Deutsche Beteiligungs AG

XETRA:DBAN

Earnings Call Transcript 2022-Q3

[Roland Rapelius, executive]

Yes. Hi. A warm welcome from my side on our Q3 reporting. I'm here with Mr. Torsten Grede, our spokesman of the Board of Management. And without further ado, I will just now hand over to you. Please go ahead, sir.

[Torsten Grede, executive]

Yes. Thank you very much, Roland. Welcome to this conference call with our quarterly results after 9 months in the current fiscal year '21, '22. We go through the presentation and continue and start on Slide #3 with an short summary. We have seen transaction activity with our team in IT services and software sector. I will come back to that in a minute in the course of this presentation.

We have -- of course, we have, this might not come as a surprise, I believe, negative impact on our earnings from the decline of multiples of peer companies in the capital market. This has also influenced -- negatively influenced the NAV of our PE Investment segment with a decline of 11% to some EUR 600 million. The -- our Fund Investment Services segment has been developing stable and as expected. And all of you know that we have released a new guidance mid of July, and we confirm this guidance with the release of the 9 months results.

If we go to the next slide with a short overview of the figures. I already mentioned the PE Investments segment, the development of the NAV, the net asset value per share is just short of EUR 32 per share. And free cash flow has been significant negative, as expected, due to the good transaction activity with a focus on IT services and software in the last 9 months. Fund Investment Services business segment comes out at short of EUR 10 million, as expected, and the assets under management has not been change. And our entire group result is minus EUR 78 million.

Talking a few words about our market. As you know, we have been in active in an structurally growing market, market buyouts or a specific focus on the German-speaking counters of Europe. We believe that this -- the structural growth is still -- is continues to be intact, but we expect a decline of transaction activity in this calendar year.

When we look on the left-hand side into our CRM system, we already see the year-on-year comparison that we have a significant decline of opportunities. On the right-hand side, that are the historic market figures. I would expect that we would see a similar situation which we have seen in 2020.

For us, we are happy with the progress of our investment program, and we are specifically happy, and that brings us to the next slide, that we could secure some new investment in the IT service and software sector. That is part of our investment strategy, which we have developed, already tried a while ago that we have a strengthened focus on investment in sectors which have a structural growth, which is important part of our strategy, helping us also to handle the macro challenges, which we are currently confronted with.

When we turn to the next slide, that shows you the development of the portfolio structure. That's a slide which you are already familiar with because we have not -- we have just updated it and shown it all to you in the last quarter. So you can see the light blue piece, IT service software has quadrupled in the last, some 2 years. And you can also see that the investment in the gold sector, so in the sectors with the structural growth have been successful when we compare the current valuation of these portfolio companies with the acquisition costs.

What is also underlining the strength of our setup, that brings us to the next slide, is that many of these transactions take place with formally family-owned companies. We have also shown similar specifics to you in the past, where we can show that all of our buyers over the last 10 years, almost 2/3 of them have been the family -- formerly family-owned business, which is significantly more than market average.

And when I look into the current fiscal year, we are actually at 80% of transactions with family-owned business. So we see a very strong -- we see very strong -- we see that as a very good confirmation of our strong market position. And when I look into the situations which we have been able to realize in this year on new deals, we had many situations where there was very limited competition. So we believe that we have also invested at reasonable prices. And as you know, we don't go into -- we don't invest into loss-making companies. So in all cases, these companies have been profitable.

When we turn to the next slide, talking about the challenges for our portfolio companies. If we talk about challenges for our portfolio companies in the current macro environment, we especially talk about the piece of our portfolio in industry and industry services, which is currently about 45% of our portfolio value. And we have also analyzed already in the past what the impact of the war in Ukraine could be or would be on our portfolio, also what would be the impact -- the direct impact from, let's say, issues with the energy supply -- potential issues with the energy supply.

And as we show on this slide, in all cases, it is a relatively small part of our portfolio value has some exposure to these impacts. What more severely is challenging our portfolio companies is the cost inflation and our disrupted supply chains, both of that also connected with -- partially also connected with the war in Ukraine, with the energy -- with rising energy prices, but it's also connected with lockdown in Shanghai and the worldwide issues with regard to the supply chain.

I always say that cost attraction is something what our portfolio companies work on, is something which can be handled, especially if a portfolio company has a relatively strong market position. We typically look only for companies with a relative strong market position. In these cases, companies always work hard on increasing their prices to mitigate the cost inflation effects, and that is an ongoing process at this time. And so I'm pretty confident that this will not significantly -- will not have a very significant negative impact on the performance of our manufacturing business in our portfolio.

The -- I would say, the largest -- if you would ask me for the largest challenge, I would say, it's a supply chain issues because that is something which is hard to influence as a portfolio company, can improve your supply chain management process. But if you don't get certain components for -- what you need for your production process or if your customers don't get certain components and due to that fact, reduce placing orders with you, then it's something which you hardly can influence. So that is something which is for me and for us, large shells for our portfolio companies. Everything else can be handled.

We, of course, not only look on our portfolio on the defensive -- with the defensive view, we also have a value creation view when we look to our portfolio, and that's the reason, and that brings us to next slide, that we continue to -- of course, to with our value creation process. And of course, we -- and they are acquiring businesses for our portfolio companies is a major part of our value creation process. And that is something which we have continued also in the last 3 months with 7 new add-ons and which we will continue. And altogether, we have already done 21 add-ons in the current fiscal year.

Basis for all of what I've elaborated about so far is our investment team, which we have, as you know, expanded in the last 2 years and where we feel well prepared for the coming task and challenges.

I would now hand over to Roland, and Roland will lead you through some more details with regard to our financial performance. Roland, please.

[Roland Rapelius, executive]

Yes. Thank you. Yes, brings me to the slide regarding the NAV, and you are aware of that split up here and the very big line, from the beginning of the fiscal year, end of September '21 until now in the first 9 months, the decline was minus 11%. We have talked about that. And please keep in mind, we adjusting here for 2 factors: number one is the dividend, we have paid out of roughly EUR 30 million, 3-0; and number two, we are deducting the receipt of the deferred advisory fee because we don't want to show this as something that has driven here the success. So it's really, I would say, a fair representation and the minus 11%, I would say, still relatively moderate when you compare this to the decline of capital markets at the same time, which was roughly 3x as high.

The adjusted forecast we have published on 15th July, you've seen that, and it's now our target to achieve a range between EUR 570 million and EUR 630 million for the NAV by the year-end, that is end of September 2022.

On the next slide, you can see that our investing activity, as Torsten Grede has already pointed out, made a very good progress, and clearly, it drives the development of the portfolio. The change in value, of course, as you can see in the middle of the charge of minus EUR 111 million, and we will come to that on the next slide in detail, that's mainly driven by the negative multiples. The multiples are beyond our control, but what is in our control are, of course, the factors in the green.

And here, in terms of gross portfolio value, it has really benefited from the additions we have made in the 9-month period, worth EUR 126 million here in portfolio value terms. And these are our 6 management buy-outs and our 1 long-term investment we have done in the 9-month period.

The disposals are Telio, which was a partial disposal; and [ Fund IV ], also a partial disposal following the refinancing. And again, to get to the financial assets, which we show our -- on our balance sheet, we are deducting the carried interest. And we're also adjusting for the others, which are the short-term finance internal investment entities.

On the next slide, we are splitting up our net gains and losses on measurement and minus EUR 111.5 million. We have just seen and here, clearly, the one factor that stands out is the change in multiples of EUR 169 million in the 9-month period. That's really a significant figure here. And it's clearly driven by all -- it's clearly driven by the peer group companies that we are using to value our portfolio. And we have described this in further detail in the quarterly report. The majority of our portfolio companies are valued using the peer-group method.

Change in earnings. That's the positive contributions here, are mainly stemming from industry technology, IT services, software and industrial service. And also, we had negative effects here driven by increased input costs, also playing a role here, change in debts. Clearly, the add-ons which Torsten Grede has talked about, are mostly financed -- are mostly debt financed. So therefore, the debts figure has also increased. But when taking debt into account, both the change in earnings and the change in net, the operating performance stood at EUR 57 million positive.

On the next slide, you can see some [ statistics ] regarding our Fund Investment Services segment. The top line is relatively stable, as expected, and the bottom line has changed from the exceptionally high level we had last year, and that's mainly driven by the buildup of the team as well as higher consultancy expenses and also one-off expenses related to the departure of a member of our Board of Management, as we have talked about already in the first half year. The forecast of EUR 14 million to EUR 16 million EBITD for that segment remains unchanged, though.

Here, you can see a longer-term outlook and also a longer-term time horizon, which is plausible and which makes a lot of sense because quarterly -- single quarterly results are not too meaningful when it comes to DBAG. DBAG is a very long-term oriented company. It's a very long-term oriented strategy. So it's very important to look over -- look at the company and also the segments from a longer-term perspective. And you can see specifically how the [ EBITD ] figure of the Fund Investment Services has grown strongly in the past and is set to grow moderately also going forward. And that model is only because of the starting point of EUR 18 million, which was the high starting point before the buildup of our team. But still, we are expecting to achieve clearly a double-digit euro million figure.

On the next slide, we have, again, a snapshot regarding our available liquidity. You are all aware with that chart. You can see that we have an available liquidity of EUR 140 million. That's driven by EUR 48 million of cash and cash equivalents and EUR 66 million of undrawn credit lines. Based on our midterm planning -- sorry. Additionally, there are EUR 11.5 million of financial resources in our group investment FC subsidiaries.

The cash flow from operating activities is influenced by the receipt of the EUR 28 million of deferred management fees, as we have talked about earlier. So -- and the outflow here, the EUR 35.4 million, that's the investing activity that's mainly in the third quarter that has been Green Datahub, akquinet and Metalworks.

On the next slide, we again give you an overview about our financing requirements going forward. And also we are showing the gap between the available liquidity all else and the midterm co-investment commitments of EUR 167 million. And so it's -- the EUR 167 million are mostly covered by the available liquidity, and we are expecting returns from the disposals which yield additional financial resources here.

So with that, I would now like to hand back over to Torsten Grede.

[Torsten Grede, executive]

Thank you very much, Roland. So this slide again summarizes the -- our guidance as of July 15, as already mentioned, with an NAV expectation between EUR 570 million and EUR 630 million, earnings in the expected range between EUR 14 million and EUR 16 million and the net income of group level between minus EUR 70 million and minus EUR 85 million.

And as always, in our guidance, it is subject to the development of the capital market of the peer group multiple, which we don't include in our forecast and our guidance. Altogether, and that summarizes already our presentation. We -- I hope that we could bring across that we are a well-established platform in our market that we have portfolio, which provides good potential on the basis of a solid financial basis.

That summarizes and concludes -- completes our presentation. And I think I will give back to Roland, and we are more than open to your questions now.

[Roland Rapelius, executive]

Yes. Thank you very much, Torsten Grede. And yes, operator, if you could just start the Q&A process now. Happy to take your questions.