Deutsche Beteiligungs AG (DBAN) Earnings Call Transcript & Summary

Welcome, everybody. I'm sitting here together with Mirka Derksen, Head of Finance and Accounting; and Roland Rapelius, Head of Investor Relations. A few words and a quick summary about the results from the first half of our financial year '21, '22. We have made good progress in our portfolio with very interesting new investments and results of add-on acquisitions through our portfolio companies. The development of the capital markets has resulted in the drop of peer group multiples, which has negatively impacted our earnings that is reflected in the negative -- and a decrease of the net asset value of our PE investment segment of 5.1%. Please always keep in mind that the payment of the receipt of the deferred advisory fees has to be adjusted when you compare the development of net asset value with the -- as of September 2021 due to the fact that the deferred advisories have not been, by definition, been included in that asset value end of last fiscal year. The earnings from our second segment, the Fund Investment Services is a little bit influenced by a negative one-off effect, it comes out at EUR 5.8 million. As you know, we have released a new guidance beginning of April, and we confirm this guidance. A few words about our KPI on the next slide. As I already mentioned, the net asset value has decreased to EUR 641.8 million, that converts into a net asset value per share of EUR 34.13. The Fund Investment Services business, we have a stable development there with regard to the assets under management, EUR 2.5 billion, and as already mentioned, negatively impacted by one-off effect of EUR 5.8 million earnings. The net income comes out at a negative figure of EUR 35.8 million. And I will now lead to next 4 slides, some general remarks about the status of our business, and then we will go more in details of the figures of the 2 segments, PE investment and Fund Advisory Services. Starting with the market situation on the investment side, all of you know the statistics left-hand side view into our CRM system, right-hand side, the development of the market, mid-market buyout in Germany between EUR 50 million and EUR 250 million, which is our major market segment. Of course, these are historical figures. It always unclear how that will develop in year 2022. We expect that a contraction of transaction activity despite the fact that we have seen a very good deal flow in the first quarter of 2022, which is also reflected in some new investments which we talked about in a few seconds. The contraction of transaction activity will also be influenced by lenders from the debt side, who will be more selective. We have seen an increase of threats of about 100 basis points. You see in the jump on market in the capital market that valuations have come down from, let's say, 100 something to 90 something that is also mirrored in our market in certain debt categories where the market is closed at this time. This will all together lead to reduced transaction activity in the course of this year, that is our expectation. Benefiting from our deal sourcing activity is benefiting from our superior market position. On next slide, we were able to sign 2 new deals in the IT services and software sector. One of these 2 new deals qualifies as a third long-term investment, which we finance solely from our own balance sheet, a new investment strategy, which we have started 2 years ago. We have some deals which we signed last year, completed in the meantime. And we have also completed the disposal of Telio and we have been able to -- the dividend in course of a recap from our investment in [indiscernible]. In addition to that, we have done 18 add-on acquisitions. All our portfolio companies to be more [indiscernible] have done 18 add-on acquisitions, accelerating the development of the portfolio companies, which is a major part of our strategy to -- in the varying creation process for our portfolio company. This all is reflected also in a significant change of our portfolio structure, which we believe to be well-balanced, we have seen and this -- on this slide, you see on the left-hand side, you see the development of the sector mix within the 2 last years. And the first column shows its end of March 2020. Second problem is end of March '22. And the third column is when you include also the datahub and akquinet. The acquisitions we have signed but not completed yet into that statistics when you see an increasing part of our portfolio allocated to IT services and software sector, which is part of our growth sectors. And when you look on the right-hand side of the statistics, you can see that from a valuation standpoint, we value our gold sector investments 2x acquisition costs compared to 1.4x 2 years ago. And of course, industry is still suffering from adverse market environment and is still very slightly below cost. The war in the Ukraine has contributed, of course, to the development of our investments in industrial companies that we have undertaken, analyzes how that will -- what's the impact of the new plan will be? First question was how -- what will the impact for our portfolio companies be on the revenue side, then that is fair to say that, that is very limited or will be very limited on the basis of the budget for the current calendar year. If we add up all revenues, all planned budgeted for our portfolio companies and 1% of that was with Belarus, Russia or Ukraine. It's only a handful of portfolio companies which have business with Russia. I would say that is more or less the same situation for Germany industry. Russia is not one of the major partners when it comes to exporting business. And when we look to the indirect, so we don't see -- most part, the vast majority of this revenue will not take place this year, but the impact is very limited of our portfolio. When you look into the more indirect effects of the war in Ukraine, when we look into companies who have a high electricity consumption or high gas consumption, we have looked to the top 5 portfolio companies with regard to energy and gas consumption on the basis of statistics from 2020, which will -- where we have a very good visibility because part of our ESG strategy is also to track ESG-related KPIs. And here, we have 2 important KPIs which then will convert into CO2 intensity. And what you can see here is that the proportion and the value of the top 5 portfolio companies who are exposed to electricity and gas prices, it's between 2% and 5%, so quite limited. So I would say the direct and indirect effect from the Ukraine war will not have a significant impact on our portfolio. Of course, having said that, of course, the indirect effects with regard to inflation and changed interest policy of the central banks, of course, that will have an impact on the valuation of our portfolio are now [indiscernible]. I would first lead you to 3 slides with regard to the financial development in our segment PE investment. On this slide, you see that the contraction of our net asset value in the size of 5%. I will elaborate about the development of financial assets in the more detail on the next slide. Our revised guidance, which we released beginning of April is for the net asset value is between EUR 620 million and EUR 695 million. The old guidance from end of last year was between EUR 680 million and EUR 755 million. Please keep in mind that this guidance is based on the assumption that the valuation of the capital market is unchanged compared to March 31, because we don't make forecast on relative capital market valuations. We have included in the forecast also some expected in divestments, which we are currently working on. On next slide, some more details about the development of the value of our financial assets. When we look to our financial assets, we always have to add back carried interest. We have some others which are big finance and which we have to deduct. So that brings us to the gross portfolio value, and the gross portfolio value that we -- you see EUR 92.1 million additions that is very good investment performance. We had some disposals, which I already mentioned, and we have a negative effect from an asset size of EUR 60 million from change of valuations, which I will elaborate in more detail on the next slide, which brings us to a gross portfolio value of EUR 576 million end of March this year. Deducting current interest again, others brings us to the [ EUR 492.7 million ] of financial assets. When we go in more detail with regard to the EUR 60 million negative change in value -- decrease in value, then we always -- you can see that the operating performance of our portfolio companies was also in the last 6 months, positive EUR 33 million. And the cost effect from the chain valuation, multiple change in the capital market was almost EUR 100 million or EUR 95 million, which results in a reduction of value of our portfolio of EUR 60 million. We now switched to our second segment, Fund Investment Services segment. We see a reduction of the 5 points of the earnings. A stable top line, we have slight year-on-year development. We have a reduction or decrease of the earnings in that segment, which is, as I already mentioned, influenced by a one-off effect with regard to the charge of former member of Board of Management. And we have also seen some higher advisory fees in the first half of this year and also some increases in personnel cost expenses. Altogether, despite this development in the first half, we expect and we have guided a full year results from that segment between EUR 14 million and EUR 16 million, which is higher than our old kind which was between EUR 11 million and EUR 12 million, that reflects the effect that the performance that we expect to pay less performance-based bonuses on the basis of the development of the value of our portfolio. On the next slide, you see the stable development and the increasing development of the top line, where we expect to come out on the top line on more or less on the same level as we had in the last fiscal year, on the earnings side, as I already mentioned. And the beauty of that Fund Investment business is that we have a good stability and good visibility of earnings, and have the costs under control. So also we are very -- that is quite for a stable development. Please take into account that the ambition for '23-'24 is based on our old forecast from end of last year. That is something which we only adjust once a year. A few words. Let's finalize the commenting on the development of our segments. A few words about our financial basis, we have some EUR 170 million use of available liquidity and some sort of EUR 70 million from our own balance sheet, a bit more than EUR 100 million from undrawn credit facilities. And so we have a very good liquidity position. This is also mired in a solid financial base when we combine that with our medium-term investment plan, you can see that we have a good coverage of the expected investments in the next 3 years with our existing financial resources. The last slide, last slide in the presentation provides you with an overview or new forecast or new guidance, again finalizes that we are still confident that we -- a good basis for further developing our business as a good platform, have made good progress in broadening our scope of investments, see a positive development of our portfolio despite the valuation decrease and a good financial days. Thank you very much. Finalize my presentation.