Every day counts - Deutsche Beteiligungs AG

10
Disclosure of fair value
Valuation rules at
www.deutsche-beteiligung.de
Our complete valuation rules
are accessible through our
on-line information service.
There has been a change in capital markets’ assessment of our stock in recent years.
We are currently in the midst of a transition phase: since the beginning of the
2002/2003 financial year, we have been reporting the intrinsic value (fair value) of our
shares on a semi-annual basis, disclosing the unrealized value movement that results
from a current valuation of the portfolio in comparison to the book value. This is common
practice in comparable Anglo-Saxon private equity companies. We are thus
responding to a capital market demand which applies the intrinsic value of stock, determined
by internationally acknowledged accounting principles as a measure of performance.
In determining the unrealized appreciation – or valuation reserves – we apply the
rules laid down by the International Financial Reporting Standards (IFRS). The basis for
this is the current market value (fair value) of the portfolio. The valuation reserves represent
the net current value of our investments, which may be higher, or possibly also
lower, than the amounts carried in the balance sheet in conformity with the German
Commercial Code.
Fair value based on IFRS rules
The value of our investments is determined semi-annually in conformity with guidelines
that are based on IFRS rules and approved by our auditors. We apply different
methods to determine the fair value – depending on the type of investment:
• Quoted enterprises are generally valued at their stock market price at the valuation
date; in certain instances, the price may be reduced by a discount.
• If a purchase offer has been submitted for an investment, the valuation will be based
on that offer.
• Valuations may also be based on recent comparable transactions in the market.
• If none of the above procedures is applicable, valuations may be determined by the
multiples method based on income data and peer-group comparisons – meaning that
price/earnings ratios of comparable enterprises are used for the valuation.
• Investments consisting of several different companies are subject to a “sum-of-theparts”
valuation – the valuation is derived by adding the individual sums for the
components of an investment.
• Silent participations are valued at acquisition cost (or, if applicable, their lower market
value); the same applies to loans granted by Deutsche Beteiligungs AG to its portfolio
companies, and to new investments in the first year after acquisition.
The fair value of one share of Deutsche Beteiligungs AG is derived by dividing the
valuation reserves by the number of shares and adding that to the equity per share. The
value of our fund management business (see pages 23 and 64) as well as Deutsche
Beteiligung’s long-standing excellent market position are not reflected in the fair value.
Data based on key figures of investee companies is one constituent in determining the
fair value. Another determinant is the situation on capital markets. Approximately onefifth
of the fair value of our investment portfolio is directly linked to the share price trend
for the companies in question. A decline in prices will lead to a decline in the valuation
reserves, even without our holdings necessarily experiencing a deterioration in their earnings
position – frequently a decisive factor in profitably exiting an investment.