Every day counts - Deutsche Beteiligungs AG

OUR PORTFOLIO – GOOD CROSS
SECTION OF THE MID-MARKET
The portfolio of Deutsche Beteiligungs AG consists of 43
investments. All in all, a group of companies generating sales
of more than eight billion euros annually and employing
nearly 40,000 people. However, the strength of our portfolio
does not lie in the sum total, but in the quality of each and
every investment. Our holdings – established enterprises
well poised in traditionally strong industries – have, for the
most part, held up well this past financial year.
Investment discipline a pillar in crisis-ridden times
Our portfolio investments are exposed to business cycles in two of the world’s large
economic regions: Germany and the countries of the European Union, and the United
States. In 2002/2003, both economic regions registered only minor growth. Germany’s
economy last recorded real growth in the third quarter of 2002. Since then, earnings have
been on the decline in nearly all industries and capacity utilization has dropped. It was
not until the fourth quarter of 2003 – the beginning of the current 2003/2004 financial
year – that the recessionary period in Germany seemed to have come to an end. In the
US, signs of recovery emerged a few months earlier. In the reporting year, the operations
of most of our American portfolio companies met with challenging conditions.
Strict investment discipline pays off especially in difficult business environments. Enterprises
that have strong market positions are frequently less vulnerable in critical cyclical
phases than less profiled competitors. They will target opportunities to consolidate their
market positions and optimize cost structures. That is one key reason why our investments
performed comparatively well in 2002/2003: a large majority anticipates that earnings
will be stable or higher than those of the previous year; many have succeeded in reducing
debt. If the upturn that emerged at year-end 2003 gains further momentum, our
investments should be well placed to achieve superior earnings growth – thereby increasing
their enterprise value. This will be mirrored in the fair value – although with some delay:
an appreciation in value requires earnings stability on a sustained basis. By contrast, an
expected drop in earnings is recognized immediately in our portfolio valuation.
Deutsche Beteiligungs AG · Annual Report 2002/2003
Corporate Review – Investments Portfolio
Fair value follows cyclical trends
with a time lag
27