Deutsche Beteiligungs AG

XETRA:DBAN

Earnings Call Transcript 2023-Q1

[Roland Rapelius, executive]

Good morning, everybody, to our Q1 conference call. I'm sitting here together with Torsten Grede, spokesman of the Board of Management of DBAG; and Tom Alzin, Member of the Board of Management and designated spokesman of the Board as of March 1. And we are here to report to you about our first quarter results, a very successful start into the new financial year.

And without much ado, I would now like to hand over to Mr. Grede.

[Torsten Grede, executive]

Thank you very much, Roland. Also from my side, a warm welcome to everybody. We will lead you through the presentation, and we'll be more than happy to answer your questions after the presentation.

We thought it would be a good idea that we have some kind of division of labor today. So I will have a short start, and I will hand over to Tom, who will, especially, elaborate about what we also look forward -- what we look -- what's our expectation for the near future. And then Roland will lead you through the facts and figures.

Starting on Slide #3. We are happy to report about successful start into the new fiscal year. We are extremely happy about the fact that we were able to find 3 successful disposals. And all of you have taken notice of our ad hoc publication on Tuesday evening that we were also able to sign another exit, which is not included in -- let's say, which has also an impact on our Q1 results.

So we are accelerating that disposals, especially because of the fact that the M&A environment continues to be difficult. And Tom will elaborate in more detail about these successful exits. And our Q1 result is positively influenced by higher capital market multiples and by an expected positive operating development of our portfolio companies. This all can be summarized in an NAV growth of 7%.

In our Fund Investment Services segment, we are exactly in line with our expectation with EUR 3.5 million of EBT. And our forecast for the current fiscal year is still valid. As you know, from former years, traditionally, we don't adjust our forecast after the first quarter due to the fact that -- especially with regard to the development of the capital market, there's still significant volatility in the development to be expected.

On next slide, the figures. Net asset value came out at EUR 620 million, within earnings before taxes of the Private Equity Investment segment offshore below EUR 40 million. The NAV is almost exactly EUR 33 per share, and the cash flow is slightly negative, which is not something which is unusual because of -- all of you know our business model, we have fluctuating cash inflow and cash outflow, and expect the cash inflow from the disposal in the next -- in the current quarter and the next quarter.

Fund Investment Services business, as I already mentioned, very much in line in terms of our expectations and net income at EUR 40.6 million.

And I would now hand over to Tom to lead you through the full [ expectation].

[Tom Alzin, executive]

Thank you, Torsten. Next slide is an important slide because, as you noticed some uncertainty in the market about where's private equity heading in times of higher interest rates and a difficult situation overall regarding the economic environment.

In Europe, we are happy to say that we are still in a structurally growing market. And especially, our main point of attention here would be that Germany is still a market of primaries, with a 67% share of primaries and secondaries only at 33%. This is the market where DBAG typically excels. And it's also kind of unusual because if you look at more mature markets and private equity like France and England, the ratios are definitely higher for -- regarding secondaries and tertiaries here. So overall, still a good market, although with some headwinds.

Regarding our disposals, obviously, Cloudflight was an asset, which gets a lot of attention also in the financial press-like merger market. But we are extremely happy about the development of Heytex, which was one of the companies, which was most exposed to raw materials and energy prices. And we were still able to achieved what we deem a good price. And we are very, very happy about the prices we achieved on Pmflex and Pfaudler.

So even in an environment, which is difficult for private equity, strategic players are rewarding how we set up companies and how we reorientate them and thus, our assets still are on the target list of many strategic buyers, which we show here.

So -- it's a good news because this was definitely not a market where a lot of sell-side activity happened from our competitors. And we also feel very confident that we achieved very good prices here. So we did not take a hit here due to the environment here. On the add-on side, we continued nice add-ons on Karl Eugen Fischer and Metalworks in Italy as well as Netzkontor. These were tiny add-ons, but very, very attractive and accretive multiples.

Moving over to next slide. Here, you can see main message here is that we rebalanced a bit the portfolio over the last years. The portfolio is now more balanced. And -- actually, we dramatically increased the exposure to growth sectors. That's -- we should bode well for the future, given that a more balanced portfolio should also lead to more balanced exit activity going forward.

And we still expect secular growth in our growth sectors, but also we feel that our industrial sector, which is still valued at acquisition costs basically, has a nice chance to jump back because over the last 2, 3 years with COVID, Ukraine, we were able to hold on to our assets and set them up further. So we feel that they are in a strong relative position even what is under a clear difficult market.

Moving over to the next slide. Here you can see that we are still the market leader, which is not something we are that much interested in. What is for us the most important part is that we are still buying most of our companies from primary families and founders who trust us, who are shareholders in DBAG and who are also willing to give their companies in our hands because they know how we treat the companies and how we [ as stewards ] of their trusts.

Coming over to the next slide. This is a slide where Torsten and myself, we hope that we are talking for the last time here. So we think that we navigated the Russia-Ukraine crisis for now. And also regarding the electricity consumption and gas consumption, our exposure is quite limited.

In terms of supply chain issues, we will probably, in a more polar world, always have some issues to tackle with. So that will stay for some parts, but on the electronic industrial tech side, where we had some significant exposure and took significant hits also in our valuation, we feel confident that the worse is behind us for now.

With that, I will hand over to Roland, who will navigate you in more details through our numbers.

[Roland Rapelius, executive]

Yes. Thank you very much, Tom. Yes, firstly, the net asset value development. And here, it's clearly our new division, which is total assets less total liabilities. We are showing here EUR 620.8 million as of December 31, up 7% year-to-date. And I will come on the further slides on what has driven this increase. And on the right-hand side, you see our forecast or guidance, EUR 605 million to EUR 675 million.

On the next slide, you can see the driver, the additions, disposals and change in value. And clearly, on the additions side and on the disposals side, there's more significant activity that has occurred in the first quarter. And please keep in mind, it's always the closing, not the signing that leads to the booking event here. So therefore, even though we had the signings of the exits, we didn't yet have the closings, which typically take a few months. So therefore, that picture here on additions and disposals relatively low figures. Change in value, we will come in detail on the next slide what has driven change in value.

Here, the EUR 42.7 million -- sorry, the -- yes, EUR 42.7 million, as you can see, has, on one hand side, been driven by change in earnings, up EUR 24 million. And here, it's always in the first quarter of every fiscal year -- you, the analysts who follow us for longer as you are, are aware that in the first quarter of the fiscal year, we roll over valuations to the next fiscal year -- the next financial year 2023. So therefore, the budgets are typically higher, so that you get a positive impact on earnings here.

And the change in debt, these are -- this is driven by our buy-and-build strategy. So the add-ons, which are primarily debt finance, but also some change in that because of higher working capital requirements as some of our companies are active in the project business and that working capital had to be financed.

So in summary, these 2 pillars are driving our operating performance, which has been positive -- or positive EUR 12.6 million. And then there is a change in multiple. And typically when we roll over earnings, we also roll over multiples, which we have done. But at the same time, the capital markets has also increased. So therefore, there's a strong positive effect here from the change in multiples in our valuation and our net gains and losses on measurement. Overall, the result was EUR 42.7 million.

Coming to the slide, which is the Fund Investment Services, top line and bottom line. As expected, the top line increased slightly and EBT came out at EUR 3.5 million, almost spot on in order to achieve our full year target of EUR 13 million to EUR 15 million. We have slightly higher expenses year-over-year, which has driven the decline from EUR 3.7 million to EUR 3.5 million, mainly in other operating expenses, for example, higher costs for our IT activities.

On the next slide, you can see our cash flow statement. Also here, the closing hasn't yet occurred of our new exits, only the signing has occurred. So therefore, there's not really a strong change in our cash position going from EUR 19.2 million to EUR 18.5 million. All in all, the available liquidity stands at EUR 79.2 million as at December 31 of last year.

Here's a slide that we always show. And like I said before, the cash inflow, the proceeds from the new disposals are not yet included. And at the same time, the co-investment commitments, that's shown on the right-hand side, EUR 229.2 million, that's driven because of our co-investment commitments in our DBAG funds. The midterm investments is projected at roughly EUR 96 million. That's based on our midterm planning. That has always concluded once the year, always in November, and that's driving the demand.

Coming to the next slide, which is our forecast. It's also unchanged compared to the forecast we have published on 1st of December with our full year results. So that is a figure you should all be aware of. So there hasn't been any changes yet, as Torsten has pointed out.

And with that, I would now like to hand over to Tom for the final remarks.

[Tom Alzin, executive]

Thanks, Roland. So to sum it up, we are here quite confident that we have established a platform for future growth. Future growth because we have strongly invested in our team. It has grown in number, but also in quality. We have expanded our equity solutions with the addition of long-term investments, which are a bit opportunistic in nature, but where we think that we have an edge compared to the other markets given our balance sheet. And we have broadened our original focus with Italy, where we are more than happy that we also have done the first exit after not even 2 years of equity deployed. So that bodes well -- should bode well for the future.

Another attractive proposition is that we have grown the IT service and software sector, where we didn't have any right to play to 20%. And I think the successful exit of Cloudflight also validates our strategic shift there. We [ struck ] to have a balanced portfolio, and we think that also, given the work which is being done in the -- on the industrial side, we would hope that we would see a bounce back effect there once the headwinds would abate a bit.

All in all, strong sound financial basis, which is a target for growth. And we are showing that we are still having great interaction with family and [ founder ] business in the market, which is structurally still intact, even if the environment as such is a bit more difficult than it was 3, 4 years ago.

That leads us to conclude that normally the net asset value growth should accelerate.