DBAG Group net profit: 12.6 million euros after nine months
Frankfurt am Main — Deutsche Beteiligungs AG (DBAG) closes the first nine months of financial year 2018/2019 with consolidated earnings of 12.6 million euros. The reason for the significant decline compared to the corresponding period of the previous year, when consolidated net income amounted to 27.7 million euros, is the lower result from the investment business: A lower valuation result could not be fully compensated by positive earnings contributions from disposals.
In its 2018/2019 half-year report, DBAG had reported that most portfolio companies had budgeted for higher revenues and earnings in 2019 and considered themselves to be on a good track. This has not changed in principle. In the meantime, however, there have been increasing signs of a slowdown in economic momentum — partly due to the simmering global trade conflicts. This leads to lower than expected earnings at some portfolio companies and thus has a negative impact on the valuation of the portfolio companies and earnings from the investment business. In the third quarter of the current fiscal year in particular, there was also a negative earnings contribution from the change in the debt of the portfolio companies. In the case of one portfolio company, for example, the financing of an acquisition had impacted its leverage ratio and subsequently its valuation.
However, the fact that DBAG’s portfolio is diversified is paying off. “The economic slowdown in various sectors contrasts with positive developments at portfolio companies in other sectors. For example, investments in the telecommunications sector with a focus on fast internet have recently developed very positively,” states DBAG’s quarterly statement published today. On balance, the operating performance of the portfolio companies, i.e. the change in earnings and debt, contributed 6.2 million euros to earnings in the first nine months, compared with 13.3 million euros in the corresponding prior-year period.
The disposals of the shareholdings in Infiana and Novopress, which were agreed after the reporting date, made a positive contribution of 13.7 million euros to the consolidated result. In both cases, the proceeds from the sale exceeded the carrying amount of the investments as of March 31, 2019. The corresponding value contributions were included in the valuation of the two investments as of June 30, 2019. “The recently announced disposals once again underline the success of our investment activities,” commented Susanne Zeidler, CFO of DBAG, in connection with the publication of the quarterly financial statements. And he continues: “In both cases, we have multiplied the capital invested. Our success is therefore not reflected in the valuation result of a single quarter, but is only determined after several years, when we sell an investment again.”
At the beginning of the current financial year, the partly massive decline in the earnings multiples of listed peer companies, which DBAG uses to value its portfolio companies, had a strong impact on consolidated earnings. Following a significant recovery in valuation multiples in the second and third quarters, this capital market effect was again almost neutral as of June 30, 2019.
Earnings before taxes in the Private Equity Investments segment reached 11.0 million euros after the first nine months of the financial year, down 12.5 million euros on the segment result for the same period of the previous year. This was due to significantly lower earnings from the investment business. The fund consulting segment performed worse than planned, with earnings before taxes of 1.6 million euros, compared with 4.2 million euros in the corresponding prior-year period. As expected, income from management and advisory services for DBAG Fund VI, DBAG Fund V and DBAG ECF declined. However, there were also unplanned expenses, higher expenses for uncompleted transactions and higher personnel expenses due to variable compensation for DBAG employees following successful disposals and new investments. Consolidated net income of 12.6 million euros resulted in a return on equity of 3.1 percent in the first nine months.
In view of increasing macroeconomic uncertainties, DBAG reduced its forecast for the current fiscal year on July 10, 2019. Assuming stable valuation conditions on the capital market, it expects consolidated earnings for the 2018/2019 financial year to be at least positive.
DBAG continued to invest alongside DBAG Fund VII in the third quarter of 2018/2019. The MBO of IT services company Cloudflight was the fund’s seventh investment. With the fulfillment of the legal requirements, the investment in the radiology group blikk was also completed in the third quarter. This means that around 65 percent of the investment commitments of DBAG Fund VII, which has been investing in medium-sized companies since December 2016, are committed. “That is why we remain confident about the future,” affirmed CFO Susanne Zeidler. “With these investments, we have laid the foundation for future success.”
Deutsche Beteiligungs AG, a listed company, initiates closed-end private equity funds and invests alongside DBAG funds in well-positioned medium-sized companies with development potential. DBAG focuses on industrial sectors in which German SMEs are particularly strong by international standards. With this experience, know-how and equity, it strengthens the portfolio companies in implementing a long-term, value-enhancing corporate strategy. The entrepreneurial investment approach makes DBAG a sought-after investment partner in the German-speaking region. The capital managed and advised by the DBAG Group amounts to approximately 1.7 billion euros.