82 combined management report Financial review of Deutsche Beteiligungs AG (Commentary based on the German Commercial Code HGB) The management report on Deutsche Beteiligungs AG and the Group management report for the 2015/2016 financial year are presented combined, in conformity with 315 (3) HGB in connection with 298 (3) HGB. The presentation of the economic position of DBAG is based on a condensed balance sheet and a condensed profit and loss account derived from the balance sheet and profit and loss account as prescribed by HGB. The complete annual financial statements of DBAG based on HGB are published in the Bundesanzeiger (Federal Gazette), together with the consolidated financial statements. The separate financial statements are accessible at www.dbag.de/companyreports; a printed version is also available on request. When comparing the current data with that of the preceding year, it should be kept in mind that as for the Group the comparative 2014/2015 financial year was a short eleven-month financial year. A year-on-year comparison is therefore limited. Earnings position Overall assessment: Result at previous year s level due to almost neutral result of disposal and higher expenses In 2015/2016, DBAG s profit for the year was almost level with that of 2014/2015, for which a dividend of 1.00 euro per share was paid in February 2016. The disinvestment of two larger portfolio companies was completed in the reporting year. In one instance, a capital gain of 19.0 million euros was achieved, which, however, was reduced by carried interest payments (of 8.0 million euros) that had fallen due for the first time based on the investment performance of dbag Fund V. The second disinvestment led to a loss on disposals of 11.1 million euros. Other operating expenses rose due, among other things, to the arrangement of a line of credit and preparations for regulatory changes.
annual report 2015/2016 83 Condensed profit and loss account of Deutsche Beteiligungs AG (based on HGB) 000 2015 / 2016 2014 / 2015 12 months 11 months Net result of valuation and disposal 1 2,336 (16,979) Current income from financial assets 7,629 22,390 Fee income from fund management and advisory services 18,136 19,199 Net result of fund services and investment activity 28,101 24,610 Personnel expenses (17,133) (14,882) Other operating income (without write-ups) 2,081 2,687 Other operating expenses (10,102) (7,821) Depreciation and amortisation on intangible assets and property, plant and equipment (672) (506 Income from other securities and loans within financial assets 309 943 Other interest and similar income 67 263 Interest and similar expenses (644) (3,076) Total other income/expenses (26,093) (22,392) Result of ordinary activity 2,008 2,218 Income taxes 171 0 Other taxes (11) (19) Profit for the year 2,167 2,199 1 the net result of valuation and disposal is composed of profit-and-loss items Income from disposals of investments of 12.6mn (previous year: 3.6mn) and write-ups in the financial year of 1.1mn (previous year: 0mn) that are recognised in item Other operating income. Losses on disposals of investments and Write-downs on financial assets in the amount of 11.3mn (previous year: 20.6mn) were deducted. Combined Management report Net result of fund services and investment activity: Almost in line with previous year The net result of fund services and investment activity is determined by gains or losses on disposals of investments and net write-ups/write-downs on investments. The latter are performed at the lower of cost or market and the applicable procedure for reversals of impairment losses, based on hgb. The net result of valuation and disposal contains gains on disposals of 12.6 million euros stemming from the realisation of the investment in Spheros as well as from successful transactions of former financial years that have now been settled. This is set against a loss on disposals arising from the divestment of the Clyde Bergemann Power Group of 11.1 million euros. Furthermore, an impairment loss on one investment was reversed, following the conclusion of a tax audit (1.1 million euros). No appreciable investment disposals had taken place in the preceding 2014/2015 financial year; the prior year s result was predominantly marked by a write-down on an associate, after this entity distributed 20.0 million euros to the parent company for liquidity management reasons.
84 combined management report This distribution of 20.0 million euros, typical for the business, was determinative for current income from financial assets in the previous year. For the reporting year, the main constituents of this item are profit distributions and interest income from portfolio companies totalling 7.6 million euros (previous year: 22.4 million euros). Fee income from fund management and advisory services fell slightly below that of the truncated eleven-month 2014/2015 financial year. An improvement compared with the preceding year resulted from the fact that, after management fees for the DBAG Expansion Capital Fund had been waived in 2014/2015, fee income from this fund was again generated in the reporting year; moreover, fees were now based on a full year, unlike in the truncated eleven-month 2014/2015 financial year. In the previous year, DBG Fonds I, which has meanwhile ended, also delivered earnings of 1.5 million euros for the last time. Other income/expenses: Lower, due to reduced personnel costs Earnings position page 63 26 The discount rate in 2014/2015 was based on interest rates of 4.07 percent (seven years), and in 2015/2016 on 4.08 percent (ten years). The interest rates are determined by the Deutsche Bundesbank. By contrast, the actuarial rate used in the consolidated financial statements of 0.80 percent (previous year: 2.08 percent) is based on the i-boxx corporate AA10+ interest rate index. Its change results from interest-rate changes on corporate bonds. Net expenses under Total other income/expenses increased by 3.7 million euros year-on-year. Personnel expenses, other operating income without write-ups and other operating expenses were largely affected by the same influential factors as for the Group. Greater deviations result from differences in the accounting, such as for personnel expenses in the reversal of provisions for performance-related emoluments (1.3 million euros). The rise in personnel expenses is chiefly due to the fact that wages and social contributions were paid for twelve instead of eleven months in 2015/2016 and that higher provisions were made for performancerelated income components for the staff and the Board of Management in view of the Company s good performance. In the comparative year, other operating income contained nearly 0.7 million euros from disposals of securities. In the reporting year, two-thirds of other operating income stem from reversals of provisions in personnel expenses of former years. Unlike for the Group, costs for the capital increase (1.4 million euros) are contained in other operating expenses. Other reasons for the significant increase in this item are consultancy costs in conjunction with DBAG s structure, costs for the arrangement of the credit line and expenses for the audit review of the half-yearly financial statements. The financial result improved from -1.9 euros to -0.3 million euros. Here, the statutory change for the measurement of pension obligations had a positive effect: instead of a seven-year average interest rate, a ten-year average interest rate can now be applied, which dampened the consequences of a further interest-rate decline. 26 Income from interest and securities was significantly lower, in view of the considerably smaller securities portfolio on the annual average and lower interest rate levels. Profit of 2.2 million euros for the year Deutsche Beteiligungs AG posted an annual profit of 2.2 million euros for financial year 2015/2016, which is in line with that of the truncated preceding year. Including the profit carried forward from the previous year and the dividend payment, the retained profit amounted to 55.6 million euros, of which 2.6 million euros are barred for distribution pursuant to statutory requirements.
annual report 2015/2016 85 Asset position Total assets of DBAG largely consist of the investment portfolio as well as securities and cash. In 2015/2016, assets rose by 27.6 million euros compared to the preceding financial year. The gain is attributable to the capital increase in September 2016; in March 2016, the sum of 13.7 million euros was distributed to shareholders. Assets: Significance of directly held investments declines once again Interests in associates represent the largest item in DBAG s non-current assets. Associates, for instance, are entities through which DBAG co-invests; the co-investments alongside the respective dbag funds are bundled in these vehicles. Other major non-current asset items are direc tly held investments that are shown in Investments as well as long-term securities, which constitute significant parts of DBAG s financial resources. The increase in equity shares in associates in 2015/2016 resulted from investments in three new portfolio companies and from purchases of additional interests in existing portfolio companies (51.1 million euros). Conversely, the divestment of Spheros and repayments of bridge-over loans led to a reduction of 34.0 million euros. Condensed balance sheet of Deutsche Beteiligungs AG (based on HGB) 000 30 Sept. 2016 31 Oct. 2015 Equity shares in associates 194,256 176,073 Investments 6,595 17,700 Loans to portfolio companies 0 2,516 Long-term securities 20,750 29,707 Other non-current assets 2,077 1,801 Combined Management report Non-current assets 223,678 227,797 Receivables and other assets 30,756 28,718 Cash and cash equivalents 44,973 15,629 Current assets 75,729 44,347 Prepaid expenses 664 291 Assets 300,071 272,435 Subscribed capital 53,387 48,533 Capital reserve 175,177 141,394 Retained earnings 403 403 Retained profit 55,614 67,123 Equity 284,580 257,453 Provisions 14,985 14,366 Liabilities 507 616 Liabilities and shareholders equity 300,071 272,435
86 combined management report The value of directly held investments declined due to the Clyde Bergemann divestment. Investments are now made indirectly, write-ups are capped at acquisition cost, and there were no impairment losses to be recognised. Investment securities were used to finance investments and therefore decreased in the financial year. Current assets: Decreased, due to lower cash position At the period end, two-thirds of current assets consisted of cash and cash equivalents, which were significantly in excess of last year s level as a result of the capital increase shortly before the end of the financial year. Another constituent was a receivable from a portfolio company arising from non-distributed profit entitlements. Provisions: Slightly up on previous year Provisions were slightly up compared with the previous year s level. They chiefly pertain to performance-related income components (11.0 million euros); 7.0 million euros thereof are attributable to the preceding financial year, and 4.0 million euros were made over the last nine financial years, but were subject to a payout stop at the reporting date. Pension provisions of 0.7 million euros were recognised, insofar as these exceeded plan assets. Liquidity position Particularities in assessing liquidity position: Cash flows characterised by irregular outflows The financial resources reported at the period end of 65.8 million euros (investment securities of 20.8 million euros and cash and cash equivalents of 45.0 million euros) are available to meet investment commitments. Based on the investment progress planned for the new financial year and the two following years, DBAG will have an average liquidity requirement of some 60 million euros annually; the actual requirement may fluctuate strongly.
annual report 2015/2016 87 Capital structure: No liabilities to banks In financial year 2015/2016, DBAG financed its activities from its existing financial resources and/or its cash flows. In order to take advantage of investment opportunities at all times, DBAG obtained a credit line in the reporting year. It ensures DBAG s ability to co-invest alongside the DBAG funds at all times, in addition to creating greater balance sheet efficiency. The strong increase in equity to 284.6 million euros at 30 September 2016 mirrors the inflows from a capital increase. One year ago, the equity totalled 257.5 million euros, of which 13.7 million euros were distributed to shareholders as dividends in February 2016. The capital-to-assets ratio of 94.8 percent at the period end (previous year: 94.5 percent) remained very high. Comparison of actual and projected business performance Profit for the year did not reach forecast level The profit in 2014/2015 was the result of a financial year without any appreciable disinvestments. For 2015/2016, in a scenario with disinvestments, we had expected that the profit would significantly exceed that of the prior year. That forecast did not materialise, because one of the two larger investments divested in 2015/2016 led to a loss on disposal (Clyde Bergemann) that approximately corresponded to the gain on disposals generated by the other (Spheros). Moreover, the forecast did not account for the expenses regarding the credit line and the capital increase, in addition to other unpredictable negative effects. Significant events after the end of the period Combined Management report At the beginning of the new financial year, the two Mbos (Frimo Group, Polytech) were completed that had previously been agreed during the 2015/2016 financial year. In November 2016, dbag Fund VI directed a capital call for the investment in Frimo in the amount of 14.9 million euros; the capital for Polytech (13.1 million euros) had already been drawn down prior to the period end. After completion of the Broetje-Automation exit, DBAG recorded inflows of 18.6 million euros from DBAG Fund V in October 2016. In early November, the sale of DBAG s investment in Grohmann Engineering GmbH was agreed. The investment had been entered into by a DBAG predecessor company in 1986: the company has made excellent progress since then and has grown strongly. The exit will now result in a gain on disposal in the mid single-digit million euro range in the new financial year s first-quarter consolidated accounts and a low two-digit million euro amount in DBAG s separate financial statements.