One of our key objectives is to increase the enterprise value of Deutsche Beteiligungs AG in the long term and to allow you, our shareholders, to participate in this success in the form of stable dividends that increase wherever possible. The figures in the chapter of this Annual Report that looks at our shares demonstrate how we have lived up to this goal. They illustrate how your investment in DBAG shares has developed: an increase in value of just under 60 percent within the space of twelve months and a value that has trebled over a threeyear period. Even over the last ten years, DBAG shares have delivered an average return of 13.5 percent per year – quite a feat in a period in which we experienced a global financial crisis and a dramatic economic slump as a result. In virtually every period analysed, the investment that you, our shareholders, have made in DBAG has clearly outperformed the standard indices.

We made two upward adjustments to our forecast for the last financial year. The most recent expectations were once again exceeded. With net income of 90.4 million euros and a return on equity of 26.5 percent, the last financial year was one of the most profitable in the company’s history. We want you to participate in this success with a dividend of 1.40 euros per share, which once again represents an attractive dividend yield that is well above both the market average and the average for other listed private equity firms.

The successful disposals that we achieved in 2016/2017 were also above-average. We ended six of our investments: each of these portfolio companies had developed further, according to their business strategies, and had realised their potential – for example, by focusing on future technology, concentrating on promising markets, making acquisitions or making their corporate governance more professional. Five of these companies had spent between four and seven years in the portfolio, while the sixth – which is admittedly an exception – had actually been in the portfolio for more than 20 years. Once again, this shows that in our business, success or failure is not something that happens overnight; our business is a long-term one. The same applies to the participation of our investment team. Following the disposals made in the last financial year from the DBAG Fund V portfolio, carried interest distributions fell due for payment to the team – they are based on the success of a chain of eleven investments that were entered into in February 2007, more than ten years ago.

We create value through our experience and perseverance, as shown by the fact that our private equity funds have a term of ten years. They use the first half of the term to invest and pursue a coordinated strategy in the process. This means that we set the strategic course when we launch a new fund. This is exactly what we did in 2016. DBAG ECF can now also acquire majority interests in companies that require less equity than we normally invest in a management buyout with DBAG Fund VII. This has enhanced both our offering on the market and the innovative structure of DBAG Fund VII, as we can use this fund to structure transactions under our own steam – in the past, we required partners to do this.

In the last financial year, we pursued avenues opened to us due to the strategic course we set in 2016; without them, we would have been unable to enter into two out of the five transactions that we used to expand our portfolio in 2016/2017 and to lay the foundation for future success stories. Our investment team initiated investment decisions worth around 345 million euros. This figure is much higher than in the previous year. We exploited the greater financial resources that we received in 2016 thanks to a capital increase and a new fund. In 2016/2017, we invested around 63 million euros from the assets of Deutsche Beteiligungs AG. This is around two-thirds more than the average value for the last five financial years.

vitronet is the first DBAG ECF management buyout. vitronet constructs broadband networks on behalf of its customers and is the third company in this sector, which we made our first investment in back in 2013. The second transaction that was only possible thanks to the changes made last year is the one concerning More than Meals. More than Meals, a merger of two family-run businesses, is emerging as a European market leader in the food industry, specifically the production of chilled convenience products. This transaction requires a total equity investment that exceeds the amount we normally invest. Once again, our expectations from the previous year were met: more transaction opportunities are arising for us than in the past. While vitronet and More than Meals stand for the expansion of our offering, other new companies show just how much we have enhanced our investment criteria in recent years.

Sustainability has been a hot topic within financial communications for some time now. Most publicly traded companies will have to submit a non-financial declaration in the future. Due to the small number of employees, this regulation does not apply to Deutsche Beteiligungs AG. We do not, however, have any catching up to do when it comes to the sustainability of our business. Our company is extremely successful, with a business model that has remained unchanged in its principles for more than five decades now. It is a tried-and-tested model that has created value – for our shareholders and also for the midmarket companies that we invest in. Success in the private equity business requires sustainable management, since a reputation as a solid shareholder of mid-sized companies is an absolute must when it comes to gaining the trust of those who run family-owned businesses. After all, when it comes to fund investment services, investors that are satisfied in the long run are a prerequisite for the growth of assets under management and of income.

Part of our success in recent years can be traced back to the increase in valuations on the capital markets. This change, which is encouraging at first glance, has a downside, however: the valuations for our new investments have increased as well. We cannot escape the higher overall price level. We are rising to this challenge using an entrepreneurial approach. We are concentrating more than ever on investment opportunities that allow us to put the size of our investment team and its particular experience in complex transactions to good use. The focus from the outset will be on the strategic and operational potential for improvement that the portfolio companies have to offer. We are securing and boosting our competitive standing by making continuous improvements to our business processes. Not least, our performance in the last financial year proves how far we have already come: we were able to announce four out of six disposals within the same three-week period. The ability to conclude so many demanding transactions at the same time requires coordinated processes throughout the entire company.

Let’s return to the figures cited at the beginning of this letter. You are familiar with the past. We are confident that you can trust us in the future, too. We achieved a lot in 2016/2017, which will enable us to reach our future targets. This includes not only the substantial investments made in the last financial year but also the aforementioned reorganisation of our structures and processes and the investments made in our network and our team.

It would be unreasonable to expect a repetition of our recent results in the new financial year due to the particularities of our business model – we cannot offer that many mature companies for sale every year. Our portfolio is young, and many investments are at the start of their value development process. Nevertheless, we expect our results to be considerably higher than the average for the last five years, thanks to positive developments in both business segments.

Frankfurt am Main, 15 December 2017

Torsten Grede     Dr. Rolf Scheffels     Susanne Zeidler