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INDEPENDENT AUDITOR’S REPORT

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
AND COMBINED MANAGEMENT REPORT

Opinion
We have audited the consolidated financial statements of Deutsche Beteiligungs AG, Frankfurt am Main, and its subsidiaries (‘Group’) – which comprise the consolidated statement of financial position as of 30 September 2017, the income statement, the reconciliation of profit or loss to total comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the financial year from 1 October 2016 to 30 September 2017, as well as the notes to the consolidated financial statements, including a summary of significant accounting policies. We have also audited the combined management report of Deutsche Beteiligungs AG, Frankfurt am Main, for the financial year from 1 October 2016 to 30 September 2017. In accordance with German statutory requirements, we have not audited the content of the Corporate Governance Statement pursuant to Section 315 (5) of the German Commercial Code (HGB).

In our opinion, based on our audit findings,

  • the accompanying consolidated financial statements comply, in all material respects, with the IFRS as adopted by the EU, and the supplementary requirements of German commercial law pursuant to Section 315e (1) HGB and give a true and fair view of the net assets and financial position of the Group as of 30 September 2017, and of its results of operations for the financial year from 1 October 2016 to 30 September 2017, in accordance with these requirements, and
  • the accompanying combined management report as a whole provides a suitable view of the Group’s position. In all material respects, the combined management report is consistent with the consolidated financial statements, complies with German statutory requirements and suitably presents the opportunities and risks of future development. Our opinion regarding the combined management report does not cover the content of the Corporate Governance Statement pursuant to Section 315 (5) HGB.


Pursuant to Section 322 (3) sentence 1 HGB, we state that our audit has not led to any reservations with respect to compliance of the consolidated financial statements and the combined management report.

Basis for opinion regarding the consolidated financial statements and the combined management report
We conducted our audit of the consolidated financial statements and combined management report in accordance with Section 317 HGB and the EU Audit Regulation (No 537/2014; hereinafter referred to as ‘EU Audit Regulation’) and the generally accepted standards for the audit of financial statements promulgated by the German Institute of Public Auditors (IDW). Our responsibilities under those regulations and guidelines are further described in the “Auditor’s responsibilities for the audit of the consolidated financial statements and combined management report” section of our report. We are independent of the Group companies in accordance with the requirements of European Union law as well as German commercial law and the rules of professional conduct, and we have fulfilled our other ethical responsibilities under German professional law in accordance with these requirements. In addition, pursuant to Article 10 (2) (f) EU Audit Regulation, we hereby declare that we did not provide any of the prohibited non-audit services referred to in Article 5 (1) EU Audit Regulation. We believe that the audit evidence we obtained is sufficient and appropriate to provide a basis for our opinion on the consolidated financial statements and combined management report.

Key audit matters in the audit of the consolidated financial statements
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements for the financial year from 1 October 2016 to 30 September 2017. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters.

1. The application of IFRS 10

We refer to the statements set out in the notes to the consolidated financial statements, in particular on DBAG’s status as an investment entity (note 4.1) and on the group of consolidated companies (note 4.2), as well as on judgements in applying the accounting policies (note 7).

Financial statement risk
The consolidated financial statements of DBAG are prepared subject to the proviso that the parent company meets the requirements for definition as an investment entity within the meaning of IFRS 10. For being classified as an investment entity, a company must, among other things, provide investmentrelated services.

Since the reporting year, these investment-related services have been provided via DBG Managing Partner GmbH & Co. KG and DBG Advising GmbH & Co. KG. In order to achieve this, the articles of association of DBG Managing Partner GmbH & Co. KG had to be amended during the reporting year and DBG Advising GmbH & Co. KG was established as a new company. As a result, an assessment had to be performed during the reporting year to see whether both companies were subsidiaries that were to be fully consolidated pursuant to IFRS 10. The interpretation of IFRS 10 regarding the application of the provisions governing investment entities and the assessment as to whether control is obtained is complex and discretionary.

As a result, we believed that there was a risk, for the purposes of the consolidated financial statements, that DBG Managing Partner GmbH & Co. KG and DBG Advising GmbH & Co. KG might not have been included in the group of consolidated companies covered by the consolidated financial statements in accordance with the standards, which would have an impact on DBAG’s ability to meet the definition of an investment entity pursuant to IFRS 10. There is also the risk that the necessary disclosures might be incomplete.

Our audit approach
We first interviewed employees and the Chief Financial Officer and inspected minutes of Board of Management and Supervisory Board meetings in order to obtain an understanding of the background to the amendments to the articles of association. We also inspected the corresponding agreements and the internal company documentation.

Based on this information, we evaluated the decision made by the Management to apply the definition of investment entity pursuant to IFRS 10 to DBAG and concluded on the appropriateness with the relevant standards. Finally, based on the provisions set out in the articles of association and an overall assessment of the relationship that DBAG has with DBG Managing Partner GmbH & Co. KG and DBG Advising GmbH & Co. KG, we evaluated the analysis performed by the Management as to whether control is given, within the meaning of IFRS 10, and assessed this analysis based on our interpretation experience and commentaries in the relevant literature. We also concluded on the appropriateness of the corresponding disclosures.

Our conclusions
The classification of DBG Managing Partner GmbH & Co. KG and DBG Advising GmbH & Co. KG as subsidiaries of DBAG is consistent with our understanding of the concept of control pursuant to IFRS 10. As a result, the view taken by the Management, based on which DBAG is still an investment entity pursuant to IFRS 10, is appropriate. The corresponding disclosures are appropriate.

2. The measurement of financial assets

We refer to the statements set out in the notes to the consolidated financial statements on accounting and valuation policies (note 6), on future-oriented assumptions and other major sources of estimation uncertainty (note 8), on the financial assets (note 18), on the net result of investment activity (note 9), on the financial instruments (note 33) and the information on related parties (note 38), as well as to the statements provided in the combined management report on the business review of the Group.

Financial statement risk
The “financial assets” item of the annual financial statements amounts to 261.3 million euros and consists largely of DBAG’s interests in the intra-Group investment entities that are not consolidated in accordance with IFRS 10.31. Pursuant to IFRS 13, these interests are measured at fair value through profit or loss.

Due to the sum-of-the-parts method, changes in the fair value of the portfolio companies, in particular, have an impact on the fair values of the interests in the co-investment vehicles. In addition, the fair values of the interests in the co-investment vehicles that are attributable to DBAG are reduced by carried interest.

The valuation process implemented for calculating the fair values of the portfolio companies in IFRS 13 is complex. The multiples method is primarily used in order to calculate the fair values of the portfolio companies. The necessary valuation assumptions are discretionary, as they cannot be observed on the market. The inclusion of carried interest in the calculation of the fair values of the interests in the co-investment vehicles requires a complex and discretionary assessment of the probability that certain company law conditions will be satisfied in the future.

As far as the annual financial statements are concerned, there is a risk that the fair values of the portfolio companies applied to the measurement of financial assets might not meet the requirements of IFRS 13, meaning that the value estimated might not be appropriate. There is also the risk that carried interest might not be reflected appropriately in the calculation of the fair values of DBAG’s interests in the co-investment vehicles. What is more, there is a risk that the necessary disclosures might be incomplete.

Our audit approach
We started by obtaining an understanding of the procedure used to calculate the fair values of the portfolio companies and evaluated whether the valuation guidelines implement the requirements of IFRS 13 in a sufficient and appropriate manner. In order to gain an understanding of the organisational structure of the valuation process, we tested the design and implementation of the valuation process by interviewing the individuals involved and inspecting process descriptions, status reports, valuation documentation and minutes of meetings. Based on this information, we assessed the appropriateness of the controls that had been put in place, in particular with regard to the control of the valuation proposals made by the Valuation Committee.

We also asked to have the analysis performed by the Valuation Committee after each portfolio company disposal, as to whether or not, and to what extent, the value realised deviates from the most recently calculated fair value (a process known as “backtesting”), explained to us and evaluated what conclusions could be drawn as to the quality of the valuation as a whole.

Our substantive audit procedures included evaluating the documentation on the calculation of the fair values of all portfolio companies to see whether the values were calculated based on the valuation process put in place by the Company for all portfolio companies. In cases involving portfolio companies that had been recognised at fair value for the first time, our evaluation also looked at whether the requirements for the selection of the valuation method applied had been met. We also reperformed the calculation of all fair values for all portfolio companies.

We audited the unobservable valuation assumptions based on a risk-oriented selection of specific items. Regarding the estimate of the long-term results of the selected portfolio companies, we verified that this estimate had been derived from the individual company projections and had been approved at the level of the portfolio company by the latter’s supervisory body. If adjustments had been made to the company projections by Deutsche Beteiligungs AG, we inspected the documented reasons and discussed them with the responsible employees. We also compared selected value-driving assumptions used in the company projections (e.g. EBITDA margins and revenue growth) to check whether these were in a range that we had arrived at based on external information on the corresponding key performance indicators of peer group companies. Regarding the earnings multiples for the application of the multiples method, we consulted our valuation specialists in order to check that the group of peer group companies and the multiples had been derived appropriately from the company and capital market data on the peer group companies. As far the application of the DCF method with regard to the capitalisation interest rate is concerned, we once again consulted our valuation experts, comparing the underlying assumptions (in particular the risk-free rate and the market risk premium) against the publicly available data and evaluating these assumptions.

With regard to carried interest, we looked at the provisions set out in the articles of association, among other things, to evaluate the management’s assessment as to whether the conditions for carried interest had been met. We checked the calculation of the carried interest. For those investment entities which, in the management’s opinion, have not yet met the requirements for carried interest, we discussed the documentation on which this assessment is based, namely the documentation on the probability that certain company law conditions will be satisfied in the future, with the Chief Financial Officer and evaluated it.

Finally, we evaluated the corresponding disclosures to make sure they were appropriate.

Our conclusions
The requirements set out in IFRS 13 are implemented appropriately as part of the valuation process in place at DBAG. The judgements regarding the valuation assumptions on which the valuation of the portfolio companies is based and the inclusion of carried interest have been made in an appropriate manner in line with the requirements set out in IFRS 13. The corresponding explanatory information provided in the notes to the consolidated financial statements is appropriate.

Responsibilities of the statutory representatives and the supervisory body for the consolidated financial statements and the combined management report

The Management is responsible for the preparation of the consolidated financial statements which, in all material respects, comply with IFRS, as adopted by the EU, and the supplementary requirements of German commercial law pursuant to Section 315a (1) HGB, and that the consolidated financial statements give a true and fair view of the asset, financial positions and results of operations of the Group in accordance with these requirements. Furthermore, the Management is responsible for such internal control as they determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Management is responsible for assessing the Group’s ability to continue as a going concern. Furthermore, the Management is responsible for disclosing, as applicable, matters related to going concern. In addition, the Management is responsible for using the going concern basis of accounting unless the intention is to liquidate the Group or to cease operations, or there is no realistic alternative to doing so.

Moreover, the Management is responsible for preparing the combined management report, which as a whole provides a suitable view of the Group’s position, as well as, in all material respects, is consistent with the consolidated financial statements, complies with German statutory requirements and suitably presents the opportunities and risks of future development. Furthermore, the Management is responsible for such arrangements and measures (systems) as they determine are necessary to enable the preparation of a combined management report in compliance with the applicable requirements of German commercial law and for providing sufficient and appropriate evidence for the assertions in the combined management report.

The Supervisory Board is responsible for monitoring the Group’s financial reporting process for preparing the consolidated financial statements and the combined management report.

Auditor’s responsibilities for the audit of the consolidated financial statements and the combined management report

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatements, whether due to fraud or error, and whether the combined management report as a whole provides a suitable view of the Group’s position, as well as, in all material respects, is consistent with the consolidated financial statements and our audit findings, complies with German statutory requirements, and suitably presents the opportunities and risks of future development, and to issue an auditor’s report that includes our opinion on the consolidated financial statements and the combined management report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Section 317 HGB and the EU Audit Regulation, as well as in compliance with the German generally accepted standards for the audit of financial statements promulgated by the German Institute of Public Auditors (IDW), will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this combined management report.

As part of our audit we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

  • identify and assess the risks of material misstatements of the consolidated financial statements and the combined management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
  • obtain an understanding of internal control relevant to the audit of the consolidated financial statements, and of the arrangements and measures relevant to the audit of the combined management report, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of these systems of the Company.
  • evaluate the appropriateness of accounting policies used, and the feasibility of accounting estimates and related disclosures made, by the Management.
  • conclude on the appropriateness of Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements and combined management report or, if such disclosures are inadequate, to modify our particular opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
  • evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that gives a true and fair view of the net assets, financial position, and results of operations of the Group in accordance with IFRS, as adopted by the EU, and the supplementary requirements of German commercial law pursuant to Section 315e (1) HGB.
  • obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements and the combined management report. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
  • evaluate the consistency of the combined management report with the consolidated financial statements, its legal compliance and presentation of the Group’s position.
  • perform audit procedures on the prospective information presented by the Management in the combined management report. Based on sufficient and appropriate audit evidence, we hereby in particular trace the significant assumptions used by the Management as a basis for the prospective information and assess the appropriate derivation of the prospective information from these assumptions. We are not issuing a separate audit opinion on the prospective information as well as the underlying assumptions. There is a significant, unavoidable risk that future events will deviate significantly from the prospective information.


We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and any related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance during the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless laws or other legal provisions preclude public disclosures about the matter.

OTHER DISCLOSURES PURSUANT TO ARTICLE 10 OF THE EU AUDIT REGULATIONO

We were appointed as group auditors at the shareholders’ meeting held on 22 February 2017 and were then appointed orally by the Supervisory Board. The audit assignment was documented in the letter dated 14 June 2017. We have been engaged as group auditors of Deutsche Beteiligungs AG, Frankfurt am Main, uninterruptedly since the audit of the consolidated financial statements of the 1984/1985 financial year.

We declare that the audit opinion in this auditor’s report is consistent with the additional report to the Audit Committee referred to in Article 11 of the EU Audit Regulation (audit report).

RESPONSIBLE STATUTORY AUDITOR

The auditor responsible for the engagement is Lars Erik Bertram.

Frankfurt am Main, 22 November 2017

KPMG AG
Wirtschaftsprüfungsgesellschaft

BertramDr Faßhauer
WirtschaftsprüferWirtschaftsprüfer
(German Public Auditor)(German Public Auditor)