p aving t he w ay. c reating v alue. t h e r o a d

Transcription

1 p aving t he w ay. c reating v alue. t h e r o a d to S uccess AnnuA l r eport 2012/2013

2 Paving The Way. CreaT ing value. ConT ent s AnnuA l RepoR t 2012/ our M ission s TaT e M ent 2. letter To our shareholders 3. Board of ManageMenT and supervisory Board 4. report of The supervisory Board 12. CorPoraTe governance 16. shares 26 our B usiness M odel 62 CoMBined ManageMenT report 64. overview 65. The group and underlying CondiTions 77. Business review of The group 106. FinanCial review of deutsche BeTeiligungs ag (CoMMenTary Based on The german CoMMerCial hgb) 111. significant events after The end of The reporting Period 142 FinanCial stat e M ents 144. ConsolidaTed income statement and statement of CoMPrehensive income 145. ConsolidaTed statement of Cash FloWs 146. ConsolidaTed statement of FinanCial PosiTion 147. ConsolidaTed statement of Changes in equit y 148. notes To The ConsolidaTed FinanCial statements 198 M iscellaneous i n F ormation 198. auditors report 199. statement of responsibility 200. information For shareholders ForWard-looking statements imprint FinanCial Calendar nine-year FinanCial summary 112. additional statutory information and CoMMenTary 119. opportunities and risks 135. report on expected developments

3 paving t he w ay. c reating value. f inancial h ighlights 2012/ /2012 investment mn ifrs carrying amount of investments (31 oct.) 1 mn investments (31 oct.) number ebit mn earnings before taxes (ebt) mn consolidated net income for the year mn consolidated retained profit mn equity mn cash flows from operating activities mn (12.1) (9.6) cash flows from investing activities mn 18.7 (17.7) cash flows from financial activities mn (16.4) (10.9) change in cash funds 2 mn (2.9) (9.8) earnings per share net asset value per share (31 oct.) return on net asset value per share 3 % dividend per share (2012/2013: recommended) surplus dividend per share (2012/2013: recommended) employees number without shelf companies and companies that are mainly attributable to third parties 2 in financial year 2012/2013, securities from liquidity reserves were partially sold to cover the liquidity requirement for investment. free liquidity from purchase price payments of disinvestments was again invested in securities of issuers with highest quality ratings. 3 change in net asset value per share in relation to opening net asset value per share at beginning of reporting period, less dividends

4 paving t he w ay. c reating value. o ur p ortfolio Company Sector Number of employees Revenue 2013 mn broetje-automation gmbh, wiefelstede (germany) clyde bergemann group, wesel (germany) / glasgow (uk )/ delaware (usa) dns:net internet service gmbh, berlin (germany) fdg group, orly (france) formel d gmbh, troisdorf (germany) grohmann gmbh, prüm (germany) heytex bramsche gmbh, bramsche (germany) homag group ag, schopfloch (germany) inexio informationstechnologie und telekommunikation kgaa, saarlouis (germany) plant systems & services pss gmbh, bochum (germany) romaco group, karlsruhe (germany) schülerhilfe (Zgs bildungs-gmbh), gelsenkirchen (germany) spheros gmbh, gilching (germany) stephan machinery gmbh, hameln (germany) machinery and plants for aircraft assembly; markets: worldwide 500 components for power plants; markets: worldwide 1, (fy 12 / 13) (US$mn, fy 12 / 13) telecommunication and it services; markets: germany * services for the retail industry; markets: france and neighbouring countries * industrial services for the automotive industry and its suppliers; markets: worldwide 3, * plants for industrial automation; markets: worldwide * manufacture of technical textiles; markets: worldwide * woodworking machines and plants; markets: worldwide 5, * telecommunication and it services; markets: germany (fy 12 / 13) services for the energy and process industries; markets: germany, the netherlands * machinery and plants for packaging and process technology; markets: worldwide (fy 12 / 13) education and tutoring services; markets: germany, austria * air-conditioning systems, heating systems, water pumps and roof hatches for buses; markets: europe, latin america, asia * mechanical engineering for the food industry; markets: worldwide * f inancial h ighlights, p ortfolio * preliminary/expected

5 Annual Report 2012/ our mission statement Stock exchange-listed Deutsche Beteiligungs AG invests in well-positioned, mid-sized companies with growth potential in selected sectors. With our experience, expertise and equity, we support our portfolio companies in implementing sustainable valuecreating corporate strategies. Our entrepreneurial approach to investing has made us a sought-after investment partner in the German-speaking region. We have achieved superior performance over many years for our portfolio companies as well as for our shareholders and investors.

6 2 letter to our Shareholders MEMBERS OF THE BOARD OF MANAGEment From left to right: Torsten Grede (Spokesman), Susanne Zeidler, Dr Rolf Scheffels

7 Annual Report 2012/2013 Frankfurt/Main, 24 January 2014 Paving the way. Creating Value. is the title on the cover of our Annual Report this year. This motto expresses what we intend to achieve for the seven companies in which we invested in 2012/2013: we want to support their development, back them in realising their potential. If we succeed in doing so, the companies will become stronger, and that will make them more valuable for the benefit of everyone. Prospering companies are attractive employers and reliable taxpayers; they are important customers for their suppliers and fuel advances within their sector. Moreover, when our investments gain in value, you, the shareholders of Deutsche Beteiligungs AG, also profit. This past financial year, we initiated investments of more than 200 million euros. Of that, nearly 45 million euros stemmed from our balance sheet. The remaining capital came from the investors in our parallel investment funds. We have thus clearly accelerated the rate at which we invest: 45 million euros for new portfolio companies is the highest amount we have spent in ten years and more than twice the average sum invested in the past decade. We had good reasons for our investment restraint during the crisis years: in this phase of great uncertainty we adhered to our basically very cautious approach and were not prepared to found our investment decisions on overly optimistic expectations. At the same time, we very successfully divested a number of investments most recently our interest in Coperion, the proceeds of which were realised in the period and recognised in the HGB-formatted accounts (German Accounting Standards), which delivered the basis for our dividend recommendation this year. The portfolio of Deutsche Beteiligungs AG is now a relatively young one: nine out of our 20 investments have been in the portfolio for two years or less, and they account for 40 percent of our invested capital. These portfolio companies are currently implementing the plans of action agreed at the outset of the investments. Initially, this will entail expenditures to move the companies forward. If this succeeds, it will trigger a value appreciation over the medium term. That correlation can be seen in the results we posted this past financial year. 1

8 letter to our sharesholders As expected, consolidated net income, totalling 32.3 million euros, was lower than it was the year before. In 2011/2012, a very successful realisation (Coperion) and one-off effects had boosted consolidated net income to 44.5 million euros. A major part of this year s net income was generated by the value growth from our largest investment, Homag Group AG. This company has done a lot in recent years to improve its earnings power, and in 2012/2013 the price of Homag shares soared by nearly 80 percent. For the other portfolio companies, the action that has been taken has not yet had its full effect partly because these programmes were only recently initiated, as is the case for our new investee businesses, and partly because they were impeded by stagnating or even declining demand in key target markets. The value of the other portfolio companies has therefore grown only marginally. Our shares mostly traded within a narrow corridor around the net asset value per share. Compared with the indices that reflect the general stock market sentiment, which lately could almost be termed euphoric, DBAG shares exhibited a less tempestuous price movement. The market has evidently acknowledged our efforts to emphasise that the significant factor for us is not the price-earnings ratio, but the development of the shares intrinsic value. The past financial year s consolidated net income equates to a return on net asset value per share of 11.5 percent; we once again exceeded the cost of equity. Over the last ten years net asset value per share has risen by an annual average of 14.8 percent. You, our shareholders, have profited time and again from the investment performance of Deutsche Beteiligungs AG by way of a high dividend yield. Our dividend policy remains unchanged: the base dividend is meant to ensure a minimum return on equity for shareholders even in years without particular capital gains on disposals. By paying a surplus dividend, moreover, we want you to share in the profits achieved through successful realisations as has been the case six times in the past nine years. We have distributed 176 million euros to you since 2005, two-thirds of which were surplus dividends. Our dividend payments correspond to more than half of the retained profit that Deutsche Beteiligungs AG has achieved. Marking ten years since it was first implemented, we are maintaining that dividend policy this year. In addition to an unchanged base dividend of 40 eurocents, the Supervisory Board and the Board of Management recommend paying a surplus dividend of 80 eurocents. It is sourced as stated earlier from the gain on our investment in Coperion, whose divestment was contractually agreed in October 2012, but was only completed at the beginning of A significant part of this gain is now to be disbursed to you. 2

9 Annual Report 2012/2013 What comes next? In this Annual Report we are elucidating our objectives and strategy. To give you an impression of the diversity of the business models in our portfolio, we are presenting three companies in detail. At the same time, we want to clearly show what all the companies in which DBAG invests have in common: they are Mittelstand companies that part of the German economy which is so well regarded internationally that the German word is also used in other countries. At one billion euros, the global market for climate systems and engine-independent heating units in buses may be small. But anyone who achieves revenues of more than 150 million euros in this market is bound to be a major player, in key geographic markets even the leading player as is true of our portfolio company Spheros. Another portfolio company, Formel D, also has a unique position in its market. What we find particularly impressive is that, in terms of growth, this company has clearly outperformed its sector in recent years. Finally, inexio has increased its customer base five-fold in five years. In our view, supporting such a determined family-run company and financing such growth is an extremely attractive undertaking. These three enterprises are representative of an entire portfolio of attractive investee businesses. Our investments are not, however, immune to cyclical effects. Distortions and a shift in sentiment in the stock markets can also change company valuations quickly and notably and thereby strongly impact the annual net income of a private equity firm such as DBAG. We are, nevertheless, providing a short-term forecast for the current financial year: in 2013/2014, we expect our comparatively young portfolio of unquoted companies to make good progress and deliver a clearly higher contribution to net income. This also takes into account that, subsequent to our recent investments, the portfolio base relevant to valuation will be greater than it was before. Since we are unable for fundamental reasons to issue a forecast on the price trend for shares in quoted Homag Group AG, a contribution to income from this investment has not been considered in our forecast. Based on these assumptions, we expect that the contribution to income from the portfolio will be lower than it was this past financial year. Consolidated net income should therefore be clearly below that posted for 2012/2013. In this scenario, we are nonetheless confident of being able to earn the cost of equity once again. 3

10 letter to our sharesholders Not least the results of the past year have demonstrated yet again that measuring performance over the short term does not do justice to our business. We create value not by support from favourable circumstances, but because our portfolio companies realign their strategies and improve their operating processes in order to achieve an even stronger competitive position. For that reason, we invest in our portfolio companies for a timeframe of four to seven years. We employ that same timeframe in managing your company DBAG. We will continue to adhere to our proven investment strategy this new financial year. We have sufficient financial resources to do so both in our balance sheet and from commitments to the parallel investment funds. An investment s success can only be measured at its ultimate disposal. Our aim is to pave the way to creating value in order for shares in Deutsche Beteiligungs AG to remain a good investment. We would be very pleased if you were to continue supporting us in doing so. Torsten Grede Dr Rolf Scheffels Susanne Zeidler 4

11 Annual Report 2012/ BOArd of ManAGement and SuperviSOry BOArd Board of Management Supervisory Board ToRSten Grede Frankfurt /Main, Spokesman Born 1964, Spokesman of the Board of Management since 26 March 2013, Member of the Board of Management since January Studied business administration in Cologne and St. Gallen, following an apprenticeship in banking. More than 20 years of experience in private equity at Deutsche Beteiligungs AG. Appointed until December Dr Rolf Scheffels Frankfurt /Main Born 1966, Member of the Board of Management since January Studied business administration and economics in Frankfurt /Main, following an apprenticeship as an industrial administrator. Began his career in an auditing firm. More than 20 years of experience in private equity and corporate finance, 17 of which at Deutsche Beteiligungs AG. Appointed until March AnDRew RicHARDS Bad Homburg v. d. Höhe, Chairman Executive Director of Pare-Unternehmensberatung GmbH, Bad Homburg v. d. Höhe GeRHARD RoGGeMAnn Hanover, Vice Chairman (since 26 March 2013) Vice Chairman of Canaccord Genuity Limited, London, Great Britain Roland Frobel Isernhagen Director of Administration and Finances, Dirk Rossmann GmbH, Burgwedel Wilken FreiheRR von HodenbeRG Hamburg (since 26 March 2013) Lawyer Susanne Zeidler Bad Homburg v. d. Höhe Born 1961, Member of the Board of Management since November Studied business administration at the University of Münster. More than 20 years of experience in auditing and corporate finance. Appointed until October Philipp Möller Hamburg Managing Partner of Möller & Förster GmbH & Co. KG, Hamburg Dr HenDRik Otto Dusseldorf Lawyer and partner at Mayer Brown LLP, Frankfurt /Main

12 4 Report of the Supervisory Board Andrew Richards Chairman of the Supervisory Board Deutsche Beteiligungs AG has a first-rate position in the German private equity market. The seven new investments made this past financial year are impressive proof of that. these new investments lay the foundation for future value growth of the portfolio, which delivered a consolidated net income of 32.3 million euros in 2012/2013. We were very pleased to see that Deutsche Beteiligungs AG continued its path of progress, which has generated high returns and very gratifying dividends for its shareholders in the past years.

13 Annual Report 2012/ Report of the S u p erv i S O ry B OA r d In the reporting year, we again conscientiously discharged the monitoring and advisory duties required of us by law, the Articles of Association and the rules of procedure. The Board of Mmanagement regularly provided the Supervisory Board with comprehensive and prompt information, both in writing and verbally, about the Company s course of business, its earnings and financial position, the competitive environment and the prospects, as well as the risk management and compliance systems installed at Deutsche Beteiligungs AG. The Supervisory Board discussed these issues in depth. Divergences from the planned course of business were elucidated by the Board of Management. The Board of Management also reported on strategic and major operational decisions as well as on the business policies it intends to pursue. In financial year 2012/2013, the Supervisory Board held seven meetings, two of which were telephone conferences. In several instances, the Supervisory Board met in the absence of the Board of Management. An integral part of all our Board meetings were detailed reports on current developments in individual portfolio companies. We received comprehensive quarterly reports in writing on those issues from the Board of Management. We were informed promptly and in depth about companies that were not performing as expected. We were also regularly informed about new investments in, and planned realisations from the portfolio. At our first regular meeting on 28 NoveMBer 2012, we dealt with the relations between Deutsche Beteiligungs AG and its shareholders. We discussed Deutsche Beteiligungs AG s response to institutional investors call for greater transparency and considered the conse quences brought about by the change in the shareholder profile after Rossmann Beteiligungs GmbH increased its interest in the Company. The Board of Management reported on its intention to broaden the informational basis for Deutsche Beteiligungs AG concerning its shareholder profile by converting to registered shares. In the November meeting, we also discussed the issues on the agenda for the 2013 Annual Meeting and the Board of Management s decision to permit postal voting for the first time. We were involved in and contributed to the Corporate Governance Statement ( 289a of the German Commercial Code HGB) and adopted the Declaration of Conformity as well as the joint report by the Board of Management and the Supervisory Board on the corporate governance practised at Deutsche Beteiligungs AG. The Board of Management informed us about the preliminary results for the preceding 2011/2012 financial year and the potential for a dividend payment. Having reviewed the efficacy of our work practices (clause 5.6 of the German Corporate Governance Code) most recently in November 2011 and finding no necessity for improvement, we waived conducting another evaluation at this point, since the results of these efficacy reviews have repeatedly been positive.

14 6 Report of the Supervisory Board At our regular meeting on 24 JanuARy 2013, the auditors reported on the results of their audit of the separate financial statements and the consolidated financial statements at 31 October We adopted the separate financial statements of Deutsche Beteiligungs AG and approved the consolidated financial statements. We passed a joint dividend recommendation and the agenda for the 2013 Annual Meeting. We dealt with a nomination submitted by a group of shareowners, who together held more than 25 percent of the voting rights, which had been prepared by the Nominations Committee to elect Mr von Hodenberg to the Supervisory Board of Deutsche Beteiligungs AG. We approved that nomination. Since Mr von Hodenberg, due to his candidacy, had resigned from his office on the Board of Management effective after the Annual Meeting on 26 March 2013, and not on 1 April 2013 as planned, we appointed Mr Grede as the Spokesman of the Board of Management effective that day. The Board of Management also reported on the budget for financial year 2012/2013 at this meeting. At our meeting following the Annual Meeting on 26 MARch 2013, we elected Mr Roggemann as the new Vice Chairman of the Supervisory Board, Dr Otto as a new member on the Audit Committee and Mr Roggemann as its Chairman. We were informed about the consequences that ensue for Deutsche Beteiligungs AG from the AIFM (Alternative Investment Fund Managers) Directive issued by the European Union and discussed the situation for DBAG in light of the status of its transposition into German law. We also initially dealt with the renewal of Mr Grede s appointment to the Board of Management and his service contract. In addition to the reports on the portfolio companies and investment projects that are regularly dealt with at every meeting, the issues tabled at our meeting on 13 June 2013 again pertained to the Board of Management. Following considerations in the Executive Committee, the topics discussed were the renewal of Mr Grede s appointment to the Board of Management until 31 December 2018 as well as alterations to Dr Scheffels service contract. To that end, we took into account the Code s new recommendation that came into effect on 10 June 2013 concerning a vertical comparison of the total remuneration for Board of Management members and peer groups we define, as well as of fixing a ceiling on the total remuneration (clause 4.2.2, paragraph 2, and 4.2.3, paragraph 2 of the Code). We defined the targeted level of benefits from the Company s pension arrangements, also considering the expenses for the Company (clause 4.2.3, paragraph 3). Beyond that, we dealt with our own organisational matters at this meeting. At our meeting on 12 SepteMBer 2013, we again discussed the impact on Deutsche Beteiligungs AG of the new German Investment Code (Kapitalanlagegesetzbuch KAGB), which transposes major rules of the AIFM Directive into German law. The Board of Management reported on opportunities for providing growth financings jointly with the DBAG Expansion Capital Fund and on the fund s investment progress.

15 Annual Report 2012/ The only topic tabled at our telephone conference on 30 SepteMBer 2013 concerned a new investment project. The Board of Management reported comprehensively on the targeted transaction and answered our inquiries. In a telephone conference on 31 October 2013, we discussed the efficacy of our work. Findings that pertained to the interaction with the Board of Management were communicated to the Board of Management by the Chairman of the Supervisory Board. Between meetings, the Spokesman of the Board of Management promptly informed the chairman of the Supervisory Board about significant business issues, after which the complete Supervisory Board was briefed accordingly (clause 5.2 of the Code). We were involved in all significant decision-taking processes. Transactions requiring our consent were not submitted to the Supervisory Board in the reporting period. In individual instances, we solicited reports from the Board of Management pursuant to 90 (3) of the German Stock Corporation Act (Aktiengesetz AktG); there were no grounds for objection. All members of the Supervisory Board attended all of the Board s meetings this past financial year, except for the telephone conference on 30 September, in which two members were unable to participate. The same applies to the meetings of the Executive and Nominations Committee as well as the Audit Committee, which all of their members attended. Corporate Governance As reported, we regularly evaluate the efficacy of our work on the Supervisory Board. We also continually follow the changes in corporate governance practices taking place in Germany. Management s report on the Company s corporate governance is also presented on behalf of the Supervisory Board (clause 3.10 of the Code); we adhere to the practice of publishing this report in the Annual Report (pages 12 to 15), and it is also accessible on the Company s website together with the Corporate Governance Statement. The Board of Management and the Supervisory Board jointly submitted an updated Declaration of Conformity in November 2013 based on the Code as amended on 13 May 2013 ( 161 AktG), which is permanently accessible to any interested party on the Company s website. Every Supervisory Board member is required to disclose to the Supervisory Board any conflict of interest that may possibly arise, in accordance with the recommendations of the Code. There were no notices of conflict-of-interest issues this past financial year. To delegate its responsibilities and increase efficiency, the Supervisory Board formed an Executive Committee, which also performs the functions of a Nominations Committee (clause of the Code), as well as an Audit Committee.

16 8 Report of the Supervisory Board work of the Executive CoMMittee (also acts as Nominations Committee) The Executive Committee convened twice this past financial year; in its capacity as a Nominations Committee, it met on 28 November 2012 and dealt with a motion by a group of shareowners to elect Mr von Hodenberg to the Supervisory Board. At its meeting on 28 November 2012, the Executive Committee determined the short-term performance-related remuneration component for the members of the Board of Management for financial year 2011/2012. Another meeting in financial year 2012/2013 dealt with the renewal of Mr Grede s appointment and service contract as well as an alteration to Dr Scheffels service contract. The performance-linked component for financial year 2012/2013 was discussed and recommended to the Supervisory Board in a telephone conference at the beginning of the new financial year on 21 November The Supervisory Board approved the recommendation following an in-depth discussion in a telephone conference on 25 November Since Mr von Hodenberg, in his capacity as a former member of the Board of Management and thereby as a recipient of that performance-linked component, had a personal interest in this decision, he declared that he had a conflict of interest on this issue and also pointed to a possible conflict of interest over a decision on the performance-linked component for the other members of Board of Management. He then took part neither in the discussion, nor in the vote concerning the performance-linked component for the members of the Board of Management for financial year 2012/2013. work of the Audit CoMMittee In four meetings held during the reporting year, the committee addressed issues concerning the separate and consolidated financial statements, the half-yearly financial report and the quarterly financial reports, all of which were discussed with the Board of Management prior to their publication. Additionally, the committee discussed miscellaneous accounting issues and monitored the accounting process as well as the effectiveness of the internal control and auditing system. There were no grounds for objections to the Company s current practice. Also tabled at the meetings of the Audit Committee was the Company s practice in compliance issues. We reviewed the required independence and objectivity of the Company s auditors and the additional services the auditors provide. We also discussed the assignment of the audit to the auditors, the determination of the audit s focal points (such as the accounting-related internal control system) and audit fees.

17 Annual Report 2012/ We continue to comply with the requirements under 100 (5), 107 (4) AktG, which stipulate that at least one independent member of the Supervisory Board or Audit Committee must have expert knowledge of accounting or auditing. In particular the Chairmen of the Audit Committee Professor Dr Langenbucher up to his retirement from the Supervisory Board and Mr Roggemann as his successor has profound knowledge of and experience in the application of accounting principles and internal control processes (clause of the Code). The chairmen of the committees regularly reported to the Supervisory Board on the work of their committees. Separate and consolidated financial statements endorsed Prior to recommending KpmG AG Wirtschaftsprüfungsgesellschaft (KpmG), Frankfurt /Main, for election as auditors to shareholders at the Annual Meeting, the Supervisory Board requested and received an independency statement from KpmG in conformity with clause of the Code. Subsequent to the 2013 Annual Meeting, at which our recommendation was adopted, and in my capacity as the Chairman of the Supervisory Board, I commissioned KpmG with the audit. The auditors were required to immediately report all major findings and occurrences to us that may come to light during the audit (clause of the Code). It was also agreed that we should be informed if, during the audit, any facts were revealed that may represent a misstatement of the Declaration of Conformity in accordance with 161 AktG as submitted by the Board of Management and the Supervisory Board. The auditors report contained no information on, or indication of any such findings, occurrences or facts. KpmG audited the separate financial statements of Deutsche Beteiligungs AG for financial year 2012/2013 and management s combined report on Deutsche Beteiligungs AG and the Group, including the underlying accounting, and endorsed them with an unqualified certificate. The same applies to the consolidated financial statements for financial year 2012/2013. The auditors performed the audit in accordance with the German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). The consolidated financial statements were drawn up in conformity with the International Financial Reporting Standards (IFRS). The auditors confirmed that the consolidated financial statements comply with the IFRS, as adopted by the European Union, and the additional requirements of German commercial law pursuant to 315a (1) of the German Commercial Code (Handelsgesetzbuch HGB) and that the consolidated financial statements as a whole present a true and fair view of the position of the Group as well as the opportunities and risks involved in its future development.

18 10 Report of the Supervisory Board In their report, the auditors also expressed an opinion on the Board of Management s risk management and surveillance system in respect of going-concern risk. They found the system suitable for early identification of developments that might endanger the continuity of the Company as a going concern. The Supervisory Board received the audited and certified financial statements for the year ended 31 October 2013 and the combined management report on the state of Deutsche Beteiligungs AG and the Group in due time, reviewed them in conjunction with the report of the Audit Committee Chairman and the auditors, and discussed these documents in detail with the Board of Management in the presence of the auditors. The same applies to the consolidated financial statements as well as to the recommendation for the appropriation of profits. The auditors presented the findings gathered within the scope of the pre-audit at our meeting on 28 November They dealt in great detail with the question of whether there are material weaknesses in the accounting-related internal control system. This is not the case. At our meeting of 24 January 2014 as well as the meeting of the Audit Committee on the same day, the auditors reported in general on the results of their audit and on specific points of their audit. There were no grounds for objections. The auditors reported on the services they rendered in addition to performing the audit. The auditors provided detailed answers to our inquiries. After its own in-depth review of all documents, the Supervisory Board found no grounds for objection. We approved the results of the audit. On 24 January 2014, we followed the Audit Committee s recommendation and approved the consolidated financial statements and adopted the financial statements of Deutsche Beteiligungs AG. The Supervisory Board reviewed the Board of Management s recommendation on the appropriation of the retained profits and took particular account of the Company s liquidity, financial budgets and investment plans. Provisioning for the Company and shareholders interests con stituted further criteria in that review. After its review, the Supervisory Board agreed to the Board of Management s recommendation to distribute the sum of 16.4 million euros to shareholders and carry forward the residual retained profit of 26.8 million euros to new account. Changes on the Board of Management and the Supervisory Board A generational change took place on the Company s Board of Management in 2012/2013: Mr von Hodenberg, who had been on the Board as its Spokesman since July 2000, left his office on 26 March 2013, as did Mr Mangin on 31 March 2013; Mr Mangin had joined the Board in January A good part of DBAG s success in recent years can be ascribed to both of these gentlemen. The Supervisory Board thanked them also on behalf of the shareholders for their contribution and lasting merits in the interest of Deutsche Beteiligungs AG. We are very pleased that both gentlemen remain committed to Deutsche Beteiligungs AG. Mr von Hodenberg was elected to the Supervisory Board on 26 March 2013 and Mr Mangin serves in an advisory capacity.

19 Annual Report 2012/ On 26 March 2013, Mr Grede assumed the office of Spokesman of the Board of Management. As stated in the report on the preceding 2011/2012 financial year, we newly appointed Ms Zeidler to the Board of Management, effective 1 November Her appointment initially extends over a period of three years, in conformity with the recommendations of the Code (clause of the Code). Since April 2013, the Board of Management now consists of three members. Ms Zeidler took over the financial sector from Mr von Hodenberg and has also assumed responsibility for Legal, Personnel/Organisation/it and Investor Relations. On the Supervisory Board, Mr von Hodenberg succeeded Professor Dr Langenbucher. The latter retired from his office on the Supervisory Board concurrently with the conclusion of the 2013 Annual Meeting, having reached the age limit stipulated in our Articles of Association. We want to express our deep gratitude to Professor Langenbucher for his distinguished service and expert counsel which he has given the Company since his election to the Supervisory Board in 2006, particularly in his capacity as the Chairman of the Audit Committee. This past financial year, Deutsche Beteiligungs AG again achieved a very gratifying consolidated net income and a return on net asset value that exceeds the cost of equity. This is all the more remarkable in view of the Company s unusually high proportion of low-interest bearing liquidity following a series of profitable realisations in recent years and despite the numerous new investments the Company entered into in 2012/2013. We extend our thanks to the Board of Management and the staff of Deutsche Beteiligungs AG for their outstanding performance this past financial year. Frankfurt /Main, 24 January 2014 Andrew Richards Chairman of the Supervisory Board

20 12 Corporate Governance Corporate Governance Corporate governance refers to the way a company is managed and controlled. The Supervisory Board and the Board of Management acknowledge and endorse the principles of corporate governance. They are vital for the Company s business performance and are an integral part of our identity: we endeavour to respect and protect the interests of all our stakeholders, foster open and reliable communication with our shareholders and the general public, and maintain a relationship of confidence with our investors and business partners. Code of Conduct, Corporate Governance Statement and Corporate Governance Report are accessible at corporate-governance. We identify with the appeal contained in the German Corporate Governance Code (hereafter: the Code) to manage and supervise the Company in conformity with the principles of the social market economy and to ensure the Company s continued existence and sustainable creation of value. We have set out the Company s central values and guiding principles in a Code of Conduct for Deutsche Beteiligungs AG. The Code of Conduct is binding for all of our employees. Our intention is to give each and every member of our staff a set of fundamental rules and to communicate to our business partners and investors that our dealings are firmly rooted in ethical principles and that we will always interact fairly in good partnership. We have always committed to the principles of good fiduciary corporate governance. We regularly review existing structures without there having to be legislative or other requirements to do so. Our Corporate Governance Statement sets out the basic principles behind the conduct of our business; it is published on the Internet and is accessible there together with this report. Consistent with the recommendation of the Code, the following is a combined report by the Supervisory Board and the Board of Management on the corporate governance practised at Deutsche Beteiligungs AG. Further information can be found in the Corporate Governance Statement mentioned above and the Report of the Supervisory Board (page 5ff.); that information is an integral part of our combined corporate governance report. To avoid repetition, we refer to other sections of this Annual Report on particular issues.

21 Annual Report 2012/ Composition of the Supervisory Board: Efficacy and operability are key objectives The German Corporate Governance Code recommends that the Supervisory Board specify concrete objectives regarding its composition and report on these and on their implementation. For the first time in financial year 2009/2010, the Supervisory Board specified the following objectives regarding its composition and supplemented them in November 2012: the key objective is to ensure the Supervisory Board s efficacy and operability; this objective is best addressed when the majority of its members are independent and are not exposed to conflicts of interest and when its members are experienced in the multifaceted operations of DBAG and have an expert knowledge of applicable accounting principles. The Supervisory Board is also of the opinion that the majority or four of its members should be independent, and the Chairman of the Supervisory Board should be one of them. The candidates the Supervisory Board recommended for election to the Board at the 2011 Annual Meeting, at which all six members were elected, as well as the nomination of Mr von Hodenberg at the 2013 Annual Meeting as the successor to a departing member complied with these requirements. These recent elections, however, did not come closer to achieving the objective of more appropriately considering women for managerial and supervisory assignments in the Board s composition. By nominating Mr von Hodenberg for election to the Supervisory Board, we had the opportunity this past year of further drawing from his many years of experience as the Spokesman of the Board of Management of Deutsche Beteiligungs AG and his excellent knowledge of the private equity market in the interest of the Company and its shareholders; in duly considering our objectives, we gave preference to this exceptional opportunity of having him on the Supervisory Board and were confirmed by an overwhelming vote (99.5 percent) at the Annual Meeting. The members of the Supervisory Board do not have business or personal relationships to the Company or its Boards, or to a controlling shareholder or a company with which that shareholder is affiliated, which could constitute a significant and not merely temporary conflict of interest. Should, contrary to expectations, conflicts of interest arise in individual instances, these are disclosed and dealt with appropriately by the Supervisory Board. The members of the Supervisory Board bring with them a wide spectrum of professional and personal experience, including management responsibility abroad or in international companies in Germany. The age limit of 70 means that the Company can, on the one hand, benefit as much as possible from these skills; on the other hand, it is conducive to introducing changes in the Board s composition. Since the beginning of financial year 2013/2014, Deutsche Beteiligungs AG has followed all of the recommendations of the Code as amended.

22 14 Corporate Governance For information on capital market activities, page 22ff. The principle of simultaneously directing information to all interested parties ranks high in our communication policy. All major reports, announcements and presentations are accessible on the Internet at the time of the respective event. The key presentations we prepare for meetings with investors are also available on our website. Any interested individual can take note of the dates and locations of road shows and investors conferences that we attend. Our complete Annual Meeting is webcast live on the Internet. Shareholders may elect to exercise their voting rights personally or through a proxy of their choice or through a proxy appointed by the Company who is bound by their directives. Postal voting is also possible. All documents and information on the Annual Meeting are accessible in German and in English on our website. Conflicts of interest requiring immediate disclosure to the Supervisory Board on the part of members of the Board of Management and the Supervisory Board did not come to our attention. Remuneration for the Board of Management: Linked to corporate performance Details on the remuneration for the members of the Board of Management and the Supervisory Board are provided on page 112ff. The remuneration paid to the Board of Management is composed of fixed and performancerelated components, most of which have a long-term incentive. We issue an individualised statement of emoluments paid to the members of the Board of Management. Shareholders at the 2011 Annual Meeting approved the remuneration scheme with a vote of approximately 92 percent. Since the beginning of financial year 2013/2014, the remuneration paid to Supervisory Board members is solely composed of a fixed fee. The previous remuneration scheme, which, in addition to a fixed fee, also contained a variable component geared to the annual growth in net asset value per share, was revised at the 2013 Annual Meeting. Strict rules on share ownership Apart from participating in the employee stock ownership plan (once annually, see page 103), members of the staff and the corporate bodies may only purchase shares in Deutsche Beteiligungs AG within a limited frame. Shares may only be purchased and sold during specified periods of time. These periods general follow the publication of the Annual Report and interim reports as well as to the Annual Meeting. They are announced on the website of Deutsche Beteiligungs AG. Based on the nature of the business operations of Deutsche Beteiligungs AG, there are further rules that apply to trading in securities for DBAG staff. Irrespective of the trading restrictions for shares in Deutsche Beteiligungs AG, members of the staff or members of the corporate bodies are not permitted to deal in shares of portfolio companies of Deutsche Beteiligungs AG, or of companies undergoing the due diligence process or whose portfolio contains companies in which Deutsche Beteiligungs AG is considering an investment.

23 Annual Report 2012/ Reportable securities transactions (Directors Dealings) The members of the Board of Management and the Supervisory Board of DBAG as well as related parties are required to report transactions in DBAG shares according to 15a German Securities Trading Act (Wertpapierhandelsgesetz WpHG). Reporting individual Corporate body Date of transaction Transaction Number Susanne Zeidler Board of Management 17 Apr Purchase 1, The members of the Board of Management held a total of 31,613 no-par value shares as at 31 October 2013, or less than one percent of the subscribed capital of Deutsche Beteiligungs AG. The members of the Supervisory Board held a total of 33,000 no-par value shares as at 31 October 2013, or less than one percent of the subscribed capital of Deutsche Beteiligungs AG. Declaration of Conformity pursuant to 161 of the German Stock Corporation act (Aktiengesetz AktG) The Board of Management and the Supervisory Board declare that, since the last Declaration of Conformity, Deutsche Beteiligungs AG has complied with the recommendations of the German Corporate Governance Code (hereafter: the Code) as amended on 15 May 2012 and as amended on 13 May 2013 from the time of their validity, with one exception: In addition to a fixed fee, the members of the Supervisory Board in the past received a performance-related component, which was based on a key performance indicator for shareholders the movement in net asset value per share over a financial year. This remuneration scheme for Supervisory Board members was not consistent with the recommendation stated in clause of the Code, since the performance-related component was based on one financial year and did not contain long-term constituents. Shareholders at the 2013 Annual Meeting adopted a new remuneration scheme for the Supervisory Board that no longer contains a performance-related component; the new scheme has been applicable since the beginning of financial year 2013/2014. We now comply with all of the recommendations of the Code as amended on 13 May Since issuance of the last Declaration of Conformity, we have also followed all of the suggestions in the Code and will follow them in the future. Frankfurt /Main, November 2013 Deutsche Beteiligungs AG The Board of Management the Supervisory Board

24 16 Shares Shares Private equity is an integral part of institutional investment strategies, usually taking the form of fund investments. DBAG shares are one of the few opportunities in Germany for investing in private equity by way of the stock market. This opportunity has proven advantageous for our shareholders DBAG shares have delivered average annual returns of 12 percent over the last ten years. PRIVATE EQUITY AS AN ASSET CLASS Attractive and successful: High returns over extended time periods Despite having a volume of over two trillion euros, private equity as an asset class attracts relatively low attention on the stock market. Equity investors take most notice of private equity firms when they lead a portfolio company to an IPO or when they acquire a listed company and take it private. Most of what private equity companies do is not readily perceived by the general public. That is hardly surprising, since institutional investors channel the greatest part of private equity to closed-end funds. These funds are based on individually negotiated agreements and mostly provide for a minimum commitment of several millions of euros, which are tied for a term of more than a decade. Deutsche Beteiligungs AG has been listed for almost 30 years. It manages a portfolio of direct investments and is thus among the private equity firms that create the opportunity to invest in a highly attractive and successful asset class via the stock market. Numerous studies have shown that private equity has generated superior returns when viewed over extended periods of time.

25 Annual Report 2012/ There are many reasons for this. Private equity companies, for instance, normally pursue long-term strategies for increasing the value of their portfolio companies. By contrast, the management boards of listed companies face public scrutiny at quarterly intervals. Private equity also benefits from the fact that the managers of portfolio companies are generally co-shareowners in the company they manage. That serves to promote a greater identity of interests than would be expected in a pure employee model. In addition, being a manager at a company financed by private equity offers opportunities that are truly entrepreneurial that, in turn, attracts individuals who are highly qualified and extremely motivated. When it comes to making investments, private equity companies have a wide range to choose from. In Germany, for example, there are some 1,000 listed companies, but more than 4,000 unlisted mid-sized enterprises operating in industries targeted by Deutsche Beteiligungs AG. In the private equity sector, investment decisions undergo extensive preparation. They are based on an in-depth due diligence examination of the target company. For legal reasons alone, people wanting to invest in stocks would hardly have such a comprehensive pool of information to base their decision on. Finally, another hallmark of the private equity model is the financial co-liability that investment managers assume for the risks involved in deploying the resources entrusted to them. Every investment by DBAG includes a personal financial co-investment on the part of those recommending the investment. At DBAG, as at other private equity companies, shareholders and the members of the investment team are all in the same boat. Private equity for the price of a share A share in Deutsche Beteiligungs AG is an investment in a portfolio of carefully selected companies that are generally unavailable to equity investors. Shareholders can access this portfolio without having to invest high minimum amounts. Their holdings are liquid on each trading day. The high transparency standard to which Deutsche Beteiligungs AG is committed provides quarterly information on the development of the portfolio, for example, by way of the net asset value per share the key performance indicator for listed private equity companies. There are currently more than 150 listed private equity companies worldwide. In 1980, there were only three that were quoted. That figure had increased to more than 50 by 1999, after which the sector experienced rapid expansion. Two thirds of listed private equity companies invest directly in portfolio companies, among them Deutsche Beteiligungs AG in Germany. In addition, they often manage or provide advice to closed-end private equity funds, as does DBAG. In addition to private shareholders, investors include institutional investors such as pension funds or funds committed exclusively to listed private equity. Beyond that there are also index investors. Numerous banks offer certificates tied to the LPX50 or LPX Direct, indices in which DBAG shares are a constituent.

26 18 Shares PERFORMANCE AND DIVIDEND Share price remained below market development Driven by higher-than-average trading activity, DBAG shares had initially outpaced the market a few months prior to the start of the financial year, and stood at euros as the year commenced. By the end of the year, they had declined to euros, a decrease of almost one percent. Market capitalisation thus fell by 1.7 million euros to million euros. The year s highest price point of euros was reached prior to the Annual Meeting; the lowest price point of euros was recorded in December Thus, DBAG shares remained behind the general market trends. PERFORMANCE OF DBAG SHARES AND BENCHMARK INDICES 1 November 2012 to 31 December 2013; indexed to 1 November 2012 = DBAG Dax S-Dax LPX Direct Nov.12 1 Jan.13 1 Mar May13 1 July 13 1 Sept Nov Dec.13

27 Annual Report 2012/ In March 2013, a dividend of 0.40 euros per share and a surplus dividend of 0.80 euros per share were paid for financial year 2011/2012, a total of 16.4 million euros. This corresponds to a dividend yield of 7.2 percent based on the net asset value per share at the outset of the financial year (less the dividend paid for the previous year), or 6.2 percent measured by the opening share price at the beginning of the year. The share price movement and dividend payment result in a total return of 7.4 percent for DBAG shareholders this financial year. DBAG shares thus underperformed major benchmark indices over the span of a year. Over longer periods of time, however, an investment in DBAG shares has often significantly outperformed investments in the index of other private equity stocks, the LPX Direct, or the Dax and S-Dax. On 31 October 2013, LPX Direct consisted of 28 constituents with a market capitalisation of 37.1 billion euros. DBAG shares are the only German component in the index, with a weighting of 0.64 percent. Performance of DBAG portfolio over one, five and ten years Initial investment of 10,000 euros on 1 November in 2012, 2008 and 2003 ( ) 1 year 10,738 12,315 13,145 12,325 23,887 5 years 17,971 24,315 17, years 24,710 25,905 30,965 DBAG Dax S-Dax 19,111 LPX Direct

28 20 Shares Assessment of DBAG shares closely tied to net asset value per share Our investor relations activities are primarily aimed at promoting trading in DBAG shares and achieving a fair assessment of them in the equity market. During the financial year, we had a significant degree of success in these efforts and our shares traded within a narrow range of their intrinsic value, the net asset value (NAV) per share. DBAG shares traded at a premium to NAV per share of up to 10 percent on approximately one third of the trading days during the financial year; on more than 40 percent of trading days, they closed at a discount to NAV per share of up to 5 percent; only once was the discount 10 percent. DBAG shares continue to be valued more positively than those of comparable private equity companies: at year-end 2013, the average discount to net asset value for nine listed private equity firms in continental Europe whose business models are similar to that of DBAG was 9.0 percent. Difference between share price and net asset value per share 1 November 2012 to 31 December 2013 (%) Nov Feb.13 1 May 13 1 Aug.13 1 Nov Dec.13 Share liquidity: Higher trading volume facilitates purchase of DBAG shares Trading in DBAG shares was volatile in 2012/2013. Market turnovers peaked in the second quarter (February to April), especially before and after the Annual Meeting, when turnovers exceeded the daily average of 476,000 euros (previous year: 242,000 euros) severalfold on some days. In total, considerably more shares were traded at an overall higher value in 2012/2013 than in the previous financial year. This increases the shares attractiveness for institutional investors. An average of 24,155 shares (previous year: 14,356) were traded daily on German stock exchanges. The German regional stock exchanges remain important for trading in DBAG shares. However, the Xetra trading platform continued to dominate: more than 76 percent of the turnover (previous year: 80 percent) was Xetra-traded. Increasingly, DBAG shares are also being traded over the counter

29 Annual Report 2012/ (OTC). In addition to the approximately 6.1 million shares traded on the exchanges, the Bloomberg Information System identified another 2.5 million DBAG shares traded directly between buyers and sellers in financial year 2012/2013. That means that almost 29 percent of trading in DBAG shares now takes place over the counter; in 2011/2012, OTC transactions accounted for less than one quarter of all shares traded. Relative to the free-float market capitalisation, shares in float ownership had a turnover rate on stock exchanges of about 0.90 (2011/2012: 0.51). 1 Net asset value per share: Increase of 11.5 percent in financial year Private equity companies are assessed based on the overall value they have created for their shareholders, with the gain in value measured by the development of net asset value per share. Since dividend policies can vary greatly from company to company, dividends are also taken into account, because their payment negatively impacts net asset value. Share performance and net asset value per share 1 November 2004 to 31 December 2013, total return, indexed to 1 November 2004 = Nov Nov Nov Nov Nov Dec. 13 DBAG shares DBAG net asset value per share plus dividends Dax LPX Direct In financial year 2012/2013, net asset value per share increased by 11.5 percent. Starting at euros at the beginning of the financial year and followed by a dividend payment of 1.20 euros per share in March, it rose by 2.10 euros to euros at 31 October Over longer time periods, returns have also exceeded those of other asset classes. For example, on 1 November 2004, which marked the beginning of financial year 2004/2005 and the first year following the last capital increase, net asset value per share was euros. The base and surplus dividends that have been paid since then total euros per share. Adding these dividend payments to the net asset value per share of euros at the current reporting date results in a total return of euros or over 160 percent. This corresponds to an average annual return rate of 11.2 percent. 1 Determined on the basis of a free-float proportion of 70.0 percent.

30 22 Shares RECOMMENDED APPROPRIATION OF PROFIT Dividend policy unchanged: Surplus dividend following successful disposal Decisive for dividend distributions are not the IFRS-based consolidated financial statements, but the retained profit of Deutsche Beteiligungs AG drawn up in conformity with the German Commercial Code (Handelsgesetzbuch HGB). The annual profit according to HGB is largely based on realised disposals. Apart from permanent value impairment, unrealised valuation movements are not considered in HGB accounting. Consequently, the annual profit according to HGB depends to a major degree on whether we were able to achieve significant realisation gains as was the case in 2012/2013 and whether there was a need to recognise significant impairment losses of a permanent nature, which was not the case in 2012/2013. Unchanged for a number of years, our dividend policy calls for the payment of a combination of base dividend and subject to particularly high realisation proceeds and sufficient liquidity a surplus dividend. The base dividend is to remain unchanged at 0.40 euros per share. On top of that, we want our shareholders to participate in a successful realisation and, as agreed with the Supervisory Board, we will recommend paying a surplus dividend of 0.80 euros per share for the year, bringing the total dividend payment to 1.20 euros per share. The total amount to be distributed is 16.4 million euros. The dividend yield relative to net asset value per share at the outset of the financial year (less dividend paid for the previous year) thus amounts to 6.6 percent. The average dividend yield for the past ten financial years the period for which the present dividend policy has been in effect is 8.5 percent. CAPITAL MARKET COMMUNICATION Dialogue with shareholders and investors: More road show days On its website LPEQ provides comprehensive information on private equity as an asset class, along with performance comparison charts and profiles on LPEQ members. Deutsche Beteiligungs AG has been a member of the German Investor Relations Association (Deutscher Investor Relations Verband e.v. DIRK) since 2001 and adheres to its guiding principles. In the past financial year we also became a member of the German Stock Institute (Deutsches Aktieninstitut e.v. DAI), since we subscribe to and want to support its goal of promoting a culture of investing in equities in Germany. We believe that the needs of individual private investors in particular must be given more attention. In order to promote trading in DBAG shares, we are actively working to encourage more individuals and institutions to invest in our shares. For example, we engage with institutional investors at events organised together with the other members of LPEQ (Listed Private EQuity), a research and information initiative aimed at enhancing understanding of listed private equity, of which we have been a member since 2008.

31 Annual Report 2012/ We want to promote an open ongoing dialogue with individual and institutional investors, and with financial analysts. To do so, we make use of various communications channels, such as analysts conferences, on-demand webcasts, presentations at investor conferences and, above all, in-depth one-on-one meetings. In the past financial year, we were on the road for a total of 18 days presenting information on our shares (2011/2012: 14 days). We met with almost 60 investor representatives in 11 cities. At one event, we entered into discussion with private investors. Following the conversion to registered shares on 1 July 2013, it is now easier for us to communicate directly with individual shareholders. In future, we intend to do this to a greater extent than in the past, especially via electronic media. Maintaining close relations with our shareholders and investors is a priority issue. For information on our current investor relations activities, visit our website at investor-relations. Our website is gradually becoming the main point of contact for those seeking information on Deutsche Beteiligungs AG and DBAG shares, as well as on our portfolio companies. A digital version of our Annual Report, optimised for mobile use with a smartphone or tablet, is available on our website and at The report can also be downloaded using our app. Research: Analysts GEAR recommendations to relative amount of discount to NAV Recommendations by analysts monitoring our shares are influenced by various factors, including some that are beyond our control. For exemple, analysts frequently take into account the current discount to net asset value per share. In view of the currently very positive assessment of our shares on a sector comparison, analysts ascribe greater opportunities to the shares of other private equity companies for the short term and therefore temporarily underweight our shares, without associating this with a valuation of our business model or long-term prospects. Analysts recommendations are regularly documented on our website in the section Investor Relations/ Research as soon as they come to our attention. The table below presents analysts ratings at the beginning of financial year 2013/2014. DBAG shares are also tracked by other analysts who exclusively assess listed private equity firms and comparable companies. Analysts RECOMMENDATIONS REGARDING Deutsche Beteiligungs AG Close Brothers Seydler Research November 2013 Hold Edison Investment Research November 2013 HSBC Trinkaus & Burkhardt AG June 2013 Neutral J.P. Morgan Cazenove November 2013 Underweight Landesbank Baden-Württemberg December 2013 Hold M.M. Warburg November 2013 Hold

32 24 Shares Registered shares: Conversion completed Subsequent to shareholders approval at the Annual Meeting on 26 March 2013, the conversion from bearer shares to registered shares took place on 1 July DBAG s registered shares have thus traded since 1 July under a new ISIN, WKN and stock exchange symbol (see share profile overview on next page). Shareholder profile: More than 10,000 private shareholders Following the conversion to registered shares, we have more precise information on the structure of our shareholder base. Since the majority of institutional investors both German and international are not listed directly in share registers but through proxy holders (banks, brokerages), we survey further information on our shareholder structure several times each year. At 30 September 2013, Deutsche Beteiligungs AG had nearly 10,500 private shareholders, who held some 40 percent of its shares. Approximately one third of DBAG shares were attributable to institutional investors. According to the voting rights notifications we have received, percent of DBAG shares are in free-float ownership, as defined by Deutsche Börse. Shareholder profile as at 30 September 2013 % Private shareholders Germany Private shareholders international Rossmann Beteiligungs GmbH Anpora Patrimonio Institutional investors Germany Institutional investors Europe I nstitutional investors USA Institutional investors other countries

33 Annual Report 2012/ Share profile WKN/ISIN Symbol Listings Market segment Index affiliation (selection) Designated sponsors Share capital A1TNUT/DE000A1TNUT7 DBAGn (Reuters) / DBAN (Bloomberg) Frankfurt (Xetra and trading floor), Berlin-Bremen, Dusseldorf, Hamburg, Hanover, Munich, Stuttgart Prime Standard S-Dax (rank 41 1 ); Classic All Share; C-Dax; Prime All Share; Deutsche Börse sector indices: Sector (All) Financial Services, Subsector (All) Private Equity & Venture Capital, LPX Direct, LPX Europe, LPX50; Stoxx Private Equity 20 Close Brothers Seydler Bank AG, M.M. Warburg & Co. 48,533, euros Number of shares issued 13,676,359 thereof outstanding 13,676,359 First traded 19 December at 31 October 2013, measured by market capitalisation Share data 2012/ / /2011 Closing rate Financial year high Financial year low Financial year average rate Annual performance 2 % (21.2) Market capitalisation 1 mn thereof in free float 3 mn Average daily trading value 4 mn Dividend per share Surplus dividend per share Distribution sum 5 mn Dividend yield 6 % Earnings per share (1.22) NAV per share Price/NAV per share Xetra closing rate 2 Adjusted for dividends 3 As defined by Deutsche Börse AG 4 According to Deutsche Börse AG data /2013 recommended 6 Relative to NAV per share at start of financial year (less dividend paid for previous year) 7 At end of period

34 26 OUR BUSINESS MODEL O U R BUSINESS MODEL

35 Annual report 2012/ We pave the way to the top for MID-SIzED companies OUR MISSION StatEMENT AND HOW IT GUIDES US IN PREpaRING THE Way AND INCREASING VALUE 32 SuccESS requires knowledge INDUSTRY AND MARKET KNOWLEDGE AS A SUccESS FACTOR IN OUR BUSINESS 35 SuccESS requires patience THE ART OF TAKING THE RIGht action AT THE RIGht TIME 36 SuccESS requires freedom THE MANAGEMENTS OF OUR PORtfOLIO COMpaNIES HAVE a FREE HAND IN PUttING THEIR ENTREPRENEURIAL CONCEptS INTO ACTION 38 OUR PORtfOLIO THREE SUccESS STORIES THAT STRENGthEN GERMANY S ECONOMIC BackBONE 39 SphEROS GMBh BUS AIR CONDITIONING SYSTEMS AND INTEGRatED BUS ELEctRONICS REVOLUTIONISE LatIN AMERIca S PUBLIC TRANSPORtatION 45 InexIO KGaa AN ATTRactIVE SOURCE OF INCOME THROUGH INVESTMENTS IN HIGH-PERFORMANCE BROADBAND CONNEctIONS 50 Formel D GMBh FROM TEchNIcaL DOCUMENTER TO A QUALIty SERVICE PROVIDER FOR THE AUTOMOTIVE INDUSTRY 54 PORtfOLIO PROFILE THE RANGE AND QUALIty OF OUR CORPORatE INVESTMENTS 56 ADDITIONAL PORtfOLIO COMpaNIES ELEVEN ADDITIONAL COMpaNIES FOR WHOM WE ARE PREpaRING THE Way AND INCREASING VALUE OUR BUSINESS MODEL

36 28 OUR BUSINESS MODEL PREPARING THE WAY. INCREASING VALUE. Equity, experience and know-how Well-positioned, strongly growing mid-sized companies Long-term, value-enhancing corporate strategy Extraordinary success for portfolio companies, shareholders and investors

37 Annual report 2012/ We pave the way to the top for mid-sized companies OUR BUSINESS MODEL Mid-sized companies are the backbone of the German economy. We are committed to these companies. We have been working with their business models and markets for many years. Their development potential is what we focus on. But how do you identify development potential? What is necessary for generating long-term corporate success; a success that benefits all stakeholders portfolio companies, their employees, customers, suppliers, the Company and investors?

38 30 OUR BUSINESS MODEL Our mission statement reads: DEUTSCHE BETEILIGUNGS AG'S MISSION STATEMENT»The publicly-listed Deutsche Beteiligungs AG invests in well-positioned mid-sized companies with development potential.«support by mutual AGreement Targeted investment strategy SUSTAINABLE APPRECIATION IN VALUE CULTURAL AND PERSONAL COMPATIBILITY We therefore apply three basic criteria to all of our investments: the future portfolio company must be well-positioned in its industry. It should be a mid-sized company with the structures and strategies characteristic of such companies. Also, it must be apparent that a special potential for development exists beyond that of successful daily business potential that could, for example, make the move into the global market a promising one. Portfolio COMPANy

39 Annual report 2012/ We We are also committed continue to a healthy degree of To say: profit maximisation:»for many years, we have placed a particular emphasis on industrial business models from selected industries. With this experience, know-how and equity, we support our portfolio companies in implementing a long-term, valueenhancing corporate strategy.our entrepreneurial approach makes us a sought-after investment partner in the German-speaking region. For many years, we have achieved extraordinary success, not only for our portfolio companies, but also for our shareholders and investors.«our BUSINESS MODEL We focus on companies that produce goods for other companies, such as capital goods manufacturers or supplier companies. Our portfolio also includes service providers of such manufacturing companies. We prefer to invest in machinery and plant engineering or automotive suppliers and in other industries where mid-size companies are traditionally very strong and where the conditions are favourable for initiating and accompanying the crucial stages of development. We benefit from our network and our wealth of experience with similarly structured investments. For many years, we have been familiar with these industries and their prevailing business models. We see ourselves as modern financial investors: proven business processes for developing and evaluating potential transactions, supporting the portfolio companies, and achieving an appreciation in value ensure that we can reach our goal of supporting management in improving its respective company and thus create value. This is how we determine our profit requirement. Like the companies whose development we support, we ourselves also think entrepreneurially. The decisions we encourage and support are aimed at increasing value and income over the long term, not only for our portfolio companies but also for our shareholders and investors. In many discussions we have come to the conclusion that being equally entrepreneurial is precisely what makes us the preferred investment partner of the German Mittelstand coupled with the fact that we are deeply rooted here in Germany, in Frankfurt /Main.

40 32 OUR BUSINESS MODEL Success requires knowledge THE SUCCESSFUL INVESTMENT OF PRIVATE EQUITY CAPITAL REQUIRES KNOWLEDGE OF THE INDUSTRIES AND OF THE BUSINESS MODELS Certainly, each market has its own unique perspective and no two companies are alike. Nevertheless, there are basic patterns that we have filtered out in the course of nearly five decades of investment activities and that are part of the wealth of knowledge that we make available to our portfolio companies. This particularly includes knowledge of the specifics of the business models and their often highly individual requirements as well as their advantages and disadvantages. We follow an extremely focused investment strategy and for years, we have adhered to this strategy. It requires discipline to avoid being influenced by trends or what is in fashion, but to invest only when each company s business model and development prospects have been fully analysed. We know the peculiarities and characteristics of individual niche markets, particularly in those industries we have invested in time and time again. We understand markets and customers, especially in our core sectors such as mechanical engineering and automotive supply, and have many years of insight into market trends and the competitive environment. In times of global markets, mid-sized companies are faced with the task of following their customers and operating in new regions after having had an established presence in a very specialised market. Setting up a new production or assembly location, new personnel-intensive international sales and service organisation requires not only a high level of detailed expertise but also considerable capital expenditure, which usually pays off only after a significant surge in growth. Having repeatedly and successfully accompanied such situations, we are a useful partner for such an expansion. With the accumulated experience of more than 300 investments over different economic cycles, we know only too well that capital is not everything. After all, we practise knowledge management. The quality of our business processes is crucial. We need to use and pass on existing knowledge and at the same time develop new know ledge and make it permanently available. The methods and the quality of our investment team are just as critical to success as is the low turnover of our employees to enable us to make use of their valuable knowledge in the best way possible for many years to come. This is best achieved when the management and partners of our portfolio companies and DBAG, as an equity investor, are compatible both culturally and in terms of ideas. This allows quick agreement on goals that we want to achieve together. We are a listed company. The associated disclosure require ments create transparency and provide more information about us to others, for example potential investment partners, sellers of companies, or partners in growth financing. The employees of our portfolio companies and their suppliers can also gain a clear picture of Deutsche Beteiligungs AG as a shareholder. Such transparency is not always common for companies in the private equity industry. For us, it represents one of our strengths: people know us and can understand the services we offer mid-sized companies.

41 Annual report 2012/ FOCUS Market leading industrial companies and industry-related service companies with a view to GROWING THEIR EARNINGS and IMPROVing THEIR STRATEGIC POSITIONING CORE SECTORS Mechanical engineering Industrial services / logistics Automotive supply Construction supply Measurement technology and industrial automation OUR BUSINESS MODEL INVESTMENTS OBJECTIVE A sustainable and progressive increase in the company s value MAJORITY HOLDING (Management buyout) MINORITY HOLDING (Growth financing)

42 34 OUR BUSINESS MODEL Time as a success factor The optimum time to invest EQUITY + EXPERIENCE + KNOW-HOW The optimum time to exit Four to seven years' commitment, dependent upon market development ACCOMPANYING DEVELOPMENT Accompanying the detection and development of market opportunities to ensure profitable growth A COMMON OBJECTIVE To successfully achieve a mutually defined growth target

43 Annual report 2012/ Success requires patience OUR BUSINESS MODEL The successful investment of private equity capital requires the patience to give changes TIME to take place. Patience, such as can only come from nearly five decades of intensive work with those industries in which medium-sized enterprises demonstrate their traditional strengths. We know how important it is to take the nessecary time not only to initiate change processes in the company, but also for them to have an impact. We recognise a favourable market positions identify compelling earnings potential and, together with management, create the leverage to improve the strategic positioning and operational processes of the portfolio company. That takes more than just six months. We focus on sustainable value creation. It is only logical that we have a long-term approach when it comes to our investments. We accompany portfolio companies, depending on the respective market trend, often much longer on their way to the top as would be the case with a less focused strategy. We have patience and confidence in our investment strategy. Our financial resources allow us to act without time pressure: thanks to Deutsche Beteiligungs AG s strong balance sheet and the investment commitments made by our co-investment funds, more than 700 million euros are available for equity investments. Therefore, we have the necessary financial strength to act with patience until the measures agreed upon have taken effect and the opti mal point in time has arrived to end our investment. We also define patience as recognising that not every point in time is suitable for an equity investment. When economic disruption leads to high uncertainty or distorts prices, we exercise discipline. Deliberate timing is also a part of our investment strategy.

44 36 OUR BUSINESS MODEL Success requires freedom The successful investment of private equity capital creates the freedom necessary for the management boards of our portfolio companies to successfully execute their entrepreneurial concepts. Freedom also means making an offer that is commensurate with the company's situation. In doing so, we offer a wider range of investments than other investment companies: tailor-made minority or majority equity solutions, ones that use equity or equity-like instruments, growth financing, providing support in generational transitions, or as a partner in the financing of a management buyout. As a financing partner, we make sure that whatever the type of investment, management has the freedom it needs to act and invest purposely. For example, we consider the agreed development measures when structuring financing in order to expand business operations, strengthen the market position, evolve technologically, or to capture new regional markets around the globe. Based on our knowledge of the market acquired over many years, we agree on a goal and decide on a strategy to meet this goal. A great deal can be on the agenda when we first enter into discussions on the future corporate strategy with the management of our portfolio companies: seizing market opportunities, improving internal processes for increasing profitability, and accelerating external growth through strategic acquisitions. Growth can be attained from a variety of sources. With a mechanical engineering company, growth can arise, for example, from the development of related applications, more modularised products, localisation of components and added value, to the expansion of a high-margin spare parts and service business. If there is agreement on the common approach, then the management of the portfolio company can get to work. after the financial conditions for growth initiatives or change processes have been created, we then provide our support as a reliable partner. We encourage management in implementing its strategy without restricting its entrepreneurial freedom. All this makes us the preferred partner for mid-sized companies especially for family-run businesses that are operated independently in the spirit of their founders.

45 Annual report 2012/ OUR investment CRITERIA COMPANY A company in a core sector in which we have decades of investment experience Management An experienced management team that operates entrepreneurially and also has a stake in the company THE MARKET OUR BUSINESS MODEL A strong position in a growing market as a result of the outstanding quality of the products PROSPECTS A company with growth and earnings potential On the whole, there must be convincing arguments

46 38 OUR PORTFOLIO OUR PORTFOLIO 3 SUCCESS STORIES THAT STRENGTHEN GERMANY S ECONOMIC BACKBONE Spheros Gmbh Developer and manufacturer of airconditioning systems, heating systems, water pumps and roof hatches for buses Markets: Europe, Latin America and Asia INEXIO INFORMATIONS TECHNOLOGIE UND TELEKOMMUNIKATION KGAA Supplier of broadband fibre-optic infrastructure, broadband connections and services as well as IT services Markets: Germany Formel D Gmbh Provider of services for the automotive industry and its suppliers Markets: worldwide

47 ANNUAL Report 2012/ spheros gmbh THIS PERSUADED US: BUS AIR CONDITIONING SYSTEMS AND INTEGRATED BUS ELECTRONICS REVOLUTIONISE LATIN AMERICA S PUBLIC TRANSPORTATION Quem sabe conhecer o Brasil viu beleza para mais da metade da vida. Those who have genuinely experienced Brazil have seen enough beauty for half a lifetime. This proverb contains a good deal of truth. Caxias do Sul, a major university city with 420,000 inhabitants in Rio Grande do Sul in southern Brazil, is a good example of the country s beauty and the industriousness of its inhabitants. Founded in 1890 by Italian immigrants, the city still offers an exciting mix of Brazilian exuberance and Italian influence. It is no coincidence that this is where Spheros subsidiary, SETBus Ltda, established as a joint venture with Marcopolo in 2013, has its registered office. Spheros Climatização do Brazil S/A, the Brazilian branch of the air conditioning specialist, is also located there. One device, everything under control For Spheros, SETBus (Spheros Electronic Technology) is a key strategic investment. It involves no more and no less than the global expansion of the company s electronics expertise in buses. With SETBus in Caxias do Sul, Spheros can now offer the development, industrialisation (i.e. the purchase of components and their configuration), application and servicing of the complete electronics systems in bus bodies for South America and key clients around the world. The aim is to have everything under control without any distraction for the driver, including the heating, air conditioning, lighting, sound systems and destination indicators. Until now, these components have been controlled separately. What is already common in cars is now being applied to buses. Control with a single device makes the driver s job easier. Incidentally, the concept of a standardised control system means that bus manufacturers have fewer components to install which facilitates production. The goal is ambitious, but realistic: within just a few years, SETBus wants to become the most important supplier worldwide for integrated electronics systems in bus bodies. After air conditioning, the course is now set to revolutionise the growing market for bus electronics at least those components not related to engines, transmissions, shock absorbers and suspension. The project is supported by Spheros electronic competence centres in Germany with the necessary capital for investments in the double-digit million euro range in property, plant, equipment and development services. OUR BUSINESS MODEL

48 40 OUR PORTFOLIO Spheros is the world market leader in the development and production of air conditioning systems for buses. 65% MARKET SHARE IN AIR CONDITIONING SYSTEMS For Buses IN SOUTH AMERICA

49 ANNUAL Report 2012/ BRAZIL AS A FUTURE MARKET a country on the go It seems to be only a matter of time before Brazil surpasses France and the United Kingdom to become the fifth-largest country in the world in terms of area and population and the fifthlargest economy in the world. The consequences of the international crisis have recently dampened growth. However, it is almost irrelevant when this change happens Brazil has long been more than just an agricultural power (soy production exceeds that of the United States) or a supplier of raw materials (iron ore, oil discoveries off the Atlantic coast). The domestic product grew at an average of four percent between 2003 and Poverty and social inequality have declined. Unemployment is low. Since 2002, the share of the middle class in a population of nearly 200 million Brazilians has increased from 38 to 60 percent. The development of a consumer-oriented middle class also gives Spheros confidence. More wealth means higher demand for mobility and for more comfort. Both of these developments directly or indirectly benefit Spheros. In the short term, the two major sporting events the 2014 World Cup and the 2016 Olympic Games will help to stimulate the economy. OUR BUSINESS MODEL The clear number one intends to Grow The conditions are excellent: with a market share in air conditioners of more than 65 percent, Spheros is the clear number one in the growth market of South America. Public transportation is not only booming in Brazil but throughout Latin America. Unlike in Europe, the backbone of public transportation in Latin America is formed by a closely integrated network of bus and coach lines. During the often long trips, buses and coach lines want to offer passengers comfortable climate control regardless of the weather conditions. The climatic conditions in Brazil and other South American countries are characterised by high temperatures with extremely high humidity. Manufacturers offering highquality air conditioning for buses and trains that are successful in this environment can thrive anywhere in the world especially on the continent of South America. In the wake of the upcoming World Cup and Olympic Games, both sweat-inducing events for spectators and athletes alike, the growth-oriented specialist for air conditioning systems for scheduled buses and coaches will continue to expand also into adjacent markets such as the market for train air conditioning systems: the commercial concept, the high performance of its hardware and its well-known reliability have already convinced the railway vehicle manufacturer TTrans. At the end of 2012, 30 trains in Greater Rio de Janeiro were equipped in several stages with Spheros air conditioning systems. Rail vehicles pose special challenges for air con ditioning technology. Not only the climatic conditions, but also the passenger density in Brazil s trains and the high vibration stress due to inadequate rail systems require robust yet efficient air conditioning solutions. The market entry of the air conditioning expert has already sparked great interest from other Latin American train operators.

50 42 OUR PORTFOLIO The Reparts subsidiary is the only supplier of key original spare parts for Spheros products in Latin America and as a result has increased its market presence in this important growth market since December SPARE parts business expands THE value chain With its product concepts, Spheros has managed to establish itself as the preferred provider of air conditioning systems. It serves numerous travel and city bus manufacturers in Latin America, above all the market leader and joint venture partner Marcopolo. This is the largest bus manufacturer worldwide excluding China, where production is mainly for the domestic market. Many of the most important bus fleet operators in Brazil, Argentina, Mexico, Ecuador, Peru, Chile, Colombia and the Dominican Republic are now also on Spheros customer list. Parallel to the founding of SETBus, Spheros is setting up another subsidiary (Reparts) as a separate organisation for the service and spare parts business in Latin America. As the only provider of key original components, Spheros also wants to be involved in the lucrative spare parts business. Based on the company s knowledge of all technical specifications, it is creating a service network that meaningfully and profitably expands the value chain. Deutsche Beteiligungs AG s interest 15.7% investment 13.9MN DBAG Fund V s interest 65.3% Type of investment MBO Initial investment March 2012 Revenues (2013, preliminary) 186.0mn Number of employees (year-end 2013) 800

51 ANNUAL Report 2012/ Spheros gmbh Core competency: Air management systems OUR BUSINESS MODEL Spheros is the world market leader in the development and production of air conditioning systems for buses. The company also manufactures engine-independent heating systems, water pumps and roof hatches for buses. Most of the added value is accounted for by the engineering and installation of customised bus air conditioning systems. The company offers premium, standard and basic products and thus covers both the demand of mature western markets as well as that of high-growth emerging countries: at 50 million euros (2013), more than a quarter of total sales were achieved in Brazil. Six production sites are distributed across the globe. Spheros intends to grow by being closer to the customer as well as extending its international reach and launching new products. Specifically, this means expanding its market share and the spare parts business in existing markets (Europe, Latin America, South Africa, Turkey) and penetrating new growing markets (China, India, Russia with neighbouring countries). In addition, Spheros plans to extend its expertise to other areas. This includes developing new products for use in buses, and pushing the air conditioning business for special and commercial vehicles. Initially, we will have to invest in order to capture these opportunities for growth: DBAG has significantly increased its annual investment since becoming a shareholder. Several development projects have been launched since the initial investment: in 2013, a site in Australia was founded and SETBus Ltda in Brazil was established. In the USA, Spheros entered the air conditioning market for buses.

52 44 OUR PORTFOLIO»OUR AIM IS TO HAVE 125,000 CUSTOMERS BY THE YEAR 2018.«David Zimmer, born in 1973, is the founder and general partner of inexio Informations technologie und Telekommunikation KGaA, and has been an entrepreneur since He has founded several companies in the media, IT and telecommunications industries as well as a consulting firm. At inexio, David Zimmer is responsible for strategic business development, corporate communications and sales of the telecommunication activities. In the past, inexio and David Zimmer have received numerous awards including the Best Financial Communication within the Mittelstand Sector and the most successful launch of a company (Entrepreneur of the Year).

53 ANNUAL Report 2012/ Inexio Informationstechnologie und Telekommunikation KGaA THIS PERSUADED US: AN ATTRACTIVE SOURCE OF INCOME THROUGH INVESTMENTS IN HIGH-PERFORMANCE BROADBAND CONNECTIONS OUR BUSINESS MODEL inexio was founded in 2007 and by 2008 it was already able to bring the first network into operation. The company now serves more than 1,000 business customers and over 20,000 private customers. Revenues amount to around 30 million euros. How was this growth possible? DavID zimmer: The most important factor was that we entered the start-up phase with a very high level of equity. Add to that the fact that we were not a normal start-up company. My management colleagues and I had already been working in the same field as inexio for 15 years in a previous company. This gave us access to the funds from the development banks of the German federal states. In 2007, the Federal Government and the EU Commission did not yet have a broadband concept. However, early on we saw where the market was going broadband everywhere, even in rural areas. So you expected the Internet to develop in this way? dz: I developed the original inexio business plan while still at my previous company, which was a joint venture with RWE. But it met with little interest. Facebook was still in the start-up phase and the iphone didn t exist. But we saw that new services such as YouTube were on the rise. Our customers had repeatedly requested more broadband capacity than what was available. I also think there is nothing worse than arriving somewhere where there is no (fast) Wi-Fi access to be found What are the success factors of the inexio business? dz: Telecommunication per se is not a growth market. At the moment, it is rather in decline. However, you can definitely grow in our niche market. This is what we focus on. For this, you need the right team. Our corporate culture is especially important for our success. We have to be faster than larger companies because they undoubtedly have more than we do: more money, more resources, more personnel. We can only succeed if we re faster. That means not much talking or discussions in work groups.

54 46 OUR PORTFOLIO»OUR BUSINESS MODEL IS WHAT EVERY FINANCIAL INVESTOR dreams of: it offers PREDICTABLE CASH FLOWS.«Despite this, you sought an investment partner? dz: Not despite, but rather because of our success. At the beginning, our business model demanded continuous high investment before any revenues could be generated. In 2010/2011, we already addressed the question of how to finance further growth. At one point we said: Let s talk to private equity, even though this idea initially had a lukewarm acceptance, at best, from our supervisory board. We then broke off contact with one of our first financial investors shortly before coming to an agreement because they wanted to put us on too short a leash. When you have a contract with pages listing which transactions suddenly need approval, then you can break the momentum with just one signature. At that point the private equity issue was dead Why did you give DBAG a chance? dz: The discussions were completely different from those with previous business partners. When we met for the first time in September 2012, we had the impression that DBAG understood the success factors necessary for mid-sized, family-owned companies. Not just: get in quick, get out quick and while you are doing it earn as much return as possible. Your colleagues credibly conveyed that DBAG is also interested in achieving long-term value and wants to support entrepreneurs. This really convinced me, particularly the personal interaction. Then we said, Let s give it a try. How much longer did the process take? dz: Three months until we came to an agreement and a further four months until we laid out the formal requirements. The subject of financing is settled for the moment. Now I can put almost all my energy into the sales strategy and further developing the company. Were you prepared for DBAG s questions and requirements? dz: Well, we had previous experience. I liked the process with DBAG and the analytical approach of your colleagues. The questions they raised were phenomenal. Often a question is more helpful than an answer because it sparks a thought process about a complex matter which you thought you already knew everything about and therefore no longer needed to consider. We were far from being able to answer all of the crucial questions, but they helped us to move on. Would you ascribe any value to the relationship in addition to the capital inexio received? dz: Yes, although of course it can t be expressed in terms of money. What else has changed? dz: Nothing in our supervisory board except that DBAG now has a seat on the board. We still have strategic discussions just as we did in the past. With a partner like DBAG, meetings with banks are now easier because DBAG s investment is seen as a vote of confidence. There are also networking advantages we benefit from DBAG s contacts. How are you coping with DBAG s requirements with respect to management? dz: Since being founded, we have had a capital-marketoriented structure in which management is also a majority shareholder, even though we are a family-run company. From the start, we operated with nine people on our supervisory board. That is fairly unusual for a midsized company where for many entrepreneurs it is still important that no one gains an insight into the books. In our case it was clear that we were entering a market where no mid-sized companies existed. This meant that from the very start we got a lot of resistance. What exactly did we need to survive? Money and networking especially political networking. Because infrastructure is always political. Therefore, we asked ourselves, Who can help us? Then we filled the seats on our supervisory board not for a tea party, but as a group to help us get on. DBAG fits in here very well.

55 ANNUAL Report 2012/ Inexio 130 employees Continuously growing customer base OUR BUSINESS MODEL inexio Informationstechnologie und Telekommunikation KGaA invests in the development and expansion of efficient telecommunications infrastructure in the greater region of Rhineland- Palatinate, Saarland, Luxembourg, Lorraine and Belgium as well as in Bavaria and Baden-Württemberg. inexio has a proprietary and ever-growing fibre-optic and city network of more than 5,000 kilometres as well as four company-owned data centres. The company s service range covers the entire spectrum of telecommunications and IT from carrier services to assuming all telecommunications, IT and data centre services. inexio has continuously increased its customer base by investing in rapid fibre-optic networks (an infrastructure with long-term availability that is increasingly popular) to secure attractive sources of revenue for the future. The company has 130 employees (as at 31 December 2013) and annual revenues of currently around 30 million euros. a 5,000 kilometre fibre-optic and city network 4 proprietary data centres

56 48 OUR PORTFOLIO Deutsche Beteiligungs AG s interest 5.0% investment 3.2mn DBAG Expansion Capital Fund s interest 7.0% Type of investment Expansion Capital Investment Initial investment may 2013 Revenues (2012/2013, 30 September) 28.1mn Number of employees (year-end 2013) Now to business: inexio is growing because month after month the company is investing heavily. How long should and can that continue? dz: We are confident that, in any case, we will be able to find enough targets for our business model by 2017/2018: we have to invest a certain amount of money in order to reach our customers. The investments pay off via monthly returns when we have won a sufficient number of customers in the respective community. Do you calculate in customers or communities when you do your planning? dz: In customers. Our entire business model is based on it. By 2018, we want to have 125,000 customers. Naturally, that is not very many compared with Vodafone or Deutsche Telekom. Our approach is to go to areas where we are the sole broadband supplier. The smaller, the better. We assume that on average we need 1,000 communities to gain 125,000 customers. Assuming a connection rate of 50 percent, we are talking about communities with 250 households and between 600 and 750 residents. Are Saarland and Rhineland-Palatinate enough or will you need to go to other states? dz: We still have some growth potential in Rhineland- Palatinate, but our growth regions are clearly Bavaria and Baden-Württemberg, and to a lesser extent Hessen. Growth is not only good for customers who then get a powerful broadband connection, but also for other interested parties, such as employees and the regional environment at your Saarlouis site, correct? dz: Well, here we certainly cannot deal with the consequences of structural change in Saarland by ourselves, but of course it helps if we grow. From 130 employees at present, we want to grow to 300. We plan about 50 new hires every year and we have just bought a second location in Saarlouis which should begin operations in the spring of So you are continuing to invest strongly? How and when will you see returns? dz: That s right. We have to spend about 1,250 euros per customer. Then the customer pays a monthly connection fee from which Deutsche Telekom receives almost 20 percent for the transmission network. We expect our investments to show returns after seven to ten years. Accordingly, we expect faster returns from business customers because they provide much higher revenues compared to the fees from a private household. Financial investors are always temporary partners. Are you preparing yourselves for the time when DBAG will end its investment? dz: Our business model is what every financial investor dreams of: it offers predictable cash flows. As soon as we stop investing, we will immediately turn into an excellent dividend stock. In any case, we have several options: we will either still see opportunities for growth then we will find another financial investor; or we will stop investing then we will surely find an investor that appreciates a steady dividend, such as a pension fund. I am sure inexio will continue to be an attractive investment.

57 ANNUAL Report 2012/ REGIONAL COVERAGE Hamburg Bremen Amsterdam Hanover Berlin Magdeburg London Dusseldorf Bonn Erfurt Dresden OUR BUSINESS MODEL Frankfurt Luxembourg Saarlouis Kaiserslautern Nuremberg Paris Karlsruhe Deggendorf Stuttgart Passau Balingen Munich inexio s existing network Utilisable routes Pfullendorf Menningen Salzburg inexio s planned routes inexio s core territory inexio s proprietary fibre-optic network, located in Southwestern and South Germany, spans over 3,500 kilometres. As a result, the company connects the entire greater region of Saar/Lorraine/ Luxembourg, Rhineland-Palatinate and Belgium with the nodes of Frankfurt and Luxembourg. In addition, the company operates proprietary city networks in Saarbrücken, Saarlouis, Kaiserslautern and other municipalities. Numerous other networks are currently under construction.

58 50 OUR PORTFOLIO Formel D Gmbh THIS PERSUADED US: FROM TECHNICAL DOCUMENTER TO A QUALITY SERVICE PROVIDER FOR THE AUTOMOTIVE INDUSTRY WORLDWIDE Drivers are familiar with this: not only their new car, but also the manual has increased in size. But this does not necessarily mean it is easier to unterstand. Describing vehicles with increasingly sophisticated technical features so that owners and repair shops know how they function and how they can be repaired, was a genuine challenge in the 1990s. Formel D owes its existence to this challenge. In 1993, Adam Opel AG was the first customer of the newly founded company, Formel D, which is devoted to technical Documentation. In the middle of a crisis year, when vehicle sales in Europe slumped by more than 15 percent, the automotive industry gladly accepted the offer to have its manuals delivered from a service provider specialised in precisely this area. Meanwhile, many more major automotive manufacturers worldwide have chosen to buy their service literature from Formel D, have their service hotlines answered at Formel D and regulate their warranties there. The tailor-made manual for each vehicle according to its individual features that Rolls-Royce places in the glove compartment (glove box literature) for its customers, or rather their chauffeurs, may merely seem to be an exotic side note. But it is one of the company s keys to success: being close to the customer and his requirements has been the driving force behind Formel D s rapid development. Following the company s foundation in 1993 with 60 employees in Troisdorf near Cologne and its first branch office at the Opel plant in Rüsselsheim, the first European location was established just one year later. In 1995, the service portfolio was expanded. In the following year, the company ventured a step toward South America. Poland and Spain were developed as new markets and, after just ten years, 650 people were already working for the company. The USA in 2004 and China in 2005 were further milestones in the company s short history. One service almost always leads to the development of another, as they say at Formel D. Meanwhile, 3,300 people from 45 countries work for the company at its 65 locations in 22 countries. In many industries, value chains have become more penetrable: This is also true for the automotive industry. Companies are more tightly meshed. Formel D, which has been part of the Deutsche Beteiligungs AG portfolio since May 2013, captures the opportunities that arise

59 ANNUAL Report 2012/ ONE SERVICE ALMOST ALWAYS LEADS TO THE DEVELOPMENT OF ANOTHER. OUR BUSINESS MODEL For more than 20 years, Formel D has offered its customers a high degree of reliability and continuity. Formel D follows its customers directly to where they carry out their development and production.

60 52 OUR PORTFOLIO from this trend. The company offers services to renowned automotive manufacturers and their suppliers throughout the entire product creation process: from the development of the vehicle, over its production, to customer service. The company s 3,300 employees lend a hand. But Formel D also advises its customers and provides them with integrated technical solutions. It also assumes responsibility at customer sites for certain areas related to logistics and quality. Technical documentation, the company s original business, now only contributes around one sixth of revenues. Formel D is now focused on quality, production and after-sales services. Even though quality is defined in schedules, documented in requirement specifications and audited and certified everywhere, there are always difficulties in achieving or maintaining the necessary quality. Formel D finds many areas in which it can offer its services. It s considered fatal, for example when production has to be stopped because a component was not delivered with the appropriate specification Formel D staff are on hand to make sure that the right parts are there. If too many imperfect parts are detected, the supplier is then supported Deutsche Beteiligungs AG s interest 15.1% investment 10.4mn DBAG Fund V s interest 62.4% Type of investment MBO Initial investment May 2013 Revenues (2013, preliminary) 130.0mn Number of employees (year-end 2013) 3,300 on-site by experienced project engineers sent by Formel D. However, Formel D not only reacts. As a true specialist in quality management, Formel D advises automotive manufacturers on how to meet the stringent requirements for quality and process safety in production. Even before the production of a new vehicle starts, the company supports the manufacturer: Formel D specialists are often engineers themselves and examine how the necessary parts are prepared and where there might be obstacles in the production process. The tension and the need for quality assurance are particularly high during the start of production Formel D is there with its staff to support automotive manufacturers in these sensitive situations: more quality ultimately means lower warranty costs. The automotive industry s development plays into Formel D s hands. It means that the company is not subject to some of the ups and downs of the economy. For instance, the number of model varieties has increased for years, regardless of the market situation. Almost every middleclass model not only has two or four-door versions but also off-road varieties, estate cars, mini-vans and convertibles. At the same time, the model cycles are getting shorter and there are more variations at ever shorter intervals. This results in more model launches at the automotive plants, and thus, more work for the quality experts at Formel D irrespective of how many vehicles of each variant actually leave the assembly line. Electronics are still regarded as an Achilles heel when it comes to vehicles. Nevertheless, their scope increases with every model generation. This also fills the company s order books, as does globalisation. With the construction of new plants, new opportunities also arise for quality service providers at those locations. With the change in ownership, a new chapter in Formel D s success story has begun. Deutsche Beteiligungs AG will accompany Formel D and its development in the coming years as a shareholder, for example in capturing future markets for the automotive industry, such as China and Russia. Formel D is there where its customers are located. The com pany seeks the shortest distance to the vehicles it services. Sales growth is expected from driving internationalisation targeting high-potential customers, not only in the new Chinese and Russian automotive plants but also from the USA, the land of automobiles. Formel D has a far smaller presence here than in other markets. Generally, Formel D s management wants to expand its overall range of services. In short, this is not

61 ANNUAL Report 2012/ Succession in a family-run business It should be the right buyer, agreed Viola Metzner and Hans-Josef Orth in the fall of 2011 as they reflected on the sale of their company Formel D. From the group of prospective buyers, they wanted to select one who knew something about the automotive industry and who could provide credible proof of his competence and, as a future shareholder, share the values and corporate culture and support management as a partner. DBAG benefited from taking the time to analyse the unusual business model. We were assisted by an experienced manager from the automotive industry who has supported the investment team at Deutsche Beteiligungs AG on numerous other occasions and has closely accompanied comparable transactions. The trust necessary to share sensitive corporate information grew over a period of several months. A long-term partnership is not possible without this information. The purpose of the extensive analyses was not primarily to determine the price; above all, they were the basis for developing a business plan with the future Formel D management that is attractive for the company and its shareholders. Experience, industry know-how and not least the necessary financial strength of Deutsche Beteiligungs AG and its funds all increased the probability of the transaction coming to fruition and thus paved the way for a future-oriented succession plan at Formel D in the spring of Viola Metzner and Hans-Josef Orth, the company s founders, have sold the majority. However, they still remain connected to their company as members of the Advisory Board and as shareholders: they have acquired a minority interest in the company and thus continue to participate in its economic development. OUR BUSINESS MODEL about offering individual modules as part of the quality process, but more and more about premium complete solutions for quality management. This meets the needs of the automotive manufacturers. They are interested in out sourcing specific tasks to specialists and at the same time increasing their flexibility. Formel D has always been a family-owned company (see Succession in a family-run business ). This has changed. The former decision-makers are now the advisers to the new management team, which is composed of long-time executives of the company. This ensures continuity. The management culture will inevitably evolve with this change toward capital-market-oriented corporate governance. Nevertheless, the culture of the company and its values will undoubtedly remain the same: not compromising on the quality of service, the satisfaction of customers or employees. The next stage in development with growth potential is already on the way: It doesn t always necessarily have to be cars, as they say at Formel D. The company also enjoys a solid reputation in other industries quality is not only a constant challenge in the automotive industry. The share of revenues in other industries is five percent and growing.