfolio composition. The -- I would like to your attention on the fact that we have slightly changed the definition of our portfolio composition as far as sectors are concerned. So we have broken down the industry sector into industry and industrial technology and into industrial services, which together represent 45% of the portfolio. And then we have 44% of the portfolio consists out of what we call growth sectors, both in telecommunications, IT services and software and health care. As you know, we have started to diversify our portfolio with regard to sectors some 10 years ago. And when you look into the valuation, the combined valuation of our industrial portfolio in our growth sectors, then you see that growth -- that the industry -- the growth sectors are valued with 2.8x cost -- 2.6x cost as of December '21, and our industrial portfolio is still valued slightly below cost. That shows you that the development of the entire Private Equity Investment segment is very much supported by our strategy to broaden our scope of investments into the growth sectors. The industrial sector, some kind of development is still very much influenced by -- was influenced in 2020 by the COVID-19 pandemic, and we saw a significant recovery of that of our portfolio companies, that was spring '21. And then we saw the -- when the effects kicked in from a shortage of supply and from significant increasing raw material prices -- energy and raw material prices. We believe that especially the industrial sector provides a lot of upside potential, when you look for the future. When you look to the right-hand side, that gives you a breakdown of our portfolio companies as high. Indebtedness is concerned. This has -- so the proportion of companies with an indebtedness of 3x EBITDA or more has increased to 79%. That is explained by the new deals, and that is explained by the significant add-on acquisitions, which I just mentioned, 11 more new add-on acquisitions. And most of these add-on acquisitions, we were able to finance by debt, and that is also part of explaining that development. This finalizes my remarks with regard to our first segment, Private Equity Investment. And now we come to the Fund Investment Services segment. This has been -- this has a very stable development. So we have no surprises, and this is not a surprise that this segment develops quite stable. We have almost the same income from -- in that segment, we have a slightly lower earnings that is due to the buildup of the team and higher personnel expenses. But I would say that a very small deviation. So it is almost not verified to comment on them, and we are pretty optimistic that this development will continue. A few words about our financial basis on the next 2 slides. This -- on Slide #13, we show you the -- that we have a higher level of available liquidity. So again, you can see the effect from the good investing progress. So we had -- you can see the EUR 53.6 million, which were overcompensating the cash flow from operating activities, which is mainly driven by the charging the deferred management fees. And -- but -- so we came out of short of EUR 20 million of cash in the end of last quarter. But we have some EUR 75 million in money market funds, and we have some EUR 100 million of undrawn credit line, which gives us a financing power of some EUR 200 million. In addition to that, we have EUR 35 million of financial resources in the group's investment entity subsidiaries. Let me turn to next page, Page #14. That shows you on the -- when you look into the column of December '21, you see the -- some 200 -- which I just mentioned, some EUR 200 million of financing power. And on the right-hand side, the blue column, are the core investment commitments, which DBAG has to fulfill alongside the DBAG Funds. And you see that we have nicely covering that co-investment commitments. As you know, this co-investment commitments will not kick in the next quarter, but that will kick in the next year, so we see that as a pretty comfortable situation. Thanks also to the successful capital increase from last year. As already mentioned on the first slide, our forecast is unchanged. I will not comment in detail on this -- on the figures on the slide, all of you know them pretty well, I believe. It's typical for our business model that it is hard to -- it is not -- does not make much sense to [ be focused ] on the development of single quarters. This finalizes my short presentation about the Q1 results. I don't want to miss the opportunity to mention that our platform is well established for further growth with the broadening of our product portfolio, long-term investments and broadening, geographically reach within -- in the meantime, opened in our own office in Italy. We see a portfolio with appreciation potential. And as already mentioned, on the basis of a strong financial. Thank you very much.