Every day counts - Deutsche Beteiligungs AG
Every day counts - Deutsche Beteiligungs AG
Every day counts - Deutsche Beteiligungs AG
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Annual Report 2002/2003<br />
<strong>Every</strong> <strong>day</strong> <strong>counts</strong>
Our business thrives on the creativity, motivation,<br />
and professional skills of our people. Their job is to<br />
identify the right target companies, develop their<br />
growth potential and, ultimately, profitably realize<br />
the investments.<br />
This Annual Report depicts typical scenes from our<br />
investment team’s daily routine. Three management<br />
buyouts were contracted this past financial<br />
year – the result of personal dedication and hard<br />
work. Preparing for a new, attractive investment is<br />
similar to preparing for an athletic contest in many<br />
disciplines: contacts are helpful, professional skill<br />
pays off, competence is essential, complexity is a<br />
challenge, experience is indispensable, time is key.<br />
<strong>Every</strong> step is important. <strong>Every</strong> single <strong>day</strong> <strong>counts</strong>.<br />
This Annual Report presents a brief impression.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Financial Highlights<br />
Investments 30.3 Mio. € 29 Mio. €<br />
Portfolio volume 299.7 Mio. € 313.1 Mio. €<br />
Number of investments 43 49<br />
See page 27<br />
Consolidated result before taxes 4.4 Mio. € –15.9 Mio. €<br />
Consolidated net income/loss 3.1 Mio. € –15.8 Mio. €<br />
See pages 4 and 63<br />
Equity (Oct. 31) 158.4 Mio. € 155.1 Mio. €<br />
Return on equity 2.8 % n.a.<br />
Equity per share (Oct. 31) 11.32 € 11.08 €<br />
Fair value per share (Oct. 31) 12.48 € 12.95 €<br />
See pages 10 and 11<br />
Consolidated earnings per share 0.22 € –1.13 €<br />
Dividends none 1 none<br />
See pages 4, 63 and 64<br />
1 Recommended by Supervisory Board and Board of Management<br />
November 1, 2002 to December 31, 2003<br />
in €<br />
14<br />
12<br />
10<br />
8<br />
6<br />
4<br />
2<br />
0<br />
2002/2003 2001/2002<br />
One-year comparison<br />
Shares of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>, indexed S-Dax and Dax performance indices and fair value of the shares at<br />
October 31, 2002, April 30, 2003, and October 31, 2003<br />
Fair Value<br />
Dax<br />
(indexed)<br />
Nov. 02 Feb. 03 May 03 Aug. 03 Nov. 03<br />
DB<strong>AG</strong><br />
S-Dax<br />
(indexed)
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Successful together – Partnership with Harvest drives Casco Surfaces deal<br />
Casco Surfaces has been in the portfolio since July 2003. A key argument for the seller,<br />
Netherlands-based Akzo Nobel N.V., was our partnership with Harvest Partners: Casco<br />
Surfaces generates some 40 percent of its sales in North America – where Casco plans<br />
to grow, in part by add-on acquisitions. Harvest Partners will be there to help. More on<br />
this cross-border transaction on page 24.<br />
2002/2003: Transaction overview<br />
Safeguarding continuity – Management buyout of Preh Werke<br />
Preh Werke is another joint acquisition with management and our co-investment fund.<br />
A further investor is Rosemarie Preh: having the company founder’s family represented<br />
in the shareholder base was important to Preh’s management and the seller, Rheinmetall<br />
<strong>AG</strong>; we appreciate that continuity too. Read about upcoming opportunities for this<br />
automotive supplier on page 35.<br />
Pursuing growth targets – Babcock Borsig Service financed on sound base<br />
Separating an internationally-operating group of companies out of pending insolvency<br />
proceedings without damaging its business and arranging a new sound financial base<br />
– that was a special challenge even to <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> with its 40-year track<br />
record. We contracted the purchase of the Babcock Borsig group’s service division in<br />
August 2003. See page 36 for more information on how to create value through service<br />
and maintenance for power plants.<br />
228 million euros for co-investment fund – Investors confide in the team<br />
With DB<strong>AG</strong> Fund IV, <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> expanded its shareholder base: 20 investors,<br />
18 of whom were not yet among its equity financiers, committed an average of 11 million<br />
euros. Five management buyouts have been financed by <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
and the new parallel fund to date. Some 100 million euros have been planned for futher<br />
investments in each of the next two years. An account of the fund and its investment<br />
strategy begins on page 19.<br />
Return target achieved – Realizations attest to investment strategy<br />
Edscha <strong>AG</strong>, Andritz <strong>AG</strong>, Global Power Equipment Group Inc.: three management buyouts<br />
were profitably realized this past financial year. The invested capital was approximately<br />
doubled within three years, measuring up to the Company’s return target of 25 percent<br />
p.a. For a presentation of these realizations, refer to pages 36 and 37.<br />
Three smaller holdings sold – Strategy persistently pursued<br />
Three of the smallest holdings – Heylo Energietechnik GmbH, the Vogel group, and<br />
Vitas Inc. – were sold from the portfolio. The number of expansion financing investments<br />
therefore declined further – in line with the Company’s strategy. See page 43 for<br />
details on changes in the business field of expansion financing.<br />
➜
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Contents<br />
Letter from the Board of Management<br />
Shares<br />
Corporate Governance Report<br />
Corporate Review – Market and Strategy<br />
Corporate Review – Investment profile<br />
Corporate Review – Investments<br />
Development of the portfolio<br />
Management buyouts<br />
Expansion financing<br />
Investments in funds<br />
Portfolio profile<br />
Management’s Report<br />
Market development<br />
Group structure<br />
Development of the portfolio<br />
Results<br />
Financial position<br />
Risk management<br />
Generation of investment opportunities<br />
People<br />
Events subsequent to the closing date<br />
Outlook<br />
Financial Statements<br />
Consolidated Balance Sheet<br />
Consolidated Profit and Loss Account<br />
Consolidated Cash Flow Statement<br />
Notes to the Consolidated Financial Statements<br />
Auditors’ Report<br />
Report of the Supervisory Board<br />
Declaration of Conformity to<br />
German Governance Code<br />
List of Investment Holdings<br />
Members of the Supervisory Board<br />
and Board of Management<br />
Glossary<br />
Financial Calendar<br />
Imprint<br />
2<br />
6<br />
16<br />
19<br />
24<br />
27<br />
27<br />
33<br />
43<br />
51<br />
57<br />
61<br />
61<br />
62<br />
62<br />
63<br />
65<br />
65<br />
67<br />
68<br />
69<br />
69<br />
71<br />
71<br />
72<br />
73<br />
74<br />
85<br />
86<br />
88<br />
90<br />
91<br />
94<br />
96<br />
96<br />
1
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> acquires growth-prone,<br />
profitable subsidiaries and mid-sized companies that are<br />
well positioned in their marketplaces – in Germany,<br />
selected European countries and the United States.<br />
We realize the development and profit potential inherent<br />
in these companies jointly with their managements.<br />
Through this entrepreneurial commitment, we strive to build<br />
the value of our investments. Our shareholders profit from<br />
these activities when we ultimately resell these investments.<br />
Internationally, we work alongside partners pursuing<br />
similar goals. This partnership opens attractive investment<br />
opportunities in key markets. We strive to balance the portfolio<br />
– geographically and across industries.<br />
We not only invest the capital of <strong>Deutsche</strong> <strong>Beteiligungs</strong><br />
<strong>AG</strong>. Institutional investors have charged us with the<br />
management of private equity funds. This enhances the<br />
financial scope for our future investing activities.<br />
Our objective is to develop the portfolio of <strong>Deutsche</strong><br />
<strong>Beteiligungs</strong> <strong>AG</strong>, thereby increasing the value of the<br />
Company for our shareholders. We aim to have our<br />
shares outpace the market.<br />
2
Wilken Freiherr von Hodenberg<br />
born 1954<br />
Member of the Board of<br />
Management and its Spokesman<br />
since July 2000.<br />
Studied law in Hamburg and<br />
Lausanne. 15 years of experience in<br />
investment banking, three years<br />
of service as an executive for a<br />
retail chain.<br />
Torsten Grede<br />
born 1964<br />
Member of the Board of<br />
Management since January 2001.<br />
Studied business administration<br />
in Cologne and St. Gallen following<br />
a bank traineeship. 13 years of<br />
experience in private equity at<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>.<br />
Reinhard Löffler<br />
born 1944<br />
Member of the Board of<br />
Management since August 1989.<br />
Studied industrial engineering<br />
at the University of Karlsruhe.<br />
14 years of experience in mid-sized<br />
industry. In 1985 he joined WFG<br />
<strong>Deutsche</strong> Gesellschaft für Wagniskapital<br />
mbH, a predecessor of<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>.<br />
André Mangin<br />
born 1954<br />
Member of the Board of Management<br />
since January 2004. Studied<br />
law at the University of Hamburg.<br />
More than 15 years of experience<br />
in private equity, corporate finance,<br />
and investment banking.<br />
Dr. Rolf Scheffels<br />
born 1966<br />
Member of the Board of Management<br />
since January 2004. Studied business<br />
administration and economics at the<br />
University of Frankfurt/Main. Began<br />
his career in an auditing firm. More<br />
than ten years of experience in<br />
private equity and corporate finance,<br />
seven of which at <strong>Deutsche</strong> <strong>Beteiligungs</strong><br />
<strong>AG</strong>.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Letter from the Board of Management<br />
LETTER FROM THE BOARD OF MAN<strong>AG</strong>EMENT<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> recorded a successful financial year<br />
2002/2003: compared with the previous year, earnings improved<br />
markedly. The Company’s stock outperformed the Dax, Germany’s<br />
key benchmark market index. By the end of the financial<br />
year, we had contracted three management buyouts – proof of<br />
our strong position in the German private equity market. The<br />
successful closing held for DB<strong>AG</strong> Fund IV documents the competence<br />
attributed to the Company in private equity.<br />
The consolidated result would have been better, had the difficult<br />
economic environment not impacted operations again. Our<br />
investments in the United States suffered from the sluggishness<br />
in the economy, requiring modifications in the valuation of one<br />
fund and three enterprises.<br />
3
LADIES AND GENTLEMEN,<br />
DEAR SHAREHOLDERS:<br />
4<br />
This past financial year, the investment team of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> proved its<br />
calibre in a number of fields. We succeeded in profitably selling three investments from<br />
the portfolio, realizing returns far in excess of those achieved on respective capital markets.<br />
Furthermore, we contracted three mangement buyouts in 2003 – impressive proof of<br />
our leadership position in Germany’s buyout business. Another highlight: the successful<br />
completion of our fund-raising campaign. Investors are apt to entrust their capital to<br />
those investment firms capable of creating and realizing value and, in addition, those<br />
able to access attractive investment opportunities. A large part of the total capital that<br />
investors committed to management buyouts in Germany in the mid-market segment in<br />
2002/2003 was channeled to our new DB<strong>AG</strong> Fund IV co-investment fund.<br />
Despite the improvement of nearly 19 million euros, however, the consolidated result<br />
is not in keeping with our expectations. With consolidated net income at 3.1 million euros,<br />
we have returned to the profit zone. However, the consolidated net income does not<br />
offset the loss carried forward from the previous year. We will therefore recommend<br />
not disbursing cash dividends this year. Our intention is to strengthen the Company’s<br />
financial base.<br />
Portfolio companies’ performance differs<br />
Our portfolio is diversified: investments are disseminated across different sectors of the<br />
economy and geographic regions. This mitigates risk exposure when a cyclical downturn<br />
is particularly pronounced in an industry or economic region. In 2002, German portfolio<br />
companies were among the investments hit by the slowdown in the economy, necessitating<br />
a modification of their valuation. In 2002/2003, however, valuation adjustments<br />
were exclusively performed on investments in the United States, thereby impacting the<br />
otherwise good income position achieved through realizations this year.<br />
Corrections to the valuation of investments in the portfolio amounted to 16.8 million<br />
euros. These largely relate to one fund investment and three direct investments. The<br />
past year was a year of slow growth, particularly in the United States, which weighed<br />
heavily on our American portfolio companies. A number of them even had to cope with<br />
shrinking markets; these enterprises may have improved their market positions, but have,<br />
nevertheless, forfeited earnings power for the time being.<br />
The valuation adjustments performed this year contain scope for the future. We expect<br />
that the enterprises concerned will master the challenges and return to substantially<br />
increased growth when the economy revitalizes. We feel confident that we will then be<br />
able to reverse these valuation modifications in part or completely – as was done on<br />
four portfolio investments this past financial year.<br />
Shares outperform the Dax<br />
The price movement of our shares mirrors the positive assessment by capital market<br />
players for private equity in general, and for <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> in particular. With<br />
growth rates expected to rise, market observers feel that the current economic situation<br />
creates good opportunities for investments at attractive terms. The new investments of<br />
the past financial year demonstrate our ability to access such opportunities.
Changes to the Board of Management<br />
Helmut Irle will be leaving the Board of Management of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> on<br />
the best of terms and by mutual agreement at the end of January 2004. The Supervisory<br />
Board has appointed Senior Vice Presidents André Mangin and Dr. Rolf Scheffels to the<br />
Board of Management, effective January 1, 2004. The Board of Management of <strong>Deutsche</strong><br />
<strong>Beteiligungs</strong> <strong>AG</strong> will thus consist of Wilken Freiherr von Hodenberg (Spokesman), Torsten<br />
Grede, Reinhard Löffler, André Mangin, and Dr. Rolf Scheffels.<br />
Outlook<br />
In the coming months, we plan to utilize the investment opportunities available in the<br />
market. We are currently investigating a number of attractive potential investments. The<br />
favorable position we have in the market constitutes a major competitive advantage in<br />
making new transactions – as the investments of this past financial year demonstrate.<br />
The past three financial years have shown that capital markets have a considerable<br />
impact on our line of business. Our profitable realizations are proof of our ability to exit<br />
investments independent of the stock exchange.<br />
We feel confident that <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> will continue its pattern of progress<br />
this current year. Our investee businesses have exhibited resilience in a difficult economic<br />
environment, and the Company is well placed for future investing activity, drawing on a<br />
national and international network and a track record of nearly 40 years in private equity.<br />
We are convinced that the more favorable economic outlook and our entrepreneurial<br />
commitment to our portfolio companies will be reflected in a rise in the fair value of our<br />
shares and in higher share prices.<br />
January 2004<br />
(Wilken Frhr. von Hodenberg) (Torsten Grede) (Reinhard Löffler)<br />
(André Mangin) (Dr. Rolf Scheffels)<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Letter from the Board of Management<br />
5
6<br />
Share price on uptrend<br />
SHARES – CAPITAL MARKET HONORS<br />
MARKET POSITION<br />
The shareholders of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> experienced<br />
a volatile financial year. Impacted by the adversities on<br />
equity markets, the price of the Company’s stock dropped to<br />
an all-time low of 6.07 euros, before resurging in July. Traded<br />
clearly below the book value of the equity until summer,<br />
the shares of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> responded to a reassessment<br />
of the private equity market. Above all, however,<br />
the share price recovery, doubling in the second half of the<br />
financial year, mirrors the excellent market position that<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> enjoys. Currently, our shares are<br />
traded in excess of their book value – as has virtually always<br />
been the case since the Company’s stock market listing.<br />
Volatile stock market year<br />
The price of our shares proved volatile for shareholders and investors this past financial<br />
year. The gyration reflects the course of the Company’s business, in addition to the<br />
general sentiment on capital markets. Following a term of relative stability with moderate<br />
turnovers at the beginning of the 2002/2003 financial year, prices dropped in mid-<br />
December by more than 15 percent to seven euros. This fall was triggered by the withdrawal<br />
of at least one institutional investor from the insurance industry.<br />
Until April, the stock of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> followed the stock market trend,<br />
but then persisted at low levels of between 7.50 euros and 6.15 euros in May, when<br />
the Dax and S-Dax began to rise. In July, the price of our stock jumped to levels of ten<br />
euros within only a few <strong>day</strong>s, thereby again connecting up with the stock market development.<br />
We trace this back to three influencial factors:<br />
• The capital markets’ assessment of private equity companies had clearly improved.<br />
• <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> was able to issue a series of positive news releases.<br />
• Finally, we intensified investor relations activities in summer and won new investors.<br />
Following another rise at the end of the financial year, our stock had caught up with<br />
the S-Dax, in which it is indexed as one of 50 securities.
November 1, 2002 to December 31, 2003<br />
in €<br />
14<br />
12<br />
10<br />
8<br />
6<br />
4<br />
2<br />
0<br />
From November 1, 2002 to October 31, 2003, the price of our shares (Xetra closing<br />
quotation) was up from 9.37 euros to 13.00 euros. This corresponds to an improvement<br />
of 38.7 percent. By December 31, 2003, the share price again fell to 10.81 euros. From<br />
November 1, 2002 to October 31, 2003, the Dax – the general measure for capital market<br />
performance in Germany – improved by 16.0 percent (at December 31: 25.8 percent).<br />
The S-Dax gained 41.1 percent in the course of the year (at December 31: 41.1 percent),<br />
developing similarly to the shares of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>.<br />
Market capitalization of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> amounted to 182.0 million euros<br />
at the balance sheet date on October 31, 2003 (December 31, 2003: 151.34 million<br />
euros). The market capitalization attributable to the free float (42.42 percent) was 77.20<br />
million euros (December 31, 2003: 75.55 million euros – in addition to the price movement,<br />
this mirrors the increase in the portion of free float, see page 12).<br />
Turnover of shares still unsatisfactory<br />
Fair Value<br />
DB<strong>AG</strong> Dax<br />
(indexed)<br />
Nov. 02 Feb. 03 May 03 Aug. 03<br />
Nov. 03<br />
The shares of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> experienced an unusual degree of volatility<br />
in the 2002/2003 financial year. Their highest price point, reached on the final <strong>day</strong> of<br />
the financial year, is more than double the rate of its lowest price point on April 28,<br />
2003.<br />
On average, 7,300 shares were traded daily, which is considerably more than for the<br />
two preceding financial years. Trading volume, however, declined to 16.0 million euros,<br />
down from 21.5 million euros the prior year. The Company’s stock is predominantly<br />
Xetra-traded (70 percent). 21 percent of the turnover is transacted on the Frankfurt<br />
Stock Exchange. Of the volume traded on regional stock exchanges, Stuttgart ac<strong>counts</strong><br />
for more than half of the turnover.<br />
In total, the liquidity of our shares is still unsatisfactory. To augment investments by<br />
institutional investors, a further improvement in stock liquidity is desirable.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
S-Dax<br />
(indexed)<br />
Shares<br />
One-year comparison<br />
Shares of <strong>Deutsche</strong> <strong>Beteiligungs</strong><br />
<strong>AG</strong>, indexed S-Dax and Dax<br />
performance indices and fair<br />
value of the shares at October<br />
31, 2002, April 30, 2003, and<br />
October 31, 2003<br />
Market capitalization<br />
at financial year-end<br />
Mio €<br />
600<br />
500<br />
400<br />
300<br />
200<br />
100<br />
0<br />
1998/1999 1999/2000 2000/2001 2001/2002 2002/2003<br />
Higher market capitalization<br />
Average daily turnover<br />
Shares<br />
12,000<br />
10,000<br />
8,000<br />
6,000<br />
4,000<br />
2,000<br />
0<br />
1998/1999 1999/2000 2000/2001 2001/2002 2002/2003<br />
Greater liquidity targeted<br />
7
8<br />
Free float increased<br />
Admission to Prime Standard<br />
The platform for higher liquidity this current financial year is promising: in November<br />
2003 SchmidtBank announced that they have completely disinvested their block of shares,<br />
as had been anticipated. This bank, one of the founders of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>,<br />
had been prompted by its new shareholders to reduce its holdings. Nine institutional<br />
investors, primarily based in Great Britain, have acquired the shares previously held by<br />
SchmidtBank in a secondary offering. Through the split-up of this former 7.5 percent<br />
stake, the free-float share of our stock grew by nearly one sixth to 49.9 percent.<br />
Firm position in the S-Dax<br />
Following the re-segmentation of the Frankfurt Stock Exchange at the beginning of<br />
2003, <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> was one of the first companies to be admitted to the<br />
Prime Standard. The Prime Standard is the admission segment for companies wanting<br />
to present themselves to an international investors’ community. In addition to fulfilling<br />
the requirements of the General Standard, which constitutes the statutory minimum<br />
standard of the Official Market or Regulated Market, companies admitted to the Prime<br />
Standard must meet high international standards of transparency.<br />
Admission to the Prime Standard is a prerequisite for inclusion in one of the stock<br />
indices, such as the S-Dax. Other criteria are market capitalization and turnover; however,<br />
only the free float is used to measure the market capitalization.<br />
Based on the average market capitalization in October 2003, the shares of <strong>Deutsche</strong><br />
<strong>Beteiligungs</strong> <strong>AG</strong> ranked 83rd among those companies eligible for the M-Dax (50 participants)<br />
and the S-Dax (another 50 participants). Thus, measured by the market capitalization<br />
of the free float, our stock currently exhibits a firm position for inclusion in the S-Dax<br />
index. Measured by average daily turnover, however, at the end of October 2003 the<br />
shares of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> had only ranked 108th among the Prime Standardlisted<br />
companies not indexed in the Dax or TecDax. In addition to these two measurable<br />
criteria, the German Stock Exchange considers further factors for the composition of its<br />
indices, including the past development exhibited by a company or its industrial sector.<br />
We expect that the shares of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> will continue to be indexed in<br />
the S-Dax averages. Nonetheless, enhancing the liquidity of our shares is a key goal in<br />
anchoring this position.
Shares of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>:<br />
Key figures and information<br />
2002/2003 2001/2002 2000/2001<br />
Cash flow1 per share in € 0.96 0.77 1.40<br />
Equity per share in € 11.32 11.08 12.77<br />
Fair value per share in € 12.48 12.95 n.a.<br />
Number of shares 14,000,000 14,000,000 14,000,000<br />
Subscribed capital at Oct. 31 in € 36,400,000 36,400,000 36,400,000<br />
Highest price point in € (Xetra) 13.00 23.70 42.75<br />
Lowest price point in € (Xetra)<br />
Closing rate at Oct. 31 in €<br />
6.07 7.12 16.25<br />
(Xetra closing rate) 13.00 9.37 19.90<br />
Market capitalization at Oct. 31 in Mio. € 182.0 129.5 278.6<br />
Price/earnings ratio at Oct. 31 59.09 2 n.a. 30.15 2<br />
Price/equity ratio at Oct. 31 1.15 3 0.83 3 1.56 3<br />
Price/fair value ratio at Oct. 31 1.04 0.72 n.a.<br />
Dividends in € (incl. tax credit) none 4 none 0.71<br />
Average weekly trading volume (shares) 38,478 24,549 31,725<br />
First traded December 19, 1985<br />
Most recent capital increase July 2000<br />
1 Result of period plus write-downs/write-ups on long-term assets<br />
2 Price in relation to consolidated earnings per share<br />
3 Price in relation to consolidated equity per share<br />
4 Recommendation by Board of Management and Supervisory Board<br />
WKN 550810<br />
ISIN DE0005508105<br />
Abbreviation Reuters: DB<strong>AG</strong>.F Bloomberg: DBA<br />
Stock exchanges Xetra, Official Market in Frankfurt and Düsseldorf;<br />
OTC in Berlin, Bremen, Hamburg, Munich, Stuttgart<br />
Market segment Prime Standard<br />
Indices German Stock S-Dax (weighting in S-Dax at Oct. 31, 2003: 1.4789 %)<br />
C-Dax Industrial Index C-Dax Industrial<br />
Designated Sponsors <strong>Deutsche</strong> Bank <strong>AG</strong><br />
Lang & Schwarz Wertpapierhandel <strong>AG</strong><br />
Change in assessment<br />
As opposed to the price movement this past financial year, the long-term cumulative<br />
performance of our shares is unsatisfactory. The average compounded return to shareholders<br />
(price gains, reinvestment of dividends, and subscription rights) for the five-year<br />
period from November 1, 1998 to October 31, 2003 is negative at minus 7.7 percent.<br />
However, investors holding Dax or S-Dax securities over the same period also had to waive<br />
gains on their invested capital. The annual loss was 5.1 percent (Dax) and less than one<br />
percent (S-Dax). In respect of the S-Dax, one point to consider is that its composition<br />
changed markedly several times in recent years, limiting its use as a benchmark.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Shares<br />
9
10<br />
Disclosure of fair value<br />
Valuation rules at<br />
www.deutsche-beteiligung.de<br />
Our complete valuation rules<br />
are accessible through our<br />
on-line information service.<br />
There has been a change in capital markets’ assessment of our stock in recent years.<br />
We are currently in the midst of a transition phase: since the beginning of the<br />
2002/2003 financial year, we have been reporting the intrinsic value (fair value) of our<br />
shares on a semi-annual basis, disclosing the unrealized value movement that results<br />
from a current valuation of the portfolio in comparison to the book value. This is common<br />
practice in comparable Anglo-Saxon private equity companies. We are thus<br />
responding to a capital market demand which applies the intrinsic value of stock, determined<br />
by internationally acknowledged accounting principles as a measure of performance.<br />
In determining the unrealized appreciation – or valuation reserves – we apply the<br />
rules laid down by the International Financial Reporting Standards (IFRS). The basis for<br />
this is the current market value (fair value) of the portfolio. The valuation reserves represent<br />
the net current value of our investments, which may be higher, or possibly also<br />
lower, than the amounts carried in the balance sheet in conformity with the German<br />
Commercial Code.<br />
Fair value based on IFRS rules<br />
The value of our investments is determined semi-annually in conformity with guidelines<br />
that are based on IFRS rules and approved by our auditors. We apply different<br />
methods to determine the fair value – depending on the type of investment:<br />
• Quoted enterprises are generally valued at their stock market price at the valuation<br />
date; in certain instances, the price may be reduced by a discount.<br />
• If a purchase offer has been submitted for an investment, the valuation will be based<br />
on that offer.<br />
• Valuations may also be based on recent comparable transactions in the market.<br />
• If none of the above procedures is applicable, valuations may be determined by the<br />
multiples method based on income data and peer-group comparisons – meaning that<br />
price/earnings ratios of comparable enterprises are used for the valuation.<br />
• Investments consisting of several different companies are subject to a “sum-of-theparts”<br />
valuation – the valuation is derived by adding the individual sums for the<br />
components of an investment.<br />
• Silent participations are valued at acquisition cost (or, if applicable, their lower market<br />
value); the same applies to loans granted by <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> to its portfolio<br />
companies, and to new investments in the first year after acquisition.<br />
The fair value of one share of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> is derived by dividing the<br />
valuation reserves by the number of shares and adding that to the equity per share. The<br />
value of our fund management business (see pages 23 and 64) as well as <strong>Deutsche</strong><br />
Beteiligung’s long-standing excellent market position are not reflected in the fair value.<br />
Data based on key figures of investee companies is one constituent in determining the<br />
fair value. Another determinant is the situation on capital markets. Approximately onefifth<br />
of the fair value of our investment portfolio is directly linked to the share price trend<br />
for the companies in question. A decline in prices will lead to a decline in the valuation<br />
reserves, even without our holdings necessarily experiencing a deterioration in their earnings<br />
position – frequently a decisive factor in profitably exiting an investment.
Weak dollar curtails valuation reserves in portfolio<br />
In the reporting year, the fair value of our shares declined slightly to 12.48 euros<br />
(November 1, 2002: 12.95 euros). The book value of the equity per share rose from<br />
11.08 euros to 11.34 euros, whereas the unrealized appreciation decreased from 1.86<br />
euros to 1.16 euros per share. Thus, at the end of the past financial year, the shares of<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> were traded approximately at their intrinsic – or fair – value.<br />
At the beginning of the 2002/2003 financial year, the portfolio of <strong>Deutsche</strong> <strong>Beteiligungs</strong><br />
<strong>AG</strong> contained unrealized appreciation of 26.1 million euros. At October 31, 2003,<br />
it had dropped to 9.8 million euros, a decline of 16.3 million euros. This change was<br />
caused by a number of different, partly netted, effects.<br />
Changes in valuation reserves<br />
T€<br />
30,000<br />
25,000<br />
20,000<br />
15,000<br />
10,000<br />
5,000<br />
0<br />
Valuation reserves<br />
at Nov. 1, 2002<br />
Change due<br />
to realizations<br />
(sales)<br />
Reduction due<br />
to exchange<br />
rate changes<br />
Increase due to<br />
changes in stock<br />
market prices<br />
(netted)<br />
Reduction due<br />
to changes in<br />
earnings/multiples<br />
(netted)<br />
Exchange rate changes had the greatest negative impact on the unrealized appreciation:<br />
the weakness of the US dollar against the euro resulted in a loss of 11.8 million<br />
euros. The value of our US holdings and fund investments as well as several other fund<br />
investments carried in US dollars diminished by this amount solely for reasons of the<br />
dollar’s devaluation, independent of the earnings position of these enterprises.<br />
At the beginning of the 2002/2003 financial year, one dollar equaled 1.01 euros; at<br />
the end of the financial year at October 31, 2003, one dollar was valued at 86 euro<br />
cents, a decline of 15.3 percent. One fourth of our portfolio, valued according to IFRS<br />
rules, is linked to exchange rate gyrations of the US dollar. A further devaluation of the<br />
US currency by 0.05 euros per dollar would, for instance, reduce the fair value of our<br />
portfolio by another 3.5 million euros; a revaluation would have the opposite effect. These<br />
gyrations would result in a deterioration/improvement in the fair value of 25 euro cents<br />
per share.<br />
Some 11.3 million euros of the valuation reserves were realized by the sale of investments.<br />
In exiting these investments, the price last carried on the ac<strong>counts</strong> was the minimum<br />
we achieved in all cases.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Valuation reserves<br />
Positive effects<br />
Negative effects<br />
Other<br />
changes<br />
Valuation reserves<br />
at Oct. 31, 2003<br />
US $/Euro<br />
in €<br />
1.00<br />
0.95<br />
0.90<br />
0.85<br />
0.80<br />
Nov. 02<br />
Jan. 03<br />
Shares<br />
Mar. 03 May 03 July 03 Sept. 03 Nov. 03<br />
11
12<br />
Write-ups on quoted portfolio<br />
companies<br />
The upturn on stock markets also led to an appreciation of our quoted investee businesses.<br />
Higher stock market prices generated a rise of 16.0 million euros in the valuation<br />
reserves. A negative net amount came from changes in valuations determined by the<br />
multiples method (minus 7.5 million euros). Other effects led to an improvement of 4.6<br />
million euros.<br />
The majority of our investee businesses improved or maintained their value during the<br />
reporting year. Deteriorations primarily relate to American enterprises or fund investments<br />
valued in US dollars.<br />
No dividend following loss carryforward<br />
For the 2002/2003 financial year, we achieved results that surpassed those of the<br />
previous year by approximately 20 million euros. Following a consolidated net loss of<br />
15.8 million euros recorded in financial year 2001/2002, the reporting year closed with<br />
consolidated net income of 3.1 million euros. Offsetting the previous year’s loss against<br />
this year’s income results in a consolidated balance sheet loss of 2.4 million euros. At<br />
the Annual Meeting of Shareholders, the Board of Management and Supervisory Board<br />
will therefore recommend not to declare cash dividends for the 2002/2003 financial<br />
year.<br />
Shareholder profile remains unchanged<br />
Changes to the group of shareholders in the reporting year only relate to the free float.<br />
The group of shareholders with holdings in excess of five percent has remained unchanged<br />
throughout the financial year. On November 24, 2003, SchmidtBank announced that it<br />
no longer holds shares of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. Based on the notices we received<br />
in conformity with Article 21 Wertpapiergesetz (German Securities Trading Act), there are<br />
now only four shareholders owning shares of more than five percent of the subscribed<br />
capital. The free float currently (December 31, 2003) amounts to 49.92 percent.<br />
Shareholder profile<br />
Free float (49.92 %)<br />
<strong>Deutsche</strong> Bank <strong>AG</strong> (15 %)<br />
Gerling Life Insurance (15 %)<br />
Vermögensverwaltung<br />
Wilhelm von Finck (15 %)<br />
Kreissparkasse Biberach (5.08 %)<br />
Some three fourths of free float is held by institutional investors and two fifths by<br />
private shareholders. At the beginning of the financial year (November 1, 2002), approximately<br />
5,800 private investors – individuals or enterprises – owned 23 percent of the<br />
subscribed capital.
Pro-active investor relations<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> continues to emphasize communication with its investors,<br />
strengthening the confidence investors place in the Company and its performancefocused<br />
strategy. Open, transparent communication with shareholders, analysts, potential<br />
investors and the media is fundamental to conveying the perspectives inherent in<br />
our stock and sustainably tying investors to <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. This is particularly<br />
important in difficult stock market times; for that reason, we make special efforts to<br />
communicate open, timely and regular information about our business development to<br />
investors, private shareholders, and financial analysts. Conference calls with analysts at<br />
the issuance of every quarterly report are part of our service.<br />
This past financial year, we presented <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> and called attention<br />
to our stock at more than 40 events, presentations and meetings with analysts and<br />
investors. We conformed to the recommendations of the German Corporate Governance<br />
Code in terms of "fair disclosure" and made the presented information publicly accessible<br />
in the Investor Relations section of our web site. We attach particular importance to<br />
communicating information to all groups of investors simultaneously. One of the vehicles<br />
we use is our e-mail newsletter, which informs recipients about all essential developments<br />
in our business.<br />
We endeavor to further enhance our investor relations activities. Toward that end,<br />
we use the internet as a fast, cost-effective vehicle. The internet has gained broad<br />
acceptance as a contemporary communication instrument for quoted companies. In line<br />
with that, we have expanded the Investor Relations part of our web site. At the beginning<br />
of this current financial year, we took another step forward: private shareholders<br />
were, for the first time, able to participate at a presentation held for institutional investors<br />
and analysts. Our presentation at the German Mid-Cap Conference on November 26,<br />
2003 was broadcast on the internet. Many shareholders used the opportunity to acoustically<br />
follow the presentation and view the charts.<br />
We have complied with the availability dates for quarterly reports and the year-end<br />
financial statements recommended by the German Corporate Governance Code commencing<br />
with the publication of our quarterly report at April 30, 2003. Since then,<br />
quarterly reports have been publicly accessible within 45 <strong>day</strong>s and the annual financial<br />
statements within 90 <strong>day</strong>s after the end of the respective reporting periods.<br />
Analysts rate shares at upside potential<br />
Analysts’ research serves to give institutional investors an informed opinion on<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. For many investors, research is a prerequisite for considering<br />
a company’s stock in the first place. We have therefore endeavored to improve the coverage<br />
of our shares. Five analysts are currently monitoring our stock, among them, an<br />
analyst from a British investment bank in London. We feel this is particularly significant,<br />
in view of the relatively large number of private equity firms quoted on the London<br />
Stock Exchange.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Shares<br />
News via e-mail at<br />
www.deutsche-beteiligung.de<br />
It only takes two clicks on the<br />
home page at www.deutschebeteiligung.de<br />
and an e-mail<br />
address to subscribe to the<br />
electronic newsletter of<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>.<br />
Comprehensive information for<br />
private investors<br />
Improved analysts’ coverage<br />
13
14<br />
Analysts’ opinion of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
“To<strong>day</strong> we re-initiate coverage on DB<strong>AG</strong>, … with an outperformer rating … The main<br />
investment themes are: … DB<strong>AG</strong>’s chances of exiting its investments are increasing. …<br />
With the recent closing of its Fund IV DB<strong>AG</strong> diversifies its revenue base in less volatile, high<br />
quality commission driven fees.” … DB<strong>AG</strong> as an indirect M-Dax/S-Dax play will benefit two<br />
fold: via rising prices and increasing exit possibilities.”<br />
Metehan Sen, Oppenheim Research GmbH<br />
November 2003<br />
“As we believe the company’s valuation approach is conservative, the company appears<br />
undervalued. We believe a higher premium to NAV is justified, based both on a peer group<br />
comparison and RoE analysis. We initiate coverage with a BUY recommendation.”<br />
Ralph Jainz, Cazenove<br />
October 2003<br />
“<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> – Private equity at its best … As a well-established player, DB<strong>AG</strong><br />
should benefit from a flight to quality by investors. However, the undervaluation of the<br />
stock also drives our positive recommendation, as we believe the current share price does<br />
not fully reflect the value of DB<strong>AG</strong>’s investment portfolio. … We initiate coverage on<br />
DB<strong>AG</strong> with a BUY recommendation.”<br />
Rabea Bastges, HSBC Trinkaus & Burkhardt<br />
October 2003<br />
“The key to DB<strong>AG</strong>’s success is access to the deal flow. As one of Germany’s largest private<br />
equity companies, DB<strong>AG</strong> is invited to participate in an above-average number of deals. …<br />
Our MidCaps/Small Caps team is starting its research coverage on <strong>Deutsche</strong> <strong>Beteiligungs</strong><br />
<strong>AG</strong> stock with an Outperform rating.”<br />
Peter-Thilo Hasler, HVB Corporates & Markets<br />
October 2003<br />
“We assess positively the ability to generate interesting deals in a difficult market environment<br />
for equity investments. Additionally, through its co-investment fund IV, DB<strong>AG</strong> has the<br />
assets needed to make further investments. … Rising income from management fees will<br />
markedly relieve costs … Our vote is Buy.”<br />
Jens Jung, Independent Research<br />
September 2003*<br />
*Translated from the German
Prospects for our shares<br />
Capital markets have exhibited progress in past months. The price trend for the stock<br />
of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> has also been encouraging. There are good arguments that<br />
speak for a further improvement in the performance of our shares. These arguments<br />
have virtually remained unchanged:<br />
• We continue to adhere to our return target of generating a superior return on equity<br />
that outperforms capital markets’ cost-of-equity expectations.<br />
• Our portfolio is sound, mature, and it contains earnings potential.<br />
• The shares of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> are indexed in the S-Dax and listed in the<br />
Prime Standard. They thus meet material demands of international investors, who,<br />
following the restraint exhibited the past two years, are again expected to invest in<br />
German securities.<br />
• Demand for private equity will rise. As one of the leading and most experienced private<br />
equity firms in the German market, <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> is well placed to profit<br />
from that growth.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Shares<br />
Information service at<br />
www.deutsche-beteiligung.de<br />
We use the internet to communicate<br />
comprehensively and<br />
simultaneously with all of our<br />
shareholders. On the Investor<br />
Relations pages of our on-line<br />
service, viewers can access our<br />
presentations for investors and<br />
analysts. All ad-hoc notices<br />
and press releases issued by<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> are<br />
also found there. Analysts’ opinions<br />
and, in part, their research<br />
reports are also accessible at our<br />
site. News on the Annual Meeting,<br />
current stock prices and the<br />
latest financial indicators round<br />
out our on-line information<br />
service<br />
15
16<br />
The Code, in its valid form,<br />
can be accessed and downloaded<br />
at www.corporategovernance-code.de.<br />
Please see page 88 for the<br />
declaration submitted by the<br />
Board of Management and<br />
Supervisory Board of <strong>Deutsche</strong><br />
<strong>Beteiligungs</strong> <strong>AG</strong> on the<br />
Company’s compliance with<br />
the German Corporate<br />
Governance Code.<br />
CORPORATE GOVERNANCE –<br />
DEFINED LINES OF ACCOUNTABILITY<br />
AND SUPERVISION<br />
Transparent, fiduciary Corporate Governance is geared to<br />
ensure accountability and value-driven management and<br />
control processes in an organization. It serves to anchor and<br />
strengthen the confidence of shareholders, business partners,<br />
employees, and the public in a company. <strong>Deutsche</strong> <strong>Beteiligungs</strong><br />
<strong>AG</strong> vindicates and fosters that confidence through<br />
an open, timely, and regular flow of information.<br />
Corporate Governance Code complements corporate practice<br />
Corporate Governance has gained in importance over the last few years in assessing<br />
and valuing quoted enterprises. Standards of conduct developed by a Commission<br />
installed by the German Government in 2002 have meanwhile been widely accepted<br />
and compiled in a Code. To the Board of Management and Supervisory Board, the<br />
essence of the Code has always represented a minimum standard, exceeded by the<br />
Company’s articles of association, rules of procedure, and, in particular, every<strong>day</strong> practice.<br />
On December 18, 2002, we submitted a “Declaration of Conformity” pursuant to<br />
Article 161 of the German Stock Corporation Act. We declared that we will principally<br />
comply with the greater part of the recommendations and virtually all of the suggestions<br />
laid down in the Code issued November 7, 2002. In a number of instances, shareholders’<br />
resolutions or changes to the rules of procedures required to meet certain recommendations<br />
have meanwhile been passed.<br />
We will continue to basically follow the recommendations and suggestions of the<br />
Code. At the beginning of this current financial year, we submitted a declaration in conformity<br />
with regulatory requirements; it is based on the Code as amended on May 21,<br />
2003. The Board of Management and Supervisory Board declared therein that <strong>Deutsche</strong><br />
<strong>Beteiligungs</strong> <strong>AG</strong> has principally complied with the recommendations of the Government<br />
Commission on the German Corporate Governance Code.<br />
Exceptions due to the nature of private equity<br />
The Code sets standards for all German stock corporations. Naturally, it cannot account<br />
for the particularities of certain sectors of industry or the needs of smaller enterprises.<br />
The reason why <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> does not follow the Code in all points is<br />
rooted in specific circumstances governing the private equity business.
For instance, the special accounting principles of the International Financial Reporting<br />
Standards (IFRS) that apply to us as a so-called investment company had not yet been<br />
adapted by November 2003, at the beginning of the new financial year. For the time<br />
being, we will therefore continue to base our accounting on the principles of the German<br />
Commercial Code. In anticipation of the transition to the IFRS, we do, however, report<br />
portfolio valuations semi-annually determined in conformity with valid IFRS fair-value<br />
principles, thereby giving material insights as would be disclosed by IFRS-formatted<br />
accounting.<br />
The Code also requires publishing a list of third-party companies, stating, among other<br />
things, the amount of equity and operating results for the last financial year. We can<br />
only conditionally follow this recommendation. Frequently, confidentiality is a contractual<br />
stipulation with our business partners. Without this confidentiality, many private equity<br />
transactions would not be possible.<br />
We are closely following the Corporate Governance debate. We will adapt our own<br />
practice – for instance, our position on recommendations made in the Code with which<br />
we currently do not comply – should we feel that the circumstances call for this.<br />
Strict insider guidelines<br />
A key factor for success is the performance and motivation of our staff. In 2002,<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> installed a stock option program which is limited to the<br />
members of the Board of Management and a selected group of key employees. The<br />
Company also offers an employee stock ownership that allows the staff to purchase<br />
stock once a year and share in the Company’s long-term performance. Outside these<br />
programs, members of the staff are not permitted to purchase shares of <strong>Deutsche</strong><br />
<strong>Beteiligungs</strong> <strong>AG</strong>.<br />
We cannot ensure that employees will not possibly gain access to information that<br />
may influence the share price movement – such as an upcoming change in the portfolio.<br />
The trading prohibition is designed to improve transparency and avoid misunderstandings.<br />
Currently-owned shares and those acquired in the future through employees’ stock<br />
ownership programs may only be sold during specified exercise periods that are linked<br />
to the publication of corporate reports. Exercise periods are a certain number of <strong>day</strong>s of<br />
trading following the Annual Meeting and the publication of the annual financial statements<br />
and the quarterly reports.<br />
Employees are also prohibited from dealing in stocks of companies in the portfolio of<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> or of companies undergoing the due diligence process.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Governance Report<br />
Accounting remains based on<br />
German Commercial Code<br />
The exact exercise periods are<br />
disclosed on our web site at<br />
www.deutsche-beteiligung.de<br />
17
A telephone call, an e-mail could mean the beginning of a new<br />
investment. In almost 40 years on the German private equity<br />
market, we have built a unique network: specialized consultants,<br />
banks or industrial experts are frequently the source of hot<br />
leads for a potential investment. Attractive industry? Profitable?<br />
Strong in the market? Only a few can take these hurdles. But, if<br />
a company does match up to our investment qualifications, the<br />
due diligence comes next. The starting signal for our decisionmaking<br />
process.
DEUTSCHE BETEILIGUNGS <strong>AG</strong> –<br />
MARKET PERFORMANCE ATTESTS TO<br />
THE STRATEGY<br />
A clear focus pays off: three management buyouts contracted<br />
– that ranks <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> as one of the most<br />
active private equity firms in the German buyout market in<br />
2003. Profitable realizations have again shown that the<br />
investment team of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> is not only<br />
able to create value against the general market trend, but<br />
to realize that value. The new DB<strong>AG</strong> Fund IV co-investment<br />
fund broadens the scope for future investments and is a<br />
key prerequisite for securing and expanding the Company’s<br />
good market position.<br />
With a track record of nearly 40 years, <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> is a particularly<br />
experienced private equity company and a first address in the German market. The<br />
Company can lay claim to having spurred and shaped private equity culture in Germany.<br />
Management buyouts (MBOs) – the focus of our investment strategy – have only been<br />
common in Germany to any significant extent since the mid 90s. We have pro-actively<br />
contributed toward this positive trend, which has by no means reached its climax yet.<br />
Private equity is continuing to gain in importance in Germany: the capital stemming<br />
from Germany for private equity investments has been on a uptrend from year to year.<br />
This is not surprising when comparing the situation in Germany with that of other European<br />
countries. There is still considerable development potential in the German market<br />
when viewed by an international standard. It seems very likely that this potential will<br />
drive the significance of private equity in our economy in the coming years.<br />
Private equity market in Germany<br />
20,000<br />
17,500<br />
15,000<br />
12,500<br />
10,000<br />
7,500<br />
5,000<br />
2,500<br />
0<br />
Particularly strong performance is currently being registered by the market for midmarket<br />
private equity investments structured as management buyouts – our core line of<br />
business. This acquisition form is developing independently of the general economic trend<br />
and has been implemented more frequently than ever in the testing economic climate<br />
of 2003.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Market and Strategy<br />
Portfolio volume in millions of €<br />
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003<br />
(Jan.–Sept.)<br />
Private equity gaining in<br />
importance<br />
Source: Bundesverband<br />
<strong>Deutsche</strong>r Kapitalbeteiligungsgesellschaften/German<br />
Venture<br />
Capital Association (BVK, Berlin)<br />
19
Source: Centre for Management<br />
Buy-Out Research (CMBOR,<br />
Nottingham); for 2002 and 2003<br />
own assessment or estimate<br />
based on published data<br />
20<br />
Attractive deal flow<br />
The reasons for this trend remain unchanged. The most frequent source of MBOs are<br />
spin-offs of subsidiaries from parent companies. Large corporations are still streamlining<br />
their portfolios and disinvesting peripheral activities, concentrating their resources on<br />
areas of greatest competence and that achieve the greatest synergy and generate the<br />
highest returns. Driven by capital market expectations toward that end, this process has<br />
gained momentum over the past five years.<br />
But other reasons are fueling the process as well: banks have changed their strategy<br />
in financing small and mid-sized enterprises. Financial institutes are more restrictive in<br />
their lending policy. Furthermore, borrowings will tend to become more expensive for<br />
many small and mid-sized enterprises, because banks will be required to back loans by<br />
more equity, inevitably leading to higher interest rates (“Basle II”). Added to that is the<br />
fact that the equity base of German companies is, as a rule, much thinner than in other<br />
industrial nations. The trend toward higher borrowing costs and limited availability of<br />
loans creates opportunities for private equity.<br />
In addition to the number of enterprises up for sale, other key factors that fuel transaction<br />
activity are selling prices and anticipated value appreciation. Both of these factors<br />
have recently improved. Vendors have been attaching greater weight in their asking prices<br />
to the less favorable economic setting. Simultaneously, with indications of an emerging<br />
upturn in sight, there are good opportunities to build value. “This cycle is bottoming<br />
out – a good time for investments,” is the opinion in the business as well as among<br />
financial analysts focused on the private equity market.<br />
Transactions<br />
Mio. €<br />
2,700<br />
2,400<br />
2,100<br />
1,800<br />
1,500<br />
1,200<br />
900<br />
600<br />
300<br />
0<br />
Sum of all transactions valued at € 50 to 250 million (in millions of €)<br />
Number of transactions<br />
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003<br />
Ranking top-of-the-market with three transactions in 2003<br />
The deal flow currently on the German market has proved to be very attractive for<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. Persistent restructuring pressure on large corporations has<br />
generated a stream of interesting investment opportunities. <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
determinedly utilized these opportunities. Three transactions were contracted and partially<br />
completed in financial year 2002/2003. Three transactions in the mid-market segment<br />
put <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> at the top of the German private equity market in<br />
2003.<br />
18<br />
16<br />
14<br />
12<br />
10<br />
8<br />
6<br />
4<br />
2<br />
0<br />
Number of transactions
This performance is founded on six premises.<br />
We concentrate on one theme: management buyouts<br />
As a financial investor focused on majority acquisitions in partnership with management,<br />
we pursue one primary goal: to appreciably build the value of our investments<br />
within a time horizon of approximately five years. Following a management buyout,<br />
former group subsidiaries are transformed from a perpherial activity to a core business.<br />
Decentralizing the accountability for performance and introducing new organizational<br />
structures mobilize new drive within a company. Our capital creates opportunities for<br />
investee enterprises to quickly develop their businesses. For example, it puts management<br />
in a position to realize long overdue capital expenditure programs, bring products to<br />
market, or enter new markets. Furthermore, it enables the managements of spin-offs to<br />
make important decisions on a timely basis without having to compete with other divisions<br />
for the funds, as is often the case in large conglomerates. Additionally, a financial<br />
minority investment on the part of management ensures that its objectives coincide<br />
with ours.<br />
We will persistently pursue the strategy change toward management buyouts which<br />
we initiated in 1996. This means that our second business field of expansion financing,<br />
currently accounting for 40 percent of the total portfolio, will decline in the coming<br />
years.<br />
We adhere to a disciplined investment process<br />
Through our investment strategy, we have developed an approach that has made us<br />
a leading address in the German private equity market. As a long-standing Old Economy<br />
investor, we are exclusively interested in mid-sized enterprises that generate annual<br />
sales of 50 million to 750 million euros and operate in manufacturing or processing<br />
industry or in selected service sectors.<br />
Potential target companies must have seasoned managements who have done excellent<br />
work in those companies in the past and are willing to financially invest in the buyout.<br />
Moreover, target companies must boast a prominent market position and verifiable<br />
profitability with significant potential for earnings growth. Prudent due diligence scrutinizing<br />
the risks and opportunities of a transaction achieve quick clarity on this. Start-up<br />
businesses and enterprises requiring a high degree of restructuring to survive in the<br />
market will not be considered.<br />
The debt-free purchase price of a target company should range from 50 to 250 million<br />
euros. Of this, we provide equity of up to 60 million euros jointly with our managed<br />
co-investment fund. To shoulder larger equity requirements, we draw upon the readiness<br />
of our fund investors and our contacts to other financial investors pursuing similar coinvestment<br />
strategies. This ensures that <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> is able to act as a<br />
majority investor – even though it may not always hold the share majority alone. The<br />
final point in an investment process is the investment’s ultimate sale. Exit opportunities<br />
are a a key part of our considerations from the very onset. We expect an investment to<br />
generate returns of 25 percent annually on our invested capital.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Market and Strategy<br />
Premise 1<br />
Premise 2<br />
21
22<br />
Premise 3<br />
Premise 4<br />
Please read more about the<br />
staff of <strong>Deutsche</strong> <strong>Beteiligungs</strong><br />
<strong>AG</strong> in Management’s Report<br />
on page 68<br />
Premise 5<br />
We ensure that the portfolio is balanced<br />
In selecting enterprises in which to invest, we keep sight of adequate balance and<br />
diversification in the portfolio. We have gained special expertise in a number of industrial<br />
sectors:<br />
Industrial sector Selected examples from the portfolio of<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> since 1996<br />
Automotive supplies AKsys-Gruppe<br />
Preh GmbH<br />
Machine and DS Technologie GmbH<br />
plant construction Lignum Technologie <strong>AG</strong><br />
Industrial services Babcock Borsig Service GmbH<br />
and logistics Rheinhold & Mahla <strong>AG</strong>*<br />
Printing, media, schlott gruppe <strong>AG</strong><br />
packaging Schoeller & Hoesch-Gruppe*<br />
Measuring and Grohmann Engineering GmbH<br />
automation technology<br />
* meanwhile sold<br />
Hawe KG*<br />
To quickly exploit attractive business opportunities when they arise – both at international<br />
level and with a certain amount of investing leeway – <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
has two highly effective options at its disposal. To make use of international transaction<br />
opportunities, we operate alongside partner companies with whom we have maintained<br />
working relationships for many years. They include Harvest Partners in the United States<br />
(since 1985), Unternehmens Invest <strong>AG</strong> (UI<strong>AG</strong>) in Austria (since 1992), and Quartus Gestion<br />
in France (since 1998). We invest either directly in selected holdings of these partners or<br />
indirectly through buyout funds raised by these partners. To that end, we additionally<br />
achieve a geographical balance in the portfolio.<br />
We invest personally<br />
Apart from their personal commitment and their close collaboration with the managements<br />
of investee businesses during the holding period, the members of the Board of<br />
Management and eleven other members of our investment team invest private capital in<br />
every transaction. Installed in 2001 and common in our line of business, a carried-interest<br />
scheme calls for co-investments of this nature in order to reap the rewards at an<br />
investment’s ultimate profitable realization. This is designed to align our management<br />
team’s interests with those of our shareholders.<br />
We build on experience<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> has been operating in the private equity market for nearly<br />
40 years – a wealth of experience, which distinguishes the Company as a leading German<br />
address and is mirrored in its management team. No investment manager has served at<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> for less than three years. The members of the Board of Management<br />
look back on an average of more than eight years with the Company. This<br />
personal know-how rooted in a highly skilled investment team guarantees that investment<br />
decisions will be geared to the benefit of our shareholders and the Company.
We build on an established network of contacts<br />
In completing more than 300 transactions over the years in Germany’s mid-market<br />
segment, a unique network of contacts has evolved. Our good relationships to the top<br />
managements of enterprises, M&A consultants, and investment banks warrant access to<br />
lucrative investment offers and potential vendors – to a large degree, outside costly auction<br />
processes. Of the 24 transactions that we completed from 1996 to 2003 in Germany<br />
and Austria, 19 – or almost four fifths – stem from sources that were open to us<br />
preferentially. This network of contacts is one of the pillars of our performance.<br />
Co-investment funds enable larger transactions<br />
Management buyouts in the mid-market segment – or transactions valued from 50<br />
million to 250 million euros – are attractive investments: they constitute more favorable<br />
expense/income ratios than smaller transactions. Investing in larger, established enterprises<br />
generally also reduces the risk exposure.<br />
To operate in this attractive market segment, <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> has entered<br />
investments jointly with co-investment funds since its flotation – a strategy that many<br />
comparable Anglo-Saxon private equity firms successfully follow. This gives us access to<br />
the greater part of the private equity market: more than 90 percent of the capital channeled<br />
to private equity investments worldwide is traditionally not invested in quoted<br />
corporations, but rather in closed-end funds.<br />
After Fund III had been completely invested, we launched a new fund in 2002. This<br />
fund’s final closing was held in September 2003. A total of 20 investors – banks, insurance<br />
companies, funds-of-funds investors, and family asset managements in Germany, western<br />
Europe and the United States – committed the sum of 228 million euros. That raises<br />
the total assets under management to more than 651 million euros.<br />
80 percent of the new capital was committed by investors outside the group of shareholders<br />
of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. Three fourths of the capital came from Germany.<br />
Considering the fact that the total investment sum channeled to buyouts in Germany in<br />
2002 and the first half of 2003 was barely 500 million euros and that <strong>Deutsche</strong> <strong>Beteiligungs</strong><br />
<strong>AG</strong> addressed external investors for the first time, this fundraising performance<br />
merits recognition for the investment team of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>.<br />
Our shareholders also benefit from the success of our fund-raising activities: firstly,<br />
our co-investment funds allows <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> to make investments that it<br />
would not be able to finance alone. Secondly, co-investment funds generate income<br />
from fund management activity, from annual management fees and transaction structuring<br />
fees. The fund business is thus a significant contributor towards covering current<br />
costs at <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. This past financial year, the net amount from other<br />
operating income from these sources less operating expenses and personnel costs<br />
improved by seven million euros. For the mid-term, we plan to cover all current costs of<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> through income from management fees.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Market and Strategy<br />
Premise 6<br />
For more information on<br />
investment management<br />
expenses see Management’s<br />
Report page 64<br />
23
24<br />
High-quality surface materials<br />
emerge at the end of the<br />
production line at the<br />
Schöppenstedt site near the<br />
City of Hanover and other<br />
facilities, manufactured from<br />
resin-impregnated papers.<br />
The resin mixture is part of<br />
Casco's corporate expertise.<br />
CASCO SURFACES –<br />
POST-BUYOUT PERSPECTIVES<br />
Our business is based on an intensive selection process: we<br />
examined more than 400 investment opportunities this past<br />
financial year again. Only few enterprises meet our standards<br />
for a private equity investment: of these 400 businesses,<br />
only 50 are suited for a private equity investment; no more<br />
than 15 to 20 of them will be considered for closer examination.<br />
In 2002/2003, we decided to invest in three of them.<br />
Through these investments, we plan to enhance the value<br />
of our portfolio and generate commensurate earnings for<br />
our shareholders.<br />
A classical candidate – from the onset<br />
Wherever you turn – in Germany, other European countries or in North America –<br />
you are likely to come across Casco Surfaces: the desktop in the office that looks like<br />
solid wood is probably coated with an impregnated foil – a Casco product, as is the<br />
surface material on the laminate flooring in the living room. Inside an upscale limousine,<br />
the paneling – precious wood to the eye – is a melamine-coated veneer. The business<br />
of high-grade surfaces for the furniture and flooring industries is on the rise, and Casco<br />
Surfaces is a major supplier.<br />
Casco Surfaces was a classical candidate for our portfolio from the very onset. A<br />
product division of Netherlands-based chemical and pharmaceutical giant Akzo Nobel<br />
N.V. until June 2003, this enterprise had the right business, the right financial figures,<br />
and the right prospects. And above all: a determined management team: “We plan to<br />
increase sales strongly in the next three to five years, more strongly than would have<br />
been possible as part of our former group,” said John Ahlström, CEO of Casco Surfaces.<br />
Following the spin-off completed on June 30, 2003, Ahlström and five other managers<br />
have invested in Casco Surfaces alongside <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> and its co-investment<br />
fund DB<strong>AG</strong> Fund IV. And alongside our American private equity partner: North<br />
America is Casco Surface’s major market – entering this investment with Harvest Partners<br />
was instrumental in the negotiations with the seller and management on this deal.<br />
Casco Surfaces has targeted growth – in North America through add-on acquisitions.<br />
With projects like that in mind, it is good to have an experienced, competent partner<br />
at one’s side, one who is well-connected in the market: “We are very pleased to have<br />
structured this buyout with exactly these two financial investors, since our business is<br />
strong both in America and in Europe. Yet these two markets differ widely, and partnering<br />
with a local financial investor in each market was certainly the expedient thing to<br />
do,” Ahlström was happy to say.
Platform for growth – Opportunities to build value<br />
Casco Surfaces is well poised: among the impregnating companies not attached to a<br />
corporate group, Casco ranks Number One in Europe. In North America, no other company<br />
sells more surfaces for laminate floorings than Casco.<br />
Casco intends to amplify this first-rate market position – management’s declared goal.<br />
The team has linked a distinct entrepreneurial vision to the buyout: “We want to grow<br />
dynamically and profitably on a sustained basis in order to underpin and augment our<br />
world leadership position,” said Ahlström in commenting on the company’s strategy.<br />
“Our next milestones will see market entries in southeast Asia and Brazil.” In late 2002,<br />
Casco Surfaces commissioned a manufacturing site in Brazil. Work is ongoing for the<br />
company’s entry into China’s lucrative market.<br />
“Given the current pace of innovation, we should be well placed to accelerate growth<br />
in established markets,” John Ahlström went on to say. A number of new product launches<br />
are slated in Casco Surfaces’ home markets – meaning North America and Europe.<br />
“In mature markets, it is not enough to sell good products at fair prices.” Casco’s CEO<br />
expounds upon a further aspect of the company’s strategic development for the next<br />
three years: “Our traditional product range needs upgrading by new, exciting designs.”<br />
Casco Surfaces soon wants to be perceived as a “competent design partner.” Ahlström<br />
intends to fuel this development by building an in-house design department. And finally:<br />
“We are rigorously scrutinizing processes in the organization to optimize our pattern of<br />
costs. We will, for example, be combining the manufacture of individual products at a<br />
single production site.” That will significantly improve Casco Surfaces’ profitability. And<br />
that will be a determinant in this investment’s achievable selling price in four to seven<br />
years.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investment profile<br />
Facts and figures<br />
With sales of 265 million euros<br />
(2002) and an annual production<br />
capacity of more than 600<br />
million square meters, Casco<br />
Surfaces GmbH is a worldwide<br />
leader in surface materials.<br />
More than 900 people work for<br />
Casco, approximately 150 of<br />
whom are based in Germany.<br />
The Casco Surfaces group of<br />
companies consists of its<br />
German operations in Düsseldorf<br />
(headquarters), Essen (distribution,<br />
research and development),<br />
and Schöppenstedt in Lower<br />
Saxony (production), as well as<br />
eight international manufacturing<br />
facilities in France, Sweden,<br />
Spain (2), the United States,<br />
Canada, Brazil, and Malaysia,<br />
in addition to four smaller<br />
distribution companies.<br />
25
After clearing the first hurdle, a structured due diligence process<br />
begins. The objective is to assess management’s competency,<br />
market conditions, and the company’s growth and earnings<br />
potential. We draw on experts and consultants to support us in<br />
the process. And we profit from the know-how gained in more<br />
than 300 transactions in Germany’s mid-sized industry. Simultaneously,<br />
we enter negotiations with banks – no deal would be<br />
transacted without reliable financing partners. Having completed<br />
the basic research, the next step is to work out an initial enterprise<br />
evaluation and the fundamental structure of an acquisition<br />
concept.
OUR PORTFOLIO – GOOD CROSS<br />
SECTION OF THE MID-MARKET<br />
The portfolio of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> consists of 43<br />
investments. All in all, a group of companies generating sales<br />
of more than eight billion euros annually and employing<br />
nearly 40,000 people. However, the strength of our portfolio<br />
does not lie in the sum total, but in the quality of each and<br />
every investment. Our holdings – established enterprises<br />
well poised in traditionally strong industries – have, for the<br />
most part, held up well this past financial year.<br />
Investment discipline a pillar in crisis-ridden times<br />
Our portfolio investments are exposed to business cycles in two of the world’s large<br />
economic regions: Germany and the countries of the European Union, and the United<br />
States. In 2002/2003, both economic regions registered only minor growth. Germany’s<br />
economy last recorded real growth in the third quarter of 2002. Since then, earnings have<br />
been on the decline in nearly all industries and capacity utilization has dropped. It was<br />
not until the fourth quarter of 2003 – the beginning of the current 2003/2004 financial<br />
year – that the recessionary period in Germany seemed to have come to an end. In the<br />
US, signs of recovery emerged a few months earlier. In the reporting year, the operations<br />
of most of our American portfolio companies met with challenging conditions.<br />
Strict investment discipline pays off especially in difficult business environments. Enterprises<br />
that have strong market positions are frequently less vulnerable in critical cyclical<br />
phases than less profiled competitors. They will target opportunities to consolidate their<br />
market positions and optimize cost structures. That is one key reason why our investments<br />
performed comparatively well in 2002/2003: a large majority anticipates that earnings<br />
will be stable or higher than those of the previous year; many have succeeded in reducing<br />
debt. If the upturn that emerged at year-end 2003 gains further momentum, our<br />
investments should be well placed to achieve superior earnings growth – thereby increasing<br />
their enterprise value. This will be mirrored in the fair value – although with some delay:<br />
an appreciation in value requires earnings stability on a sustained basis. By contrast, an<br />
expected drop in earnings is recognized immediately in our portfolio valuation.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investments Portfolio<br />
Fair value follows cyclical trends<br />
with a time lag<br />
27
28<br />
For information on the Group<br />
structure, see Management’s<br />
Report, page 61<br />
Valuation adjustments to US investments<br />
We anticipate that sales and earnings will improve in the foreseeable future for the<br />
three American investments, whose valuation required modification in the balance sheet<br />
this past year. Harvest Partners, our private equity partner in the US who leads these<br />
investments, has initiated appropriate action to counter the weak performance exhibited<br />
by these three investee businesses. The programs installed are expected to show positive<br />
effects on earnings as early as the current financial year. <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> has<br />
also indirectly invested in these three enterprises through the Harvest Partners III fund;<br />
accordingly, the value of this fund has also been corrected. At 13.1 million euros, these<br />
four investments account for the largest part of the write-downs on investments which<br />
we performed this past financial year.<br />
We feel confident that these write-downs are of a temporary nature and that, in the<br />
mid-term, these investments and the fund will achieve an appreciation in value – as was<br />
the case for three other investments, whose valuation had required modifying in the<br />
past.<br />
Opportunities exploited<br />
Difficult business cycles are challenging for all enterprises – those that perform well<br />
in critical times will have fulfilled key criteria for an investment. They will have proven<br />
their capability to generate profits; their market position will evidently be strong enough<br />
to defy adversities. An investor will be acquiring a company with robust structures, one<br />
that is likely to exhibit good progress in an approaching upswing.<br />
We made targeted use of these market opportunities this past financial year. In<br />
2002/2003, we contracted three management buyouts; one transaction was completed<br />
prior to the balance sheet date, the other two in November 2003. Six investments were<br />
sold from the portfolio.<br />
At October 31, 2003, the portfolio totaled 299.7 million euros, at acquisition cost,<br />
invested in 43 enterprises. The following table presents the investments of the <strong>Deutsche</strong><br />
<strong>Beteiligungs</strong> <strong>AG</strong> Group. The Group primarily consists of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> and<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong>gesellschaft mbH.
Volume<br />
November 1, 2002 € 313.1 million<br />
Investments € 30.8 million<br />
Disposals/Repayments € 44.2 million<br />
October 31, 2003 € 299.7 million<br />
We invested a total of 30.8 million euros in 2002/2003. At 28.6 million euros, the<br />
lion’s share (94.4 percent) of this investment sum was spent to finance management<br />
buyouts – either directly (18.9 million euros) or indirectly through international buyout<br />
funds (9.7 million euros). The largest single amount – 12.4 million euros – is attributable<br />
to our new investment in Casco Surfaces GmbH.<br />
The co-investment funds under management enter investments in the same investee<br />
businesses as contained in the portfolio of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. The investing<br />
period of Fund I and Fund III has been concluded; these funds are currently in the disinvestment<br />
phase, meaning that each disinvestment will result in a further decline in the<br />
fund volume. DB<strong>AG</strong> Fund IV currently co-invests alongside <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> at<br />
a fixed ratio. At October 31, 2003, the total portfolio of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> and<br />
third-party funds under management amounted to 495 million euros (October 31, 2002:<br />
516 million euros), invested in 51 companies and funds. At the close of the year under<br />
review, it was composed of the following:<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investments Portfolio<br />
Number<br />
November 1, 2002 49<br />
Investments 1<br />
Disposals/Repayments 7<br />
October 31, 2003 43<br />
Volume<br />
<strong>Deutsche</strong>-<strong>Beteiligungs</strong> <strong>AG</strong> Group € 299.7 million<br />
DBG Fund I € 42.8 million<br />
DBG Fund III € 110.8 million<br />
DBG Osteuropa-Holding GmbH € 12.1 million<br />
DB<strong>AG</strong> Fund IV € 28.8 million<br />
Total managed investments € 495.2 million<br />
The firm names used here may not always correspond to the legal name.<br />
Portfolio volume<br />
Number of investments<br />
Total portfolio managed by<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
at October 31, 2003<br />
29
30<br />
New investments entered by<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
(including material follow-on<br />
funding in 2002/2003)<br />
Sales from the portfolio of<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> in<br />
2002/2003<br />
Largest investments<br />
Book value Share of<br />
in T€ portfolio DB<strong>AG</strong><br />
Bauer <strong>AG</strong> 27,594 10.8 %<br />
Lignum Technologie <strong>AG</strong> 22,583 8.8 %<br />
schlott gruppe <strong>AG</strong> 17,392 6.8 %<br />
Harvest Partners III 16,201 6.3 %<br />
Hörmann KG 13,749 5.4 %<br />
Harvest Partners IV 12,589 4.9 %<br />
Casco Surfaces GmbH 12,376 4.8 %<br />
AKsys GmbH 12,085 4.7 %<br />
Lund International Holdings Inc. 11,176 4.4 %<br />
Hucke <strong>AG</strong> 8,360 3.3 %<br />
Total, 10 largest investments 154,105 60.3 %<br />
Total, 10 next largest investments 77,227 30.2 %<br />
Total, 23 largest investments 231,332 90.5 %<br />
Total, remaining investments 24,395 9.5 %<br />
Investment sum in book value 255,727 100 %<br />
The firm names used here may not always correspond to the legal name.<br />
Business field Investment Page<br />
in T€<br />
Casco Surfaces GmbH MBO 12,376 34<br />
AKsys GmbH MBO 2,116 38<br />
Harvest Partners IV Fund investments 4,619 54<br />
Other fund investments Fund investments 3,214 53<br />
Others 3,377<br />
Business field Page<br />
Andritz <strong>AG</strong> MBO 36<br />
Edscha <strong>AG</strong> MBO 36<br />
Global Power Equipment Group Inc. MBO 37<br />
Computec Media <strong>AG</strong> Expansion financing 44<br />
Others 44
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investments Portfolio<br />
Principal holdings of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> and <strong>Deutsche</strong> <strong>Beteiligungs</strong>gesellschaft mbH<br />
at October 31, 2003<br />
Name* Domicile Industry Business Book value Share of port- Page<br />
field in T€ folio DB<strong>AG</strong><br />
AKsys GmbH Worms Automotive supplies MBO 12,085 4.7 % 38<br />
Bauer <strong>AG</strong> Schrobenhausen Construction Expansion 27,594 10.8 % 45<br />
Casco Surfaces GmbH Düsseldorf Chemicals MBO 12,376 4.8 % 34<br />
DS Technologie GmbH Mönchengladbach Machine and<br />
plant construction MBO 7,163 2.8 % 40<br />
Edgen Corp. Baton Rouge (USA) Trade MBO 6,495 2.5 % 40<br />
Harvest Partners III New York (USA) Fund 16,201 6.3 % 53<br />
Harvest Partners IV New York (USA) Fund 12,589 4.9 % 54<br />
HKL Baumaschinen GmbH Hamburg Construction Expansion 8,241 3.2 % 48<br />
Hochtemperatur Mainz-Kastel Machine and<br />
Engineering GmbH plant construction MBO 6,218 2.4 % 41<br />
Home Care Supply Inc. Beaumont (USA) Trade MBO 7,410 2.9 % 40<br />
Hörmann KG Kirchseon Industrial services<br />
and logistics Expansion 13,749 5.4 % 46<br />
HSBC Private Equity Fund (II) Hong Kong<br />
(China) Fund 4,974 1.9 % 55<br />
Hucke <strong>AG</strong> (Bowa GmbH) Lübbecke Consumer goods Expansion 8,360 3.3 % 47<br />
IntelliRisk Corp. Columbus (USA) Industrial services<br />
and logistics MBO 3,917 1.5 % 41<br />
JCK KG Quakenbrück Consumer goods Expansion 3,601 1.4 % 49<br />
Lignum Technologie <strong>AG</strong> Schopfloch Machine and<br />
plant construction Expansion 22,583 8.8 % 45<br />
Lund Holdings Inc. Anoka (USA) Consumer goods MBO 11,176 4.4 % 39<br />
Quartus Capital Partners I Paris (F) Fund 6,452 2.5 % 54<br />
Sauer KG Bessenbach Automotive supplies Expansion 5,138 2.0 % 48<br />
schlott gruppe <strong>AG</strong> Freudenstadt Print, media,<br />
packaging MBO 17,392 6.8 % 37<br />
Unternehmens Invest <strong>AG</strong> Vienna (A) Fund 7,409 2.9 % 55<br />
Victorvox <strong>AG</strong> Krefeld Trade Expansion 4,663 1.8 % 44<br />
Vogler-Gruppe Bad Homburg Trade Expansion 5,546 2.2 % 48<br />
*The firm names used here may not always correspond to the legal name. Due to rounding differences, the addition of the individual constituents of a total in the table may lead to deviations<br />
from the actual value.<br />
These 23 investments represent 90.5 percent of the book value of the portfolio of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. The<br />
remaining 9.5 percent constitute investments in 20 enterprises and funds, each of which is of subordinate importance for<br />
the total portfolio.<br />
31
Facts and figures alone are not enough to convince us. We are<br />
just one of the buyers. Management is always with us in the same<br />
boat. We believe that close, genuine working relationships with<br />
management are a key to success. If the chemistry is right, we<br />
take one next step together: verifying the results of our initial<br />
review, working out a financing concept, refining the enterprise’s<br />
future corporate strategy. We want management to be<br />
convinced of us and win their support. Success is always a joint<br />
effort.
MAN<strong>AG</strong>EMENT BUYOUTS –<br />
PARTNERSHIPS FOR PERFORMANCE<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investments Management Buyouts<br />
Majority holdings are the focus of our investment strategy.<br />
Management buyouts – the type of majority investments<br />
we prefer – constitute our key business field. We expect this<br />
business to generate the highest earnings in the future.<br />
“Majority” does not necessarily mean that <strong>Deutsche</strong> <strong>Beteiligungs</strong><br />
<strong>AG</strong> must own the majority alone: our co-investment<br />
funds invest alongside our activities and we frequently combine<br />
efforts with other financial investors pursuing similar<br />
goals. One example is Casco Surfaces, the first management<br />
buyout we entered in 2002/2003. Two other transactions in<br />
this business field which were contracted in 2002/2003 have<br />
meanwhile been completed.<br />
Our paramount objective is to build the value of our investments. The position of a<br />
majority shareholder allows us to best reach that goal. A majority shareholder can decisively<br />
influence an enterprise’s development. We seek to have earnings growth outpace<br />
sales growth in our investee businesses, and we aim to enhance our investee businesses’<br />
strategic positioning. These entrepreneurial activities vindicate our expected returns.<br />
The successful realizations completed this past year are proof that these objectives are<br />
attainable.<br />
At the end of the 2003/2003 financial year, the business field of management buyouts<br />
totaled 116.1 million euros at acquisition cost, or approximately 38.7 percent of<br />
the portfolio. Compared with the previous year, this represents a slight decline – resulting<br />
from the sale of Edscha <strong>AG</strong> and Global Power Equipment Group Inc. as well as the<br />
partial realization of our holding in Andritz – at the balance sheet date. At the date of<br />
writing this report (December 31, 2003), all three management buyouts contracted in<br />
2002/2003 have meanwhile been completed, and, currently, the largest part of the portfolio,<br />
or more than 40 percent, is attributable to management buyouts. The average<br />
investment sum per MBO rose from 6.94 percent to 7.26 percent (October 31, 2003).<br />
FY 2002/2003<br />
FY 2001/2002<br />
FY 2000/2001<br />
38.7 %<br />
36.4 %<br />
40.1%<br />
Share of MOBs in<br />
total portfolio<br />
33
34<br />
Portfolio volume<br />
Number of investments<br />
www.cascosurf.com<br />
Investments – Three new management buyouts in the portfolio<br />
In the 2002/2003 financial year, we contracted three new management buyouts. We<br />
acquired Casco Surfaces GmbH jointly with our American partner Harvest Partners. We<br />
purchased Babcock Borsig Service GmbH from the insolvent Babcock Borsig group. Preh<br />
GmbH is another classical spin-off: Rheinmetall <strong>AG</strong> sold Preh to <strong>Deutsche</strong> Beteiligung,<br />
consistent with their strategy of focusing on only two core activities in the future.<br />
Our new co-investment fund DB<strong>AG</strong> Fund IV invested alongside <strong>Deutsche</strong> Beteiligung<br />
in all three transactions. Management participation in each of our new investee businesses<br />
amounts to some ten to 15 percent of the shares. Additionally, the buyout of<br />
Preh GmbH saw former family owner Rosemarie Preh reinvesting in the company.<br />
Casco Surfaces GmbH<br />
Düsseldorf<br />
Volume<br />
November 1, 2002 € 125.5 million<br />
Investments € 18.9 million<br />
Disposals/Repayments € 28.3 million<br />
October 31, 2003 € 116.1 million<br />
Number<br />
November 1, 2002 18<br />
Investments 1<br />
Disposals/Repayments 3<br />
October 31, 2003 16<br />
FY 2003* FY 2002 Change<br />
Sales € 262.0 million € 265.0 million –1.1%<br />
*provisional<br />
Investment Equity share<br />
T€ 12,376 19.0%<br />
Parallel fund another 27.1%<br />
First invested in July 2003
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investments Management Buyouts<br />
Casco Surfaces is a chemical company that produces surfaces largely used in the<br />
manufacture of furniture and floorings. We purchased this enterprise from Netherlandsbased<br />
Akzo Nobel N.V. In negotiating this acquisition, two aspects were ultimately decisive:<br />
we were quickly able to present a sound bank financing concept for the transaction<br />
– an important aspect for the seller, in that it increased the probability of closing the<br />
transaction. Our intention to acquire the enterprise jointly with Harvest Partners constituted<br />
an attractive proposition to Casco’s management. Through Harvest Partners’<br />
involvement, strong local expertise will be available to pro-actively support Casco in the<br />
United States, Casco’s key market. Please read a detailed report on Casco Surfaces on<br />
pages 24 and 25.<br />
The management buyouts of Preh GmbH and Babcock Borsig Service GmbH were<br />
initiated, negotiated and contracted during the reporting year. The completion of these<br />
transactions, however, was effected subsequent to the balance sheet date. Consequently,<br />
both investments are not contained in the portfolio data at October 31, 2003.<br />
Preh GmbH<br />
Bad Neustadt an der Saale<br />
A comfortable interior climate when driving and directions for reaching destinations<br />
by the fastest or shortest route have become standard in many automobile models to<strong>day</strong>.<br />
Climate and navigation units are operated by controls made by our new investee company.<br />
As a development partner to leading automobile manufacturers and systems<br />
providers, Preh’s products are found in numerous European car models. Key customers<br />
include BMW, DaimlerChrysler, GM/Opel and the Volkswagen group. Preh is also involved<br />
when shoppers are checked out quickly at the supermarket’s checkout counter: Preh is a<br />
worldwide leading provider of high-quality keyboards and keypads for data entry systems.<br />
The company employs a staff of approximately 1,700 and generates annual sales of more<br />
than 220 million euros (2002).<br />
Preh owes it unique market position in different business fields to an exceptional<br />
combination of skills: Preh possesses both the technological expertise to manufacture<br />
optically and haptically sophisticated control elements made of advanced materials and<br />
the know-how to develop electronic and software solutions for complex applications and<br />
innovative functionality. Jointly with the company’s management, we plan to consistently<br />
develop and employ Preh’s potential. Preh intends to expand existing customer relations<br />
and access new clients through further internationalization.<br />
www.preh.de<br />
35
www.babcock-borsig-service.de<br />
36<br />
Babcock Borsig Power Service GmbH<br />
Oberhausen<br />
An integral constituent of a country’s infrastructure is a stable and efficient supply of<br />
energy. It takes regular maintenance, servicing and repair to ensure that power plants<br />
generate electricity economically and reliably. As power plants age, modernization or<br />
renovation projects can serve to enhance life cycles and upgrade their efficiency standard.<br />
This is the business of Babcock Borsig Service GmbH.<br />
Babcock Borsig Service GmbH and its subsidiaries provide a range of services largely<br />
for fossil-fueled power plants in Europe, Africa, and the Middle East. Employing a staff<br />
of 2,300, this enterprise generates annual sales of approximately 340 million euros<br />
(2002/03). The company has a leadership position in Germany and the Gulf region.<br />
The Service division was part of the sound core of the former Babcock Borsig group;<br />
nevertheless, parts of the Service division were automatically drawn into the insolvency<br />
proceedings as a result of the parent company’s insolvency. During the insolvency plan<br />
proceedings, which had been ongoing since September 2002, the service group continued<br />
to operate profitably: customer relations were pro-actively maintained and projects<br />
completed on schedule. Insolvency plan proceedings that had been initiated on the assets<br />
of Babcock Borsig Service GmbH and two of its subsidiaries have been dropped.<br />
Our long track record in the machine and plant construction industries as well as the<br />
industry-linked service business was a particular benefit in finalizing this transaction.<br />
Separating an internationally operating group of companies out of pending insolvency<br />
proceedings without damaging its business and arranging a new, sound finance base<br />
presented a special challenge.<br />
Realizations – Return targets achieved<br />
We successfully completed the realization of two management buyouts this past<br />
financial year and profitably disinvested more than three fourths of our remaining shares<br />
in Andritz <strong>AG</strong> through a secondary offering. In all instances, the returns we achieved<br />
were commensurate with our targeted standard of 25 percent annually before taxes.<br />
We sold our shares in automotive supplier Edscha <strong>AG</strong> in November 2002 to a financial<br />
investor. The selling price amounted to 26 euros per share, enabling us to realize a sizeable<br />
capital gain by this sale. Edscha had exhibited excellent progress since we entered<br />
this investment in September 2000. The company’s strategic positioning had fundamentally<br />
improved. Revenues, market shares and profits had grown faster than the market,<br />
which constituted a driver for this sale.<br />
Our interest in Andritz <strong>AG</strong> was largely sold in June 2003. We disinvested 82 percent<br />
of our block of shares in a secondary public offering in Austria. Measured against acquisition<br />
cost, the selling price is virtually double the capital invested. The secondary offering<br />
for Andritz shares was one of the first successful transactions executed through the<br />
stock market in 2003.
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investments Management Buyouts<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> invested in Andritz <strong>AG</strong> (Graz, Austria) in December 1999<br />
jointly with other financial investors in a transaction led by its Austrian private equity<br />
partner Unternehmens Invest <strong>AG</strong>. <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> had held 3.2 percent of the<br />
shares; a managed co-investment fund owned a further 3.2 percent interest. Pursuant<br />
to the disinvestment, both parties each now hold a 0.6 percent interest in this worldwide<br />
leader in customized facilities, systems and services for the pulp and paper industry,<br />
the steel industry, and other specialized industrial sectors.<br />
By the end of August 2003, we had also sold the shares we held in the Global Power<br />
Equipment Group Inc. Our exit from our investment in this American manufacturer of<br />
equipment for gas power plants commenced with the company’s initial public offering<br />
in May 2001. After the regulatory lock-up periods had expired, we sold our shares via<br />
the stock exchange. We doubled the capital originally invested.<br />
We entered the investment in Global Power by way of the co-investment right granted<br />
to us as an investor in our American private equity partner’s fund, Harvest Partners III.<br />
Following the initial public offering in 2001, <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> and its co-investment<br />
fund had each held 2.1 percent of the shares.<br />
Selected MBO investments<br />
In addition to Casco Surfaces, schlott gruppe <strong>AG</strong>, AKsys GmbH and Lund International<br />
Holdings Inc. are, by book value at October 31, 2003, among the ten largest investments<br />
in the portfolio:<br />
schlott gruppe <strong>AG</strong><br />
FY 2002/2003 FY 2002 Change*<br />
Sales € 613.7 million € 505.0 million n.a.<br />
Earnings (EBIT) € 25.6 million € 35.5 million n.a.<br />
*not comparable due to changes in the group of consolidated companies and a changeover in the fiscal year<br />
Investment Equity share<br />
Sales T€ 17,392 14.02%<br />
Parallel fund another 7.7%<br />
First invested in December 1999<br />
Following a weak first six months, business activity for schlott gruppe <strong>AG</strong> (formerly<br />
schlott sebaldus <strong>AG</strong>, renamed in March 2003) clearly recovered in the second half of<br />
the 2002/2003 financial year. At September 30, 2003, sales had reached 613.7 million<br />
euros, EBIT (earnings before income and taxes) amounted to 25.6 million euros. These<br />
previous year’s figures are not comparable, as this was an incomplete financial year. The<br />
earnings improvement in the second half of the year stems from cost optimization following<br />
the company’s relocation to its new, ultra-modern site in Nuremberg’s harbor<br />
district. Another key factor is that schlott is now able to profit from economies of scale<br />
following the integration of the Broschek group.<br />
www.schlottgruppe.de<br />
37
38<br />
Jointly with a managed fund,<br />
<strong>Deutsche</strong> Beteiligung is the<br />
largest investor in schlott<br />
gruppe <strong>AG</strong>. The management<br />
also holds interests in the<br />
company. We plan to further<br />
support schlott gruppe <strong>AG</strong> en<br />
route to implementing its<br />
strategy, thereby building the<br />
value of our investment.<br />
www.aksys.de<br />
AKsys was formed in a management<br />
buyout in December 2001.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> and<br />
three other financial investors<br />
financed the transaction.<br />
Through the merger with Faist,<br />
the Faist family has now joined<br />
the group of shareholders. The<br />
majority remains in the hands of<br />
the financial investors. Management<br />
holds some nine percent<br />
of the stock.<br />
The acquisition of the Broschek group (Hamburg) enabled schlott to expand its position<br />
as the third-largest European provider in the intaglio printing market.<br />
The management of schlott gruppe expects that the capital spent at the site in Nuremberg’s<br />
harbor district will continue to show effects in the 2003/2004 business year. schlott<br />
has increased productivity and markedly reduced cost. Management believes that the<br />
company has thus achieved an excellent starting position to profit from the anticipated<br />
upswing in the economy, but also feels well equipped through the new cost structure,<br />
should the market remain slow. The analysts of Landesbank Baden-Württemberg share<br />
this opinion: they expect strong earnings growth for 2003/04 and, in their research report<br />
of October 2003, have up-graded schlott stock from “hold” to “buy”.<br />
AKsys GmbH<br />
Worms<br />
FY 2003* FY 2002 Change<br />
Sales € 356.0 million € 371.8 million** –4.2%<br />
* preliminary ** pro forma<br />
Investment Equity share<br />
T€ 12,085 10.09%<br />
Parallel fund another 30.1%<br />
First invested in December 2001<br />
Following the merger with Faist Automotive GmbH in November 2002, Aksys resolutely<br />
pursued the integration process and reorganized its operations to form the business fields<br />
of sound deadening and absorption, sound insulation, and engineering plastics. In line<br />
with our objectives, AKsys further expanded its business in the United States. Sales to<br />
key clients BMW, DaimlerChrysler and VW were maintained or slightly expanded. AKsys<br />
also registered revenue growth in household appliance electronics to customers such as<br />
General Electrics, Bosch, and Whirlpool. However, against the background of the slow<br />
business trend, sales to other clients (e.g. Renault, Opel/Saab) were somewhat lower. The<br />
difficult market environment marked by stagnating, slightly declining car sales impaired<br />
AKsys’ sales growth. Thus, sales in 2003 are slightly below those of the previous year.<br />
In 2002, AKsys’ sales developed in congruence with the growth planned: including<br />
Faist, sales had reached 371.8 million euros, or 3.9 percent over those of the year before<br />
(358.0 million euros).<br />
AKsys to<strong>day</strong> ranks among the top European automotive suppliers for acoustics systems<br />
and sophisticated engineering plastics construction modules. We feel confident that this<br />
company will return to a pattern of growth in 2004 and increase both sales and earnings.
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investments Management Buyouts<br />
Jointly with management, our common objective is to expand AKsys’ market-leading<br />
position in Europe in the segments of acoustics and glass-fiber reinforced plastics and also<br />
achieve a significant ranking globally. Through the merger with Faist Automotive GmbH,<br />
the enterprise now is a supplier of integrated systems and has come closer to reaching<br />
its declared growth target. This merger involved a further investment of approximately<br />
2.1 million euros by <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>.<br />
Lund International Holdings Inc.<br />
Duluth, Georgia (USA)<br />
FY 2003* FY 2002 Change<br />
Sales US $ 153.1 million US $ 154.8 million –1.1%<br />
* preliminary<br />
First invested in September 1997<br />
Investment Equity share<br />
T€ 11,176 10.09%<br />
Lund is a manufacturer of accessories for sports utility vehicles, vans and pick-ups.<br />
A leading provider in the US for window visors, hood shields and running boards, Lund<br />
and the entire competitive field were hit by consumer restraint resulting from general<br />
economic conditions in past years. In 2003, Lund completed a comprehensive restructuring<br />
program. Sales in the second half of the year were clearly above those of the previous<br />
year. The company’s management anticipates that Lund stands to profit more than other<br />
competitors from a reviving economy ushering in lower unemployment rates and greater<br />
consumer confidence. In January 2003, the company was completely delisted. In conjunction<br />
with that move, we increased our investment in Lund by 0.9 million euros.<br />
Indications of a turnaround emerged in 2002: sales totaled US $154.8 million, which<br />
were clearly above those of the previous year (US $143.7 million).<br />
In financial year 1999/2000, we had performed a valuation adjustment of 50 percent<br />
on our investment. In view of the completed restructuring program and against the backdrop<br />
of the improvement in sales and earnings, we have partially reversed this writedown.<br />
www.lundinternational.com<br />
Our American private equity<br />
partner Harvest Partners<br />
acquired Lund International<br />
Holdings Inc. in 1997. As an<br />
investor in the Harvest Partners<br />
fund, we made use of our<br />
co-investment right and have<br />
directly belonged to the group<br />
of shareholders since then.<br />
39
40<br />
www.homecaresupply.com<br />
www.ds-technologie.de<br />
www.edgencorp.com<br />
Our portfolio additionally contains the following management buyouts (not included<br />
are investments with a share of less than one percent of the portfolio. Investments of<br />
this size account for less than ten percent of the portfolio):<br />
Home Care Supply Inc.<br />
Beaumont, Texas (USA)<br />
Distributor of home health-care products<br />
FY 2003* FY 2002 Change<br />
Sales US $ 168.0 million US $ 157.8 million 6.5%<br />
* preliminary<br />
DS Technologie GmbH<br />
Mönchengladbach<br />
Special machine tool construction<br />
Edgen Corp.<br />
Baton Rouge, Louisiana (USA)<br />
Distributor of steel pipes<br />
Investment Equity share<br />
T€ 7,410 5.85%<br />
Parallel fund another 5.85%<br />
First invested in February 1998<br />
FY 2003* FY 2002 Change<br />
Output** € 122.5 million € 112.1 million 9.3%<br />
* preliminary ** Revenues plus inventory changes and own work capitalized<br />
Investment Equity share<br />
T€ 7,163 39.6%<br />
Parallel fund another 39.6%<br />
First invested in July 1998<br />
FY 2003* FY 2002 Change<br />
Sales US $ 150.0 million US $ 212.3 million –29.3%<br />
* preliminary<br />
First invested in October 1996<br />
Investment Equity share<br />
T€ 6,495 16.4%
Hochtemperatur Engineering GmbH<br />
Mainz-Kastel<br />
Development of plants and components for high-temperature processes<br />
IntelliRisk Corp.<br />
Columbus, Ohio (USA)<br />
Ac<strong>counts</strong> receivable collection/call center services<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investments Management Buyouts<br />
FY 2003* FY 2002 Change<br />
Sales € 192.8 million € 221.8 million –13.1%<br />
* preliminary<br />
FY 2003* FY 2002 Change<br />
Sales US $ 296.0 million US $ 338.9 million –12.7%<br />
* preliminary<br />
Investment Equity share<br />
T€ 6,218 31.2%<br />
Parallel fund another 62.3%<br />
First invested in June 2002<br />
Investment Equity share<br />
T€ 3,917 5.46%<br />
Parallel fund another 5.46%<br />
First invested in August 1998<br />
www.hte-group.com<br />
www.irmc.com<br />
41
After getting the facts on paper, an on-site visit is a must to get<br />
the complete picture. The aim is to gain an in-depth impression<br />
of the target company’s manufacturing sites, subsidiaries, clients<br />
and suppliers in a relatively short period of time. That takes<br />
more than paperwork. Selective trips to target companies are<br />
therefore imperative during the due diligence process, to give<br />
the right balance to the facts and figures.<br />
42
EXPANSION FINANCING –<br />
REACHING FOR COMMON GOALS<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investments Expansion financing<br />
In the past, we have invested in minority holdings: we are<br />
a partner to enterprises in reaching jointly defined growth<br />
targets. In most cases, these enterprises are family-owned,<br />
and the target is frequently an initial public offering. Currently,<br />
however, this realization strategy is impaired, since<br />
capital markets are not receptive for new issuances. Other<br />
exit channels are difficult to access as a minority shareholder.<br />
Ultimately, this is opposed to our goal of realizing value<br />
appreciation through disinvestments, and expansion financing<br />
investments will now only be made in exceptional<br />
cases.<br />
Our investment strategy has been adapted to changed market conditions. Regardless<br />
of this change, <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> is a strong, reliable partner to portfolio companies<br />
in which it holds a minority interest en route to realizing their ambitious goals.<br />
We give our portfolio companies the support they need in preparing for flotation. Other<br />
companies classified in this business field may already have achieved a stock market listing.<br />
This is frequently an initial key step toward an exit and the realization of the value<br />
created.<br />
In line with our strategy, the share of expansion financing investments in the portfolio<br />
again declined in financial year 2002/2003. We assume that this trend will continue in<br />
the coming years: our strategy is to invest at least 80 percent of our capital in management<br />
buyouts in German-speaking countries. Valued at acquisition cost, expansion<br />
financing investments accounted for 117.2 million euros, or 39.1 percent of the portfolio,<br />
at October 31, 2003. Four relatively small holdings in this business field were disinvested<br />
this reporting year, thereby raising the average size of expansion financing investments<br />
from 6.64 million euros to 7.81 million euros.<br />
Growth financing declines<br />
43
44<br />
Share of expansion<br />
financing investments<br />
in total portfolio<br />
Portfolio volume<br />
Number of investments<br />
FY 2002/2003<br />
FY 2001/2002<br />
FY 2000/2001<br />
Volume<br />
November 1, 2002 € 126.2 million<br />
Investments € 1.7 million<br />
Disposals/Repayments € 10.7 million<br />
October 31, 2003 € 117.2 million<br />
November 1, 2002<br />
Number<br />
19<br />
Investments 0<br />
Disposals/Repayments 4<br />
October 31, 2003 15<br />
Realizations – Minor holdings disinvested<br />
This reporting year, we again disinvested a number of expansion financing holdings.<br />
In March 2003, we sold our interest in Computec Media <strong>AG</strong>. We entered this investment<br />
in November 2000 to enable the sale of Gong Verlag GmbH. Gong Verlag was<br />
formerly part of the Sebaldus group. Computec had belonged to the Gong portfolio, the<br />
buyer of which, however, did not wish to acquire Computec.<br />
Furthermore, we sold our interests in three of the smallest holdings in the portfolio:<br />
Heylo Energietechnik GmbH, the Vogel group, and Vitas Inc.<br />
After the close of the 2003/2003 financial year, we completed the disinvestment of<br />
our stake in Victorvox <strong>AG</strong>, a transaction that had been contracted in October 2003.<br />
Measured by the value carried for this investment, we achieved a minor capital gain.<br />
Selected expansion financings<br />
39.1 %<br />
40.3 %<br />
46.5 %<br />
Bauer <strong>AG</strong>, Lignum Technologie <strong>AG</strong>, Hörmann KG, and Hucke <strong>AG</strong> are, by book value<br />
at October 31, 2003, among the ten largest investments in the portfolio of <strong>Deutsche</strong><br />
<strong>Beteiligungs</strong> <strong>AG</strong>:
Bauer <strong>AG</strong><br />
Schrobenhausen<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investments Expansion financing<br />
FY 2003* FY 2002 Change<br />
Output** € 580.5 million € 591.0 million –1.8%<br />
*preliminary **Revenues plus inventory changes and own work capitalized<br />
First invested in September 1996<br />
In recent years, this worldwide leading provider in special deep foundation construction<br />
had significantly expanded the share of its machine construction business to 36<br />
percent. To create the required capacities, the company acquired new premises in 2003.<br />
The result for 2003 is expected to be slightly lower than the previous year. Although total<br />
output will be level with that of the prior year, temporary impairment in Asia due to SARS<br />
and the exchange rate gyration of the US dollar have had effects on income.<br />
The family owners and <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> are both targeting a stock market<br />
listing for Bauer. By issuing an annual report and other investor relations activities, Bauer<br />
has opened up to third parties and augmented its potential for flotation. Ranking as the<br />
worldwide leader in special deep foundation construction, Bauer is well poised in the<br />
market and geared to the future.<br />
Lignum Technologie <strong>AG</strong><br />
Schopfloch<br />
Investment Equity share<br />
T€ 27,594 41.2%<br />
FY 2003* FY 2002 Change<br />
Sales € 615.0 million € 623.0 million –1.3%<br />
*preliminary<br />
First invested in January 1997<br />
Investment Equity share<br />
T€ 22,583 21.37%<br />
Lignum Technologie <strong>AG</strong> is a worldwide leading manufacturer of machinery and plants<br />
for the woodworking industry, such as for the manufacture of furniture. In 2003, Lignum’s<br />
key markets developed along similar lines as in the year before: new momentum came<br />
neither from the domestic market, nor from North America. The west European market<br />
remained stable on a low level. By contrast, this world-market leader in woodworking<br />
machinery registered solid progress in east Europe, particularly in the states of the former<br />
Soviet Union, as well as in Asia. The acquisition of Swiss-based Spoerri <strong>AG</strong>, effective<br />
January 1, 2003, will drive the expansion of Lignum’s worldwide service and sales network.<br />
In total, sales in 2003 will slightly exceed those of the prior year.<br />
www.bauer.de<br />
We first invested in the Bauer<br />
group in 1996 and to<strong>day</strong> hold<br />
41.2 percent of the stock. The<br />
Bauer family is the principal<br />
shareowner. The equity provided<br />
by <strong>Deutsche</strong> Beteiligung was<br />
used to finance the company’s<br />
internationalization and external<br />
growth.<br />
www.lignum-ag.com<br />
45
We have been a private equity<br />
partner to Lignum Technologie<br />
<strong>AG</strong> since January 1997 and hold<br />
21.37 percent of the shares.<br />
46<br />
www.hoermann-gruppe.de<br />
We first invested in the<br />
Hörmann group in May 1997<br />
via a capital increase that served<br />
to finance expansion, and to<strong>day</strong><br />
own a 28 percent interest. The<br />
Hörmann group hold 63 percent<br />
of the shares in Funkwerk <strong>AG</strong>.<br />
The group’s portfolio includes<br />
holdings in approximately 20<br />
other enterprises that aim to<br />
achieve a leading position in<br />
their respective markets by<br />
providing state-of-the-art<br />
expertise and qualified service.<br />
The group’s market focus is the<br />
electro industry and industrial<br />
services primarily for the<br />
automobile industry.<br />
Following the record highs achieved in 2000 and 2001, Lignum’s business was hit by<br />
the weakness in the economy and the woodworking industry in financial year 2002. World<br />
market volumes for woodworking machinery dropped by more than 30 percent from 2000<br />
to 2003. Lignum responded quickly by installing a broad-based capacity-adjustment and<br />
cost-cutting program.<br />
For 2004, earnings are expected to rise markedly against the previous year, driven by<br />
a cost-cutting program initiated and implemented in 2003 (reductions in staff, lower<br />
overheads, and, not least, a certain degree of market recovery). Flotation remains the<br />
common objective of Lignum’s shareholders.<br />
Hörmann GmbH & Co. <strong>Beteiligungs</strong> KG<br />
Kirchseeon<br />
FY 2003* FY 2002 Changes<br />
Sales € 350.0 million € 279.7 million 25.1%<br />
*preliminary<br />
First invested in May 1997<br />
Investment Equity share<br />
T€ 13,749 28.0%<br />
In 2003 again, the progress exhibited by the Hörmann group was largely driven by<br />
Funkwerk <strong>AG</strong>, the leading provider for communication systems used in vehicles, by public<br />
transportation companies, enterprises and institutions. At the close of the first nine<br />
months of the 2003 financial year, sales were already at levels originally forecast for the<br />
complete year: at September 30, 2003, revenues had totaled 125 million euros, up 79<br />
percent from the year before. Earnings before interest and taxes (EBIT) amounted to<br />
11.5 million euros, or 150 percent over those of the comparable period the previous<br />
year.<br />
The high inflow of orders fuels expectations that the growth dynamism will continue<br />
into the coming months. For the complete 2003 financial year, Funkwerk’s management<br />
targets sales of 160 million euros, with earnings at some 12 million euros.<br />
Jointly with the majority shareholder, we plan to further optimize Hörmann’s portfolio<br />
and achieve an appreciation of its value in coming years.
Hucke <strong>AG</strong><br />
Lübbecke<br />
(through Bowa <strong>Beteiligungs</strong>gesellschaft mbH & Co. KG)<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investments Expansion financing<br />
FY 2002/2003 FY 2001/2002* Change<br />
Sales € 148.7 million € 146.6 million –<br />
Result of ordinary activity € 32.6** million € –9.1*** million –<br />
* Short fiscal year Nov.1, 2001- April 30, 2002 ** incl. extraord. income from sale of Basler group *** thereof € 7.6 mn for special charges<br />
First invested in February 1995<br />
Investment Equity share<br />
T€ 8,360 29.5%<br />
In 2003, Hucke acquired the proprietary rights for the Venice Beach brand and the<br />
license for the More & More children’s label – both established brand names – in line with<br />
the corporate strategy. Hucke financed the acquisitions as well as a marked reduction in<br />
debt by proceeds from the sale of the Basler group. Furthermore, the group completed<br />
its reorganization program: a separate division was created for each product range. These<br />
divisions are now organized directly under the roof of Hucke <strong>AG</strong>, eliminating intermediary<br />
companies. Management expects these measures to generate significant improvement<br />
in cost structures, while also creating the required flexibility to remain competitive in the<br />
marketplace.<br />
For the financial year ended April 30, 2003, a dividend of 0.25 euros per share was<br />
disbursed to shareholders. Due to the preceding short fiscal year and the extraordinary<br />
effects resulting from the sale of the Basler group, a comparison with the previous year<br />
is not meaningful.<br />
For the 2003/2004 financial year, Hucke’s management anticipates that the structural<br />
changes which have been implemented will take further effect and gradually usher in<br />
the targeted positive earnings position. Against this backdrop, management expects a<br />
balanced operational result for the current financial year (2003/2004).<br />
The company plans to cautiously expand and round out the existing divisions by<br />
complementary acquisitions, particularly of licenses.<br />
www.hucke.de<br />
We have held an interest in<br />
Hucke, one of the largest<br />
manufacturers of apparel in<br />
Germany, through Bowa <strong>Beteiligungs</strong>gesellschaft<br />
mbH & Co.<br />
KG since February 1995.<br />
47
48<br />
www.hkl-baumaschinen.de<br />
www.dr-vogler.de<br />
Our portfolio additionally contains the following expansion financing investments<br />
(not included are investments with a share of less than one percent of the portfolio.<br />
Investments of this size account for less than ten percent of the portfolio):<br />
HKL Baumaschinen GmbH<br />
Hamburg<br />
Sales and rentals of construction machines<br />
FY 2003* FY 2002 Change<br />
Sales € 130.6 million € 130.0 million 0.5%<br />
*preliminary<br />
First invested in February 1995<br />
Unternehmensgruppe Dr. Werner Vogler<br />
Bad Homburg<br />
DaimlerChrysler representative with eight locations, new and used-vehicle dealer<br />
(cars and trucks) as well as service, maintenance and repair<br />
FY 2003* FY 2002 Change<br />
Sales € 93,2 million € 97,4 million –4.3 %<br />
*preliminary<br />
Investment Equity share<br />
T€ 8,241 silent<br />
Investment Equity share<br />
T€ 5,546 silent<br />
Parallel fund another 30.0 %<br />
First invested in 1995
Otto Sauer Achsenfabrik Keilberg<br />
Bessenbach<br />
Manufacturer of axles for heavy-duty truck trailers<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investments Expansion financing<br />
FY 2003* FY 2002 Change<br />
Sales € 247.3 million € 242.7 million 1.9%<br />
*preliminary<br />
First invested in April 1997<br />
JCK Holding GmbH Textil KG<br />
Quakenbrück<br />
Production and trading of apparel<br />
FY 2003* FY 2002 Change<br />
Sales € 425.5 million € 376.0 million 13.2%<br />
*preliminary<br />
Investment Equity share<br />
T€ 5,138 silent<br />
Investment Equity share<br />
T€ 3,601 3.6%<br />
Parallel fund another 14.4%<br />
First invested in June 1992<br />
www.saf-achsen.de<br />
49
We want to know what makes a company “tick” and personally<br />
experience its corporate culture. That is why we take an in-depth<br />
view: How state-of-the-art is production; how motivated are<br />
the employees? Is an expert’s opinion on environmental issues<br />
needed; could contamination or residual pollution pose a risk?<br />
How much does the enterprise depend on suppliers; how strong<br />
are its ties to customers? Numerous talks and discussions round<br />
out the picture, enabling us to assess the opportunities and risks<br />
that come with the purchase to an ever better extent.<br />
22
INTERNATIONAL BUYOUT FUNDS –<br />
BALANCE IN THE PORTFOLIO<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investments Investments in funds<br />
We not only invest in Germany, but in other countries as<br />
well. For a number of reasons: partnerships with established<br />
international private equity firms improve our competitive<br />
standing – as this past financial year impressively shows.<br />
In the future, we plan to highlight this benefit even more.<br />
Moreover, this strategy enables us to gain access to attractive<br />
international investment opportunities. International<br />
investments also contribute towards balancing our portfolio<br />
geographically. We intend to continue to pursue this strategy<br />
in the future, even though we do not plan to increase the<br />
share of international investments in the portfolio.<br />
Profiting from performance in various ways<br />
Our international activities are synchronized with our strategy of focusing on management<br />
buyouts: we have, for the most part, invested in funds and private equity companies<br />
in the United States and selected European countries that concentrate on majority acquisitions<br />
in the form of management buyouts, as we do. Their activities are based on the<br />
same investment strategy as ours: to provide capital to mid-market enterprises with excellent<br />
market positions and seasoned managements. <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> profits from<br />
the capital gains generated by these funds. Same philosophy, broad expertise, long years<br />
of experience – but in other markets: that way, we achieve a more favorable risk spread<br />
than by focusing on one market alone.<br />
Additionally, there are instances when negotiating a transaction alongside an international<br />
partner constitutes a distinct competitive benefit – as our investment in Casco<br />
Surfaces GmbH (page 24) shows. Casco’s management expects much of the support<br />
that will be coming from Harvest Partners, who structured and completed this transaction<br />
jointly with us. Should Casco Surfaces plan to grow through add-on acquisitions in<br />
the US – Casco’s largest market – its management will have access to Harvest Partners’<br />
network, experience, and industry insights.<br />
This past year, we again committed and provided further capital to the funds managed<br />
by our private equity partners in the US and France. The actual total of this portfolio is<br />
thus partly linked to the investment progress and investment strategy of our private<br />
equity partners. The share of fund investments in the portfolio has risen slightly to 22.2<br />
percent. We have invested a total of 66.4 million euros in this business field.<br />
Investing in several markets<br />
achieves better risk spread<br />
51
52<br />
Share of fund investment<br />
in total portfolio<br />
FY 2002/2003<br />
22.2 %<br />
Portfolio volume<br />
Number of investments<br />
FY 2001/2002<br />
FY 2000/2001<br />
Volume<br />
November 1, 2002 € 61.4 million<br />
Investments € 9.7 million<br />
Disposals/Repayments € 4.7 million<br />
October 31, 2003 € 66.4 million<br />
November 1, 2002<br />
Number<br />
12<br />
Investments 0<br />
Disposals/Repayments 0<br />
October 31, 2003 12<br />
Long-standing international partnerships<br />
17.1 %<br />
19.6 %<br />
In the United States, we have been collaborating with Harvest Partners, Inc. (New York)<br />
since 1985. Harvest Partners currently has some one billion US dollars under management.<br />
Over the last 20 years, the company has provided equity to more than 60 enterprises,<br />
many of them leaders in their industries. <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> has been the<br />
lead investor in all funds raised by Harvest Partners so far. The Harvest Partners IV fund<br />
is currently in the investing phase.<br />
Our private equity partner in Austria is Unternehmens Invest <strong>AG</strong> (UI<strong>AG</strong>, Vienna). The<br />
inception of this partnership dates back to 1992. Currently, we jointly hold interests in<br />
Andritz <strong>AG</strong>, JCK Holding GmbH Textil KG, and ET Multimedia <strong>AG</strong>. <strong>Deutsche</strong> <strong>Beteiligungs</strong><br />
<strong>AG</strong> owns 25.1 percent of the shares in UI<strong>AG</strong>, and we are jointly the lead investor<br />
in Univest <strong>AG</strong>, a fund raised in 2000.<br />
We have access to the French private equity market through Quartus Gestion S.A.<br />
(Paris), a fund management company we sponsored jointly with the management.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> is the co-initiator and principal investor in the fund Quartus<br />
Capital Partners I.
Accessing opportunities in eastern Europe<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> does not want to limit international activities to established<br />
private-equity markets. The Company also intends to utilize opportunities for private<br />
equity investors in the reform countries of eastern Europe. We have therefore been operating<br />
in selected eastern European countries as the manager of a fund, DBG Osteuropa-<br />
Holding GmbH, since 1996. The fund’s capital totals 46 million euros. DBG Osteuropa-<br />
Holding pursues a comparable investment strategy adapted to the requirements of local<br />
markets: later-stage investments for privatizations, the financing of management buyouts<br />
and buy-ins, as well as expansion financing investments.<br />
This first fund’s capital has now been completely invested. A second fund, which is<br />
to follow the first fund’s successful investing strategy, is now being raised. A first closing<br />
held in January 2003 saw a commitment of 67 million euros; of that sum, 10 million<br />
euros will be invested by <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. The fund has already completed its<br />
first transaction.<br />
Selected investments in funds<br />
This past financial year, nearly one third of the total sum invested was allocated to<br />
international projects. The capital was essentially channeled to the two Harvest Partners<br />
funds and the Quartus fund.<br />
Harvest Partners III<br />
New York (USA)<br />
The fund Harvest Partners III is now largely invested and is currently focusing on the<br />
further development and realization of the investments in the portfolio. At October 31,<br />
2003, the portfolio consisted of nine enterprises for which the fund had provided equity<br />
amounting to 329 million dollars.<br />
In total, these portfolio companies were impacted by severe winter weather in January<br />
2003, the war in Iraq, and the weakness of the US economy. We have therefore recognized<br />
a reduction in the value of this fund on the balance sheet. At three portfolio companies,<br />
Harvest Partners has taken action to counter the unsatisfactory performance by<br />
a change of management. It is anticipated that this and other action will take positive<br />
effect during 2004.<br />
For 2004, Harvest Partners plans to realize two investments from the portfolio.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investments Investments in funds<br />
Fund volume US $ 362 million<br />
Investment Equity share<br />
T€ 16,201 6.9%<br />
Parallel fund another 6.9%<br />
First invested in October 1997<br />
Second DBG Osteuropa-Holding<br />
fund raised<br />
www.harvpart.com<br />
Harvest Partners III invests in<br />
majority holdings in established<br />
mid-market enterprises generating<br />
annual sales of 40 million to<br />
400 million dollars. In addition<br />
to management buyouts, this<br />
fund particularly focuses on buyand-build<br />
concepts.<br />
53
54<br />
www.harvpart.com<br />
Harvest Partners IV pursues a<br />
similar investment strategy to<br />
that of Harvest Partners III,<br />
concentrating on the acquisition<br />
of established businesses in<br />
partnership with their<br />
managements. More about the<br />
management company Harvest<br />
Partners and their investment<br />
strategy on page 52.<br />
www.quartus.fr<br />
We sponsored the management<br />
company Quartus Gestion S.A.<br />
(Paris) collaboratively with a<br />
team of experienced French<br />
fund managers in 1998. Financial<br />
investors have committed<br />
the sum of 111 million euros to<br />
Quartus’ first fund. The fund<br />
primarily invests in buyout<br />
concepts and expansion financing<br />
in France. <strong>Deutsche</strong> <strong>Beteiligungs</strong><br />
<strong>AG</strong> is the lead investor in<br />
the fund, committing the sum of<br />
34.5 million euros. By October<br />
31, 2003, we had disbursed a<br />
total of 15.5 million euros to the<br />
fund; 2.5 million euros have<br />
already been returned.<br />
Harvest Partners IV<br />
New York (USA)<br />
Fund volume US $ 558 million<br />
First invested in October 2001<br />
Harvest Partners IV is the follow-on fund to Harvest Partners III. Both funds purchased<br />
Associated Materials Inc. (Akron, Ohio, USA, www.associatedmaterials.com) in<br />
2002. This enterprise is a leading vertically-integrated manufacturer and distributor of<br />
exterior building products largely used to repair or remodel homes. Associated Materials’<br />
very satisfactory progress has surpassed the forecast.<br />
In 2003, Harvest Partners made a further investment: in July 2003, this fund acquired<br />
Casco Surfaces (page 24) jointly with <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. We provided 4.6 million<br />
euros for this purchase, in line with our share in this fund. At the end of our 2002/2003<br />
financial year, Harvest Partners IV had invested 63 million US dollars of its total assets of<br />
558 million dollars.<br />
Quartus Capital Partners I<br />
Paris<br />
Investment Equity share<br />
T€ 12,589 11.65%<br />
Fund volume € 111 million<br />
Investment Equity share<br />
T€ 6,452 15.48%<br />
Parallel fund another 15.47%<br />
First invested in July 1998<br />
The investment team at Quartus is firmly networked within the French private equity<br />
market. The fund has made five investments to date, one of which has already been<br />
profitably realized. At September 30, 2003, nearly 40 million euros had been invested.<br />
This past financial year, the fund acquired the Brunet group, a service provider for the<br />
maintenance of electrical installations. For 2004, two new investments and one realization<br />
have been slated.<br />
The private equity market and, consequently, Quartus’ business will stand to profit<br />
from the revitalization of the French economy.
Unternehmens Invest <strong>AG</strong><br />
Vienna<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investments Investments in funds<br />
FY 2002 FY 2001 Changes<br />
Equity € 48.8 million € 45.4 million –7.0%<br />
Investment Equity share<br />
T€ 7,409 12.56%<br />
Parallel fund another 12.56%<br />
First invested in March 1993<br />
Since its inception in 1990, Unternehmens Invest, the largest and only listed private<br />
equity company in Austria, has invested a total of 75 million euros in 18 enterprises.<br />
Thirteen of these enterprises have meanwhile been disinvested. Unternehmens Invest<br />
has, for example, successfully led Wolford, Palfinger and, most recently, Andritz <strong>AG</strong>, to<br />
flotation.<br />
The key event in the 2002/2003 financial year was a successful secondary public<br />
offering for the stock of Andritz <strong>AG</strong> on the Vienna Stock Exchange. The issue was oversubscribed<br />
several times (page 36).<br />
HSBC Private Equity Fund II Limited<br />
Cayman Islands<br />
Private equity fund<br />
Fund volume US $ 525 million<br />
First invested in May 1997<br />
Investment Equity share<br />
T€ 4,974 1.9%<br />
www.uiag.at<br />
Our working relationship with<br />
our Austria-based private equity<br />
partners Unternehmens Invest<br />
<strong>AG</strong> (UI<strong>AG</strong>) dates back to 1993.<br />
Jointly with its co-investment<br />
fund, <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
is UI<strong>AG</strong>’s largest shareholder.<br />
55
Time is a key factor . . . and competitors do not waste it. Being<br />
the fastest in presenting a coherent, sound financing concept<br />
frequently promotes chances of winning the bid. That means<br />
compiling the research of weeks, often months, and incorporating<br />
experts’ assessments from the due diligence process. The financing<br />
must be watertight. Finally, we’ve put everything together to<br />
submit a concrete bid to the seller.
PORTFOLIO – BALANCED ACROSS<br />
INDUSTRIES AND GEOGRAPHICALLY<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investments Portfolio profile<br />
More than 90 percent of the new capital invested this past<br />
financial year was channeled to management buyouts –<br />
18.9 million euros to enterprises directly, 9.7 million euros<br />
indirectly to international buyout funds. Our investments in<br />
2002/2003 conform to the constituents of our portfolio<br />
policy:<br />
• To invest primarily in German-speaking countries.<br />
• To invest at least 80 percent of our capital in management<br />
buyouts.<br />
• To invest two thirds of our capital in Germany and one<br />
third internationally.<br />
• To apportion no more than ten percent of the portfolio<br />
value to any one investment as a rule.<br />
• To diversify the portfolio across industries.<br />
Portfolio volume declined slightly<br />
At October 31, 2003, the portfolio volume of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>, including<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong>gesellschaft mbH, totaled 299.7 million, invested in 43 enterprises<br />
(October 31, 2002: 313.3 million euros, invested in 49 enterprises). The average investment<br />
per holding rose from 6.39 million euros to 6.97 million euros. The average size<br />
of investments in German-speaking countries was 7.81 million euros (previous year:<br />
7.26 million euros), that of international investments 5.81 million euros (previous year:<br />
5.56 million euros).<br />
FY 2002/2003<br />
FY 2001/2002<br />
FY 2000/2001<br />
FY 1999/2000<br />
FY 1998/1999<br />
43<br />
49<br />
49<br />
50<br />
47<br />
Portfolio volume in millions of € Number<br />
275<br />
300<br />
313<br />
311<br />
324<br />
Rise in average sum per<br />
investment<br />
57
58<br />
Portfolio according<br />
to investment size<br />
Geographic dissemination<br />
of portfolio<br />
Portfolio according<br />
to business fields<br />
Larger investment size per investee business<br />
The share of the portfolio (measured at acquisition cost) attributable to smaller investments<br />
again decreased in the reporting year. Some 86 percent (previous year: 85 percent)<br />
of the capital was invested in projects valued at more than five million euros each.<br />
Investments valued at acquisition cost of more than ten million euros account for nearly<br />
60 percent of the portfolio (previous year: 55 percent).<br />
Portfolio according to investment size<br />
Volume Number<br />
Less than Volume € 2.5 million Number<br />
Less than _ 2.5 million<br />
€ 2.5 to 5 million<br />
_ 2.5 to 5 million<br />
€<br />
_<br />
5<br />
5<br />
to<br />
to<br />
10<br />
10<br />
million<br />
million<br />
6.6 % 16<br />
7.2 % 5<br />
26.9 % 11<br />
6.6%<br />
7.2%<br />
26.9%<br />
16<br />
5<br />
11<br />
€ _ 10 10 to to 15 15 million million 29.5 % 7<br />
29.5% 7<br />
More than than € _ 15 15 million 29.8 % 4<br />
29.8% 4<br />
Apportionment domestic/international constant<br />
Geographic dissemination of our invested capital is consistent with our investment<br />
target, with nearly two thirds (65.2 percent; previous year: 64.4 percent) invested in Germany<br />
and other German-speaking countries. The greater part of our international portfolio<br />
remains focused on the United States (27.1 percent; previous year: 28.3 percent).<br />
Volume Number<br />
Germany 61.1% 21<br />
International 38.9% 22<br />
thereof • German-speaking countries 4.1% 4<br />
• USA 27.1% 10<br />
• Europe 3.9% 3<br />
• other countries 3.9% 5<br />
Development of business fields<br />
The apportionment of the portfolio among the Company’s three business fields<br />
moved in line with our strategy this financial year. At 39.1 percent, expansion financing<br />
lost in importance (previous year: 40.3 percent). Majority investments structured as<br />
management buyouts are the focus of our investing activity.<br />
Volume Number<br />
Management buyouts 38.7% 16<br />
Investments in buyout funds 22.2% 12<br />
Expansion financing 39.1% 15
Industrial profile of portfolio balanced<br />
Our portfolio is diversified across different sectors of industry. That allows us to achieve<br />
a better risk spread. We changed the depiction of the industrial profile this financial year.<br />
To augment transparency, the break-down now includes eight industrial sectors. Furthermore,<br />
we have classified the holdings of our material fund investments to the respective<br />
categories. Minor fund investments are contained in “Others”.<br />
Industry profile of portfolio<br />
Machine and plant construction (14.3 %)<br />
Automotive supplies (6.2 %)<br />
Construction (17.6 %)<br />
Chemicals (6.6 %)<br />
Printing, media, packaging (9.7%)<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Corporate Review – Investments Portfolio profile<br />
Others (6.1%)<br />
Consumer goods (13.1%)<br />
Industrial services<br />
and logistics (11.0 %)<br />
Trade (15.4 %)<br />
59
If the seller is convinced, we’ve reached our first goal: the purchase<br />
contract seals the past months’ analyses and negotiations. The<br />
key thing now is to enhance the enterprise value: by sharpening<br />
the corporate profile, by add-on acquisitions or spin-offs. Or by<br />
innovative products or new market entries. That gets us off<br />
to a new start. Our next goal: building value, and, ultimately,<br />
profitably selling the enterprise in a few years.
MAN<strong>AG</strong>EMENT’S REPORT<br />
I. Market development<br />
Overall, the private equity market declined slightly in financial year 2002/2003. Like<br />
last year, however, the decrease in investments by private equity companies relates to<br />
activities outside the market in which <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> operates. Management<br />
buyouts again registered a distinct rise over the prior year. For the first three quarters of<br />
2002, some 600 million euros were invested in management buyouts in Germany; for<br />
the first three quarters of 2003, the Bundesverband <strong>Deutsche</strong>r Kapitalbeteiligungsgesellschaften/<br />
German Venture Capital Association reported that its members had made<br />
investments of more than 850 million euros. This rise of more than one third reflects the<br />
transaction development in that market segment, on which the investment activity of<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> is focused. In 2002, eleven management buyouts with a transaction<br />
value of between 50 million and 250 million euros (mid-market segment) were<br />
recorded in Germany. In the first nine months of 2003, there had been already twelve<br />
management buyouts; in the same time period the transaction value at this mid-market<br />
level increased to 1.8 billion euros, up from some 1.4 billion euros in 2002.<br />
Globally, 2003 saw a reversal of the trend in private equity investments, which has<br />
been negative in recent years. In 2001 and 2002, investments in both the United States<br />
and key European private equity markets had fallen in comparison to each of the prior<br />
years. The reasons were attributable to the sharp drop in venture capital activity that<br />
was not offset by the growth in buyout financing. Preliminary data based on the semiannual<br />
figures indicate that worldwide private equity investments in 2003 will finish<br />
ahead of those completed in 2002.<br />
This global market is valued at approximately 80 billion euros – many times more<br />
than the size of the market accessible to <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. An assessment of<br />
the market opportunities based on such global data does not do justice to the activities<br />
of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. We anticipate that the uptrend registered in our market<br />
segment in 2003 will continue. In our view, the private equity business in Germany will<br />
be driven by these factors:<br />
1. Fueled by capital market expectations, large corporations will intensify their focus on<br />
core businesses and part with peripheral activities. The large majority of management<br />
buyouts in 2003 originated from these sources. However, experience proves that<br />
financing aspects involved in disinvesting subsidiaries or individual business units are<br />
clearly gaining in significance.<br />
2. Stock markets as a financing option are still only available to a very limited extent to<br />
high growth enterprises; this also holds true for disinvestments of existent holdings.<br />
The private equity market stands to profit from these supplementary investment<br />
opportunities: unsuccessful attempts to raise additional equity by selling parts of an<br />
enterprise through an initial public offering may end up in a complete sale of that<br />
company in a management buyout. Furthermore, management buyouts to a second<br />
generation of managers, or secondary buyouts, have gained in importance as an exit<br />
opportunity.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Management’s Report<br />
Negative trend appears to have<br />
bottomed out<br />
61
62<br />
3. The change in the lending policy of banks, which was, in part, triggered by the<br />
announcement of new equity guidelines for banks ("Basle II"), poses a new challenge,<br />
particularly to mid-sized enterprises. This change, in addition to the succession<br />
issue in family-owned businesses, will boost the mid-term demand for private equity.<br />
II. Group structure<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> has presented consolidated financial statements since fiscal<br />
year 2000/2001. The consolidated financial statements include the following companies:<br />
100%<br />
▼<br />
100%<br />
▼<br />
▼ ▼<br />
▼<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> holds practically all German investments; international<br />
investments are essentially held by <strong>Deutsche</strong> <strong>Beteiligungs</strong>gesellschaft mbH and Q.P.O.N.<br />
<strong>Beteiligungs</strong> GmbH. <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> co-invests alongside the new DB<strong>AG</strong><br />
Fund IV through DBG Fourth Equity Team GmbH & Co. KGaA. The management team<br />
of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> co-invests through DBG Advisors GmbH & Co. KG. The<br />
other four companies hold no material investments.<br />
III. Development of the portfolio<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
100% 100%<br />
Undecima<br />
DBG Auslandsbeteiligungen<br />
<strong>Beteiligungs</strong> GmbH<br />
GmbH & Co. KG<br />
99%<br />
▼<br />
▼ 99%<br />
DBG Fourth Equity Team<br />
GmbH & Co. 1% KGaA<br />
100%<br />
▼<br />
▼100%<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong>gesellschaft<br />
mbH<br />
DBG Management<br />
GmbH & Co. KG<br />
▼<br />
1%<br />
100% 50%<br />
▼ ▼ 100%<br />
▼ 50%<br />
▼<br />
DBG Fifth Equity<br />
Q.P.O.N.<br />
International GmbH<br />
<strong>Beteiligungs</strong> GmbH<br />
33,33%<br />
33.33%<br />
▼<br />
▼<br />
DBG Advisors<br />
GmbH & Co. KG<br />
100%<br />
At October 31, 2003, there were 43 companies or groups of companies valued at<br />
acquisition costs of 300 million euros in the portfolio of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. In<br />
the previous year, the total number of investments was 49, valued at acquisition costs<br />
of 313 million euros.<br />
▼
Investments during the year under review totaled 30.8 million euros. Of this, 12.4<br />
million euros are attributable to the most recent investment, Casco Surfaces GmbH. Two<br />
other investments were contracted during the reporting year, but they were formally<br />
completed in November 2003, subsequent to the close of the reporting year.<br />
Seven investments valued at acquisition costs of 31.7 million euros were completely<br />
released from the portfolio. Including repayments and partial sales, disposals from the<br />
portfolio totaled 44.2 million euros. Thus, the total portfolio at acquisition cost declined<br />
slightly from 313 million euros in the previous year to 300 million at October 31, 2003.<br />
The number of investments in the portfolio fell to 43.<br />
IV. Results of financial year 2002/2003 for the <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> Group<br />
Following a consolidated net loss of 15.8 million euros in the previous year, this year<br />
saw a return to positive income. Consolidated net income amounted to 3.1 million euros.<br />
The profit and loss account was drawn up in conformity with the German Commercial<br />
Code. To facilitate an analysis of our corporate performance, the data has been<br />
reclassified in the overview below.<br />
in T€ 2002/2003 2001/2002 Change<br />
in % absolute<br />
Result of investment activity 18,408 19,311 –4.7 –903<br />
Result of adjustments in valuation/provisions –10,010 –27,025 63.0 17,015<br />
Result of investment management –4,012 –8,191 51.0 4,179<br />
Result of ordinary activity 4,386 –15,905 20,291<br />
Net income/loss 3,096 –15,840 18,936<br />
Earnings per share in euros 0.22 –1.13 1.35<br />
Income from profit disbursements, which actually represents income from investment management, was recognized in the result of<br />
investment management. Income from write-ups on investments, which is required to be recognized under “Other operating income”<br />
in conformity with the rules of the German Commercial Code, was allocated to the “Result of adjustments in valuation/ provisions”<br />
for the above overview.<br />
IV. 1. Result from investment activity<br />
The sum of total income achieved through numerous smaller investment disposals and<br />
profit distribution fell slightly short of the previous year’s income, which had recorded a<br />
particularly high level of profit disbursements. Consequently, the result from investment<br />
activity amounted to 18.4 million euros, down by 0.9 million euros, or five percent less<br />
than last year’s 19.3 million euros.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Management’s Report<br />
Net profit posted for the year<br />
63
64<br />
IV. 2. Result of the revaluation of portfolio investments<br />
The objective in the private equity business is to achieve capital gains through the<br />
realization of investments from the portfolio. Our strategy is to sustainably build the value<br />
of our investments. Nevertheless, general economic or business developments in certain<br />
portfolio companies may necessitate performing valuation adjustments or write-offs.<br />
These are always based on an assessment of the longer-term value of an investment.<br />
The net amount from the revaluation of investments totaling –10.0 million euros was<br />
clearly less than the previous year’s unusually high level, which necessitated write-downs<br />
of 27.0 million euros. At 18.9 million euros, the level of valuation adjustments required<br />
to be performed on individual investments was again high in the reporting year. However,<br />
four investments whose value had previously been depreciated have returned to a pattern<br />
of good progress, thereby enabling an appreciation on their valuation totaling 6.8 million<br />
euros. The net amount from these value movements represents a marked improvement<br />
of 63 percent compared with the prior year.<br />
IV. 3. Result from investment management<br />
Income from investment management activity netted against expenses for canvassing<br />
new transactions and the management of the portfolio amounted to –4.1 million euros,<br />
thereby representing a distinct improvement of 4.1 million euros against last year’s total<br />
of –8.2 million euros. This increase largely stems from management fee income from<br />
the new DB<strong>AG</strong> Fund IV co-investment fund earned this year for the first time. Similar to<br />
the previous year, income from fees paid for the structuring of transactions amounted<br />
to 2.3 million euros. Income from fees for the management of co-investment funds rose<br />
to 7.9 million euros. Contained in this sum is a one-off item of 0.8 million euros which<br />
will not be applicable in the following financial years. Moreover, management fee income<br />
declines as funds disinvest; thus, this year’s level of fee income should not be considered<br />
a constant for the following years. At 7.6 million euros, personnel costs largely remained<br />
unchanged. Fees paid for the placement of the new parallel fund amounted to 2.1 million<br />
euros, following 1.5 million euros the prior year.<br />
IV. 4. Net income for the year<br />
Pursuant to last year’s consolidated net loss – the first in the Company’s history –<br />
totaling –15.8 million euros, this year saw a return to a positive result, with consolidated<br />
net income at 3.1 million euros. This advance of 18.9 million euros over the year before<br />
is largely due to the valuation of portfolio investments, which clearly improved.<br />
The return on equity, measured by the net income for the year in relation to the<br />
opening equity at the beginning of the financial year, was 2.0 percent. At –9.2 percent,<br />
the return was worse than last year as a result of the net loss.
IV. 5. Appropriation of the distributable profit<br />
The balance sheet profit of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> amounts to 7.8 million euros;<br />
the Group has posted a consolidated balance sheet loss of –2.4 million. In view of the<br />
balance sheet loss at Group level, the Board of Management and Supervisory Board of<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> will recommend to shareholders at the Annual Meeting to<br />
carry forward the balance sheet profit of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>.<br />
V. Financial position<br />
At October 31, 2003, the book value of financial assets declined by 13 million euros<br />
to 257 million euros, down from 270 million euros the previous year. Net liabilities to<br />
banks – i.e. bank borrowings less credit balances on ac<strong>counts</strong> – were reduced to 70.7<br />
million euros, a decrease of 26.5 million euros against the prior year’s 97.2 million<br />
euros. The capital-to-assets ratio improved from the previous year’s 50.7 percent to<br />
54.4 percent.<br />
VI. Risk management<br />
VI. 1. External risk exposure<br />
The difficult economic environment in which <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> and its portfolio<br />
companies operated did not noticeably change in comparison with the previous<br />
year. The persistent negative business trend particularly impacted investee businesses<br />
outside Germany, necessitating valuation modifications on several investments. However,<br />
toward the end of the financial year, first signs of a revitalization of the world economy<br />
began to emerge, with new impulses for demand arising particularly in countries outside<br />
Germany.<br />
VI. 2. Company-specific risk exposure<br />
Success in private equity is determined by these factors:<br />
– to invest in promising enterprises in conformity with the portfolio strategy<br />
– to build and sustain the value of existing and new investments<br />
– to realize the value created through current income from investments and capital<br />
gains from the sale of investments.<br />
The prerequisites for this are a highly qualified, motivated team and a network of<br />
contacts in order to solicit a continual stream of investment opportunities. There are<br />
excellent opportunities for high returns on investments. But, by the nature of private<br />
equity, there may also be a need to perform write-offs on investments in certain cases.<br />
For the activities of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>, which comprise the evaluation and<br />
the execution of investment transactions, operational risks play a subordinate role in light<br />
of the relatively low number of total transactions, employees, and the involvement of<br />
several employees in larger transactions.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Management’s Report<br />
65
66<br />
Optimization of monitoring<br />
system on ongoing basis<br />
VI. 2.1. Investments based on the portfolio strategy<br />
Pursuant to the long years of experience which <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> has in private<br />
equity, a strategy has been laid down that targets a high yield potential on investments<br />
while balancing the opportunities/risk profile. Beginning in the financial year 1996/1997,<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> has focused its investing activity on majority acquisitions or<br />
investments in which the Company holds a majority interest jointly with other financial<br />
investors. Investments in minority holdings are only made, if a public offering seems a<br />
realistic exit option, or defined alternatives for the sale of a minority investment exist. To<br />
minimize the risk inherent in early-stage and smaller enterprises, the Group companies<br />
of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> principally invest in established enterprises that generally<br />
achieve annual revenues clearly in excess of 50 million euros.<br />
To spread risk exposure, the Company ensures that the maximum sum invested in<br />
any particular portfolio enterprise is limited to ten percent of the consolidated financial<br />
assets of the Group. At 10.7 percent, the investment in Bauer <strong>AG</strong> currently represents<br />
the largest single holding, reaching this defined limit as a result of the reduced financial<br />
asset volume.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> invests in many sectors of the economy and the portfolio<br />
is widely diversified. This minimizes risks that may arise from dependence on certain<br />
industrial sectors, and from those industries’ susceptibility to business cycles. Nevertheless,<br />
the portfolio exhibits certain focal points. At the closing date, investments in the machine<br />
and plant construction sector accounted for 17.0 percent of the book value of the portfolio.<br />
To reduce exposure to risks from economic cycles in different regions, we have continued<br />
to diversify the geographical focus of the portfolio. We achieved our objective of<br />
investing one third of the portfolio internationally several years ago. At October 31, 2003,<br />
investments outside Germany totaled 35.9 percent of the book value of the portfolio.<br />
Of this, the share of investments domiciled outside Europe amounted to 28.3 percent.<br />
VI. 2.2. Building and sustaining the value of investments<br />
To avoid or reduce exposure to risks, a comprehensive monitoring system has been<br />
installed. This monitoring system is adapted and improved on an ongoing basis. Portfolio<br />
companies basically report on their business development at monthly intervals. Additionally,<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> holds positions in supervisory or advisory bodies of major<br />
portfolio companies. This places the Company in a position to take any necessary early<br />
counteraction to negative developments. Only two international fund investments, constituting<br />
a combined total of 1.1 percent of the portfolio, do not report on a quarterly<br />
basis. In these cases, we solicit information on current developments through contacts<br />
in the course of a year. Despite all risk reduction procedures, it will not be possible to<br />
entirely prevent valuation adjustments on investments in certain individual cases. However,<br />
their effects on the Company’s earnings should, among other things, be reduced<br />
by the Company’s investment strategy.
Our support for the development of portfolio companies is not only directed at<br />
reducing risks, but, primarily, at building value. Measures and decisions for action are<br />
channeled through supervisory and advisory bodies of portfolio companies. To provide<br />
the incentive for the staff and the Board of Management of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
to personally commit to maximizing the profit from investments, a substantial part of<br />
income is performance-related.<br />
VI. 2.3. Focus on profitable realizations<br />
A key factor for success in private equity is the realization of capital gains. Prior to<br />
making an acquisition, we explore opportunities to profitably exit that investment again,<br />
following a phase of building value. We principally will not enter an investment, if we<br />
do not recognize realistic mid-term exit opportunities.<br />
Moreover, we work on a number of exits simultaneously during the course of a<br />
financial year to reduce the risk of depending too strongly on a single realization. Nevertheless,<br />
the private equity business, by its nature, may be subject to comparative distortions<br />
for reasons related to the year-end closing date. Complex transactions such as trade<br />
sales or public offerings may not always be completed within a certain financial year.<br />
Delays may arise through changes in the capital market environment or for other reasons.<br />
The realization of the Company’s investment in Edscha, for instance, was finalized in<br />
early November 2002, shortly after the close of the 2001/2002 financial year, while the<br />
transaction had largely been negotiated in 2001/2002. The capital gain from this transaction<br />
was therefore realized in financial year 2002/2003.<br />
In addition to capital gains from the realization of investments, income from investments<br />
in the form of dividends, profit sharing, and interest income constitutes another<br />
relevant source of earnings for <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. The annual volume of this<br />
income is limited, however, and varies depending on the portfolio companies’ earnings<br />
and financial position.<br />
VII. Generation of investment opportunities<br />
To ensure a steady stream of new investment opportunities, the Company has access<br />
to a large national and international network of contacts to industrial enterprises, investment<br />
banks, auditors, attorneys, etc. <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> also benefits from its<br />
position as the long-standing private equity partner to <strong>Deutsche</strong> Bank <strong>AG</strong>. Furthermore,<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> has built its own pool of industrial consultants, who, in addition<br />
to their knowledge of and insights into particular sectors of industry, can mediate<br />
contacts to enterprises in these industries.<br />
The portfolio strategy, with its focus on majority acquisitions of larger companies, and<br />
the targeted returns mean that the Company will be selective in acquiring new investments.<br />
When comparing specific periods, fluctuations in the number of new investments<br />
are therefore normal in our business and reflect the strict standards we apply to profitable<br />
investments.<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Management’s Report<br />
67
68<br />
Management team shares in<br />
investment performance<br />
VIII. People<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> needs a qualified, highly-motivated team to realize its<br />
objectives. In financial year 2001/2002, the Board of Management and a selected group<br />
of investment team staff were asked, for the first time, to co-invest in direct investments.<br />
The managerial team of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> thus shares in both the upside and<br />
downside of the portfolio investments, while this policy also ensures that the interests<br />
of the management team and those of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> coincide.<br />
This co-investment activity is realized within the scope of a partnership participation.<br />
This can result in a superior profit share, if outstanding returns are realized on these<br />
investments within a defined holding period. The profit share is only paid if <strong>Deutsche</strong><br />
<strong>Beteiligungs</strong> <strong>AG</strong> or the investors in the respective co-investment fund have received a<br />
minimum return on their invested capital. This minimum return currently amounts to<br />
8.0 percent annually. The structure of the profit share, its implementation and set points<br />
are in conformity with common practice in the private equity industry and constitute a<br />
prerequisite for the placement of co-investment funds. The profit share of members of<br />
the Board of Management is not expensed in the profit-and-loss account of <strong>Deutsche</strong><br />
<strong>Beteiligungs</strong> <strong>AG</strong>. For Board members, the profit share is income from an investment.<br />
To create an additional incentive to enhance share performance on a sustained basis,<br />
stockholders at the 2001 Annual Meeting resolved to install a stock option program for<br />
700,000 stock options. Since then, 70,000 stock options for one share each of <strong>Deutsche</strong><br />
<strong>Beteiligungs</strong> <strong>AG</strong> have been granted in every financial year after the Annual Meeting to<br />
a selected group of employees who have contributed positively toward the stock’s performance.<br />
70,000 further stock options are granted to the members of the Board of<br />
Management. An appreciation is achieved, if the performance of the shares of <strong>Deutsche</strong><br />
<strong>Beteiligungs</strong> <strong>AG</strong> exceeds that of the S-Dax. The options are exercisable not earlier than<br />
three years after the date of grant. At the balance sheet date, an intrinsic value was only<br />
attached to the stock options granted in 2003; at October 31, 2003, the option value<br />
amounted to 3.20 euros per share.<br />
Beyond that, we offer a motivating work environment characterized by lean reporting<br />
lines, teamwork-based project organization and early distribution of responsibility and<br />
authority.<br />
The factors described are conducive to retaining key staff. The Company’s management<br />
team of 15 people currently boasts an average of 9 years of service.<br />
At the balance sheet date, the number of staff had declined from 51 to 50; of these<br />
37 serve full-time, seven work part-time. Three employees are on parent leave. Three<br />
apprentices are currently receiving their training for their future professions.
IX. Events subsequent to the closing date<br />
After the close of the 2001/2002 financial year, two new investments at acquisition<br />
costs of 21.9 million were added to the portfolio; these relate to the management buyout<br />
of Babcock Borsig Service GmbH and Preh GmbH. There were disposals and partial<br />
disposals amounting to 10.8 million euros. Of this, the largest amount is attributable to<br />
the sale of Victorvox <strong>AG</strong>.<br />
X. Outlook<br />
Following the pronounced economic weakness this past financial year, indications of<br />
a resurgence of the world economy are emerging with new impulses for demand arising<br />
particularly in countries outside Germany. The sentiment on equity markets has taken a<br />
turn for the better, as prices rise due to investors’ greater willingness to take risks. Furthermore,<br />
there are signs of increasing activity on the M&A market. The private equity<br />
market and mid-market transactions – the key segment on which <strong>Deutsche</strong> <strong>Beteiligungs</strong><br />
<strong>AG</strong> is focused – stand to profit from these favorable developments. The larger number<br />
of transactions completed in the calendar year of 2003 attests to this. Three management<br />
buyouts were contracted, whereas only one transaction was completed in each of the<br />
two preceding years.<br />
In light of the long years of economic slowdown and of structural aspects, there is<br />
uncertainty about the magnitude of business recovery, particularly in Germany. Against<br />
this backdrop and in view of the development in private equity’s mid-market segment<br />
as well as the quality of the existing portfolio, we are, nevertheless, confident that<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> will exhibit positive progress.<br />
Frankfurt am Main, December 2003<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Management’s Report<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> is<br />
well poised<br />
69
70<br />
Assets<br />
Notes Oct. 31, 2003 Oct. 31, 2002<br />
in T€ in T€ in T€<br />
Intangible assets 146 110<br />
Fixed assets 628 700<br />
Equity shares in subsidiaries 497 360<br />
Equity shares<br />
Loans to companies in which equity<br />
246,499 259,769<br />
shares are held 9,573 9,422<br />
Long-term asset securities 356 156<br />
Investments 256,925 269,707<br />
Long-term assets 1<br />
257,699 270,517<br />
Receivables from subsidiaries<br />
Receivables from companies<br />
2<br />
3,238 496<br />
in which equity shares are held 2<br />
5,388 8,339<br />
Other assets 3 19,885 26,325<br />
Receivables and other assets 28,511 35,160<br />
Securities 4<br />
122 102<br />
Cash and cash equivalents 5,122 303<br />
Current assets 33,755 35,565<br />
Prepayments 494 688<br />
291,948 306,770<br />
Trustee claims 10,320 12,090
Liabilities and shareholders’ equity<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Financial Statements<br />
Consolidated Balance Sheet for the year ended October 31, 2003<br />
Notes Oct. 31, 2003 Oct. 31, 2002<br />
in T€ in T€ in T€<br />
Subscribed capital 36,400 36,400<br />
Capital reserve 102,194 102,194<br />
Legal reserve 403 403<br />
Reserve for own shares 12 1<br />
Other revenue reserves 21,775 21,557<br />
Retained earnings 22,190 21,961<br />
Balance sheet loss –2,374 –5,463<br />
Minority interests 327 331<br />
Total shareholders' equity 5<br />
158,737 155,423<br />
Pension provisions 13,231 12,701<br />
Tax provisions 2,716 1,609<br />
Other provisions 2,692 2,522<br />
Provisions 6<br />
18,639 16,832<br />
Liabilities to banks 75,813 97,490<br />
Trade ac<strong>counts</strong> payable 1,956 1,634<br />
Ac<strong>counts</strong> payable to subsidiaries<br />
Ac<strong>counts</strong> payable to companies<br />
53 1<br />
in which equity shares are held 32,514 30,655<br />
Other liabilities 3,192 4,733<br />
Liabilities 7<br />
113,528 134,513<br />
Deferred income 1,044 2<br />
291,948 306,770<br />
Trustee liabilities 10,320 12,090<br />
71
72<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Financial Statements Consolidated Profit and Loss Account<br />
for the period from November 1, 2002 to October 31, 2003<br />
Notes 2002/2003 2001/2002<br />
in T€ in T€<br />
Income from investments 8<br />
9,289 11,767<br />
Gains from investment disposals 13,910 15,463<br />
Losses from investment disposals<br />
Write-downs on investments and on<br />
1,528 1,053<br />
marketable securities 16,837 27,025<br />
Other operating income 9<br />
19,945 10,366<br />
Personnel costs<br />
Depreciation on fixed assets and<br />
10<br />
7,552 7,571<br />
intangible assets 229 218<br />
Other operating expenses 11<br />
9,348 12,142<br />
Net interest 12<br />
–3,264 –5,492<br />
Result of ordinary activity 4,386 –15,905<br />
Taxes 13<br />
1,290 –65<br />
Consolidated net income (previous year: consolidated net loss) 3,096 –15,840<br />
Minority interests 4 0<br />
Loss (previous year: profit) carried forward from previous year –5,463 10,372<br />
Withdrawals from retained earnings for own shares 0 5<br />
Allocations to retained earnings for own shares 11 0<br />
Consolidated balance sheet loss –2,374 –5,463<br />
Earnings per share 0.22 –1.13
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Financial Statements Consolidated Cash Flow Statement<br />
from November 1, 2002 to October 31, 2003<br />
Inflows (+) / outflows (–) 2002/2003 2001/2002<br />
in T€ in T€<br />
Result for period<br />
Write-downs / write-ups<br />
3,096 –15,840<br />
on long-term assets 10,356 26,604<br />
Increase (+) / decrease (–) in accruals 1,807 –8,537<br />
Profit (–) / loss (+) from disposals of long-term assets –12,382 –14,410<br />
Increase (–) / decrease (+) in other assets (netted) 6,823 –3,564<br />
Increase (+) / decrease (–) in other liabilities (netted) 1,952 7,456<br />
Cash flows from operating activities 11,652 –8,291<br />
Proceeds from disposals of property, plant and equipment<br />
and intangible assets<br />
Purchase of property, plant and equipment<br />
52 10<br />
and intangible assets –245 –222<br />
Proceeds from disposals of long-term financial assets 45,781 51,536<br />
Acquisition of long-term financial assets –30,744 –43,333<br />
Cash flows from investing activities 14,844 7,991<br />
Cash payments to shareholders (dividends) 0 –7,000<br />
Proceeds from short or long-term borrowings 0 767<br />
Cash repayments of short or long-term borrowings –21,677 0<br />
Cash flows from financing activities –21,677 –6,233<br />
Change in cash funds from cash-relevant transactions 4,819 –6,533<br />
Cash funds at beginning of period 303 6,836<br />
Cash funds at end of period 5,122 303<br />
73
74<br />
NOTES TO THE CONSOLIDATED<br />
FINANCIAL STATEMENTS 2002/2003<br />
A. Principal activity<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> was incorporated on December 10, 1984. The Company is<br />
domiciled in Frankfurt am Main and listed in the Commercial Register at the District Court<br />
of Frankfurt am Main under Section B, No. 52491. As a financial investor, <strong>Deutsche</strong><br />
<strong>Beteiligungs</strong> <strong>AG</strong> provides equity and financial instruments of a similar nature to wellpositioned<br />
medium-sized enterprises. The Company substantially generates its income by<br />
appreciating the value of the companies it purchases; <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> realizes<br />
these value enhancements when its investments are ultimately sold. The Group’s subsidiaries<br />
pursue the same business activities or provide supporting services.<br />
B. Consolidated companies<br />
The consolidated financial statements include the principal Group companies, in<br />
which <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>, directly or indirectly, holds at least 50 percent of the<br />
voting shares, or may exercise control in other ways. Effective October 26, 2001, an<br />
obligation to present consolidated financial statements arose for the first time. The consolidated<br />
financial statements at October 31, 2003 include the following companies:<br />
Name and domicile of Equity share Held by<br />
consolidated company %<br />
DBG Auslandsbeteiligungen GmbH & Co. KG,<br />
Frankfurt am Main<br />
100.00 <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
Undecima <strong>Beteiligungs</strong> GmbH,<br />
Frankfurt am Main<br />
100.00 <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
DBG Management GmbH & Co. KG,<br />
Frankfurt am Main<br />
100.00 <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong>gesellschaft mbH, 100.00 DBG Auslandsbeteiligungen<br />
Königstein/Taunus GmbH & Co. KG<br />
DBG Fifth Equity International GmbH, 100.00 <strong>Deutsche</strong> <strong>Beteiligungs</strong>-<br />
Frankfurt am Main gesellschaft mbH<br />
DBG Fourth Equity Team GmbH & Co. KGaA, 99.00 Undecima <strong>Beteiligungs</strong><br />
Frankfurt am Main GmbH<br />
Q.P.O.N. <strong>Beteiligungs</strong> GmbH, 50.00 <strong>Deutsche</strong> <strong>Beteiligungs</strong>-<br />
Frankfurt am Main gesellschaft mbH<br />
DBG Advisors GmbH & Co. KG, 33.33 DBG Fifth Equity<br />
Frankfurt am Main International GmbH
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Notes to the Consolidated Financial Statements 2002/2003<br />
Changes in the group of consolidated companies in comparison to the status at<br />
October 31, 2002 constitute the addition of DBG Management GmbH & Co. KG, since<br />
this company is no longer of minor importance. DBG Management GmbH & Co. KG<br />
was initially consolidated on October 31, 2003. Consequently, the profit and loss<br />
account of this company is not yet included in the consolidated financial statements at<br />
October 31, 2003.<br />
The holding in Q.P.O.N. <strong>Beteiligungs</strong> GmbH was recognized in the consolidated<br />
financial statements on a pro rata basis (proportionate consolidation).<br />
Despite a voting interest of less than 50 percent, DBG Advisors GmbH & Co. KG was<br />
recognized in the consolidated financial statements in conformity with Article 290, section<br />
2, paragraph 2 of the German Commercial Code, since <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
has the power to appoint or remove the majority of the managing shareholders.<br />
DBG <strong>Beteiligungs</strong> GmbH, Frankfurt am Main, in which <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> holds<br />
100 percent of the voting shares, was excluded from the consolidated financial statements,<br />
since the commercial risk of its business activity – and, consequently, the business<br />
policy – lies with other companies.<br />
DBG Fifth Equity Team GmbH & Co. KGaA, Frankfurt am Main, in which a subsidiary<br />
of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> holds 100 percent of the limited partner’s shares, was not<br />
consolidated in the ac<strong>counts</strong>, since significant and long-lasting restrictions exist that<br />
impair rights in respect of this company’s assets and management.<br />
DBG Jota GmbH and DBG Kappa GmbH, in which a subsidiary of <strong>Deutsche</strong> <strong>Beteiligungs</strong><br />
<strong>AG</strong> holds 100 percent of the shares and which are both domiciled in Frankfurt am<br />
Main, were not consolidated, since the majority of the shares in the subsidiaries are held<br />
temporarily.<br />
Due to their minor importance, some subsidiaries in which <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
or an associated and consolidated company holds voting shares of more than 50 percent<br />
were not consolidated. These largely relate to shell companies.<br />
At-equity consolidation was not performed for equity shares in which voting rights of<br />
20 to 50 percent are held, but no significant influence on operating policies is exercised.<br />
This also ensued from the temporary nature of these investments, as stipulated by the<br />
corporate purpose.<br />
75
76<br />
C. Principles of consolidation<br />
The consolidated financial statements of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> were drawn up<br />
and presented in accordance with the valid standards of the German Commercial Code,<br />
using the accounting and valuation principles of the parent company.<br />
Basis of presentation<br />
The consolidated financial statements are based on the individual annual ac<strong>counts</strong> of<br />
the consolidated companies, which are drawn up according to standardized accounting<br />
and valuation policies. For subsidiaries whose balance sheet date is not identical to that<br />
of the Group, consolidation was based on interim ac<strong>counts</strong>.<br />
The capital consolidation of the subsidiaries has been performed using the fair value<br />
purchase method by revaluing the assets and debt of consolidated subsidiaries and subsequently<br />
matching the equity share of the subsidiary against the parent company’s<br />
investment book value. Asset-side balancing items exhibiting the nature of goodwill are<br />
offset against retained earnings. Liability-side balancing items relate to realized earnings<br />
and are taken to retained earnings.<br />
Sales, expenditures and earnings as well as all receivables and liabilities from intercompany<br />
transactions have been eliminated.<br />
Principles of accounting<br />
The profit and loss account has been prepared using the total expenditure format. To<br />
provide for the special circumstances governing the private equity business, the legallyrequired<br />
structure of the profit and loss account was modified according to Article 265,<br />
section 6 of the German Commercial Code to include the positions “Gains from investment<br />
disposals” and “Losses from investment disposals.”<br />
For the sake of clarity and in compliance with Article 265, section 7, No. 2 of the<br />
German Commercial Code, individual positions in the profit and loss account have been<br />
combined; detailed disclosures are contained in the notes.<br />
“Gains from investment disposals” discloses the net proceeds from realized revenue<br />
less the book value.<br />
Contained under “Losses from investment disposals” are the net losses, insofar as<br />
realized revenue is less than the book value.<br />
For a better overview, the legally-required information and commentary on individual<br />
items in the balance sheet and the profit and loss account, as well as the commentary<br />
which may either be contained in the balance sheet, the profit and loss account, or the<br />
notes to the financial statements, are all shown in the notes to the financial statements.
D. Accounting policies<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Notes to the Consolidated Financial Statements 2002/2003<br />
Fixed assets are valued at purchase cost, less regular depreciation (straight-line method).<br />
Depreciation is based on normal useful life.<br />
Assets of a minor value are written off in the year of acquisition. Minor-value assets<br />
are treated as disposed in the assets account of the acquisition year.<br />
Additions to movable fixed assets during the first half of the year are depreciated at<br />
the full annual rate; additions during the second half of the year are written off at half<br />
the annual rate.<br />
Financial investments are generally valued at acquisition cost. Long-lasting reduction<br />
in the value of an investment is accounted for by non-scheduled depreciation.<br />
Receivables and other assets are principally carried at face value. Recognizable risks<br />
have been accounted for by value adjustments.<br />
Marketable securities are valued at the lower of cost, market or professional valuation.<br />
Provisions covering all recognizable risks and contingent liabilities are calculated at<br />
their probable realistic value at the balance sheet date.<br />
Pension obligations were determined on the basis of the accrued benefit valuation<br />
method, which is applied for disclosures in conformity with the “International Accounting<br />
Standards” (IAS). The discount rate is 5.5 percent p.a. Factors influencing valuation<br />
are average staff turnover and future salary and benefit increases. These were accounted<br />
for at an assumed trend rate of 2.5 percent p.a.<br />
Liabilities are carried at their repayment amount.<br />
Financial investments in foreign currency are principally translated at the exchange<br />
rate at the time of purchase; receivables and ac<strong>counts</strong> payable denominated in foreign<br />
currency are translated at the lower of currency rate at the purchasing date, balance<br />
sheet date or repayment date. Foreign currency items in the profit and loss account are<br />
translated at the exchange rate on the date of payment or receipt of payment.<br />
Trust assets consist of receivables valued at purchase cost. These are matched against<br />
liabilities in the same amount.<br />
Long-term assets<br />
Current assets<br />
Provisions<br />
Liabilities<br />
Currency translation<br />
Trust assets<br />
77
78<br />
Assets 1<br />
Long-term assets movement October 31, 2003<br />
E. Notes to the Balance Sheet<br />
in T€ Acquisition cost Accumulated depreciation Net book value<br />
Nov. 1, 02 Addi- Dispos- Oct. 31, 03 Nov. 1, 02 Addi- Dispos- Write- Oct. 31, 03 Oct. 31, 03 Oct. 31, 02<br />
tions als tions als ups<br />
I. Intangible<br />
assets<br />
Concessions, patents<br />
and similar rights 204 103 39 268 94 61 33 0 122 146 110<br />
II. Fixed assets<br />
Office and<br />
operational equipment 1,348 142 132 1,358 648 168 86 0 730 628 700<br />
III.Investments<br />
1. Equity shares in<br />
subsidiaries 979 166 29 1.116 619 0 0 0 619 497 360<br />
2. Equity shares 300,157 27,932 41,204 286,885 40,388 16,837 12,046 4,793 40,386 246,499 259,769<br />
3. Loans to companies in<br />
which equity shares<br />
are held 14,791 2,446 4,212 13,025 5,369 0 0 1,917 3,452 9,573 9,422<br />
4. Long-term<br />
asset securities 313 200 0 513 157 0 0 0 157 356 156<br />
316,240 30,744 45,445 301,539 46,533 16,837 12,046 6,710 44,614 256,925 269,707<br />
317,792 30,989 45,616 303,165 47,275 17,066 12,165 6,710 45,466 257,699 270,517<br />
Receivables 2<br />
Other assets 3<br />
Securities 4<br />
in T€ Oct. 31, 2003 Oct. 31, 2002<br />
Subsidiaries 3,238 496<br />
Companies in which equity shares are held 5,388 8,339<br />
(thereof, maturing in more than 1 year) (21) (21)<br />
Ac<strong>counts</strong> receivable from companies in which equity shares are held stem from profit<br />
and interest entitlements as well as consulting services.<br />
Other assets largely pertain to tax credits.<br />
8,626 8,835<br />
in T€ Oct. 31, 2003 Oct. 31, 2002<br />
Own shares 12 1<br />
Other securities 110 101<br />
122 102
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Notes to the Consolidated Financial Statements 2002/2003<br />
in T€ Oct. 31, 2003 Oct. 31, 2002<br />
Subscribed capital 36,400 36,400<br />
Capital reserve 102,194 102,194<br />
Retained earnings 22,190 21,961<br />
Consolidated balance sheet loss –2,374 –5,463<br />
Minority interests 327 331<br />
158,737 155,423<br />
The subscribed capital (capital stock) is denominated into 14,000,000 common shares<br />
without par value. Arithmetically, the capital attributable to each share is 2.60 euros.<br />
Valid until March 20, 2007 and subject to the approval of the Supervisory Board, the<br />
Board of Management is authorized to raise the capital stock of the Company by up to<br />
T€ 18,200 through one or several issues of new bearer shares against cash or in kind<br />
(approved capital).<br />
Additionally, there is contingent capital of up to T€ 7,800 to grant holders or creditors<br />
of warrants and/or convertible bonds issued until March 24, 2006 option rights or conversion<br />
rights for up to 3,000,000 new shares, representing a proportionate share of the<br />
subscribed capital, in conformity with the specific terms of the warrants or convertible<br />
bonds.<br />
There is also contingent capital available to enable the issuance of option rights for<br />
the Company’s stock to members of the Company’s management team contributing to<br />
the performance of the Company’s shares. The Company’s subscribed capital may be<br />
raised by T€ 1,820 until March 24, 2006 to grant these option rights through an issuance<br />
of up to 700,000 new shares, in conformity with the specific terms of the option rights.<br />
The terms of the options are presented under “Other information.”<br />
The shares of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> are traded consecutively on the stock<br />
exchanges in Frankfurt am Main and Düsseldorf, and OTC-traded on the stock exchanges<br />
in Berlin, Bremen, Hamburg, and Stuttgart.<br />
The Board of Management offers employees and former employees of <strong>Deutsche</strong><br />
<strong>Beteiligungs</strong> <strong>AG</strong> and associated companies an employee stock purchase plan at preferential<br />
terms which are oriented around tax legislation and limits. This has resulted in the<br />
following transactions involving the Company’s own shares in financial year 2002/2003:<br />
5<br />
Shareholders’ equity<br />
79
80<br />
Development of<br />
retained earning<br />
Purchase/ No. of Share of<br />
sales price shares subscribed capital<br />
per share € T€ ‰<br />
At Nov. 1, 2002 76 0.2 0.0<br />
Date of purchase: Dec. 30, 2002 7.96 1,700 4.4 0.1<br />
Date of purchase: June 5, 2003 6.67 3,630 9.4 0.3<br />
Date of sales/transfer:<br />
5,406 14.0 0.4<br />
June 13, 2003 4.69 –3,630 –9.4 0.3<br />
At Oct. 31, 2003 1,776 4.6 0.1<br />
in T€ Legal Reserves Other Retained<br />
reserve for own revenue earnings<br />
shares reserves<br />
At Nov. 1, 2002 403 1 21,557 21,961<br />
Allocations<br />
Increase in liability-side<br />
11 11<br />
balancing item 218 218<br />
At Oct. 31, 2003 403 12 21,775 22,190<br />
The legal reserve remained unchanged, since the amount under this item plus the<br />
capital reserve total one tenth of the subscribed capital, as is required by Article 272,<br />
section 2, No. 1 of the German Commercial Code.<br />
Reserves for own shares were made in the amount disclosed on the asset side and<br />
result from residual stock in conjunction with the employee stock purchase program.<br />
Other revenue reserves contain a balancing item from capital consolidation totaling<br />
T€ 3,523 (previous year: T€ 3,741). Similar to the prior year, it is comprised of an assetside<br />
balancing item of T€ 4,782 and a liability-side balancing item of T€ 1,259 (previous<br />
year: T€ 1,041). The changes result from the initial consolidation of a subsidiary.<br />
Since the 2001/2002 financial year, members of the Board of Management have<br />
been investing alongside DB<strong>AG</strong>, within the scope of a partnership participation in a private<br />
equity fund and at a defined ratio, in the same companies in which <strong>Deutsche</strong><br />
<strong>Beteiligungs</strong> <strong>AG</strong> invests. Investments in funds are excepted. This can result in a superior<br />
profit share, if superior returns are realized from these investments within a defined<br />
holding period. The profit share is only paid if <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> or the investors<br />
in the respective co-investment fund have received a minimum return on their invested<br />
capital. This minimum return currently amounts to 8.0 percent annually. The structure of<br />
the profit share, its implementation and set points are in conformity with common practice<br />
in the private equity industry and constitute a prerequisite for the placement of coinvestment<br />
funds. The profit share of members of the Board of Management is not<br />
expensed in the profit-and-loss account of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>; rather, it is recognized<br />
under minority investments. For Board members, the profit share is income from<br />
an investment.
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Notes to the Consolidated Financial Statements 2002/2003<br />
In addition to the Board of Management, minority interests also include a selected<br />
group of employees of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> who indirectly, through a partnership<br />
participation in a private equity fund, invest in the same portfolio companies as does<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>.<br />
The consolidated balance sheet loss contains loss carryforward of T€ 5,463 (previous<br />
year: T€ 10,372).<br />
in T€ Oct. 31, 2003 Oct. 31, 2002<br />
Pension provisions 13,231 12,701<br />
Tax provisions 2,716 1,609<br />
Other provisions 2,692 2,522<br />
The 1998 Klaus Heubeck actuarial charts were used to determine the pension<br />
provisions.<br />
Other provisions substantially pertain to personnel-related costs, guarantees, as well<br />
as the cost for the year-end financial statements and the Annual Meeting.<br />
F. Notes to Profit and Loss Account<br />
18,639 16,832<br />
in T€ Oct. 31, 2003 Oct. 31, 2002<br />
Total due in less Total due in less<br />
than 1 year than 1 year<br />
Liabilities to banks 75,813 75,813 97,490 97,490<br />
Trade ac<strong>counts</strong> payable 1,956 1,956 1,634 1,634<br />
Ac<strong>counts</strong> payable to subsidiaries<br />
Ac<strong>counts</strong> payable to companies<br />
53 53 1 1<br />
in which equity shares are held 32,514 32,514 30,655 30,655<br />
Other liabilities 3,192 3,192 4,733 4,733<br />
(thereof, related to taxes) (674) (674) (564) (564)<br />
113,528 113,528 134,513 134,513<br />
in T€ 2002/2003 2001/2002<br />
Income from equity shares 7,668 11,392<br />
Income from loan investments 1,621 375<br />
9,289 11,767<br />
Income from equity shares also contains income from silent partnerships to which<br />
the Company is entitled, irrespective of the partner company’s annual profit situation.<br />
The greater part of income from equity shares is attributable to profit entitlements.<br />
6<br />
7<br />
8<br />
Provisions<br />
Liabilities<br />
Income from investments<br />
81
82<br />
Other operating income 9<br />
Personnel costs 10<br />
Other operating expenses 11<br />
Net interest 12<br />
Taxes 13<br />
Other operating income includes income from fees for services rendered to <strong>Deutsche</strong><br />
<strong>Beteiligungs</strong>gesellschaft mbH & Co. Fonds I KG and <strong>Deutsche</strong> <strong>Beteiligungs</strong>gesellschaft<br />
Fond III GmbH as well as consultancy fees.<br />
In 2002/2003, income from management activity in conjunction with the new DB<strong>AG</strong><br />
Fund IV co-investment fund was recorded for the first time. For a better overview, this<br />
income was recognized in “Other operating income.”<br />
This position also includes write-ups on the book value of investments and loans to<br />
companies in which shares are held totaling T€ 6,101 and income of a non-periodic<br />
nature amounting to T€ 188 (previous year: T€ 302).<br />
in T€ 2002/2003 2001/2002<br />
Wages and salaries 5,841 5,922<br />
Social security costs, pensions and support 1,711 1,649<br />
(thereof, for pensions) (1,167) (1,163)<br />
Other operating expenses include consultancy and audit costs as well as costs for the<br />
annual financial statements and the Annual Meeting. This item also contains nondeductible<br />
taxes, expenses resulting from litigation and other expenses from current<br />
operations. In the 2002/2003 financial year, "Other operating expenses" also include<br />
costs for the placement of the new DB<strong>AG</strong> Fund IV.<br />
Net income taxes largely result from positive taxable income.<br />
G. Other information<br />
7,552 7,571<br />
in T€ 2002/2003 2001/2002<br />
Other interest and similar income 366 407<br />
Interest and similar expenses –3,630 –5,899<br />
–3,264 –5,492<br />
in T€ 2002/2003 2001/2002<br />
Income taxes 1,286 –88<br />
Other taxes 4 23<br />
1,290 –65<br />
At October 31, 2003, other financial commitments amounted to T€ 71,629 for payments<br />
which may be called for by international investment funds, depending on the<br />
progress of the investing activity. The remaining other financial commitments totaled<br />
T€ 6,705 and represent long-term contractual obligations.
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Notes to the Consolidated Financial Statements 2002/2003<br />
in T€ Oct. 31, 2003 Oct. 31, 2002<br />
Liabilities from guarantees 511 3,677<br />
Other contingent liabilities 56,654 59,240<br />
The Group holds interests in excess of five percent of the voting shares in the following<br />
large corporations:<br />
Bauer <strong>AG</strong>, Schrobenhausen; DS Technologie Holding GmbH, Mönchengladbach;<br />
Grohmann Engineering GmbH, Prüm; Lignum Technologie <strong>AG</strong>, Schopfloch;<br />
schlott gruppe <strong>AG</strong>, Freudenstadt; Zapf GmbH, Bayreuth<br />
The members of the Board of Management of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> receive fixed<br />
and variable salary components determined on a yearly basis. The variable components<br />
constitute a profit-sharing plan, a bonus system, and a stock option program. Pension<br />
commitments have been made to individual Board members.<br />
The profit-sharing plan is linked to the annual performance of investments to which<br />
the Company had committed up to December 31, 2000. The profit share is determined<br />
on the basis of the extent to which the return on equity exceeds 15 percent. In determining<br />
the profit share, the equity only relates to those investments that are included in<br />
the profit-sharing plan.<br />
The bonus system allows Board members to participate in the performance of the fund<br />
management activities of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. It is based on the result of management<br />
activity determined in accordance with operational criteria.<br />
Within the scope of the stock option program, 70,000 stock options have been granted<br />
annually to the members of the Board of Management since 2001. One stock option<br />
represents an entitlement for the purchase of one share of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. The<br />
options are exercisable not earlier than three years and expire after a maximum period<br />
of five years after the date of grant. An appreciation is only achieved, if the performance<br />
of the shares of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> (including dividend payments) exceeds that<br />
of the S-Dax. The program expires on March 24, 2006.<br />
Emoluments to the Board of Management totaled T€ 1,680 for the reporting year.<br />
The emoluments include performance-related payments totaling € 240,000. The<br />
emoluments do not contain payments from programs based on long-term incentives.<br />
The sum of T€ 354 was paid to surviving dependents and former members of the Board<br />
of Management. Pension provisions of T€ 6,732 have been made for former members<br />
of the Board of Management.<br />
To date, the following stock options have been granted to members of the Board of<br />
Management:<br />
Date of grant Number Reference Value of reference<br />
of stock options price index S-Dax<br />
granted € €<br />
April 11, 2001 70,000 31.39 2,926.74<br />
April 16, 2002 70,000 20.27 2,456.50<br />
April 11, 2003 70,000 6.72 1,742.84<br />
Total at Oct. 31, 2003 210,000<br />
57,165 62,917<br />
Contingent liabilities<br />
83
84<br />
Members of the Board of Management held 484 shares of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>;<br />
no shares were held by members of the Supervisory Board.<br />
Fixed emoluments for members of the Supervisory Board totaled approximately T€ 39<br />
in financial year 2002/2003. Since no dividends were disbursed, variable emoluments<br />
were not paid this year. Prof. Dr. h.c. Rolf-Dieter Leister received emoluments totaling<br />
T€ 137 (net) through INFRA BERATUNG GmbH for consultancy services. Fees of approximately<br />
T€ 25 (net) for consultancy services were paid to White & Case, Feddersen.<br />
The Company employed an average of 48 employees and three apprentices in financial<br />
year 2002/2003.<br />
A selected group of employees received the same number of stock options as did the<br />
members of the Board of Management for the purchase of one share each of the stock<br />
of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. These options may be exercised under the same terms as<br />
those granted to the Board of Management. In individual cases, there may be immaterial<br />
deviations due to slightly differing dates of grant.<br />
The list of investments held will be filed separately with the Court of Registration in<br />
Frankfurt am Main. We made use of the option of not disclosing the equity and net<br />
income for the past financial year, as provided for by Article 313, section 3, No. 1 of the<br />
German Commercial Code.<br />
The consolidated financial statements at October 31, 2003 will be filed with the<br />
Commercial Register at the District Court in Frankfurt am Main (HR B 52491).<br />
A “Declaration of Conformity” in accordance with Article 161 of the German Stock<br />
Corporation Act (AktG) was submitted by <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> and is permanently<br />
accessible to shareholders at the Company’s internet site.<br />
Segment reporting<br />
The private equity operations of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> are conducted on a global<br />
basis, i.e. without differentiating between segments, for instance, geographical or<br />
industrial segments. Segment information is therefore not reportable.<br />
Frankfurt am Main, December 1, 2003<br />
The Board of Management<br />
Wilken Freiherr von Hodenberg Torsten Grede<br />
Helmut Irle Reinhard Löffler
AUDITORS’ REPORT<br />
We have audited the consolidated financial statements and the group management<br />
report prepared by the Company <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> for the business year from<br />
1 November 2002 to 31 October 2003. The preparation of the consolidated financial<br />
statements and the group management report in accordance with German commercial<br />
law are the responsibility of the company's management. Our responsibility is to express<br />
an opinion on the consolidated financial statements and the group management report<br />
based on our audit.<br />
We conducted our audit of the consolidated annual financial statements in accordance<br />
with § 317 HGB (“Handelsgesetzbuch” – German Commercial Code) and the<br />
German generally accepted standards for the audit of financial statements promulgated<br />
by the Institut der Wirtschaftsprüfer in Deutschland (IDW). Those standards require that<br />
we plan and perform the audit such that misstatements materially affecting the presentation<br />
of the net assets, financial position and results of operations in the consolidated<br />
financial statements in accordance with German principles of proper accounting and in<br />
the group management report are detected with reasonable assurance. Knowledge of<br />
the business activities and the economic and legal environment of the group and evaluations<br />
of possible misstatements are taken into account in the determination of audit<br />
procedures. The effectiveness of the accounting-related internal control system and the<br />
evidence supporting the disclosures in the consolidated financial statements and the<br />
group management report are examined primarily on a test basis within the framework<br />
of the audit. The audit includes assessing the annual financial statements of the companies<br />
included in consolidation, the determination of the companies to be included in<br />
consolidation, the accounting and consolidation principles used and significant estimates<br />
made by management, as well as evaluating the overall presentation of the<br />
consolidated financial statements and the group management report. We believe that<br />
our audit provides a reasonable basis for our opinion.<br />
Our audit has not led to any reservations.<br />
In our opinion, the consolidated financial statements give a true and fair view of the<br />
net assets, financial position and results of operations of the Group in accordance with<br />
German principles of proper accounting. On the whole, the group management report<br />
provides a suitable understanding of the Group's position and suitably presents the risks<br />
of future development.<br />
Frankfurt am Main, December 19, 2003<br />
KPMG <strong>Deutsche</strong> Treuhand-Gesellschaft<br />
Aktiengesellschaft<br />
Wirtschaftsprüfungsgesellschaft<br />
(Bose) (Janus)<br />
Wirtschaftsprüfer Wirtschaftsprüfer<br />
(German Public Auditor) (German Public Auditor)<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Auditors’ Report<br />
85
86<br />
REPORT OF THE SUPERVISORY BOARD<br />
In financial year 2002/2003, the Supervisory Board regularly fulfilled the assignments<br />
and responsibilities imposed by law and by the Articles of Association and monitored the<br />
Company’s position and progress. The Supervisory Board supported the Board of Management<br />
in an advisory capacity concerning its intended business policy and other fundamental<br />
issues regarding the future conduct of the Company’s business, and oversaw<br />
the management of the Company’s business. The Supervisory Board was kept informed,<br />
both verbally and in writing, about significant business transactions.<br />
In six meetings, the Supervisory Board extensively dealt with the Company’s position,<br />
with completed and proposed investments and sales, the annual financial statements,<br />
the monitoring of existing investments, personnel issues relating to the Board of Management,<br />
and the Board of Management’s risk management and surveillance system.<br />
The Supervisory Board reviewed significant business transactions and made decisions on<br />
transactions requiring its endorsement.<br />
The Supervisory Board directed particular attention to the furtherance of corporate<br />
governance practices and actively participated in developing the Declaration of Conformity<br />
to the German Corporate Governance Code. In some instances, the Board changed<br />
its rules of procedure to meet the recommendations and suggestions of the Code.<br />
Between regular meetings, the Chairman of the Supervisory Board maintained close<br />
contact with the Board of Management concerning the Company’s business development<br />
and specific portfolio companies. The Supervisory Board received reports on these issues<br />
(item 5.2 of the German Corporate Governance Code).<br />
The Executive Committee, consisting of the Chairman and the Vice Chairman of the<br />
Supervisory Board and Dr. Binder, convened four times this past financial year. The Chairman<br />
of the Supervisory Board has the chair on the Executive Committee. This Committee<br />
is a consultant to the Supervisory Board on personnel issues regarding the Board of<br />
Management; it is responsible for employment contracts of the members of the Board<br />
of Management and amendments to such contracts.<br />
In addition to the Executive Committee, the Supervisory Board had resolved to form<br />
an Audit Committee. The Audit Committee consists of six members of the Supervisory<br />
Board; a minimum of three members forms a quorum. Prof. Rolf-Dieter Leister has the<br />
chair. The Audit Committee, in particular, dealt with issues concerning the accounting<br />
and the risk management, the required independence of the auditors, the commissioning<br />
of the audit assignment to the auditors, the determination of focal points of the audit<br />
and audit fees. The Audit Committee had no objections to raise to the Company’s current<br />
practice.<br />
In financial year 2002/2003, the Supervisory Board developed methods to evaluate its<br />
own work and has implemented these methods for the first time beginning this current<br />
financial year (item 5.6 of the Code). The remuneration of the Supervisory Board members,<br />
which, in addition to fixed emoluments, is linked to dividends paid, is planned to<br />
be converted to a new system (item 5.4.5 of the Code); a recommendation will be presented<br />
to shareholders at the 2004 Annual Meeting.
The financial statements of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> for financial year 2002/2003<br />
and management’s report were audited and endorsed with an unqualified certificate by<br />
KPMG <strong>Deutsche</strong> Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft,<br />
Frankfurt am Main, who were appointed as auditors at the previous Annual Meeting.<br />
The same applies to the consolidated financial statements for financial year 2002/2003.<br />
In his report, the auditor also discussed the Board of Management’s risk management<br />
and surveillance system and found it suitable for early identification of developments<br />
that may endanger the Company’s existence.<br />
Helmut Irle will be leaving the Board of Management of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
on the best of terms and by mutual agreement at the end of January 2004. The Supervisory<br />
Board extends its thanks to Mr. Irle for his valuable contributions. Joining the<br />
Board of Management are the Company's long-standing staff members and Senior Vice<br />
Presidents André Mangin and Dr. Rolf Scheffels, who the Supervisory Board appointed<br />
effective January 1, 2004. Commencing February 1, 2004, the Board of Management of<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> will thus consist of Wilken Freiherr von Hodenberg (Spokesman),<br />
Torsten Grede, Reinhard Löffler, André Mangin, and Dr. Rolf Scheffels.<br />
With the Board of Management and in the presence of the auditors, the Supervisory<br />
Board reviewed in detail the financial statements at October 31, 2003, management’s<br />
report on <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>, the consolidated financial statements and the Group<br />
management report, as well as the recommendation for the appropriation of profits.<br />
The auditors reported on the results of their audit in general and on specific focal points<br />
of their audit and provided in-depth information to inquiries by the members of the<br />
Supervisory Board. There were no objections raised. The Supervisory Board approved<br />
the financial statements of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> and the consolidated financial<br />
statements of the Group in its meeting on January 23, 2004, which are thus adopted.<br />
The Supervisory Board approved the recommendation for the appropriation of profits.<br />
The Supervisory Board wishes to thank to the Board of Management and the entire<br />
staff of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> in recognition of their performance and commitment<br />
in the past financial year.<br />
Frankfurt am Main, January 23, 2004<br />
The Supervisory Board<br />
Prof. Dr. Dieter Feddersen<br />
Chairman<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Report of the Supervisory Board<br />
87
88<br />
DECLARATION OF CONFORMITY PURSUANT<br />
TO ARTICLE 161 OF THE GERMAN STOCK<br />
CORPORATION ACT<br />
The Board of Management and the Supervisory Board declare that <strong>Deutsche</strong> <strong>Beteiligungs</strong><br />
<strong>AG</strong> will principally comply with the recommendations issued by the Government<br />
Commission on the German Corporate Governance Code as amended on May 21, 2003.<br />
For the period between the last Declaration of Conformity dated December 18, 2002<br />
and to<strong>day</strong>, we have also principally complied with the recommendations of the Corporate<br />
Governance Code issued November 7, 2002.<br />
The following constitutes the deviations:<br />
• For members of the Board of Management and the Supervisory Board, D&O insurance<br />
did not and currently does not provide for a deductible (item 3.8 of the Code).<br />
Standards concerning the amount and application of a deductible have still not been<br />
developed. We will come back to this issue as soon as trends in that direction are<br />
perceptible.<br />
• We will not follow the recommendation of publishing the emoluments of members<br />
of the Board of Management on an individualized basis (item 4.2.4 of the Code).<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> gives priority to individual Board members’ right to data<br />
privacy. The Code had previously classified this recommendation as a suggestion,<br />
which we had chosen not to follow for the reasons stated.<br />
• The Code recommends that the remuneration of Supervisory Board members ac<strong>counts</strong><br />
for service on Board committees (item 5.4.5 of the Code). We currently do not follow<br />
this recommendation and did not follow it in the past, since this would necessitate a<br />
change to the company’s Supervisory Board remuneration structure. However, we will<br />
present a resolution to that effect at the next Annual Meeting of Shareholders. That<br />
will create transparency in the remuneration paid to Supervisory Board members; however,<br />
similar to the policy for Management Board members, a separate listing of individualized<br />
remuneration will not be published in the Annual Report.<br />
• For the time being, we will continue to base our accounting on the principles of the<br />
German Commercial Code and not present financial statements in conformity with<br />
international accounting standards (item 7.1.1 of the Code), which we had also not<br />
done in the past. The special principles of the International Financial Reporting Standards<br />
(IFRS) that apply to us as a so-called investment company have not yet been<br />
adopted at the time this Declaration was issued in November 2003. We seek to avoid<br />
drawing up our financial statements on a provisional basis. In anticipation of the<br />
transition to the IFRS, we do, however, report portfolio valuations determined in conformity<br />
with valid IFRS fair-value principles, thereby presenting the relevant information<br />
to our shareholders as would be disclosed by IFRS-formatted accounting. This<br />
was also our policy in the past.<br />
• We endeavor to comply with the recommendation of presenting the annual financial<br />
statements within 90 <strong>day</strong>s of the close of a financial year (item 7.1.2 of the Code),<br />
beginning with the financial statements for financial year 2002/2003. The annual<br />
financial statements for 2001/2002 were not presented within this period of time; they<br />
were, however, publicly accessible on the 99th <strong>day</strong>. The interim report at April 30, 2003<br />
was the first to be accessible within the required period of 45 <strong>day</strong>s. We will target<br />
this availability for future interim reports as well.
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Declaration of Conformity to German Governance Code<br />
• We will only conditionally comply with the recommendation of publishing a list of<br />
third-party companies in which <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> holds a material interest<br />
(item 7.1.4 of the Code). This recommendation concerns the core of our business.<br />
Frequently, confidentiality is a contractual stipulation with our business partners. Beyond<br />
that, issuing the required information may, in certain instances, be detrimental to our<br />
portfolio companies. Our compliance with this recommendation was subject to these<br />
reservations in the past.<br />
As in the past, we will, for the most part, comply with the Commission’s suggestions.<br />
The following constitutes an exception:<br />
• Electing all members of the Supervisory Board at one date has proved to be good<br />
practice. This serves the continuity of Supervisory Board members‘ work. We will<br />
therefore not follow the suggestion of scheduling elections at various dates (item<br />
5.4.4 of the Code).<br />
Frankfurt am Main, November 25, 2003<br />
89
90<br />
INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES<br />
AT OCT. 31, 2003 IN ACCORDANCE WITH ART. 131,<br />
SECTION 4, GERMAN COMMERCIAL CODE<br />
Subsidiaries<br />
Name and domicile Equity share<br />
of company in %<br />
• DBG Auslandsbeteiligungen GmbH & Co. KG, Frankfurt am Main 100.00*<br />
– <strong>Deutsche</strong> <strong>Beteiligungs</strong>gesellschaft mbH, Königstein/Taunus 100.00*<br />
• DBG <strong>Beteiligungs</strong>gesellschaft mbH, Frankfurt am Main 100.00<br />
• DBV Drehbogen GmbH, Frankfurt am Main 100.00<br />
• Duodecima <strong>Beteiligungs</strong> GmbH, Frankfurt am Main 100.00<br />
• DBG Second Equity Team GmbH & Co. KGaA, Frankfurt am Main 100.00<br />
• DBG Third Equity Team GmbH & Co. KGaA, Frankfurt am Main 100.00<br />
• DBG Fourth Equity International GmbH, Frankfurt am Main 100.00<br />
• DBG Fifth Equity International GmbH, Frankfurt am Main 100.00*<br />
– DBG Advisors GmbH & Co. KG, Frankfurt am Main 33.33*<br />
• DBG Fourth Equity Team GmbH & Co. KGaA 1.00*<br />
• DBG Fifth Equity Team GmbH & Co. KGaA 100.00<br />
• DBG Epsilon GmbH, Frankfurt am Main 100.00<br />
• DBG Lambda GmbH, Frankfurt am Main 100.00<br />
• DBG Zeta GmbH, Frankfurt am Main 100.00<br />
• UI <strong>Beteiligungs</strong> GmbH, Frankfurt am Main 100.00<br />
• DBG Eastern Europe Management Ltd., St. Helier, Jersey 50.01<br />
• DBG UK Management Ltd., London, Great Britain 100.00<br />
• DBG Development Capital Eastern Europe Ltd., St. Helier, Jersey 100.00<br />
• DBG Management GmbH & Co. KG, Frankfurt am Main 100.00*<br />
• Undecima <strong>Beteiligungs</strong> GmbH 100.00*<br />
– DBG Fourth Equity Team GmbH & Co. KGaA 99.00*<br />
• DBG Kappa GmbH 100.00<br />
– DBG Theta GmbH 100.00<br />
• DBG Jota GmbH 98.80<br />
• Gizeh Verpackungen <strong>Beteiligungs</strong>-GmbH, Bergneustadt 99.67<br />
* fully consolidated<br />
Investments in companies in which voting shares of 20 % to 50 % are held<br />
Name and domicile Equity share<br />
of company in %<br />
• Bauer <strong>AG</strong>, Schrobenhausen 41.15<br />
• Bowa <strong>Beteiligungs</strong>gesellschaft mbH & Co. KG, Bielefeld 49.00<br />
• Bowa Geschäftsführungs GmbH, Bielefeld 49.00<br />
• HT Engineering GmbH 32.62<br />
• DS Technologie Holding GmbH, Mönchengladbach 39.62<br />
• EUVITA Holding GmbH & Co. KG, Ehrenkirchen 49.30<br />
• EUVITA Holding Verwaltungs GmbH, Ehrenkirchen 49.20<br />
• Grohmann Engineering GmbH, Prüm 25.10<br />
• Hörmann GmbH & Co. <strong>Beteiligungs</strong> KG, Kirchseeon 28.00<br />
• Lignum Technologie <strong>AG</strong>, Schopfloch 21.37<br />
• Q.P.O.N. <strong>Beteiligungs</strong> GmbH 50.00*<br />
• Quartus Gestion S.A., Paris, France 35.00<br />
• RQPO <strong>Beteiligungs</strong> GmbH, Frankfurt am Main 49.00<br />
• RQPO <strong>Beteiligungs</strong> GmbH & Co. Papier KG, Frankfurt am Main 44.10<br />
• Zapf GmbH, Bayreuth 44.64<br />
* proportionately consolidated<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Investments in subsidiaries and associates at Oct. 31, 2003<br />
in accordance with Art. 131, section 4, German Commercial Code
Statutory offices<br />
Comparable offices in<br />
Germany and internationally<br />
Statutory offices<br />
Comparable offices in<br />
Germany and internationally<br />
Statutory offices<br />
Comparable offices in<br />
Germany and internationally<br />
Comparable offices in<br />
Germany and internationally<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Members of the Supervisory Board and Board of Management<br />
MEMBERS OF THE SUPERVISORY BOARD<br />
AND BOARD OF MAN<strong>AG</strong>EMENT<br />
Supervisory Board<br />
Prof. Dr. Dieter Feddersen, Kronberg (Chairman)<br />
Attorney<br />
Drägerwerk <strong>AG</strong>, Lübeck (Chairman)<br />
SAI Automotive <strong>AG</strong>, Frankfurt am Main (Chairman)*<br />
Sauerborn Trust <strong>AG</strong>, Bad Homburg (Vice Chairman)<br />
Tarkett Sommer <strong>AG</strong>, Frankenthal (Chairman)<br />
Gesellschaft für Industriebeteiligungen Dr. Joachim Schmidt <strong>AG</strong> & Co. Holding KG,<br />
Berlin (Chairman)<br />
Karl Munte Bauunternehmung GmbH & Co. KG, Braunschweig (Chairman)<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong>gesellschaft Fonds III GmbH, Frankfurt am Main (Chairman)<br />
Prof. Dr. h.c. Rolf-Dieter Leister, Luzern (Vice Chairman)<br />
Economic Advisor<br />
Berlinwasser Holding <strong>AG</strong>, Berlin (Chairman)<br />
BÖWE Systec <strong>AG</strong>, Augsburg<br />
DaimlerChrysler Services (debis) <strong>AG</strong>, Berlin<br />
Loewe <strong>AG</strong>, Kronach<br />
Südwestdeutsche Medien Holding GmbH, Stuttgart<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong>gesellschaft Fonds III GmbH, Frankfurt am Main<br />
(Vice Chairman)<br />
Dr. Hans-Peter Binder, Berg<br />
Former Managing Director of <strong>Deutsche</strong> Bank <strong>AG</strong><br />
Dierig Holding <strong>AG</strong>, Augsburg (Chairman)<br />
Faber-Castell <strong>AG</strong>, Stein/Nuremberg (Vice Chairman)<br />
Knorr-Bremse <strong>AG</strong>, Munich (Chairman)<br />
Knorr-Bremse Systeme für Nutzfahrzeuge GmbH, Munich<br />
Osram GmbH, Munich (until January 27, 2003)<br />
Saint-Gobain Oberland <strong>AG</strong>, Bad Wurzach<br />
SCA Hygiene Products <strong>AG</strong>, Munich<br />
A.W. Faber-Castell Unternehmensverwaltung GmbH & Co., Stein/Nuremberg<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong>gesellschaft Fonds III GmbH, Frankfurt am Main<br />
Eberhard Buschmann, Munich<br />
Spokesman of the Board of Management of Wilhelm von Finck <strong>AG</strong><br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong>gesellschaft Fonds III GmbH, Frankfurt am Main<br />
*This office comes under the transitional provision of Art, 12 EGAktG (German Introductory Law to Stock Corporation Act).<br />
Statutory offices: offices held on other statutory supervisory boards.<br />
Comparable offices in Germany and internationally: offices held on comparable domestic and international supervisory bodies<br />
of commercial enterprises, at October 31, 2002, respectively.<br />
91
92<br />
Statutory offices<br />
Comparable offices in<br />
Germany and internationally<br />
Comparable offices in<br />
Germany and internationally<br />
Statutory offices<br />
Comparable offices in<br />
Germany and internationally<br />
Statutory offices<br />
Comparable offices in<br />
Germany and internationally<br />
Dr. Fritz Lehnen, Ratingen (as of March 27, 2003)<br />
Member of the Board of Management of mg technologies <strong>AG</strong> (until October 2, 2003)<br />
Dynamit Nobel <strong>AG</strong>, Troisdorf (until October 31, 2003)<br />
GEA <strong>AG</strong>, Bochum (Chairman, until November 3, 2003)<br />
Lurgi <strong>AG</strong>, Frankfurt am Main (Chairman, until November 7, 2003)<br />
Lurgi Lentjes <strong>AG</strong>, Düsseldorf (until October 31, 2003)<br />
Polyamid 2000 <strong>AG</strong>, Premnitz (until October 30, 2003)<br />
Vaillant GmbH, Remscheid (as of May 10, 2003)<br />
Zimmer <strong>AG</strong>, Frankfurt am Main (Chairman, until November 3, 2003)<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong>gesellschaft Fonds III GmbH, Frankfurt am Main<br />
(as of March 27, 2003)<br />
Walter Schmidt, Kaarst (as of March 27, 2003)<br />
Managing Director of Gerling Gesellschaft für Vermögens-Management mbH and of<br />
GERLING INVESTMENT Kapitalanlage GmbH<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong>gesellschaft Fonds III GmbH, Frankfurt am Main<br />
(as of March 27, 2003)<br />
Stefan L. Volk, Cologne (as of March 27, 2003)<br />
Former member of the Board of Management of Gerling Versicherungs-<strong>Beteiligungs</strong> <strong>AG</strong><br />
(until November 15, 2002)<br />
SINEUS <strong>AG</strong>, Hamburg (Chairman, until November 21, 2002)<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong>gesellschaft Fonds III GmbH, Frankfurt am Main<br />
(until March 27, 2003)<br />
Prof. Dr. Hans-Jürgen Warnecke, Weil der Stadt (until March 27, 2003)<br />
Former President of Fraunhofer-Gesellschaft (until September 30, 2002)<br />
Deutz <strong>AG</strong>, Cologne<br />
Dynamit Nobel <strong>AG</strong>, Troisdorf<br />
Howaldtswerke-<strong>Deutsche</strong> Werft <strong>AG</strong>, Kiel (until July 30, 2003)<br />
Jenoptik <strong>AG</strong>, Jena<br />
Microlog Logistics <strong>AG</strong>, Lorsch (until May 31, 2003)<br />
MAN Roland <strong>AG</strong>, Offenbach (until May 31, 2003)<br />
Mahle GmbH, Stuttgart<br />
Wanderer-Werke <strong>AG</strong>, Augsburg<br />
Rohde & Schwarz Meßgerätebau GmbH, Memmingen<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong>gesellschaft Fonds III GmbH, Frankfurt am Main<br />
(until March 27, 2003)
Statutory offices<br />
Comparable offices in<br />
Germany and internationally<br />
Comparable offices in<br />
Germany and internationally<br />
Statutory offices<br />
Comparable offices in<br />
Germany and internationally<br />
Statutory offices<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Members of the Supervisory Board and Board of Management<br />
Board of Management<br />
Wilken Freiherr von Hodenberg, Königstein/Taunus (Spokesman)<br />
Edscha <strong>AG</strong>, Remscheid (until February 14, 2003)<br />
Unternehmens Invest <strong>AG</strong>, Vienna (Chairman)<br />
UNIVEST <strong>AG</strong>, Vienna (Chairman)<br />
Giga-Stream GmbH, Saarbrücken<br />
JCK Holding GmbH Textil KG, Quakenbrück<br />
Quartus Gestion S.A., Paris<br />
DBG Osteuropa-Holding GmbH, Frankfurt am Main (Chairman)<br />
Torsten Grede, Frankfurt am Main<br />
Hochtemperatur Engineering GmbH, Mainz-Kastel (as of December 16, 2002, Chairman)<br />
Grohmann Engineering GmbH, Prüm<br />
Otto Sauer Achsenfabrik Keilberg, Bessenbach-Keilberg (Vice Chairman)<br />
Helmut Irle, Unterhaching<br />
Bauer <strong>AG</strong>, Schrobenhausen (Vice Chairman)<br />
AKsys <strong>Beteiligungs</strong> GmbH, Worms (as of April 30, 2003, Chairman)<br />
Faist Automotive GmbH & Co. KG, Krumbach (until November 14, 2002, Vice Chairman)<br />
Hörmann GmbH & Co. <strong>Beteiligungs</strong> KG, Kirchseeon (Vice Chairman)<br />
Zapf GmbH, Bayreuth (Chairman)<br />
Reinhard Löffler, Weil der Stadt<br />
Hucke <strong>AG</strong>, Lübbecke<br />
Lignum Technologie <strong>AG</strong>, Schopfloch<br />
MHM Modeholding <strong>AG</strong>, Düsseldorf (until April 29, 2003, Vice Chairman)<br />
schlott gruppe <strong>AG</strong>, Freudenstadt<br />
transtec <strong>AG</strong>, Tübingen (Vice Chairman)<br />
Victorvox <strong>AG</strong>, Krefeld (Vice Chairman)<br />
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94<br />
Buy-and-build<br />
Carried interest<br />
Cash flow<br />
Closing<br />
Co-investment<br />
Corporate Governance<br />
D&O insurance<br />
Designated sponsor<br />
Due diligence<br />
EBIT<br />
Equity<br />
Exit<br />
Fair disclosure<br />
Fair value<br />
Free float<br />
Fund of funds<br />
General Standard<br />
IFRS<br />
Investor Relations<br />
Lead investor<br />
Lock-up period<br />
M&A market<br />
Market capitalization<br />
GLOSSARY<br />
Concept by which a new company is built, often in a fragmented market: an existing<br />
business serves as the platform and is complemented by add-on acquisitions to form a<br />
significantly larger entity.<br />
Profit-sharing for investment managers linked to the performance of investments. This is<br />
usually subject to a minimum return target and is only paid at a fixed ratio upon<br />
exceeding that performance target.<br />
Indicator used to measure a company’s financial and earnings position.<br />
End of subscription period for a (private equity) fund.<br />
Investment in a business by several investors, one of whom acts as the lead investor.<br />
Standards for the management and supervision of companies defining the spheres of<br />
accountability for Shareholders, Management Boards and Supervisory Boards of public<br />
companies. These standards aim at early identification of undesirable developments and<br />
the prevention of critical situations in a company.<br />
Directors and Officers’ Liability Insurance; an insurance for members of the Supervisory<br />
Board and Board of Management of legal entities covering legal liabilities for wrongful<br />
acts committed in their capacities as Management and Supervisory Board members.<br />
Designated sponsors ensure a minimum amount of liquidity of a certain stock in Xetra<br />
trading by offering binding quotes for the purchase and sale of that stock.<br />
An analysis of the earnings position and business situation as well as recent financial<br />
statements by which an investor wishes to obtain background information on a target<br />
company in order to arrive at an informed purchase decision.<br />
Abbreviation for earnings before interest and taxes. EBIT is an earnings indicator, determined<br />
from the net income before taxes, the net interest and extraordinary earnings.<br />
Eliminating these factors provides a more comparable statement on a company’s operative<br />
performance, independent of its individual equity structure.<br />
The residual interest in the assets of a company after deducting all its liabilities.<br />
The sale of an investment from an investor’s portfolio by either a trade sale, an initial<br />
public offering (IPO) or a secondary buyout.<br />
Simultaneously communicating corporate information to all market participants required<br />
to assess a certain stock.<br />
Valuation reserves per share plus the equity per share.<br />
The sum of all shares of a company not held in firm hands, or, in other words, the marketable<br />
portion of a company’s stock.<br />
Investment funds that invest in other funds.<br />
Segment governed by the statutory minimum requirements of the Official or Regulated<br />
Unofficial Market.<br />
Accounting standards that will be obligatory for quoted companies in the European<br />
Union. The IFRS (International Financial Reporting Standards) are the European offshoot<br />
of the IAS (International Accounting Standards).<br />
Activities directed toward promoting relationships between a company and its existing<br />
or potential investors.<br />
In a syndicate of investment companies generally the investor holding the largest share,<br />
who takes charge of organizing the financing and coordinating the transaction. In a<br />
fund investment, the investor holding the largest interest.<br />
Period of time during which existing shareholders commit not to sell shares from their<br />
holdings following an IPO. This is aimed at protecting new shareholders from<br />
downslides in stock prices caused by the sale of large blocks of shares after a new issue.<br />
Mergers & Acquisitions; market for negotiating businesses or shares of businesses to<br />
buyers and sellers.<br />
Current stock market value of a class of shares: number of issued shares multiplied by<br />
the current price.
MBO<br />
Multiples method<br />
Official Market<br />
Parallel fund<br />
Peer group<br />
Portfolio<br />
Prime Standard<br />
Private equity<br />
Public to private<br />
Regulated Unofficial Market<br />
Return on equity<br />
S-Dax performance index<br />
Secondary buyout<br />
Silent partnership<br />
Spin-off<br />
Stock option<br />
Track record<br />
Trade sale<br />
Turn-around<br />
Valuation reserves<br />
Venture capital<br />
Xetra<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> · Annual Report 2002/2003<br />
Glossary<br />
Management buyout; the takeover of a company by managers presently employed by<br />
that company.<br />
A procedure used to measure the enterprise value; determined by multiplying a relevant<br />
performance indicator (e.g. earnings) by a multiple derived from current market prices.<br />
This multiple is determined from the quotient of a peer group and its respective performance<br />
indicators.<br />
(Amtlicher Markt) Primary tier of the German Stock Exchange that sets high standards<br />
for admittance.<br />
Also: co-investment fund. A third-party fund that co-invests (usually by a fixed percentage)<br />
alongside another investor; at <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>: the funds managed by<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
A group of companies similar in terms of industrial sector, structure, products, and sales,<br />
used for comparison purposes.<br />
All the holdings of an investment company.<br />
Segment on the German Stock Exchange with high standards of transparency. Admission<br />
to the Prime Standard is a prerequisite for inclusion in one of the stock indices, such as<br />
the S-Dax.<br />
Capital provided to non-quoted companies for the mid to long-term.<br />
Delisting of a formerly quoted company; also referred to as taking private.<br />
(Geregelter Markt) Entry level of the German Stock Exchange with only few formal<br />
admission standards.<br />
Indicator used in assessing the business performance of a company; the profit delivered<br />
to the owners is expressed as a percentage of the equity available at the beginning of a<br />
financial year.<br />
Selection index of the German Stock Exchange for smaller companies from classical<br />
sectors of the economy. Comes after the stocks indexed in the M-Dax and consists of<br />
50 stocks admitted to the Prime Standard of the Official Market or Regulated Unofficial<br />
Market.<br />
The investment company and MBO managers sell to the next generation of managers.<br />
A silent partnership usually having a fixed term, fixed interest rate and defined performance-related<br />
components; not subject to public disclosure.<br />
The splitting off of a division or subsidiary from a large corporation.<br />
A security granting the purchase of a company’s stock at a fixed price (or a price determined<br />
on the basis of a certain scheme). At <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> – similar to many<br />
other quoted companies – a part of the staff’s emoluments.<br />
A record of performance by a company or an entrepreneur or manager.<br />
An exit variant: the sale of an investment to a company operating in the same branch<br />
of industry that wants to complement its portfolio, expand its market presence or<br />
achieve other strategic goals.<br />
The restructuring of a business to achieve profitability again. In some cases, the business<br />
will start off anew with a new management and/or a revised product range.<br />
The difference between the book value in conformity with the German Commercial<br />
Code (acquisition cost or lower) and the current market value.<br />
Risk capital; mostly private capital provided to start-ups or emerging businesses.<br />
Electronic market trading system.<br />
95
96<br />
January 29, 2004<br />
March 18, 2004<br />
June 14, 2004<br />
June 2004<br />
September 14, 2004<br />
December 2004<br />
January 2005<br />
Shareholder information<br />
Status<br />
Financial Calendar<br />
Annual Press Conference<br />
Analysts’ Conference Call<br />
Annual Meeting 2004<br />
Report on the First Quarter<br />
Analysts’ Conference Call<br />
Report on the Second Quarter/First Six Months<br />
Analysts’ Conference Call<br />
Analysts’ Conference<br />
Report on the Third Quarter<br />
Analysts’ Conference Call<br />
German Mid Cap Conference<br />
Annual Press Conference<br />
Imprint<br />
Annual Report 2002/2003<br />
Published by the Board of Management of <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
Editing and coordination: Thomas Franke<br />
Design and production: Golin/Harris B&L GmbH, Frankfurt am Main<br />
English translation: Barbara Ziegner, Frankfurt am Main<br />
Photography: Stefan Döberl, Darmstadt<br />
Typography and lithography: Studio Oberländer, Frankfurt am Main<br />
Printed by Frotscher Druck, Darmstadt<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
Investor Relations and Public Relations<br />
Kleine Wiesenau 1<br />
D-60323 Frankfurt am Main<br />
Telephone: + 49 (69) 9 57 87-307<br />
Fax: + 49 (69) 9 57 87-391<br />
E-Mail: IR@deutsche-beteiligung.de<br />
Internet: www.deutsche-beteiligung.de<br />
December 31, 2003<br />
The Annual Report is published in German and in English. The German version of this<br />
report is authoritative.<br />
Forward-looking statements<br />
This report contains forward-looking statements related to the prospects and progress of<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>. These statements are based on assumptions and information<br />
currently available. Although we believe these forward-looking statements to be realistic,<br />
there can be no guarantee. Our assumptions are subject to risks and uncertainties, and<br />
actual results may vary materially. These include fluctuations on capital markets, in currency<br />
exchange rates and interest rates, or principal changes in the business environment.<br />
An up-date on these forward-looking statements is not planned.<br />
© <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> 2003<br />
Printed on non-chlorine bleached paper.
FIVE-YEAR FINANCIAL SUMMARY<br />
in millions of € 2002/03 2001/02 2000/01 1999/00 1 1998/99 1<br />
Investment position<br />
Investments 30 29 31 101 57<br />
Portfolio volume 300 313 311 324 275<br />
Investments (number) 43 49 49 50 47<br />
Income position<br />
EBIT 7.7 –10.4 9.2 46.1 45.5<br />
Result of ordinary activity 4.4 –15.9 6.4 43.0 42.5<br />
Net income/loss after taxes 3.1 –15.8 9.2 32.1 37.5<br />
Earnings per share in € 0.22 –1.13 0.65 2.56 2 3.13<br />
Dividends in € none 3 none 0.50 1.80 1.79<br />
Financial position<br />
Cash flow 4 13 11 20 43 39<br />
Cash flow 4 per share in € 0.96 0.77 1.40 3.44 3.26<br />
Depreciation and amortization 5 17 27 12 17 2<br />
Working capital 6 –9 –6 –5 –3 18<br />
Assets<br />
Long-term assets 258 271 292 253 231<br />
Current assets 34 36 38 40 53<br />
thereof, liquid funds at Oct. 31 7 5 0 7 0 0<br />
Equity 158 155 179 198 129<br />
in % of total assets 54 51 54 68 45<br />
Provisions 19 17 25 24 32<br />
Liabilities 114 135 126 71 123<br />
in % of total assets 39 44 38 24 43<br />
Total assets 292 307 330 292 285<br />
Return ratios<br />
Return on equity 8 in % (before taxes) 2.8 n.a. 3.7 40.0 46.4<br />
Return on equity 9 in % (after taxes) 2.0 n.a. 5.3 29.8 41.0<br />
Return on total capital employed 10 in % 2.6 n.a. 2.8 16 16<br />
Employees<br />
Number of employees 50 51 50 50 49<br />
Personnel costs 7.6 7.6 8.8 10 9<br />
1 The information for the financial years of 1998/99 and 1999/2000 exclusively relates to <strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong>, not to the Group<br />
2 Weighted average number of shares outstanding<br />
3 Recommended by Board of Management and Supervisory Board<br />
4 Result of period plus write-downs/write-ups on long-term assets<br />
5 Write-downs on investments and depreciation on fixed assets, amortization of intangible assets<br />
6 Working capital (current assets less current liabilities and current provisions)<br />
7 Securities and cash in bank<br />
8 Return on equity: earnings before income taxes divided by equity less dividends at end of previous year<br />
9 Return on equity: earnings after income taxes divided by equity less dividends at end of previous year<br />
10 Return on total capital employed: equity earnings before income taxes plus interest divided by total assets
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong><br />
Kleine Wiesenau 1<br />
D-60323 Frankfurt am Main<br />
Telephone: +49 (69) 9 57 87-01<br />
Telefax: +49 (69) 9 57 87-199<br />
www.deutsche-beteiligung.de<br />
ISIN DE 0005508105<br />
Registered office:<br />
Frankfurt am Main<br />
Incorporated in the Commercial Register<br />
at the District Court in Frankfurt am Main<br />
HRB No. B 52 491<br />
For more information please contact<br />
Thomas Franke<br />
Investor Relations<br />
1619-3423<br />
IR@deutsche-beteiligung.de<br />
Telephone: +49 (69) 9 57 87-307 ISSN<br />
<strong>Deutsche</strong> <strong>Beteiligungs</strong> <strong>AG</strong> Annual Report 2002/2003