Annual Report for Financial Year 2006/2007 Financial Year 2006/2007 Deutsche Beteiligungs AG

Consolidated profit sets new record high €136.5 mn

Three new management buyouts, investment volume expanded €40.3 mn

Exceptional return on equity per share delivered 56.2 %

Dividend doubled to E1.00, total distribution per share €3.50

Share performance from 1 Nov. 2006 to 22 Jan. 2008 %

DBAG adjusted Dax performance index S-Dax performance index LPX 50 performance index

200

175

150

125

100

Nov. 06 Feb. 07 May 07 Aug. 07 Nov. 07 Financial highlights (IFRS) at a glance

Change 2006/2007 2005/2006 %

New investment Emn 40 22 82 IFRS carrying amount of investments (31 Oct., “portfolio value”) 1) Emn 189 121 56 Number of investments (31 Oct.) 30 32 –

EBIT Emn 150.8 89.1 69 Earnings before taxes (EBT) Emn 155.6 90.9 71 Consolidated profit for the year Emn 136.5 82.7 65 Distributable profit Emn 118.2 57.2 107 Equity Emn 353.6 289.0 22

Cash flows from operating activities Emn (2.6) (4.1) – Cash flows from investing activities Emn 65.0 168.8 – Cash flows from financing activities Emn (71.4) (40.7) – Change in cash funds Emn (9.0) 124.0 –

Earnings per share 2) E 9.20 5.02 83 Cash flow per share 2) 3) E 3.00 4.96 – Net asset value (equity) per share E 25.09 19.07 32 Return on net asset value per share 4) % 56.2 36.4 –

Distribution per share consisting of dividend (2006/2007: recommended) and extraordinary 1.00 0.50 surplus dividend (2006/2007: recommended) E 2.50 2.50

Number of employees (31 Oct.) 47 44 –

1) Without shell companies and Group companies whose majority is owned by third parties. 2) In relation to weighted average number of shares outstanding in each financial year. 3) Consolidated profit less value changes to financial assets and loans and receivables, plus depreciation and amortisation on property, plant and equipment and intangible assets. 4) Change in net asset value (equity) per share in relation to opening net asset value (equity) per share at beginning of reporting period, less dividends.

Aquisition cost Equity share Our ten largest investments * Industrial sector €mn of DBAG, %

AKsys GmbH, Worms, Germany Automotive supplies 12.6 11.6 Clyde Bergemann Group, Wesel, Germany; Glasgow, UK; Delaware, USA Mechanical engineering 9.2 17.8 Coperion Capital GmbH, Stuttgart, Germany Mechanical engineering 10.4 19.0 Harvest Partners IV, L.P., New York, USA Buyout fund 10.5 9.9 H. H. Heim & Haus Holding GmbH, Duisburg, Germany Consumer goods 6.6 21.4 Homag Group AG, Schopfloch, Germany Mechanical engineering 21.4 16.8 Lewa GmbH, Leonberg, Germany Mechanical engineering 3.6 14.3 MCE AG, Linz, Austria Industrial services 8.0 14.9 Preh GmbH, Bad Neustadt a. d. Saale, Germany Automotive supplies 2.4 17.0 Quartus Capital Partners I, Paris, France Buyout fund 4.5 15.5 * Measured by IFRS value; these ten alphabetically ordered investments represent 84 percent of the portfolio value. Deutsche Beteiligungs AG is a leading German private equity company. We acquire subsidiaries of corporate groups and mid-sized enterprises – in Germany and neighbouring German-speaking countries. Our investment activity focuses on management buyouts of growth-driven, profitable, internationally operating businesses.

Our financial strength is founded on our shareholders’ capital. Additionally, we manage assets entrusted to us by investors to profitably invest through co-investment funds.

Contents

Financial highlights

Management 2 Letter from the Board of Management 2 Report of the Supervisory Board 6 Board of Management and Supervisory Board 8 Corporate governance 9

Forum 2007 – Hidden champions 12

Shares 22

Investments 30

Management’s report 46 The Group and general business conditions 48 Business development and financial performance 60 Potential, rewards and risks 72 Remuneration report 83 Other information 87

Consolidated financial statements 88

Additional information 134 Auditors’ report 134 List of subsidiaries and associates 135 Glossary 137 Contact and financial calendar 140 Five-year financial summary grow

tap new markets

Capital

adapt structures Contents to pursue

secure the future

Many mid-sized companies in Germany are faced a vision with the issue of growth or of adapting strategies and structures to changed market conditions. Frequently, this calls for an infusion of capital. Private equity is one source: financial investors are ready to take on the generate fresh ideas shareowner role, creating new opportunities for these companies to pursue their vision.

Three reportages on the inside pages of this Annual Report map out the roads taken by three of our portfolio companies: they headed straight towards new markets and growth, and they have written a new chapter in their company history through the partnership with Deutsche Beteiligungs AG.

1 Letter from the Board of Management

Wilken Freiherr von Hodenberg Torsten Grede Spokesman of the Board of Management Member of the Board of Management

André Mangin Dr Rolf Scheffels Member of the Board of Management Member of the Board of Management

2 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Deutsche Beteiligungs AG has concluded an exceptionally successful year. Our consolidated profit in 2006/2007 reached 136.5 million euros, which equates to a return on equity of more than 56 percent. This is several times the cost of equity, our key performance measure. Our shareholders stand to profit from this very good business trend through a higher dividend, in addition to another extraordinary surplus dividend: Jointly with the Supervisory Board, we recommend a total dividend distribution of 3.50 euros per share. With new investments of 32.0 million euros in three management buyouts over the past financial year, we have, moreover, created the platform for the development of the portfolio. The recent turmoil on stock markets has impacted the current value of the investments. Nevertheless, we are optimistic about the future of Deutsche Beteiligungs AG.

The success of our business is based on a careful selection of portfolio companies. In our investment decisions, we can draw on more than 40 years of experience. We prefer to invest in those very competitive sectors of the German economy – the mechanical engineering industry, for example, with its many internationally positioned hidden champions, or auto motive suppliers, whose innovative products contribute to the outstanding reputation of cars made in Germany. Owners of shares in Deutsche Beteiligungs AG thus invest in a port folio of excellent companies of Germany’s “Mittelstand”.

The accomplishments of this past financial year derive from this investment strategy: Our portfolio has grown considerably more valuable. A part of the value growth was realised through the sale of investments, such as the IPO of Homag Group AG.

This year’s outstanding performance also benefited from the current strong economic environment, which led to earnings improvements, particularly in the mechanical engineering sector. Homag is a good example: Based on current forecasts, Homag will nearly have tripled its operating income from 2005 to 2007. This has afforded value uplifts – and not only for this investment. Homag, the global market leader for woodworking machines, outperformed the industry trend due to its excellent positioning. Dörries Scharmann Technologie GmbH, a portfolio company that we sold at the end of the financial year, also advanced very satis factorily. As with these two investments, it is a pleasure to say that nearly all our investee businesses made good progress in 2007.

3 A third factor should also be mentioned regarding the exceptionally high consolidated profit posted this year: Based on the International Financial Reporting Standards (IFRS), which require measuring the portfolio at its present fair value, price levels on stock markets have an influence on the profit we report. Valuation multiples largely rose in 2006/2007. They contributed to the highest result, totalling 136.5 million euros, achieved in the Company’s history – both in absolute terms and in terms of the return on equity per share. Naturally, the setbacks in prices on the stock markets particularly since the beginning of the new financial year show how swiftly general conditions can change and negatively impact the result.

The exceptional results posted this past financial year motivate us to continue on the business course we have adopted. Our measure, however, will not only be that of a single year – we strive to be successful over the long-term. To that end, we measure our performance by the return on equity per share, which, over the long-term average, should exceed the cost of equity. The increase in the net asset value per share from 19.07 euros to 25.09 euros corresponds – including the dividend paid in March 2007 – to a total return of 56.2 percent.

Over the past ten-year period, we delivered a return on equity after taxes of 21.4 percent. This significantly exceeds our return target. Our shares mirror this growth. Investors who bought our shares either five or ten years ago and re-invested dividends and subscription rights achieved very good returns in both instances. With annual value growth of more than 18 percent over five years and nearly 13 percent over ten years, DBAG shares clearly outperformed the Dax and also exceeded the S-Dax.

We recommend raising the dividend from 0.50 euros to 1.00 euro per share. The substantial profits realised from the sale of investments have led to a correspondingly high level of earnings for Deutsche Beteiligungs AG. As last year, these earnings allow the Company to pay an extraordinary surplus dividend of 2.50 euros per share. In total, we plan to distribute 3.50 euros per share, or the sum of 47.9 million euros – 2.4 million euros over last year’s amount.

We again used the instrument of share buybacks this past financial year, repurchasing 1.06 million shares up to the balance sheet date for an average purchase price of 24.35 euros. Through the dividends paid in 2007 and the share buybacks this past financial year, 71.4 million euros have been returned to shareholders.

The new financial year confronts us with a changed situation. It is not that our portfolio companies are developing less successfully than before. On the contrary, in 2008 sales and earnings are slated to rise. Irrespective of the positive reports coming from the portfolio, there is mounting concern that slowing economic dynamism would not only be felt in the United States, but beyond. Should this be the case, our portfolio companies would not be able to avoid being affected. The sharp drop in stock prices indicates that equity markets have already

4 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

discounted the effects of such a trend. Although so far earnings forecasts largely remain unchanged, this leads to lower valuation multiples and, correspondingly, to a lower valuation of our portfolio compared with only a few weeks ago at the onset of financial year 2007/2008.

Irrespective of this development, we remain optimistic about the future of Deutsche Beteiligungs AG: n Our market – the market for management buyouts of mid-sized companies and corporate subsidiaries in Germany and neighbouring German-speaking countries – is set for long-term growth. The changed attitude toward lending on the part of banks this past summer does not basically alter that fact. Independent of this, we enjoy stable relationships with financial institutions that are resilient even in difficult market environments. n We believe we are also capable of achieving value growth through new investments in the future. To that end, we invested in three management buyouts in our core sectors this past financial year. Our excellent market position and our investment team’s broad expertise are invaluable resources in strengthening our competitive edge and making attractive new investments. The assets of Deutsche Beteiligungs AG and DBAG Fund V, which began its investment activity in 2007, offer sufficient funding to take advantage of market opportunities as they arise. n A glance at past years shows how strong our business model is and how much value it can create. We see good prerequisites for Deutsche Beteiligungs AG to continue its positive development.

In light of current uncertainty, we are unable to deliver a sound forecast on the results the Company will post for the current year. Based on momentary market conditions, a loss for the first quarter seems likely. However: we do not take our bearings from short-term goals, as they are not consistent with the nature of the private equity business. We create value not over short-term cycles, but by supporting our portfolio companies in sustainably improving their performance. In the past, this strategy has served us well. And that is the platform on which Deutsche Beteiligungs AG will continue to progress.

Frankfurt am Main, January 2008

The Board of Management

Wilken Frhr. von Hodenberg Torsten Grede

André Mangin Dr Rolf Scheffels

5 Report of the Supervisory Board

2006/2007 was another exceptional year for Deutsche Beteiligungs AG. Both in absolute terms and measured by the return on equity, the Company complet- Detailed reports on portfolio companies Issues regularly discussed included the monitoring of existing ed the best year in its history! It has investments and information on changes to the portfolio which, harvested the fruits of a foresighted in particular, pertained to the three new investments and the two investment strategy. In our advisory major realisations occurring in the reporting year. Following capacity, we supported the Board of detailed reports by the Board of Management, we gave our Management in its managerial activities approval on these issues, where required. In monitoring existing investments, we received comprehensive quarterly reports from throughout the reporting year, regularly the Board of Management on the portfolio of Deutsche fulfilling the tasks and responsibilities Beteiligungs AG. We were informed promptly and in detail about required by law and by the Company’s investments which were not performing as expected. We received Articles of Association. early and continual information on the plans for an initial public offering of Homag Group AG, the largest investment in The Supervisory Board was regularly informed by the Board the portfolio. of Management on the Company’s course of business, its earnings and financial position as well as the risk manage- Further topics at Supervisory Board meetings were the valuation ment and surveillance system installed by Deutsche methodology used in measuring the fair value of investments, Beteiligungs AG. In five meetings, the Board of Management the dividend policy, the competitive situation of Deutsche reported on its intended business policies and other funda- Beteiligungs AG and the budget for the past financial year. mental issues; additiionally, two urgent resolutions were We also received reports on the Company’s compliance with adopted by way of written procedures. Between meetings, regulatory requirements. Moreover, the Supervisory Board dealt the Board of Management regularly, completely and prompt- with changes to its rules of procedure ensuing from the ly informed the Supervisory Board about significant Code’s new recommendations and suggestions. business issues, and we remained in constant contact with its Spokesman (clause 5.2 of the ”German Corporate Governance Ongoing development of Code”, hereafter: the Code). We solicited various reports corporate governance practices from the Board of Management pursuant to § 90 section 3 We have actively followed the changes in corporate governance of the German Stock Corporation Act (Aktiengesetz – practices that have taken place in Germany and have contributed “AktG”); there were no grounds for objection. The Audit to the ongoing development of these practices at Deutsche Committee convened four times during the past financial Beteiligungs AG. Management’s discussion of this issue on pages year, and the Executive Committee, responsible for personnel 9 to 10 of this Annual Report is also presented on behalf of issues, met once. the Supervisory Board (clause 3.10 of the Code). We participated in preparing the Declaration of Conformity, which the Board of Management and the Supervisory Board jointly submitted on 22 November 2007 (§ 161 of the German Stock Corporation Act) and which has been made permanently accessible to shareholders at the Company’s website. At this meeting, the first in the new financial year, we also examined the efficiency of our activities (clause 5.6 of the Code). We intend to apply the insight thus gained to our future activities.

6 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Nominations Committee formed Conformity in accordance with the “German Corporate In compliance with the Code’s new recommendation (clause Governance Code”. The Supervisory Board received the audited 5.3.3 of the Code), we formed a committee that will make and certified financial statements for the year ended 31 October proposals to the Supervisory Board on qualified candidates prior 2007 and management’s report on the state of Deutsche to elections to the Supervisory Board for recommendation to Beteiligungs AG in due time; it reviewed and discussed them in shareholders at the Annual Meeting. The members of the detail with the Board of Management and in the presence of Nominations Committee are the members of the Supervisory the auditors. The same applies to the consolidated financial Board’s Executive Committee. In addition to the Chairman of the statements and management’s report on the Group, as well as to Supervisory Board, Mr Andrew Richards, these Committees the recommendation for the appropriation of profits. In our consist of the Vice Chairman, Professor Rolf-Dieter Leister, and meeting of 23 January 2008, the auditors reported on the results Dr Hans-Peter Binder. of their audit in general and on specific points of their audit. They provided in-depth answers to our inquiries. After its own The Audit Committee detailed review, the Supervisory Board found no grounds for The Audit Committee as defined in clause 5.3.2 of the Code objection. We approved the financial statements of Deutsche previously consisted of six members of the Supervisory Board. In Beteiligungs AG and the consolidated financial statements on our meeting on 11 September 2007, we adopted a vote to 23 January 2008, and both are thus adopted. We also agree to reduce this body to four members, after Dr Herbert Meyer and the Board of Management’s recommendation for the appropria- Mr Walter Schmidt resigned from their offices on the Audit tion of profits. Committee. Professor Günther Langenbucher chairs this Committee. In four meetings held during the reporting year, Having achieved a return on equity of more than 50 percent and the Committee dealt with issues concerning the accounting, posted a consolidated profit for the year of 136.5 million euros, the risk management system, and compliance issues. There were Deutsche Beteiligungs AG significantly exceeded the previous no grounds for objections to the Company’s current practice. year’s excellent result in financial year 2006/2007. This merits a We also dealt with the assurance of the auditors’ independence, word of appreciation to everyone who contributed towards this the assignment of the audit to the auditors, the determination of noteworthy achievement. The Supervisory Board wishes to the audit’s focal points and audit fees. thank the Board of Management and staff of Deutsche Beteiligungs AG for their outstanding commitment and construc- Financial statements endorsed tive, enterprising work this past financial year. Shareholders at the 2007 Annual Meeting appointed KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirt schaftsprüfungsgesellschaft, Frankfurt am Main, as auditors. Frankfurt am Main, 23 January 2008 The auditors audited the financial statements of Deutsche On behalf of the Supervisory Board Beteiligungs AG for financial year 2006/2007 and management’s report and endorsed them with an unqualified certificate. The same applies to the consolidated financial statements and management’s report on the Group for financial year 2006/2007. In their report, the auditors also discussed the Board of Management’s risk management and surveillance system. They Andrew Richards found it suitable for early identification of developments that Chairman might endanger the continuity of the Company as a going concern. The auditors’ report contains no qualifying remarks or notes on any possible misstatements in the Declaration of

7 Board of Management and Supervisory Board

Board of Management Supervisory Board

Wilken Freiherr von Hodenberg, Andrew Richards, Königstein/Taunus, Spokesman Glashütten/Taunus, Chairman Born 1954, Member of the Board of Management and its spokesman Executive Director of since July 2000. Studied law in Hamburg and Lausanne. 15 years of Pare-Unternehmensberatung GmbH, experience in investment banking, three years of service as an executive Glashütten/Taunus for a retail chain. Appointed until July 2010. Professor Dr h. c. Rolf-Dieter Leister, Torsten Grede, Lucerne, Vice Chairman Frankfurt am Main Economic Advisor Born 1964, Member of the Board of Management since January 2001. Studied business administration in Cologne and St. Gallen. Dr Hans-Peter Binder, 17 years of experience in private equity at Deutsche Beteiligungs AG. Berg Appointed until December 2013. Former Director of Deutsche Bank AG

André Mangin, Professor Dr Günther Langenbucher, Königstein/Taunus Stuttgart Born 1954, Member of the Board of Management since January 2004. Former Member of the Board of Studied law in Hamburg. More than 20 years of experience in private equity, Management of Ernst & Young AG, corporate finance and investment banking. Appointed until March 2011. Stuttgart

Dr Rolf Scheffels, Dr Herbert Meyer, Frankfurt am Main Königstein/Taunus Born 1966, Member of the Board of Management since January 2004. President of Deutsche Prüfstelle für Studied business administration and economics in Frankfurt am Main. Rechnungslegung e. V. (DPR)/Financial Began his career in auditing. More than 15 years of experience in private equity Reporting Enforcement Panel (FREP), Berlin and corporate finance, eleven of which at Deutsche Beteiligungs AG. Appointed until March 2011. Walter Schmidt, Kaarst Chairman of the Management Board of AmpegaGerling Investment GmbH, Cologne

8 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Corporate Governance

Corporate Governance stands for acknowledged principles of good fiduci- ary corporate management and control. These principles have been an integral We follow almost all of the Code’s recommendations and suggestions part of our conduct of business for many Consistent with the recommendation of the “German Corporate years. In the Company’s best interests Governance Code” (hereafter: the Code), the following is a and to that end, the Board of Management combined report on the corporate governance practiced within and the Supervisory Board maintain a the Company. The Report of the Supervisory Board contains fur- mutually supportive working relation- ther important information on this issue (pages 6 to 7); that information is an integral part of our combined corporate ship. We aim to vindicate and foster the governance report. For a better overview, we will refer to other confidence of all individuals and organi- sections of this Annual Report for certain partial aspects. sations with whom we are involved through open, prompt and regular com- We discussed in depth the most recent amendments to the Code munication. which took effect on 14 June 2007 and chose to follow all new recommendations and suggestions. Moreover, since the past financial year we have been complying with two of the Code’s recommendations we had not applied before; our joint Declaration issued on 22 November 2007 now states that only one of the Code’s recommendations is not being applied. Similarly, the Code’s suggestions have virtually all been met.

We provide comprehensive and prompt information to shareholders The principle of simultaneously directing information to all groups of investors ranks high in our communication policy. All major reports, announcements and presentations are access ible on the Internet synchronously with the respective event. Any interested individual can follow our Annual Meeting live on the Internet. Shareholders may elect to exercise their voting rights personally or through a proxy of their choice or through a proxy appointed by the Company who is bound by their directives. All documents and information on our Annual Meeting are accessible at our website.

There was no conflict of interest requiring immediate disclosure to the Supervisory Board on the part of members of the Board of Management and Supervisory Board.

9 Discussion on the interpretation of the IFRS remuneration system is now composed of a fixed and a perform- Deutsche Beteiligungs AG has been preparing its financial ance-linked component. Additional information on the remu- statements in the IFRS format since the beginning of financial neration of the members of Board of Management and year 2004/2005. In conjunction with a random check of the the Supervisory Board as well as details on the 2001-2005 Company’s first closing drawn up in the IFRS format (consolidated stock option programme is provided in Management’s report financial statements for financial year 2004/2005), the German (pages 83 to 86); the presentation is understood to be a remu- Financial Reporting Enforcement Panel (FREP) raised questions on neration report within the meaning of item 4.2.5 of the Code. the designation of the group of consolidated companies of Deutsche Beteiligungs AG and required disclosures concerning Strict rules on share ownership related party transactions. The questions on disclosures of related Outside the stock option programme and the employee stock party transactions chiefly concern the carried interest system. ownership plan (see page 60), members of the staff and the The Board of Management and the Supervisory Board dealt with corporate bodies may purchase shares in Deutsche Beteiligungs this issue extensively this past financial year. They arrived at the AG only within a limited frame. Shares may only be bought or conclusion that the IFRS were applied correctly in respect of the sold during specified periods of time announced on the website issues the FREP had raised. The independent auditors of Deutsche of Deutsche Beteiligungs AG. Reportable securities transactions Beteiligungs AG, KPMG, share this opinion, as do other major by members of corporate bodies in accordance with § 15a of the auditing firms. Nevertheless, the FREP has retained its different German Securities Trading Act (Wertpapierhandelsgesetz – view of certain aspects. “WpHG”) did not occur in the past financial year.

The question raised by the FREP concerning the group of con- Irrespective of this, it is not permitted to deal in shares of portfo- solidated companies exclusively relates to the 2004/2005 closing. lio companies of Deutsche Beteiligungs AG, of companies under- Due to restructuring performed in 2006 and discussed in the going the due diligence process or whose portfolio contains 2005/2006 consolidated financial statements, the preceding enterprises in which Deutsche Beteiligungs AG is considering an year’s report is not affected by this issue. The consolidated finan- investment. This comprehensive trading prohibition is designed cial statements in this Annual Report consider the FREP’s views to provide transparency and avoid misunderstandings. on required disclosures concerning related party transactions.

Remuneration of the Board of Management and the Supervisory Board is linked to corporate performance The remuneration paid to the Board of Management is composed of fixed and variable components. Independent of statutory requirements, we have been issuing an individualised statement of emoluments paid to the members of the Board of Manage ment since financial year 2004/2005. There has been a change to the remuneration of Supervisory Board members based on a resolution passed by shareholders at the Annual Meeting on 28 March 2007; consistent with the Code’s recommendation, the

10 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Declaration of Conformity pursuant to Section 161 of the German Stock Corporation Act

Since the preceding Declaration of Conformity dated 23 November 2006, the Board of Management and the Supervisory Board declare that Deutsche Beteiligungs AG has complied with the “German Corporate Governance Code” (hereafter: the Code) as amended on 12 June 2006 and beginning with its validity as amended on 14 June 2007, and it intends to follow the Code in the future, with the following exception: n The D&O insurance for the members of the Board of Management and the Supervisory Board did not and currently does not provide for a deductible (clause 3.8 of the Code). The D&O insurance only covers negligent breach of duty; it applies to both the staff and the members of corporate bodies. Since we do not consider it appropriate to differentiate between the staff and the members of corporate bodies, and since a deductible is generally uncommon internationally, we chose not to follow this recommendation. We have no reason to doubt that our corporate bodies and our staff perform their duties and responsibilities conscientiously. For that reason, we do not expect any additional effects from a deductible.

We intend to follow the Code’s suggestions, except for the two points set out below: n Electing all members of the Supervisory Board at one date has proved to be good practice. This serves the continuity of the Supervisory Board members’ work. We will therefore not follow the suggestion of scheduling elections at various dates (clause 5.4.6 of the Code). n The performance-related remuneration payable to the Supervisory Board is based on the development of the net asset value per share in a financial year and therefore does not contain components related to the long-term performance of the Company (clause 5.4.7 of the Code).

Frankfurt am Main, 22 November 2007 The Board of Management and the Supervisory Board of Deutsche Beteiligungs AG

11 Forum 2007

Invariably, it is the hidden champions who are rightly described as being the real drivers of the German economy. Typically, they have their origins in Germany’s “Mittelstand”, and their roots may often go back 100 years or more. Their products largely serve niche markets. And there, they can often be found among the globe’s top three players. Most of these companies are barely known to the general public, since they are too small and their businesses allegedly too unspectacular to draw journalists’ attention at national or international level. And since they are rarely publicly listed, capital markets also show little interest in them. Moreover, academics find them difficult to access: their family or partnership-based structures often offer comparatively little transparency for academics to take a closer backstage look.

Yet most of these hidden champions operate globally, and not only as exporters. They have been present on other continents, running their own production and marketing facilities, for quite some time. Revenues generated in Germany often account for only a fraction of their activities. What’s more, they see globalisation as an opportunity more than a threat.

12 Frequently, their owners cannot – or choose not to – provide the High-quality raw materials and complex plants dominate in the capital their company needs to capitalise on current market oppor- factories of many hidden champions. The skills of high-calibre engineers and decades of experience are difficult to render visible. tunities. In these scenarios, financial investors are well equipped They are the invisible foundation on which these companies have to take on the shareowner role. They back select companies, based their success. – Pictured here are German production sites of the Clyde Bergemann Group, the Homag Group AG and Dörries providing them with the required resources to develop the dyna- Scharmann Technologie GmbH. mism the companies need to succeed in today’s markets. The following presents three very different investment cases, illustrat- ing how the partnership between a company and its financial investor can turn both sides into winners – by achieving growth for the company and delivering value appreciation for the investors.

13 Forum 2007

Clyde Bergemann Power Group Boosting global competitiveness through add-on acquisitions

leading market position, good profitability and a seasoned management team – when Deutsche Beteiligungs AG and its co-investment Afund DBAG Fund IV jointly acquired the Clyde Bergemann Group in May 2005, the company was a good fit for those investment criteria. Operating seven production These skilled workers are constructing a water cannon – one of 1,200 that are now sites in six countries, the group was well in operation, helping to boost the productivity of power plants around the globe. These highly positioned in the global market. The com- flexible cleaning devices blast water along the boiler’s combustion chamber walls, dislodging soot, ash and other deposits that would otherwise reduce efficiency. pany was posting EBITDA that reflected industry norms and had achieved impressive growth in previous years under the leadership of its international management team. Moreover, its products – including specialised cleaning and ash-handling systems for coal- fired power plants – had, in part, garnered market shares of more than 50 percent.

“A good investor will back the investee business as it sets out to take advantage of new market opportunities …”

How can a financial investor improve on the Innovative pattern of progress of a company as success- hose-driven systems Corporate data allow cleaning of ful as this? And how can a financial investor 2004/2005 2005/2006 2006/2007 otherwise inaccessible build value for his own investors, regardless surfaces in combus- Sales (US$mn) 180 226 297 tion chambers – for of whether they are shareholders or partners example, in boilers of a fund? The answer is simple: by backing Employees 900 960 1,100 used in waste inciner- the company as it sets out to exploit new www.clydebergemann.de ation plants. market opportunities and, concomitantly, by supporting the company as it maintains and develops its existing strengths and competitive edge.

14 Worldwide growth has been fuelling the not only to develop the company through Since Deutsche Beteiligungs AG and DBAG demand for energy for many years. And the organic growth – for example, by the Indian Fund IV’s entry in May 2005, Clyde thirst for energy is not anticipated to sub- subsidiary founded recently – but also Bergemann has made three smaller acquisi- side. By 2015, for example, market observers through complementary acquisitions. tions. We provided additional funding for expect a rise in demand by more than a these purposes. quarter. At the same time, energy producers are faced with growing safety standards: energy production is required to make as little impact on the environment as possible. “The trend toward ‘clean energy’ is a boon for our business,” says Franz Bartels, CEO of Clyde Bergemann. “We are already present today with our environmentally friendly technologies wherever there are coal-fired power plants in any appreciable number.” And wherever new coal-fired plants are under construction as well.

In China, for instance. In the first five years of the new millennium, the Chinese market for cleaning systems in coal-fired power Polished stainless steel pipes are used for supplying steam to water cannons, which can plants quadrupled. Clyde Bergemann is prof- measure up to 20 metres in length. iting from that trend. Clyde Bergemann has been present in China since 1997, where it World energy demand manufactures cleaning systems based on a total, in millions of tonnes of crude oil units proprietary boiler-cleaning technology that n Total 22,000 has been constantly improved in Germany 20,000 for over 50 years at the company’s original 18,000 site in Wesel. 16,000 14,000 Yet the financial investors’ contribution does 12,000 10,000 not end by providing the capital that enables 8,000 a company to exploit market growth. 6,000 Deutsche Beteiligungs AG and its co-invest- 4,000 ment fund back Clyde Bergemann’s man- 2,000 agement by sharing their experience and knowledge. They support management in an 1950 1960 1970 1980 1990 1995 2000 2005 2015 2030 2050 advisory capacity on the company’s strategic direction and on further enhancing its posi- The thirst for energy is putting fossil fuels in the spotlight – despite all efforts to promote tion within the global competitive field. The renewable resources. With technology from Clyde Bergemann, energy producers can increase their efficiency, thereby keeping costs in check and protecting the environment. requisite financial resources are doubtlessly a (Source: BMWA: Energie für eine Welt im Wandel, Berlin 2006; IEA statistical database and IEA key factor. They enable the managerial team World Energy Outlook 2006)

15 Forum 2007

For Clyde Bergemann, such purchases are “… and he will support latest acquisitions. Sales climbed from 180 instrumental. The new acquisitions either million US dollars in financial year 2004/2005 add to the product portfolio to complement the company as it to 370 million US dollars in 2007/2008 (fore- the range and augment the company’s com- cast), with an over-proportionate rise in the petitive position. Or they create access to a maintains and expands profit-to-sales ratio. In the next three years, regional market that has so far not been its existing strengths management intends to significantly increase tapped. Ideally, an acquisition will achieve market shares in a number of niche markets both. For example, Australia-based Senior and competitive edge.” by enlarging the product portfolio, expand- Thermal, purchased in December 2006, ing global presence and by making the most manufactures heat exchangers that are now of the current emphasis on “clean energy”. marketed through Clyde Bergemann’s global Clyde Bergemann’s recent record of per- network. Conversely, the new company is a formance is particularly impressive. The com- For more information on Clyde sales platform for the group’s entire product pany doubled sales in only three years – and Bergemann and current data on this portfolio. that does not even completely include its investment see page 37.

Homag Group AG A family-owned business makes its way to the stock market

ometimes, achieving a goal can take extraordinary amounts of stamina and patience. Gerhard Schuler had both. And, in the end, it paid off: shares in his Scompany have been traded on the Frankfurt Stock Exchange since July 2007. For 10 years he worked hard to lead Homag Group AG to the trading floor. His goal: ensuring that his life’s work would continue to thrive. Gerhard Schuler founded the company together with his partner Eugen Hornberger in 1960 and, through consistent strategic alignment, turned it into a global market leader. In the 1990s, the idea of taking Homag public was born. This was to aug- 13 July 2007: Company founder Gerhard Schuler rings in a new era.

16 Manufacturing furniture parts today, elements for an interior fitting tomorrow, and a solid-wood stairwell frame the day after – it is business as usual for Homag’s CNC processing centres. The machines’ versatility makes them highly efficient and productive multitaskers – enabling Homag’s customers to strengthen their competitive edge. ment the company’s independence over the long-term in respect of changes and influence on the shareowner side.

“A key goal was attached to the IPO: securing a life’s work.”

The companies of the Homag Group develop and manufacture machines and plants for the wood-processing industry – and that for the most part in Germany. “We never had the slightest doubt that Germany is an attractive manufacturing location for our sophisticated products,” Joachim Brenk, spokesman for the Homag management Maximum customisa- board, said in October 2007 when announc- tion: these Homag Corporate data ing that the company planned to expand machines allow furniture to be produced in single- production capacities at two German sites. 2007 unit job lots – so that no 2005 2006 (forecast) Homag is a supplier to carpenters and joiner- two items are ever alike. ies, just as it is to large industrial companies. Sales (Emn ) 614 737 810 Among its most spectacular products are Employees (annual average) 4,385 4,623 4,950 factory-size facilities that turn chipboard (in www.homag-group.de addition to a few other materials) into fully

17 Forum 2007

“In a joint effort, the company made it to an IPO.”

packaged furniture. Anyone who has ever In the spring of 2007, the signs being given company founder Schuler who now consid- purchased Ikea’s classic Billy bookshelf or a by the capital market were alluring. Sentiment ers himself only an “ordinary shareholder” brand-name German kitchen is very likely to on the stock exchange for mechanical engi- after the IPO. In terms of both operations have purchased furniture manufactured neering companies with a leadership posi- and strategy, Homag is on the road to a using Homag machines. tion was better than ever before. An IPO bright future. The proceeds from the IPO will seemed feasible – provided that the “techni- allow the company to strengthen its interna- In its almost 50-year history, the company calities” could be met. The conditions had tional business. Homag plans to expand its has evolved into a group with a staff that has changed namely. The capital market required production, sales and service networks. meanwhile grown to about 5,000 and sales IFRS-based accounting, and that retrospec- of some 800 million euros. tively for the last two years. Restating its What is more, there is room to extend the financial accounts is a challenge for any present product portfolio – by purchasing Deutsche Beteiligungs AG has been invested company – including Homag. and integrating other strong companies. In in Homag since 1997, supporting its growth other words, Homag is set to grow. After all, since then. Two attempts to realise the In a joint effort by a number of banks and there is a title to defend – that of a market founders’ strategic goal failed: in 1998 the management, Homag succeeded in achiev- leader. crisis in Russia thwarted an IPO, and in 2001, ing an IPO. Homag shares have been quoted while preparations for an IPO were ongoing, on the Frankfurt Stock Exchange since For more information on Homag economic conditions plummeted rapidly and 13 July. “Deutsche Beteiligungs AG was a and current data on this investment severely. major support in achieving this feat,” said see page 40.

In 2006 we realigned the company’s shareholder base. Through generational change and purchases of other family-run businesses, Homag was no longer owned by the company’s two founders and Deutsche Beteiligungs AG only, but was also in the hands of another three shareholder families. Within the scope of the realignment, we were able to acquire the shares of one family completely, and those of another family in part. The result: DBAG and its co-investment funds increased their interest to approximately 60 percent.

Anyone who has bought a fitted kitchen knows the diverse shapes, colours and patterns on offer. Using a “multiple edge-banding machine”, furniture manufacturers can produce a large range of variants while retaining high levels of productivity.

18 Dörries Scharmann Technologie GmbH Bankrolling the future

t takes a lot to turn a piece of steel many others – that employ machines and DST employees develop and manufacture into an aeroplane fuselage, a windmill machining centres made by DST. the machines and machining centres at its gearbox or a pylon for a cable car. At German facilities in Mönchengladbach and least one machine made by Dörries DST serves almost all industrial sectors. Bielefeld, and in St. Étienne in France. Scharmann GmbH (DST) is very likely Drilling, turning, milling and grinding large Support services that handle revampings and Ito be involved. Aviation, wind power gener- workpieces – DST is the premium choice technological upgrades on tooling machines ation and the manufacture of cable cars are whenever the application calls for greatest from the DST range of products round out three examples of key industries – among precision and optimum efficiency. Some 700 the portfolio.

Corporate data

First invested July 1998 Up to ten months can pass before a processing centre leaves the assembly site and is shipped to the end customer. Once it arrives, Disinvested October 2007 it will be used for complex manufacturing procedures such as making E diesel motors for ships or transmission parts for earth-moving 1998 sales ( mn) 86 equipment. 2007 sales (Emn, forecast) 141 www.ds-technologie.de

19 Forum 2007

“The business model seemed viable. That is Additionally, demand for tooling machines is susceptible to cyclical swings. As a conse- why when economic conditions unexpectedly quence of the harsh recession in 2001, the setback in orders and sales was particularly turned difficult Deutsche Beteiligungs AG and severe, causing DST’s management, staff and shareowners to hold their breath. Fonds III responded with a capital increase.” To survive, the company was compelled to DST expects to post some 141 million euros The strong market position and technolo reduce capacities and part with long-stand- in sales in 2007. Its products, made in the gical edge driving the company’s progress ing staff through early retirement. state of North Rhine-Westphalia, are in were hard won: when Deutsche Beteiligungs demand, its order books are full – with AG and its co-investment Fonds III took over However, the business model seemed viable. contracts from the aerospace industry, for the company out of insolvency proceedings For that reason, Deutsche Beteiligungs AG example. Approximately 80 percent of the in 1998, the aerospace industry accounted and its Fonds III co-investment fund respond- passenger aeroplanes built worldwide today for a much lower share of sales. Expanding ed to the unexpected economic difficulties are fitted with components efficiently it would be lucrative but difficult – with a capital increase. One consideration manufactured with high-performance DST to quote the investment thesis when DBAG was paramount: consolidating the techno- machines, from landing gear to engines to entered into the investment. DST machines logical edge. To that end, DST’s intensive structural components for wings and fuse- are capable of processing very large work- research and development activities were lage. The fast-growing aerospace industry pieces, while implementing technologically sustained. “The company would have for- now accounts for well over half of DST’s complex procedures. Thus, machining feited its technological leadership without new machine sales. centres will invariably be large and expen- the additional funds the shareowners pro- sive, often involving expenditures of tens of vided,” said Professor Dr-Ing. Dr-Ing. E. h. millions of euros. Manfred Weck, following the sale of DST.

Large workpieces require large machinery: DST produces turning machines with work surface diameters of up to six metres. The equipment is much in demand, especially by companies in the wind power industry.

20 Professor Weck, professor emeritus of the Today, all those involved can enjoy the fruits very well poised: the number of employees tool machining laboratory at RWTH Aachen of their labours. “With the assistance of rose by some five percent in 2007. Through University, is a member of the DST super Deutsche Beteiligungs AG, we’ve built up a its sale to Austria-based A-Tec Industries AG visory board, where he has supported the new business field in the past ten years,” in late 2007, DST has been integrated into company with his considerable expertise. says Dr Norbert Hennes, chairman of the an established industrial group that engages “In times of controversial debate on the role executive board of Dörries Scharmann in its own tool machining operations and of financial investors, who in Germany have Technologie GmbH. “The additional product that plans to endorse DST’s further become known as ‘locusts’ just waiting to categories will help us absorb the consider- progress. descend, DBAG is an example of the positive able cyclical impacts in the future.” DST is contributions a financial investor can make. DBAG backed DST over a long period of time by providing considerable financial resources, not to mention strategic support and finan- “The staff shouldered their part. The number cial expertise, when the company was severely shaken. Without DBAG, these tech- of productive hours per employee increased by nologically sophisticated products would no longer be produced in Mönchengladbach 16 percent over the past five years.” and Bielefeld today.” DST invests more than three million euros each year in the development of new machine types, with the result that DST regularly files patent applications for innovative, future-ready technologies and products.

The company’s employees also shouldered their part to defend and fortify DST’s market position, increasing their productive hours by 16 percent over the past five years. DST’s dedicated staff developed the process improvements on which the company’s competitiveness and profitability are based. “It wasn’t easy agreeing to temporarily work longer hours and accept reductions in pay,” admits Josef Otten, chairman of the works council. “However, if sales plummet, management needs to respond. What impressed both my colleagues and me was that the shareholders backed us with fresh funds. In the end, DBAG is accountable to its own shareholders.” Be it Boeing, Airbus or Bombardier, award-winning Ecospeed technology has convinced almost all of the globe’s aeroplane manufacturers. No other tool machine can cut large workpieces of high-strength aluminium as fast and efficiently as this machine.

21 Management Shares

Management’s report

Consolidated financial statements

Additional information

22 Good share performance in 2006/2007; adverse market conditions impact share price in new year

Net asset value per share advances significantly

Recommended: dividend to be raised to 1.00 euro per share plus extraordinary surplus dividend of 2.50 per share

Trading volume doubled

Float ownership 100 percent

Third share buyback programme completed

Analysts remain positive about DBAG shares

23 Shares

In 2006/2007, net asset value per share in Deutsche Beteiligungs AG grew by 6.02 euros, or 31.6 percent, despite a high dividend payment of 3.00 euros Good share performance in 2006/2007 – Adverse market conditions impact share price in new year (dividend of 0.50 euros plus an extraordi- Up to summer 2007, our shares’ price movement gained good nary surplus dividend of 2.50 euros) in momentum, building up a considerable premium on the late March. This exceeds the previous net asset value per share. This positive trend not only mirrored year’s strong performance (30.3 percent) the stock markets’ general upbeat sentiment. Profitable realisa- yet again. The excellent growth in net tions and the portfolio’s very satisfactory development also drove the price of DBAG shares. asset value per share was the propeller and mainstay for the upward price Triggered by the US subprime crisis, the corrective phase in the movement of DBAG shares. markets that followed not only struck the small caps – and, consequently, the S-Dax. Private equity securities were also hit by the markets’ repercussions. Measured by their highest and lowest price points, the Dax lost ten percent, the S-Dax receded 17 percent and the LPX 50 index, the benchmark for the international private equity sector, dropped nearly 15 percent during this phase. Falling by 32 percent, shares in Deutsche Beteiligungs AG were impacted even more severely. However, they soon rebounded sharply, temporarily checking the markets’ overhasty response. Although the net asset value especially in the markets’ corrective phase proved to be a key orientation mark for the price of the Company’s shares, adverse market conditions in the new financial year led to a distinct discount on the share price compared with the net asset value per share.

Share performance as a percentage of net asset value per share

150

140

130

120

110

100

Nov. 04 May 05 Nov. 05 May 06 Nov. 06 May 07 Nov. 07

24 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

In absolute terms, the price of DBAG shares gained 38.9 percent Third buyback programme another success in financial year 2006/2007 (1 November 2006 to 31 October We regard the repurchase and cancellation of own shares as an 2007). Including re-invested dividends of 3.00 euros, total return accepted and proven instrument in optimising the Company’s is 57.3 percent; by 22 January 2008, however, DBAG shares had capital efficiency. Through the two instruments – share buybacks again lost a considerable part of the value. Nevertheless, DBAG and the disbursement of an extraordinary surplus dividend – we shares outperformed all relevant indices: are implementing a balanced policy geared to the prevailing capital market situation that allows shareholders to participate in Trading volume doubled the Company’s performance. The liquidity of DBAG shares increased strongly in the financial year. Compared with 2005/2006, which saw average daily turn At the Annual Meeting on 28 March 2007, shareholders again overs of 30,583 shares valued at an average of 0.503 million authorised the Board of Management of Deutsche Beteiligungs euros, in financial year 2006/2007 daily stock market trading AG to repurchase shares in the Company of up to ten percent averaged 72,499 shares (value: 1.793 million euros). Thus, aver- of the share capital, or up to 1,515,386 shares, with the option age daily turnover doubled, both in Xetra trading, which accounts for more than 80 percent of the turnover, and measured by the trading volume achieved by all German exchanges. In relation to the free float proportion at the end of the financial year, shares in float ownership had a turnover rate of 1.28 (2005/2006: 0.68). Deutsche Beteiligungs AG is one of two German companies whose shares are constituents of the LPX 50 index, which is determined on a total return basis. The LPX 50 measures the performance of quoted private equity companies. The index consists of the 50 largest private equity firms worldwide, measured among other things by market capitalisation and trading volume. At the end of October 2007, the index was composed of 30 European companies (of which 14 are UK-based), 13 North American (USA and Canada) and seven Asian firms. The shares of Deutsche Beteiligungs AG have a weighting of 0.67 percent in the index. Visit www.lpx.ch for more information.

Share performance from 1 Nov. 2006 to 22 Jan. 2008 Share performance from 1 Nov. 2002 to 22 Jan. 2008 % %

DBAG adjusted DBAG adjusted Dax performance index Dax performance index S-Dax performance index S-Dax performance index LPX 50 performance index LPX 50 performance index

200 400

350 175 300 150 250

125 200

150 100 100 75

Nov. 06 Feb. 07 May 07 Aug. 07 Nov. 07 Nov. 02 Nov. 03 Nov. 04 Nov. 05 Nov. 06 Nov. 07

25 of excluding shareholders’ pre-emptive tender rights. The author- and uninfluenced by Deutsche Beteiligungs AG when the shares isation may be used through 27 September 2008. This sharehold- were to be purchased. The Board of Management had set the ers’ resolution created the basis for the third successive share maximum purchase price at 25.00 euros per share. The buyback buyback programme. via the stock exchange was completed on 14 December 2007. A total of 727,505 shares were repurchased and 17.0 million On 14 June 2007, the Board of Management voted to make use euros spent for the buyback programme. All shares repurchsed of the authorisation and announced a share buyback programme. will be cancelled without reducing the share capital. HDI Gerling-Lebensversicherung, one of the Company’s two remaining long-standing principal shareholders who until then At 31 October 2007, the number of issued shares was had owned a 10.4 percent interest or 4.95 percent of the shares 14,403,864; of these, 313,367 shares (2.18 percent) were owned outstanding at that time, offered to sell 750,000 shares in the by the Company. Subsequent to the share buyback programme Company for 24.38 euros per share. The Board of Management and the cancellation of these shares on 2 January 2008, the accepted the offer and acquired these shares from IVEC number of issued shares was 13,676,359. Institutional and Venture Equity Capital AG, a subsidiary of HDI Gerling-Lebensversicherung. The shares were purchased for a Net asset value per share rose 31.6 percent price considerably below stock price levels at that time and can- Net asset value per share again saw strong growth in the celled on 30 July 2007 without reducing the share capital. financial year ended 31 October 2007 against the previous year’s closing. It advanced by 31.6 percent, up from 19.07 euros to The unused scope of the authorisation was utilised completely for 25.09 euros. The major part of the increase stems from uplifts in an on-market share buyback programme. A bank was commis- the valuation of our portfolio. This year again, a considerable sioned on 16 August 2007 as the independent dealer managers portion of that value growth was realised through profitable for the offer; in that capacity, the bank decided independently of sales: similar to the prior year, sales proceeds were achieved that

Average daily turnover Average daily turnover Market capitalisation Number of shares Value in TE at end of financial year Emn

72,499 1,792.5 347.24 350

60,000 1,500 262.92 250 223.09 200.84 40,000 1,000 30,583 157.95 28,150 150 503.0 20,000 500 337.0 50

04/05 05/06 06/07 04/05 05/06 06/07 04/05 05/06 06/07 n Market capitalisation n Market capitalisation free float

26 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Share profile Share data 2006/2007 2005/2006

WKN/ISIN 550810/DE0005508105 Closing rate at 31 Oct. 2) E 24.10 17.35 Symbol Reuters: DBAG.F. FY high 2) E 31.88 18.59 Bloomberg: DBA FY low 2) E 16.78 13.25 Listings Frankfurt (Xetra and trading floor), Berlin-Bremen, Düsseldorf, Hamburg, Average daily trading Shares 72,499 30,583 3) E Hanover, Munich, Stuttgart volume 1,792.5 503.0 1) E Market segment Prime Standard Market capitalisation mn 347.1 262.9 Index affiliation S-Dax; Classic All Share; C-Dax; Prime All Share; Dividends per share 4) E 1.00 0.50 Prime Financial Services; LPX 50 Extraordinary surplus Designated sponsors Deutsche Bank AG, dividend per share 4) E 2.50 2.50 Close Brothers Seydler AG Distribution sum Emn 47.9 45.5 Share capital 48,533,334.20 euros

Number of shares Earnings per share 5) E 9.20 5.02 issued, thereof 14,403,864 5) E outstanding 1) 14,090,497 Cash flow per share 3.00 4.96 1) E First traded 19 December 1985 NAV per share 25.09 19.07 Price/NAV ratio 1) at 31 October 2007 per share 1) 0.96 0.91 2) Xetra closing quotation 3) according to Deutsche Börse AG data 4) 2006/2007: recommended 5) weighted

Change in net asset value per share 2006/2007 E

0.67 10.54 30 (0.34) (1.85) 25.09 (3.00) 19.07 20

NAV per Result of Exchange Current Other Dividends NAV per share at valuation rates income income/ share at 31 Oct. and disposal* expense 31 Oct. * netted against 2006 2007 minority interest

27 significantly surpassed the valuation of these investments at the Beyond that, we intend to continue paying consistent, calculable beginning of the financial year. Exchange rate changes nega- dividends. At the Annual Meeting, the Board of Management tively affected the net asset value per share by -0.34 euros per and the Supervisory Board will therefore recommend raising the share. In addition to valuation uplifts, current income from invest- dividend from the previous year’s 0.50 euros per share to ments contributed 0.67 euros towards the rise in net asset value 1.00 euro per share. per share. “Other income/expense”, the net amount of income and expense items including income taxes, was -1.90 per share. Float ownership reaches 100 percent The free float proportion of the shares in Deutsche Beteiligungs We recommend raising the dividend to AG has, based on the German Stock Exchange’s definition, 1.00 euro per share and paying an extraordinary meanwhile reached 100 percent. In 2003, the free float had surplus dividend of 2.50 per share merely amounted to some 42.4 percent. This trend has boosted This past financial year, exits were again achievable at very attrac- the ranking of DBAG shares in the S-Dax index. Major contribu- tive terms – and this is mirrored in the profit posted by Deutsche tors towards the increase in float ownership were capital-related Beteiligungs AG for the year of 62.0 million euros (previous year: activities, share buyback programmes and private placements. 102.0 million euros), calculated in conformity with the German accounting standards and determinative for dividend distribu- Deutsche Bank AG, a founding shareholder of Deutsche tions. The inflow of liquidity from very profitable realisations Beteiligungs AG, sold its residual holding of 2.0 million shares, exceeded investment opportunities available in the market. equating to 13.2 percent of the share capital of Deutsche A part of the liquidity was returned to shareholders through the Beteiligungs AG, on 9 July 2007 to a number of investment fund share buyback programme. At the Annual Meeting, the companies, the majority of which are Germany-based. After sell- Board of Management and the Supervisory will additionally ing a part of their holding through the buyback programme, recommend paying an extraordinary surplus dividend of 2.50 HDI Gerling-Lebensversicherung also divested their residual euros per share.

Shareholder profile Analysts’ rating for Deutsche Beteiligungs AG % Bankhaus Sal. Oppenheim Aug. 07 “Buy” DBAG 3.8 Berenberg Bank Sept. 07 “Buy” Private Institutional Cazenove Sept. 07 “Underperform” shareholders investors Germany 28.9 22.4 HSBC Trinkaus Aug. 07 “Overweight” Landesbank Baden-Württemberg Sept. 07 “Buy”

Institutional Institutional investors UK investors 9.8 other countries 17.9 Institutional investors USA 17.3

The shareholder survey was finalised on 26 November 2007.

28 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

shares in Deutsche Beteiligungs AG in mid-June 2007. Following We endeavor to meet the informational needs of a broader pub- these transactions, the Company knows of no shareholders lic, while intensifying the dialogue with shareholders and enhanc- holding interests in excess of five percent. ing our on-line services. For these efforts, we were awarded a special citation in August 2007: We scored top among 36 tested The shareholder survey conducted in 2006 was updated in 2007 C-Dax and S-Dax securities in the IR-Kompass 2007 competition, and, similar to the previous year, completed in November. sponsored by Nebenwerte Journal and communication agency According to the survey, 71 percent of the Company’s shares are ComMenDo. in the hands of institutional investors: German houses hold more than one fifth of the shares, American firms some 17 percent and For more information and the latest updates, please visit www.deutsche-beteiligung.de/IR British investors ten percent; another 18 percent of the shares are in the hands of investors in other countries. Thus, 45 percent of the shares in Deutsche Beteiligungs AG are owned by international, particularly Anglo-Saxon investors, which we welcome as a sign of our shares’ good standing in international portfolios. Approximately 6,100 private investors own nearly 29 percent of the shares.

Analysts remain positive about DBAG shares Five analysts from German and British investment firms monitor our shares. Their investment recommendation is largely positive; at the end of financial year 2006/2007, we knew of only one sell recommendation. Analysts’ recommendations are regularly docu- mented on our website in section Investor Relations / Research as soon as they come to our attention. The table (page 28) presents analysts’ ratings at the end of financial year 2006/2007.

The dialogue with shareholders ranks highly at Deutsche Beteiligungs AG. On numerous occasions this past financial year, we reported on the current business situation and on the attrac- tiveness of our shares. We presented the Company at major international financial centres, increasing the number of road shows from the preceding year’s eight to eleven this year.

In keeping with our policy of fair disclosure, we made the information detailed in these presentations publicly accessible in the Investor Relations sector of our website. We communicate information to our private investors in many ways, such as by our e-mail newsletter or the live webcast of the Annual Meeting.

29 Management

Shares Investments

Management’s report

Consolidated financial statements

Additional information

30 Three new management buyouts

Homag Group AG achieved IPO

Dörries Scharmann Technologies GmbH sold

MBOs predominate in the portfolio

31 Investments

The portfolio of Deutsche Beteiligungs AG changed markedly this past financial year. Management buyouts, totalling General review nearly 80 percent, now dominate the

portfolio. The significance of investments Eventful financial year – three new in growth financings and international management buyouts buyout funds has receded. We invested in new investee businesses and focused Major share in market activity the portfolio even more strongly on Portfolio value grew significantly MBOs. Following considerable valuation uplifts this past financial year, the portfo- DBAG Fund V begins investment phase lio value at 31 October 2007 significantly exceeds that of the previous year. Sufficient capital is available for invest- Buyout market very robust in 2006/2007 We invested a total of 40.3 million euros this past financial year. ment: We manage assets and commit- The major part of this sum (32.0 million euros) was spent on ments of some one billion euros. increasing our investment in Homag Group AG and financing two new management buyouts. Another 7.0 million euros were drawn down by international investment funds to which we had committed in preceding years.

The mid-market segment in 2006/2007 was hotly contested for attractive investments: Financial investors were able – at least until July 2007 – to avail themselves of an abundant supply of bank finance and trade buyers, driven by a robust global econo-

Portfolio profile by investment type %

100

41.1 36.8 80.0 75

50 23.5 35.3

25 12.9 n MBOs 35.4 27.9 n Buyout funds 7.1 n Growth financing 04/05 05/06 06/07

32 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

my, looked to complement their portfolios. With three transac- New investments and increases of Investment E tions within a year, we had a major share in market activity. In this investments in 2006/2007 mn environment, we capitalised on our ability to purchase companies Homag Group AG 13.6 that fit our investment profile outside intensely competitive sales Coperion Group 10.4 processes. MCE AG 8.0 Clyde Bergemann Group 0.7 See Management’s report for details on the investment strategy and market events, pages 50 to 56. Harvest Partners IV 4.9 DBG Eastern Europe II 1.6 Investment in Dörries Scharmann Technology GmbH Others 1.1 realised In the reporting year, four investments were sold or released from Disposals 2006/2007 the portfolio: Dörries Scharmann Technologie GmbH was profit- Dörries Scharmann Technologie GmbH ably realised. Additionally, we ended three smaller investments: HSBC Private Equity Fund Limited Hucke AG, the HSBC Private Equity fund and US-based IntelliRisk Corporation. The portfolio value saw a marked rise this past Hucke AG financial year. The increase stems from the new investments IntelliRisk Corp. made this year as well as from the considerable value growth achieved by many of our portfolio companies. Portfolio value (IFRS) and number of investments * Emn Number Information on the development of the portfolio 1 November 2006 121 32 and valuation methods are detailed in Management’s report (pages 68 ff.) and in the Notes to the financial statements (pages 94 f.). Investments 40 2 Disposals 45 4 Changes in value 73 31 October 2007 189 30 * Largely equivalent to the aggregate of line items “Financial assets” and “Loans and receivables,” adjusted for interests in shell companies and interests in companies the majority of which is owned by third parties

The total portfolio value – i.e., the IFRS-based fair value of the portfolio – was 189.0 million euros at the closing date, which is Portfolio profile 68 million euros over that of the preceding year. The ten largest by investment type Emn investments, measured by their fair value, accounted for 84.3 40 percent of the portfolio at the balance sheet date. These ten investments consist of eight management buyouts and two inter- 30 national buyout funds. Another 12.3 percent of the portfolio value are attributable to the five next largest investments, meas- 33.3 20 ured by their fair value. Of the 15 remaining investments in companies and funds, only one is equal to more than one percent 11.9 12.3 of the portfolio value. 10

For more information on the portfolio, 11.9 9.4 7.0 n MBOs please refer to Management’s report (pages 50 ff.). n Buyout funds 04/05 05/06 06/07

33 Total assets under management stable Management Buyouts Deutsche Beteiligungs AG not only invests its own capital. The Company also bundles the capital of other private equity inves- Value growth by supporting business concepts tors in managed co-investment funds; these assets are invested in the same portfolio companies. During their investment periods, All capital channelled into buyout business the co-investment funds acquire shares at a fixed ratio alongside Deutsche Beteiligungs AG and the investment team of Deutsche Investment in Homag Group AG increased Beteiligungs AG, who also co-invest their own money in the companies Deutsche Beteiligungs AG purchases. MCE AG and Coperion group purchased

Fund management services are detailed in Management’s report on pages 49 and 51 f. Majority in portfolio companies in the hands of The investments made by DBG Fonds I and DBG Fonds III have financial investors largely been realised. DBAG Fund IV, whose investment phase Management buyouts (MBOs) have been the focus of our invest- started in September 2002, ended its investment activity in ment activity since 2001. Since then, we have not entered into February 2007. At the closing date, 91.7 percent of the capital any other investment types. Apart from increases in existing committed had been drawn down; the fund still holds eight investments, our capital has been spent exclusively on direct or investments. DBAG Fund V has invested in three companies since – through international buyout funds – indirect acquisitions of February 2007. At the balance sheet date, the assets held by companies in which their managements co-invest. Through this Deutsche Beteiligungs AG and managed for third parties totalled distinct focus, management buyouts account for more than 90 1,004 million euros (previous year: 902 million euros). percent of the portfolio value – whereby some ten percent fall to the residual international fund investments and approximately 80 percent to MBOs in Germany and Austria. 31 31 Assets under management* October October Emn 2007 2006 MBOs offer an attractive risk/reward profile – as the 21 manage- Deutsche Beteiligungs AG Group 354 289 ment buyouts that we have entered into in both of these coun- DBG Fonds I 23 25 tries since 1996 have shown. Eleven of these investments have been realised, thereby nearly tripling the capital invested. DBG Fonds III 15 21 A majority interest held jointly with co-investment funds or DBAG Fund IV 177 133 other financial investors is crucial to ensure the scope that is DBAG Fund V 435 434 needed to actually realise the value growth potential we identify Total assets under management 1,004 902 before making an investment. * Value of equity plus additional commitments; the names of the funds do not coincide with the actual company names. Portfolio companies’ managements take on risks As a private equity company, we are equity investors. We expect our portfolio companies to deliver returns that are commensurate with the risk involved. Our role is not to intervene in the operating side of our investee companies’ businesses. We achieve our objectives through service on supervisory boards and advisory councils and through regular, close contacts with the portfolio companies’ managements. We back managements in implementing their business concepts and, consequently, in augmenting the profitability of our investments. That includes improving a

34 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

company’s strategic position, such as by intensifying research and In July 2007, we entered into the third investment this past finan- development or internationalising production and the sales cial year and financed the management buyout of Coperion organisation. Through a personal co-investment, we open oppor- Capital GmbH. The companies of the Coperion group develop, tunities for our portfolio companies’ management board mem- manufacture and distribute machines as well as complete bulk- bers, senior executives and, in part, other key managerial staff to materials conveyor and logistics plants for the plastics, chemical share in the risks and the rewards inherent in an investment. and food industries. Coperion is profiting particularly from its globalisation and the changes associated with it – for instance, Portfolio value (IFRS) and number of by new production capacities in countries of Asia and the management buyouts Emn Number Middle East.

1 November 2006 45 14 Please refer to page 38 Investments 33 3 for more information and current data Disposals/changes in value 73 2 on the Coperion group. 31 October 2007 151 15 In addition to a part of our shares in Homag, we realised our investment in Dörries Scharmann Technologie GmbH (DST). New investments in core sectors Deutsche Beteiligungs AG and its DBG Fonds III co-investment Alongside our co-investment funds, we increased our stake in fund have been invested in DST since July 1998. The acquisition Homag Group AG (www.homag-group.com) and acquired two of DST in 1998 was one of the first management buyouts per- companies in financial year 2006/2007. formed by Deutsche Beteiligungs AG. At that time, we purchased DST from the bankrupt’s assets in conjunction with the insolvency Homag develops, manufactures and globally markets woodwork- of DST’s parent Bremer Vulkan AG. The investment created the ing machines and processing centres. Deutsche Beteiligungs AG platform for this tool machining manufacturer, whose roots has been invested in Homag since 1997; the majority in this extend back to 1884, to survive and sustain jobs. During the time company remained family-owned. In February 2007, we raised of our investment, DST’s sales have grown by an annual average our interest in conjunction with the restructuring of the share- of about six percent. The sale to Austria-based A-Tec Industries holder base and, thereafter, held the majority in Homag jointly AG, whose group portfolio contains other mechanical engineer- with our co-investment funds. In July 2007, we sold a part of our ing companies, was completed in October 2007. shares through Homag’s IPO. Since then, we own a 16.8 percent interest; our co-investment funds hold another 16.3 percent. Further companies from the portfolio of Hochtemperatur Engineering GmbH were sold. At the closing date, four of You will find more information originally six business units had been sold completely and a and current data on Homag Group AG on pages 16 f. and 40. further unit in part. Purchasers of these companies were strategic buyers and financial investors. The investment in MCE AG (www.mce-ag.com), completed in April 2007, is targeted at extending our series of successful Eight MBOs constitute the core of the portfolio investments in the industrial services sector. We plan to use the The following eight management buyouts are among the ten long-standing expertise gained through our investments in GAH largest investments in the portfolio. Anlagentechnik AG, Rheinhold & Mahla AG and, most recently, Babcock Borsig Service GmbH, to further develop Austria-based MCE AG.

Please read the full report on MCE AG on page 42.

35 AKsys GmbH AKsys was formed in 2001 through the merger of three Worms, Germany companies, CWW-Gerko Akustik, RKT Kunststoffe and Faist Automotive, in a management buyout. The acoustics product A developer and manufacturer of category develops and manufactures sound-deadening and acoustics systems and complex engineering insulating components. These products insulate or absorb noise plastic components for the automotive industry emitted by cars, commercial vehicles or household appliances such as dishwashers or washing machines. The business line of engineering plastics develops and produces glass fibre- reinforced structural components that serve to carry and distribute load and force in an automobile body. Core products are front-end carriers (structural components used in the front-end construction of vehicles) and spare tyre wells built into the trunk of cars. Both products meet customers’ high standards in functionality, for example, crash properties and weight reduction resulting in lower fuel consumption, and their suitability as mounting devices for further components. AKsys also manufac- 2007 sales (preliminary) E386.6 mn tures functional parts and panelling made of plastics. Investment E12.6 mn Equity share Deutsche Beteiligungs AG 11.6 % Numerous development orders document that AKsys is an impor- Equity share co-investment funds 23.1 % tant development partner to the automotive industry. AKsys sources innovative and economical integrated solutions for the First invested December 2001 automotive industry through the combination of individual com- www.aksys.de ponents from its various product groups. The company is benefiting from carmakers’ efforts to enhance driving comfort, AKsys specialises in the development and manufacture of acous- reduce weight by substituting metal for plastics, and lower fuel tics systems and complex engineering plastic components for consumption. applications in automotive construction. The company is also a provider to the household appliance and construction industries. In the coming years, AKsys intends to expand its leading position Its principal customers, generating some 80 percent of sales, are internationally as a provider of acoustics and structural plastic automobile and commercials vehicle manufacturers. A staff of components. To that end, AKsys plans to broaden its product and 1,900 work at the company’s ten German locations, a further technology portfolio – through in-house research and develop- 600 at six sites in Poland, Spain, Brazil, Mexico and the US. ment activities, but also by add-on acquisitions, if appropriate. In addition to Deutsche Beteiligungs AG and its co-investment New products are targeted at increasing the volume supplied per fund, other financial investors also own interests in AKsys. vehicle and expanding the customer base.

AKsys registered stable development in 2007. Sales and earnings Sales and earnings are expected to grow in 2008. Contributing were in line with forecasts and reached the previous year’s towards this will be the new contracts won in Germany and level. In Germany, the demand for AKsys products exceeded internationally. estimates in all business lines. This positive trend was fuelled by the company’s successful efforts to solicit additional orders. AKsys’ new plant in Poland was commissioned in summer 2007. The company further reduced debt.

36 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Clyde Bergemann Group Among its key products are so-called soot blowers; at the com- Wesel, Germany; Glasgow, UK; Delaware, USA pany’s technology centre in Wesel, Germany, R&D efforts are consistently focused on further improving the efficacy of these A developer and manufacturer of components for key products. Clyde Bergemann soot blowers are used to clear fossil-fuelled power plants utility boilers of fouling and slag while the plant is in operation. Another major product group are ash handling systems; they serve to transport and beneficiate ash in power plants.

Please refer to pages 14 ff. for more information on the Clyde Bergemann Group.

To expand and round out the product portfolio, Clyde Bergemann acquired three companies in the past two years. These acquisitions are targeted at augmenting sales to existing customers and to winning new accounts, for instance, in related industrial sec- 2006/2007 sales US$297.2 mn tors or in other geographical regions. Following the purchase of Investment E9.2 mn a company in late 2005 in the US that manufactures exhaust Equity share Deutsche Beteiligungs AG 17.8 % filters for coal-fired power plants, Clyde Bergemann acquired Equity share co-investment funds 45.1 % Senior Thermal Engineering of Australia. This move is aimed at expanding the company’s presence in Australia, one of the First invested May 2005 Group’s key markets. Delta Ducon (Malvern, USA) joined the www.clydebergemann.de Group in May 2007. Delta Ducon manufactures ash handling systems based on a preferred technology employed in North The companies of the Clyde Bergemann Group are worldwide America. This acquisition strengthens Clyde Bergemann’s position suppliers of components for fossil-fuelled power plants. The in this market. Both companies generate sales of some products warrant efficient, safe and environmentally-compatible 10 million US dollars each. Deutsche Beteiligungs AG provided operations and contribute substantially towards clean, CO2- 0.7 million euros in the past financial year for the purchase of reduced energy generation. Clyde Bergemann employs a staff of these companies. over 1,200; its international operations extend to 22 companies on five continents. The group has gained outstanding market We are optimistic about Clyde Bergemann’s further progress: positions through the cutting-edge technology built into its prod- Worldwide growth – particularly in Asia – will fuel the demand ucts. It operates production sites in all major market regions. for energy. Market observers anticipate that coal-fired power plants will continue to be the most important type of power After recording good results in 2006, the Clyde Bergemann generation. Efforts to reduce greenhouse gases are already spur- Group improved sales and earnings once more in 2007. The ring heavy capital spending to upgrade power plants with sophis- company completed its 2006/2007 financial year (28 February), ticated technological solutions. Clyde Bergemann intends to clearly exceeding forecasts. Clyde Bergemann is profiting from share in this growth – initially by providing the requisite compo- worldwide growing energy needs and power plant operators’ nents, later on, by delivering spare parts and support services. efforts to reduce emissions. In the first quarters of its 2007/2008 financial year, this company again achieved – in part, strong – Given the high level of order intake and order backlog, Clyde sales growth in its key markets located in the geographical Bergemann expects another improvement in sales and earnings regions of Europe, North America and China. Management also in financial year 2008/2009. expects to conclude the current financial year posting another rise in sales and earnings.

37 Coperion Capital GmbH bulk materials in powder and granular form (”Materials Stuttgart, Germany Handling“). Coperion has a global leadership position with market shares of up to 50 percent. That applies, for instance, to very A developer and manufacturer of compounding large compounding systems which may reach order values of up systems and bulk-materials handling equipment to 50 million euros.

2007 was a very successful year for Coperion. Sales and earnings advanced markedly against the preceding year; order intake clearly exceeded forecasts. Sales growth of 8.5 percent (485 million following 447 million in 2006) outpaced that of the industrial sector. Coperion profited from the growing global demand for plastics, particularly in Asia, as well as from structural change in the world market: Commodity-producing countries are investing to an increasing extent in production plants to expand the value chain within their own countries by directly processing raw 2007 sales (preliminary) E485 mn materials into higher-grade products, such as plastics, for Investment E10.4 mn instance. Additionally, many industries are increasing capital Equity share Deutsche Beteiligungs AG 19.0 % spending to implement projects that were not undertaken at the beginning of the decade. Equity share co-investment funds 75.9 % First invested July 2007 The Coperion group includes two German companies that look www.coperion.com back on a more than one hundred-year tradition in mechanical engineering: Werner & Pfleiderer (founded 1879) and Waeschle The companies of the Coperion Group develop, manufacture and (founded 1900). Coperion employs a staff of 2,000, of whom market machines for the production and processing of plastics, more than 1,200 are located at two larger (Stuttgart and chemicals and food in powder and granular form as well as bulk- Weingarten) and several smaller sites in Germany. Through materials conveyor systems and logistics plants. A range of sup- Coperion Keya (Nanjing, China), Coperion is also well placed in port services relating to the modernisation and maintenance of the aspiring Asian market. The group operates further production machines and plants are an important part of the product port- and product development sites in Wytheville, USA, New Delhi, folio of the group, the global leader in its line of business. India, and Shanghai, China. Deutsche Beteiligungs AG and its co-investment fund acquired Coperion in July 2007; Coperion’s management has meanwhile Based on high levels of order intake, Coperion expects another also co-invested in the company. two-digit rise in sales in 2008. We see significant potential for Coperion to substantially improve operating processes and serve Machines and plants manufactured by Coperion are used for the growing demand even in entirely new customer segments. chemo-physical processing and conveying of various materials. Existing activities in support services will be expanded and com- Coperion’s customers typically produce plastics, but also, to an prised to form a separate business unit – the third, in addition to increasing degree, coatings, toners, food and pharmaceuticals. “Compounding and Extrusion” and “Materials Handling”. Add- Core competencies are compounding and extruding, that is, the on acquisitions to extend the product range or geographical mixing and shaping of various materials under changing pres- presence are also planned. sures and temperatures, as well as technologies for conveying

38 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Heim & Haus Holding GmbH Heim & Haus was founded in 1971 and initially distributed roller Duisburg, Germany shutters regionally. Today, the company’s reach extends to all of Germany; it has also been present in Austria since 2005. A direct marketer of awnings, shutters The product range comprises awnings and other shade and building components systems, roller shutters, garage doors, vinyl windows and doors, canopies and terrace roofing and, a recent addition, customised roof windows.

Heim & Haus products are largely developed in-house and manufactured at the company’s own facilities in Germany. The company’s awnings, roller shutters and windows – the key products that account for more than two thirds of revenues – are marketed via direct sales; self-employed sales representatives solicit orders by directly contacting home owners, for instance, in new construction areas or areas with one and two-family homes. 2007 sales (preliminary) E103.4 mn Heim & Haus offers its clients customised products. Its sales Investment E6.6 mn representatives and the fitters who install the products work Equity share Deutsche Beteiligungs AG 21.4 % exclusively for Heim & Haus. The company is headquartered in Duisburg; its production sites are located in Auerbach (near Equity share co-investment funds 49.0 % Bayreuth in Bavaria) and in Osterfeld (near Halle, Saxony-Anhalt). First invested October 2006 The company plans to utilise its leading market position and www.heimhaus.de direct-sales expertise in the coming years to launch new products and enter new markets in neighbouring countries. Heim & Haus ranks No. 1 in Germany in direct sales of awnings, shutters and building components used in the extension and In 2008, Heim & Haus intends to profit even more strongly from renovation of one and two-family homes. This company covers its new product, a roof window for remodelling and roof exten- the complete output chain from product development through to sion purposes launched in 2007. A separate production line installation, which distinguishes it from its competitors. was set up for this new product at one of the company’s manu- Heim & Haus has 475 employees working at three locations in facturing sites. Germany, in addition to 1.180 self-employed sales representatives and fitters.

The company was successful in 2007 and, in total, achieved sales that matched the previous year’s level under difficult market conditions (103.4 million euros following 104.3 million euros). The launch of a new product contributed towards the improvement. The market success of this product was, however, partly offset by sales losses in other segments; in early 2007, the effects of consumers’ advance purchases in 2006 prior to a hike in value- added tax in 2007 became noticeable; later, untypical weather conditions tempered business.

39 Homag Group AG Besides being a very successful business year, the key event in Schopfloch, Germany 2007 was Homag’s initial public offering. A total of 6.3 million shares – 40.2 percent of the outstanding capital – was placed in A provider of woodworking machines July 2007. Homag shares became a constituent of the S-Dax. and plants for the furniture and construction The IPO was linked to a capital increase; the proceeds from this supplies industries transaction, amounting to a net sum of 30 million euros, will be used to further drive the group’s internationalisation.

According to Homag, the group experienced a boom in order intake in 2007. From mid-2006 to mid-2007, order levels grew by one third. Due to the strong demand, Homag hired additional staff, the company stated. For the full year, management anticipates that sales growth will outpace the industrial sector, thereby further expanding Homag’s leadership position in the global market.

2007 sales (preliminary) E810 mn 1) Please read more about Homag on pages 16 ff. Investment E21.4 mn Equity share Deutsche Beteiligungs AG 16.8 % Homag provides machines, cells (i.e. several machines combined Equity share co-investment funds 16.3 % into complete processing centres), factory installations and services. Key customers for Homag products are furniture manu- First invested Jan. 1997/Feb. 2007 facturers as well as companies operating in the production of www.homag-gruppe.de building components and pre-fabricated homes. The focus of the product range is on machines and plants for efficient, versatile Boasting a market share of more than 20 percent, Homag is the processing of panel-shaped workpieces, predominantly made largest global provider of woodworking machines used in the of wood-based materials. In line with the trend towards process- wood-based panel-processing furniture, construction supplies ing various materials in the manufacture of furniture and in and pre-fabricated homes industries. Homag Group AG employs pre-fabricated home construction, the product range was extend- a staff of approximately 5,050 at 14 production sites. The com- ed to include machines and plants capable of processing other pany was founded in 1960 and the family owners formerly held materials such as plastics, mineral-based materials and light- the majority. In February 2007, we increased our existing invest- weight panels. ment; our co-investment funds also acquired shares at that time. Subsequent to Homag’s IPO in July 2007, Deutsche Beteili Underpinned by well-filled order books, Homag’s management gungs AG and our co-investment funds jointly owned 33.1 per- expects another year of progress in 2008. cent at 31 October 2007, following 59.8 percent previously. 2)

1) Based on the company’s November 2007 prognosis of exceeding the previous year’s sales of 736.5 million euros by “approximately ten percent” in 2007. 2) Our report is based on publicly available data on the group at the copy deadline of this Annual Report.

40 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Lewa GmbH Since its foundation more than 50 years ago, the Lewa trademark Leonberg, Germany has become a sign of quality worldwide and is internationally regarded as the competency leader in its business fields. Lewa A developer and manufacturer of high-performance pumps are characterised by their high performance and a tech- metering and process diaphragm pumps nology that warrants highest standards in process safety and environmental protection.

Lewa is working intensively to further improve its pumps and tap new application potential. Since entering this investment, the organisation and internal workflows have become more efficient and are well placed to optimally meet the growing demand and customers’ increasing expectations. Along with the growth and globalisation of its business, Lewa has further expanded its sales and service organisation. The spare parts and service business is also profiting from that. This is a significant line of business and 2007 sales (preliminary) E118.5 mn generates an appreciable proportion of revenues. Investment E3.6 mn Equity share Deutsche Beteiligungs AG 14.3 % For 2008, management plans to achieve another rise in sales and earnings. In response to growing energy consumption, Lewa Equity share co-investment funds 34.3 % anticipates strong levels of spending in oil and gas production First invested October 2005 and in refining capacities. Order intake and projects in progress www.lewa.de underpin the company’s forecast for the year. Growth opportunities, however, also exist in other areas of the process industry. Lewa develops, manufactures and distributes high-performance metering and process diaphragm pumps and complete pump systems. These sophisticated pumps are particularly suited to mission-critical processes such as in oil and gas production and in the chemical industry. Lewa is a worldwide leader in its niche markets. The company employs some 630 people, of whom 390 are located at its headquarters in Leonberg, near Stuttgart. In addition to Deutsche Beteiligungs AG and its co-investment fund, a further financial investor holds an interest in Lewa.

Lewa had a very successful year, with sales and earnings considerably exceeding those of the previous year. Sales were up 20 percent, and earnings registered another improvement.

41 MCE AG The companies of the MCE AG group are organised in four Linz, Austria divisions: MCE Industrial Engineering and Services (50 percent share of sales) and MCE Building Technology (30 percent), which A provider of industrial engineering are the largest, as well as MCE Machinery and Steel Construction and services for plants, buildings and infrastructure and MCE Personnel Services. installations n In Industrial Engineering, MCE provides engineering, plant optimisation, turnaround management and service packages for industrial parks. Key sectors served by MCE include public utilities and metallurgy, the fast-growing oil, gas, chemical and petro- chemical industries, as well as the paper and pulp industries.

n The product range provided by MCE Building Technology comprises technical building equipment, facility management and complete building services, energy contracting and road traf- fic technology. 2007 sales (preliminary) E1,146.0 mn Investment E8.0 mn n MCE Machinery and Steel Construction manufactures Equity share Deutsche Beteiligungs AG 14.9 % and erects steel bridges and structural steel plants for industry Equity share co-investment funds 60.1 % and infrastructure. First invested April 2007 n MCE Personnel Services provides personnel and engineer- www.mce-ag.com ing services to industrial partners in Austria and Germany.

MCE AG is a leading manufacturer-independent industrial In its core markets of Austria and Germany, MCE intends to services group and life-cycle partner for the construction and expand its customer base and profit from the persistent trend maintenance of industrial plants, buildings and infrastructure towards outsourcing industrial services. The growing markets of installations in central Europe. The companies of the MCE group central and eastern Europe create excellent opportunities for the employ a staff of 8,100 working at locations in Germany (42 sites group to augment its geographical reach. Last year MCE acquired with 2,200 employees), Austria (22 sites with 4,600 employees), a company in Slovakia that operates in industrial assembly and Poland, Slovakia, the Czech Republic, Hungary, Slovenia, Romania industrial maintenance. Through this new company (annual sales and Ukraine (19 sites with a further 1,300 employees). In addition of some 10 million euros and a staff of 130), MCE has expanded to Deutsche Beteiligungs AG and its co-investment fund, its geographical presence and its product portfolio by adding the Andlinger group owns a 25 percent interest in MCE AG; further services. MCE’s management plans to increase sales and the Andlinger group was formerly MCE’s sole shareholder. earnings in 2008.

This new investment made very satisfactory progress in its first year in the portfolio. Sales rose on the prior year (1,146 million euros following 988 million euros in 2006) and earnings improved strongly. Incoming orders this past year and orders on hand at the year-end surpassed budgets in all business divisions.

42 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Preh GmbH 2007 was another year of good progress for Preh. Budgets were Bad Neustadt an der Saale, Germany clearly exceeded. Sales increased strongly on the preceding year (321.5 million euros following 277.7 million euros). The prime A developer and manufacturer of sophisticated contributor was its very successful largest business segment, drivers’ operating and control elements Automotive; further growth was achieved in all product categories. PrehTronics and Preh KeyTec also recorded a very satisfactory year: PrehTronics solicited a number of new, attractive accounts; Preh KeyTec GmbH moved to a new, separate site in 2007 – another step towards this subsidiary’s profitable, independent development.

Preh is a preferred development partner to the automotive industry thanks to its innovative skill and competence – qualities that have significantly contributed to the company’s outstanding market position. Preh also benefited from the demand for cars 2007 sales (preliminary) E321.5 mn out of German production, which gained six percent in the Investment E2.4 mn period from January to September 2007 on the comparable Equity share Deutsche Beteiligungs AG 17.0 % period the preceding year. Additionally, the new facility in Mexico that started production in 2006 put Preh in a position to win and Equity share co-investment funds 43.2 % serve new contracts from North American carmakers. First invested November 2003 www.preh.de Preh expects considerable sales growth in 2008. The company intends to drive its internationalisation: A production facility is Preh develops and produces operating and control elements planned in eastern Europe, and sales activities are slated to be chiefly for the automotive industry that uniquely combine two established in Asia. Sizeable investments in R&D activity is the core competences – intelligent electronics and software, and platform on which Preh intends to continue its pattern of sales unique surface technology. One example of this are driver control and earnings growth. systems, such as climate control or infotainment units. These are distinguished by their ease of use, and enhance passengers’ trav- elling comfort in a car. Intelligent sensor systems, such as defog- ging, fuel injection or brake wear sensors, add to a car’s efficiency, safety and convenience. Preh is also a developer and manufacturer of control panels for industrial applications (“PrehTronics”) and high-quality keyboards and keypads for use at the point of sale (“Preh KeyTec”), such as checkout desks in supermarkets. The group employs a staff of 2,200 located at three German and five international sites and generates more than 85 percent of its sales in the automotive industry.

43 Other investments Lower outstanding commitments Outstanding capital commitments to international buyout funds Only a few growth financing and totalled 10.4 million euros (previous year: 18.7 million euros) at fund investments remain the balance sheet date. They relate to the funds DBG Eastern Europe II as well as Harvest Partners IV and Quartus Capital I. Share of indirect buyout investments The latter two funds are among the ten largest investments in clearly declining the portfolio.

Focus on investments in our core sectors Deutsche Beteiligungs AG had committed more than ten million euros to the Eastern Europe fund. A total of 5.7 million euros were drawn down for acquisitions of seven companies in Poland, No new investment commitments the Czech Republic, Hungary and Slovakia, of which 1.6 million In line with the investment strategy we have been pursuing for euros were paid this past financial year. A part of this capital many years, the proportion of growth financing investments in has been returned. the portfolio has decreased significantly. At the balance sheet date, growth financing accounted for 7.1 percent of the port folio, disseminated over five investments. The largest of these Harvest Partners IV are our interests in Grohmann GmbH (www.grohmann.de) and New York, USA the Vogler group (www.dr-vogler.de). Private equity fund that finances The proportion of indirect MBOs – investments in international management buyouts in North America buyout funds – also declined this past financial year: this investment type receded from 35.3 percent to 12.9 percent of the Fund size US$558 mn portfolio value. Correspondingly, the share of the portfolio value Investment E10.5 mn attributable to international investments has also decreased. Equity share Deutsche Beteiligungs AG 9.9 % The HSBC Private Equity Fund, which had invested in southeast First invested October 2001 Asia, was dissolved following the sale of its residual investments. www.harvpart.com

Our last capital commitment to such a fund was in 2000. Harvest Harvest Partners, Inc. (New York) is a US-based private equity firm Partners IV and Quartus Capital I now constitute the two major pursuing an investment focus similar to that of Deutsche investments of a total of ten in international buyout funds. Beteiligungs AG. We first worked with Harvest Partners in 1985 and, most recently, have invested in the two funds, Harvest Portfolio value (IFRS) and Partner III and Harvest Partners IV. number of management buyouts Emn Number

1 November 2006 77 18 In 2007, the acquisition of Aquilex Holding LLC, the fund’s ninth investment, concluded the investment phase of the Harvest Investments 7 0 Partners IV fund. More than 90 percent of the capital committed Disposals/changes in value (46) 3 has been drawn down. In total, the fund invested profitably: 31 October 2007 38 15 Two of the nine investments were sold completely, a further four investments have generated returns through partial sales or changes to capital structures.

44 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

In financial year 2006/2007, Deutsche Beteiligungs AG received Quartus is an independent French private equity firm that invests returns from the realisation of the Communications Supply Corp. in mid-sized companies. We sponsored this fund management and the Evenflo Company, Inc., as well as from the partial sale of company in partnership with its management in 1998 and share New Flyer Industries. We expect further significant returns from in the carried interest the management company receives. Jointly the following investments remaining in the fund’s portfolio: with its co-investment fund DBG Fonds III GmbH, Deutsche Beteiligungs AG is the largest investor in this fund raised by New Flyer Industries (Winnipeg, Manitoba, Canada; www. Quartus. newflyer.com) is a leading manufacturer of heavy-duty transit buses in North America. The company generates annual sales of This French private equity fund concluded its investment phase in some 600 million US dollars with its buses and aftermarket serv- 2006. Nearly 90 percent of the capital committed to the fund ices. 2007 saw a rise in sales and earnings. Subsequent to an have meanwhile been drawn down. These assets were invested initial public offering, the fund currently holds 22.4 percent of the in nine companies, three of which were still in the portfolio at shares. 31 October 2007. The investments in Group Brunet, Vivaë and Saveur were realised during our 2006/2007 financial year, The Natural Products Group, LLC (Jeronimo, California, USA; achieving good returns. Deutsche Beteiligungs AG received www.levlad.com) is a leading manufacturer and marketer of proceeds of 8.9 million euros from these realisations. To date, branded natural and organic personal care products sold through some 96 percent of our invested capital have been returned various channels. The group consists of Levlad (www.levlad.com) from this fund investment. and Arbonne (www.arbonne.com). The fund currently still holds a material investment in one Cycle Gear Holdings, LLC (Benicia, California, USA; www. portfolio company: Druckchemie Holding GmbH (Ammerbuch, cyclegear.com) is the leading retailer of motorcycle gear, parts Germany; www.druckchemie.com) is the European leader in the and accessories. Cycle Gear is a fast-growing retailer and cur- development, production and distribution of chemical additives rently runs more than 95 outlets. for the offset printing industry. In 2006, sales totalled 66 million euros. For the past year, the company had forecast a rise in Aquilex Holdings, LLC (Atlanta, GA, USA; www.aquilex.com), sales and earnings. Originally two separate investments, the fund’s final acquisition, is an industrial service provider to the La Robinetterie Industrielle SAS (LRI, Montreuil, France; chemical and oil industries, the paper industry, power plants and www.larobinetterie.com) and Sodime S.A. (Chaponost, France; waste incineration plants. The company was purchased in www.e-sodime.com) have been combined to form Fluide January 2007. Techniques Services (FTS). LRI is a provider of valves and similar products used in heating, ventilation and air-conditioning systems. Sodime is a distributor of valves and similar products Quartus Capital Partners I for applications in the food and pharmaceutical industries in Paris, France France. In 2006/2007 (30 June), the companies developed very satisfactorily, with sales (62.8 million euros) and earnings Private equity fund that finances recording growth. In December 2007, the fund signed an agree- management buyouts in France ment on the sale of FTS.

Fund size E111 mn Investment E4.5 mn Equity share Deutsche Beteiligungs AG 15.5 % Equity share co-investment funds 15.5 % First invested July 1998 www.quartus.fr

45 Management

Investments Management’s report

Consolidated financial statements

Additional information

46 Brisk private equity market and strong economy

Strategy successfully implemented in 2006/2007

Portfolio companies and enterprise value record uptrend

Successful start for DBAG Fund V co-investment fund

Result benefited from robust economy

Total dividend payment of 47.9 million euros proposed

Return target remains unchanged

47 Management’s report

The Deutsche Beteiligungs AG Group registered a strong performance in financial year 2006/2007. The consolidated profit for the year, totalling 136.5 million At this year’s Annual Meeting and in light of this outstanding performance, the Board of Management and the Supervisory euros, set a new record in the Company’s Board will recommend raising the dividend for 2006/2007 from history, exceeding the previous year’s previously 0.50 euros per share to 1.00 euro per share. The consolidated profit of 82.7 million euros Company’s very good cash position will again permit disbursing a by 53.8 million euros. The return on net surplus dividend of 2.50 euros per share. This adds up to a total asset value – or equity – per share, distribution of 3.50 euros per share.

the core indicator for the Group, was The business of Deutsche Beteiligungs AG profited from two 56.2 percent; the prior year saw a return influential factors this past financial year: The economy’s robust of 36.4 percent.1) The consolidated bal- growth led to improved earnings positions for major portfolio ance sheet at 31 October 2007 contains companies. Moreover, the capital markets in total developed financial assets of 209.6 million euros, or favourably, further boosting the value of the portfolio.

more than 72 percent over those of the year before. Beyond that, our cash position of 155.8 million euros is strong. The Group and This high level of liquidity stems from a general business conditions series of profitable realisations in the past three years. Positioning :

Focus on management buyouts in German- speaking countries

Business approach: Private equity in Germany’s mid-market segment

Joint finance strategy alongside co-investment funds

Long track record as a mid-market private equity investor Deutsche Beteiligungs AG is a publicly quoted private equity firm domiciled in Frankfurt am Main. It acquires investments in mid- market companies with an enterprise value of 50 million to 300 million euros through management buyouts (MBOs) and backs the managements of these portfolio companies in implementing their corporate concepts. It sponsors these investments over a 1) The term “net asset value per share” is equivalent to “equity per share”; holding period of four to seven years and then sells these invest- the term “return on equity per share” is equivalent to “return on net asset value per share” or “NAV return per share”. ments.

48 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Deutsche Beteiligungs AG invests exclusively in established com- Joint finance strategy alongside co-investment funds panies with a proven business model. Key conditions for an Besides investing the assets of Deutsche Beteiligungs AG, an investment are a target company’s profitability and its prospects integral part of the financing strategy is to additionally invest the for development. This strategy excludes investments in compa- capital of other German and international private equity inves- nies with a strong restructuring need and in early-stage and small tors. These investors do not make direct investments in our target companies. market themselves. Deutsche Beteiligungs AG manages the capital committed by these investors through co-investment funds. Our investment activity is targeted at building the value of these These are fund management companies that co-invest alongside investments and realising that value upon an investment’s ulti- Deutsche Beteiligungs AG at the same terms in the same investee mate sale. In terms of performance indicators this means aug- businesses and in the same instruments. menting the net asset value – or equity – per share through the portfolio’s value appreciation by an annual rate over the long- Focus on MBOs term average that exceeds the cost of equity of Deutsche Until the late 1990s, Deutsche Beteiligungs AG pursued a very Beteiligungs AG. We reached this objective over the past ten-year broad investment approach, which also comprised growth period (1997/1998 to 2006/2007): the average return on equity financing investments and investments in international buyout per share is 21.4 percent. 2) By investing in the stock of Deutsche funds. Since 2001, we have concentrated our activity on acquisi- Beteiligungs AG, shareholders have access to private equity tions in German-speaking regions in which the target companies’ investments, whose returns have been superior to those of other managements co-invest. The portfolio profile reflects this invest- common asset classes. 3) ment strategy. MBOs predominate, accounting for 80 percent of the portfolio value 4). For acquisitions of portfolio companies, Deutsche Beteiligungs AG invests – either directly or through its subsidiaries – equity and Of the ten largest investments in the portfolio, measured by their financial instruments of a similar nature. The Group structure, fair value, eight are MBOs and two are international buyout and changes to it this past financial year, are presented on pages funds that invest in MBOs. 4) 94 and 95 in the Notes to the financial statements of this Annual Report. The majority in these companies should basically be in the hands of Deutsche Beteiligungs AG, its co-investment funds and, when appropriate, other financial investors. This model ensures that the financial investors have the scope that is needed to realise the value that was created through an investment’s sale at the appropriate time. Portfolio profile by investment type % Deutsche Beteiligungs AG is recognised as an equity investment company as defined by German statutory legislation on equity

100 investment companies (Gesetz über Unternehmensbeteiligungs gesellschaften – “UBGG”). For this reason, the Company’s profits 41.1 36.8 80.0 75 are not subject to municipal trade tax.

50 23.5 35.3

25 n MBOs 35.4 27.9 12.9 n Buyout funds 2) For a definition of the return on equity per share, please refer to section 7.1 “Steering and control”, page 56. n Growth financing 3) The index consisting of the 50 largest listed private equity companies, measured 04/05 05/06 06/07 by their market capitalisation, performed twice as well as the MSCI World Index. Source: “Listed Private Equity – Navigating the storm”, Merrill Lynch, London, September 2007, page 26. 4) All data in this Management’s report regarding breakdowns of the “portfolio value” relate to the portfolio less shell companies and companies the majority of which is attributable to minority interest; its value amounts to 189 million euros. 49 Strategy: ments. Beyond that, they should exhibit potential for earnings improvement. In addition to the three industries mentioned, Investments in market leaders in measurement and automation technology and specialty chemi- select industries cals are also among the sectors in which we prefer to invest. However, we occasionally identify investment opportunities that Partnership with managements of meet our investment criteria in other industries. target companies Co-investment by target companies’ managements Co-investment funds contribute towards ensures that interests coincide covering costs Each investment we enter into provides for an ownership stake by management from their own money in the company they manage. That way, we enter into a financial partnership with Deutsche Beteiligungs AG has a long track record in its field of board members and senior executives and, in certain instances, business. The Company and its predecessor companies have select staff at second management levels of our investee busi- been operating as equity investors for more than 40 years. Since nesses. This is designed to align the focus of management to 1965, more than 300 investments have been made in the mid- sustainably augmenting the value of the company they manage. market segment. Of these, 21 were MBOs of the nature previ- Reciprocally, through our co-investment model we create oppor- ously discussed; the Company entered into its first MBO in tunities for management to profit over-proportionately from the 1996. value growth of their personal investment.

Through this investment activity, the Deutsche Beteiligungs AG Businesses are subject to various has acquired broad knowledge of certain sectors of industry, such environmental effects to which the Company as mechanical engineering, automotive supplies or industry- responds by spreading risks related services. In these sectors, which due to their size are of We consider the geographical and sector profile of the portfolio special significance to Germany’s economy, we find businesses when taking investment decisions. The portfolio companies are that fit our investment criteria particularly well: Target companies generally very international; that applies to the markets they sup- should be leaders in their markets and have seasoned manage- ply and, increasingly, to their production sites. Our portfolio

Equity share Business Company % segment Industry

AKsys GmbH 11.6 MBO Automotive supplies Clyde Bergemann Group 17.8 MBO Mechanical engineering Coperion GmbH 19.0 MBO Mechanical engineering Harvest Partners Intl. (IV) 9.9 Fund investment Buyout fund Heim & Haus Holding GmbH 21.4 MBO Consumer goods Homag Group AG 16.8 MBO Mechanical engineering Lewa GmbH 14.3 MBO Mechanical engineering MCE AG 14.9 MBO Industrial services Preh GmbH 17.0 MBO Automotive supplies Quartus Capital Partners I 15.5 Fund investment Buyout fund

50 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

companies’ internationality means that not only Germany’s Our successful investing activity in Germany’s “Mittelstand” over domestic business trend, but also the development of the global many decades has made us an acknowledged, credible partner to economy and the factors influencing it are significant for the vendors and banks, as well as to other groups within target com- performance of Deutsche Beteiligungs AG. panies’ spheres, for instance, employees and unions, customers and suppliers. Our past activities demonstrate that we are a reli- Many of our portfolio companies manufacture capital goods. The able partner in the sales process and adequately regard the inter- demand for such products is subject to stronger cyclical trends ests of all parties concerned. than is the demand for consumer goods. Through our investment strategy, we direct efforts towards spreading exposure to this risk Joint investments by Deutsche Beteiligungs AG by investing in various industrial segments (For more information, and co-investment funds follow fixed rules please refer to pages 72 ff. of the risk management report). Fund companies managed by Deutsche Beteiligungs AG Furthermore, limiting the sum invested in one business to approx- co-invest alongside Deutsche Beteiligungs AG in the same imately ten percent of the equity capital of Deutsche Beteiligungs portfolio companies. The capital committed to these co-invest- AG also serves to spread the risk. ment funds comes from institutional investors, such as pension funds, fund of funds, banks, foundations, insurance companies Experience and network needed for effectual access or family asset administrations. Deutsche Beteiligungs AG and to transaction opportunities the co-investment funds invest at a defined ratio for the duration Consisting of 14 investment managers 5), we boast a large invest- of a fund’s investment period. Disinvestments are principally ment team. This – combined with our skill and long-standing transacted at the same ratio fixed at the time of the acquisition. experience – enables us to take on even complex transactions. For DBAG Fund V, whose investment period began in February 2007, the ratio is one (Deutsche Beteiligungs AG) to Effectual access to transaction opportunities (“deal flow”) is four (DBAG Fund V). instrumental in successfully pursuing the investment strategy described. We profit from our long market presence and our Management fees contribute to covering costs meanwhile wide-ranging network in Germany. These factors Co-investment funds have independent decision-taking struc- enable us to gain early knowledge of prospective transaction tures and operate on their own account. Co-investment funds opportunities. pay management fees to Deutsche Beteiligungs AG for accessing investment opportunities and managing investments. Manage ment fee income serves to cover a part of the operating costs of Deutsche Beteiligungs AG. Fees for management services paid Share of Industrial portfolio value * 5) Without Board of Management members. sector %

Mechanical engineering 67.5 Consumer goods 8.8 Automotive supplies 8.6 Industrial services and logistics 6.4 Other 4.2 Trade 3.3 Specialty chemicals 1.2

* See footnote 4), page 49.

51 by co-investment funds are value-related. During the investment Underlying conditions: phase, fees are based on the capital committed by the fund’s investors. In the subsequent period, fees are measured by the Brisk private equity market and strong economy historical cost of the investments remaining in the portfolio. More MBOs in mid-market segment In financial year 2006/2007, DBAG Fund IV and DBAG Fund V co-invested alongside Deutsche Beteiligungs AG. Additionally, Sufficient finance available Deutsche Beteiligungs AG still manages investments held by DBG Fonds III and Fonds I. Growing global economy supports value appreciation

Deutsche Beteiligungs AG invests in enterprises alongside co- investment funds; it supports their management teams in developing their companies and augmenting the enterprise value. After a holding period of four to seven years, the value that was built is realised through disinvestment. In addition to general acceptance of private equity and the business model associated with it, the following factors are fundamental for the Company’s short and mid-term performance: n the ability to access attractive, promising investments, n adequate availability of leverage to partially finance acquisitions, n competitive taxation treatment and n a stable demand for investments from the portfolio.

Growing significance of private equity Private equity is a young industry. Unlike in other European countries and the United States, “private equity” as the generic term for investment capital from the hands of private and institutional investors in the form of venture capital for start-ups and early- stage companies, growth capital or buyout financing only became known in Germany two decades ago. MBOs, which today account for 52 percent of all private equity investments in Germany 6), have only emerged to any appreciable extent since the early 1990s.

52 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

The value and proportion of private equity investments in Further growth in mid-market segment Germany’s gross domestic product has seen steady growth. The of private equity transactions sum of capital commitments and the number of market partici- Our segment of the market is recording solid growth. Deutsche pants have also been on the rise, with competition for acquisi- Beteiligungs AG took advantage of the opportunities the market tions and capital growing more intense. Today, some 6,000 offered this past financial year. Transacting three new invest- companies that have been backed by private equity in Germany ments, the Company once more was a pro-active market generate annual sales of more than 188 billion euros and employ participant. In the past five years Deutsche Beteiligungs AG has over 960,000 people 7). structured ten MBOs, ranking the Company as a leading buyout investor in Germany’s mid-market segment. During this five-year These developments have led to considerably greater public per- period, the market registered a total of 123 German MBOs of ception of private equity in recent years. Greater public aware- this size 8). ness is supportive for our business: the acceptance of private equity as a source of finance is growing and is subsequently aug- Our estimation of the buyout market’s development and, conse- menting the number of transaction opportunities on the part of quently, the availability of potential investments basically remains companies willing to sell. We are, for instance, observing that unchanged. The significance of private equity in Germany will there is growing readiness by shareholders of family-run busi- continue to grow in the coming years. We expect that the market nesses to consider selling to a financial investor. We are also segment in which we choose to operate will exhibit good benefiting from the market’s maturity on the financing side. progress over the mid- and long-term. There are a number of Greater interest in private equity as an investment vehicle is con- reasons for this: In response to capital markets’ demands, large ducive to the liquidity of the Company’s shares. The number of conglomerates are continuing to focus on core businesses and to potential investors in private equity funds is increasing, particu- divest non-core activities. Spin-offs from large corporations will larly in Germany. therefore remain one of the prime drivers in the private equity market; in recent years, about half of all transactions in the mid- market buyout segment stemmed from this source. Based on the potential transactions we screened in 2006/2007, we have also ascertained that a greater stream of investment opportunities for private equity can be expected to come from Germany’s classical “Mittelstand” of family-owned businesses in the coming years. A further source of transactions that has gained in importance are private equity companies selling to a next-generation financial investor, thus enabling secondary buyouts. MBOs in Germany’s mid-market segment (Transaction value E50 to 250 mn) Number Emn

40 4,500 Value n Number 3,500 30

2,500 20

1,500 10 6) Source: The German private equity market in 2006, Bundesverband 500 deutscher Kapitalbeteiligungsgesellschaften / German Private Equity and Venture Capital Association (BVK), Berlin 2007. 7) Source: BVK data – Das Jahr 2006 in Zahlen, Bundesverband deutscher 1995 2000 2005 2007 (to Sept.) Kapitalbeteiligungsgesellschaften / German Private Equity and Venture Capital Association (BVK), Berlin 2007, pages 14 and 33. 8) Source: European Management Buy-out Review, Centre for Management Buy-out Research (CMBOR); Nottingham 2007 (2003 to 2006); own research by Deutsche Beteiligungs AG (2007, Q1 to Q3). 53 Change in credit terms “Modernisation of the Basic Conditions of Private Equity Until mid-2007, leveraged finance for corporate acquisitions was Participation” (Modernisierung der Rahmenbedingungen für available at exceptionally favourable terms. This applies both to Kapitalbeteiligungen – “MoRaKG”) does not sufficiently meet finance levels (“debt multiples”), measured by the investee busi- these requirements. ness’ earnings, and credit terms (“covenants”). The distortions on US credit markets then led to a change in lending policies in our We welcome the business tax reform that will become effective market segment. at the beginning of 2008. The reduction in the corporation tax rate will benefit our portfolio companies: Their earnings will be Since mid-2007, banks have grown more cautious than they higher, which will augment the value of these investments. The were in the past two years. This development has positive legislator’s intention to partially compensate the reduction by aspects. Banks’ reappraisal of the risk exposure could lead to limiting the deductibility of interest expense will tend to impact somewhat lower prices for M&A transactions, which had recent- us to a lesser degree, given the levels of debt involved in our ly risen markedly. We benefited from these high price levels in the transactions. Further tax issues are discussed in the Risk manage- last two and a half years through a number of very profitable ment report and the Report on expected developments on realisations. Lower prices on the investment side could now lead pages 72 ff. to new, very attractive investment opportunities. Range of exit routes available We anticipate being able to continue our pro-active investment Following 2005 and 2006, 2007 was another year of particularly activity. In light of our long, successful investing history, we main- profitable realisations. The upbeat sentiment on capital markets tain a good number of stable bank relationships that are resilient until summer 2007 set the platform for a series of flotations from even in the current market environment. Through our investment the portfolios of private equity firms. The strong economic strategy, which also provides for acquisitions of companies in momentum in recent years has given strategic buyers sufficient cyclical industries, we tend to work with lower borrowings than liquidity to significantly boost their share of M&A activity. In the many other private equity firms. For that reason too, we expect third quarter of 2007 for instance, trade buyers accounted for that our business will – if at all – be only marginally impaired. 90 percent of all European M&A deals. 9) Financial investors continued to have unprecedented liquidity in 2007. Deutsche Taxation framework crucial to performance Beteiligungs AG took advantage of the upside market for invest- The taxation framework is an influential factor for our perform- ments this past year: we realised more than 40 percent of our ance. To be competitive among quoted private equity companies shares in Homag AG through that company’s flotation; we sold in other countries as well as in soliciting capital commitments one company from the portfolio of Hochtemperatur Engineering from international private equity investors, a transparent taxation GmbH and Dörries Scharmann Technologie GmbH to trade framework is a must. Such a framework, which provides for buyers. For more information on changes to the portfolio, please extensive tax-exemption on realisation profits, was created in refer to section “Asset position and portfolio development” Germany in 2001 for public corporations and in 2003, by way of (pages 68 ff.). decree, for private equity funds. It would be desirable if these directives were permanently anchored through an individual pri- Macroeconomic development: vate equity law. International investors in co-investment funds Global economy growing require a reliable legal and taxation framework over the time The world economy expanded over the course of the reporting horizon of their investment. However, the bill debated by the year. Growth, however, softened slightly compared with 2006. In German Bundestag in autumn 2007 on a law governing the nearly all major economic regions, estimates on real growth rates of the gross domestic product (GDP) for 2007 are slightly below those of the preceding year. According to forecasts, strong economic expansion was registered in Asia, particularly in China and India, as well as in Latin American countries. Business in the

54 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

United States is expected to gain 1.9 percent in 2007, which pensity of commodity-producing regions to invest, and a gener- clearly falls short of the previous year (2.9 percent). 10) Germany’s ally strong business trend for capital goods. Many companies in economy advanced by 2.6 percent (forecast) in 2007, which is our portfolio profited from this very dynamic momentum. By level with that of the euro zone (2.6 percent), but below the contrast, the construction industry’s sluggish development, docu- preceding year’s 2.9 percent. mented by lower numbers of building licences in Germany and lower number of home sales in the United States, negatively Favourable economic climate supportive for portfolio affected portfolio companies. companies’ progress The portfolio of the Deutsche Beteiligungs AG Group contains Strong euro depresses consolidated profit enterprises with very different profiles: They operate in different Over the reporting year, the US dollar again lost on the euro, hav- sectors of industry, and their products and services are, in part, ing fallen 5.1 percent in financial year 2005/2006. Its value versus subject to domestic demand, but are partially also in demand the euros dropped by 12.2 percent between the two balance internationally. Correspondingly, the businesses of these compa- sheet dates (31 October 2006 to 31 October 2007). This trend nies are influenced to differing degrees by general economic persisted after the close of the reporting year. trends. In total, the past year’s positive business climate was conducive to the progress registered by our portfolio companies.

Investments in mechanical engineering companies currently have a major weighting in the portfolio. In 2007, this sector recorded its strongest growth in 20 years. Order intake in this industry 9) Source: “Das ist die Stunde der Unternehmen”, Börsenzeitung, 22 September 2007, page 4. advanced 19 percent in the first six months of 2007 on the same 10) Source: “Aufschwung legt Pause ein” - Joint Economic Forecast Autumn 2007, 11) Joint Economic Project Group, Essen (October 2007), pages 12 and 23. period the previous year. Propelling this uptrend were the 11) Source: “Maschinenbau bricht Rekorde”, Financial Times Deutschland, demand in aspiring countries, such as China and India, the pro- 14 September 2007, page 9.

Growth rates of select economic regions (GDP, real) Valuation of the US dollar against the euro %

n 12 2006 0.90 n 11.1 2007 (forecast) 11.0 E 10 /US$ 9.4 0.85 9.0 8 0.80 6 0.75 4 3.6 2.8 2.9 3.2 2.9 2.6 2.6 1.9 0.70 2

Germany Eurozone USA India China World 1 Nov. 04 1 Nov. 05 1 Nov. 06 1 Nov. 07

55 Exchange rate swings affect the business of Deutsche Beteiligungs Steering and control: AG in two different ways: A part of the investments we entered into are denominated in US dollars (IFRS value at 31 October Return on equity per share key 2007: 31.1 million euros), meaning that changes to exchange performance indicator rates are directly reflected in the valuation result. In the reporting year, the devaluation of the US dollar against the euro had a Value growth of investments key influential negative effect on the result (see “Currency and interest rate factor for corporate performance risk”, page 78). Since the US buyout funds in the portfolio have completed their investment periods and no new capital commit- Investment managers co-invest own money ments have been made, we are exclusively expecting to receive alongside the Company returns from these funds. The direct impact of exchange rate changes on the portfolio value will therefore decline. A four-member Board of Management heads the Company. All Additionally, exchange rates play a role in the business of most active staff of Group companies are employed by Deutsche portfolio companies – in respect of commodity prices as well as Beteiligungs AG; they are located at the Company’s headquarters sales outside the euro zone. Our investee businesses respond to in Frankfurt am Main. the currency risk by, among other things, operating facilities in other currency zones. Companies operating in Germany’s The Supervisory Board consists of six individuals; they are exclu- mechanical engineering industry report that the weak dollar has sively shareholders’ representatives. not yet had sustained effects on business. 12) In our estimation, however, the persistent weakness of the US dollar will not be Return targeted to exceed cost of equity beneficial to our portfolio companies (see “Currency and interest on long-term average rate risk”, page 78). The key target and performance indicator for Deutsche Beteiligungs AG is the return on equity per share. To that end, we compare the net asset value (NAV) – or equity – per share at the close of the financial year with the opening NAV per share, less dividends, at the onset of the financial year. The Board of Management pursues the objective of achieving an NAV per share on the long-term average at a rate that exceeds the cost of equity. The Company estimates that the current cost of equity is approximately 8.8 percent.

We employ the capital asset pricing model (CAPM) to determine that value. This conforms to a recommendation by the Institut der Wirtschaftprüfer (IDW) on determining the cost of capital in conjunction with enterprise valuations and follows general practice.

Based on the CAPM, to arrive at the cost of equity rEK it is necessary to determine n the risk-free base rate rf, n the stock market risk premium rM and n the company-specific risk ß. The cost of equity is derived as follows: 12) Source: “Maschinenbau ist Beschäftigungsmotor”, Frankfurter Allgemeine Zeitung, 5 October 2007, page 18. rEK = rf + ß * rM

56 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

We derive the risk-free base rate from the interest structure curve Applying the three values in the CAPM formula results in equity for German Government bonds with a term of 15 years and the costs of 8.8 percent for Deutsche Beteiligungs AG. In the report- value at which the rate converges over a perpetual term. At 31 ing year, the return on equity per share significantly exceeded this October 2007, this value was 4.8 percent. value, and the long-term value also clearly surpassed this mark: In financial year 2006/2007, the net asset value (or equity) per The market risk premium used was five percent, which is within share rose by 6.02 euros to 25.09 euros per share. Taking account the IDW-recommended spread of four to five percent. of the dividend distribution of 3.00 euros per share, the total return on equity per share is 56.2 percent. Over the past ten-year The individual risk measure for Deutsche Beteiligungs AG (ß) is period (1997/1998 to 2006/2007) we achieved an average return determinable using the regression method, which shows the on equity per share after taxes of 21.4 percent. The spread over relationship between the expected return of a market index and this ten-year period ranged from -9.7 percent to 56.2 percent. the expected return of the shares of Deutsche Beteiligungs AG. Different beta values result, depending on the choice of market Value growth of investments key factor in corporate index, the period of time and the length of return intervals. performance Moreover, the beta values thus determined are unstable over The level of NAV (equity) per share is largely determined by the time. In view of these methodical problems, we chose a prag- value development of the portfolio: Changes in the fair value – matic approach, using 1 as the beta of the shares. This value is the current market value of an investment – are directly reflected adjusted based on the differences between the financing struc- in the NAV through profit or loss. The development in the value ture of Deutsche Beteiligungs AG and the average financing of investments is the key factor on the Company’s income structure of securities quoted on the stock market. This proce- account. dure assumes that of two equal companies, which differ only in the companies’ financing structure, the company with the higher The Valuation Committee, which includes the entire Board of level of debt also bears a higher risk. In view of the low level of Management, monitors the valuation of each portfolio company debt Deutsche Beteiligungs AG had compared with the total on a quarterly basis. The measurement is geared to rules that market at the close of financial year 2006/2007, the adjusted correspond to the fair value approach of the International beta of the shares is 0.8. Financial Reporting Standards (IFRS); the principles of the valuation methodology are discussed in the Notes to the consolidated financial statements on pages 96 ff.

NAV (equity) per share E

FY 2006/2007 Return 56.2% 28 26 FY 2005/2006 25.09 Return 36.4 % 24

22 FY 2004/2005 Return 20.0 % 19.07 3.00 20 18 16 14.64 0.66 14 12.54 0.33 n Dividend 12

31 Oct. 04 31 Oct. 05 31 Oct. 06 31 Oct. 07

57 Valuations may be subject to short-term fluctuations, since they ment and surveillance system is a constituent of the independent may partially be influenced by industry-related cyclical trends and auditors’ year-end audit. The risks addressed by this system are conditions on capital markets. Short-term changes do not convey discussed in the Risk management report (pages 72 to 79). a true picture of a portfolio company’s development. Rather, the performance of a private equity investment requires a longer- A risk management report is drawn up on a quarterly basis. The term view. This is the primary reason why Deutsche Beteiligungs Board of Management is confident that it has a comprehensive AG has geared its target to the long-term average return on view of the risk situation within the Deutsche Beteiligungs AG equity per share. Group: Personal involvement in monitoring the investments and quarterly controlling reports on the investments contribute Board of Management members involved importantly towards that end. in operative business The members of the Board of Management are personally Investment team members invest involved in the core processes of business operations at Deutsche their own money in portfolio companies Beteiligungs AG. Due to the significance of individual transac- In line with their significance for the performance of Deutsche tions for the Group, they take on assignments in generating Beteiligungs AG and with international standards in the private investment opportunities (deal flow), screening and negotiating equity industry, the members of the Board of Management and acquisitions and disinvestments as well as supporting the investee select, experienced staff share in the performance of investments businesses. Members of the Board of Management of Deutsche in a specified investment period at their own risk. Each invest- Beteiligungs AG also take offices on supervisory boards or advi- ment period principally corresponds to the period defined as the sory councils of major portfolio companies. For each investment, “investment period” by co-investment funds. With the launch of a further member of the Board of Management is responsible as DBAG Fund IV in 2001, the managerial team committed to co- a co-consultant. Additionally, key issues are discussed and deci- invest in the funds at their own risk; the same practice applies to sions prepared and taken in weekly meetings with those staff DBAG Fund V. Consequently, the management team shares in members involved in investment transactions or the development both the upside and downside of the portfolio investments of of portfolio companies. Deutsche Beteiligungs AG. This system serves to promote the staff’s initiative and dedication to the portfolio companies and Stable control structures in risk management the long-term retention of high calibre personnel for the We have installed a risk management and surveillance system Company. that addresses exposure both to operational risk and to risk inherent in the development of portfolio companies. The risk manage- These investments are realised within the scope of a partnership participation in the respective funds by the individuals concerned. For those participating, this can result in a superior profit share from the fund’s overall performance. The profit share is only paid if Deutsche Beteiligungs AG or the investors in the co-investment fund concerned have realised a minimum return on their invested capital. For DBAG Fund IV and DBAG Fund V, this minimum return amounts to eight percent annually. The structure of the profit share, its implementation and conditions are in conformity with common practice in the private equity industry and constitute a prerequisite for the placement of private equity funds.

58 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

People and compensation: Employees 2006/2007 2005/2006

Employees (without Board High degree of loyalty of Management members) 47 44 to Deutsche Beteiligungs AG thereof, full-time 38 34 thereof, part-time 4 5 Quality of investment team crucial thereof, apprentices 5 5 for the Company’s performance Personnel costs and social contributions (Emn) 9.2 10.4 Investment team enlarged

System delivers differentiated incentives The number of staff has increased slightly since the previous closing date at 31 October 2006, after the number of investment managers was raised by three to a total of 14. At the end of The business in which we operate thrives on the professional skill, financial year 2006/2007, Deutsche Beteiligungs AG employed a discernment and experience of its people. A private equity com- staff of 47; of these, 38 serve full-time, four are engaged part- pany can only deliver value, if investment professionals identify time. Five apprentices are currently receiving training for their the right investee businesses. They need to recognise existing future professions; this equates to an apprenticeship quota of potential and motivate the managements of these investee busi- more than ten percent. Furthermore, we offered eleven students nesses in developing that potential. Ultimately, they will need to (previous year: nine) an internship for a period of several months, control the process by which to profitably exit the investment. In allowing them to gain insight into the responsibilities of invest- addition to excellent management skills and sector knowledge, ment managers prior to receiving their university degrees. this calls for a high degree of leadership and motivation, communication and social competencies. In past years, Deutsche Differentiated system ensures commensurate Beteiligungs AG successfully selected and developed its staff with compensation a view to these demanding standards. The importance our people have for the performance of Deutsche Beteiligungs AG is mirrored in a compensation system that cre- A motivating work environment, characterised by lean reporting ates the right incentives and allows select staff to share in the lines, teamwork-based project organisation and early delegation Company’s achievements. For that reason, compensation is com- of responsibility and authority, is important for our performance. posed of fixed and performance-related components as well as This has led to unswerving loyalty on the part of key staff: invest- components with long-term incentive effects. ment managers and senior executives boast an average of over seven years of service. The Company’s bonus system is performance-related: It rewards the performance of Deutsche Beteiligungs AG as well as personal performance. The components with long-term incentive effects comprise profit-share schemes designed to allow the team members to participate in the performance of the investments of Deutsche Beteiligungs AG as well as a stock option programme the details of which are presented in the Notes to the consolidated financial statements (pages 126 ff.).

59 The Company offers all employees an employee share purchase Business development plan. In the reporting year, 85 percent of the staff made use of and financial performance this offer (previous year: also 85 percent). Employees are only permitted to sell shares acquired through the plan during specified periods of time subsequent to the publication of quarterly results. Apart from this, employees and members of the Board of Business trend: Management are not permitted to trade in shares of Deutsche Beteiligungs AG. Higher income, high realisation proceeds and higher sum invested

Reports not included: Business strategy successfully implemented in 2006/2007 A research and development report (R&D) is not required in Management’s report, neither are disclosures on environ Investments and corporate value mental protection, nor on procurement: the business purpose developed positively of Deutsche Beteiligungs AG is that of a capital investment company; it is not concerned with the manufacture of goods. IPO of Homag Group AG

Successful start for DBAG Fund V co-investment fund

Results reach another record high 2006/2007 was another year of exceptional progress for the Deutsche Beteiligungs AG Group. The Company recorded a consolidated profit for the year of 136.5 million euros. That significantly exceeds the previous year’s excellent result of 82.7 million euros. Net asset value per share climbed from 19.07 euros in the preceding year to 25.09 euros. The Company paid a dividend of 0.50 euro plus an extraordinary surplus dividend of 2.50 euros per share. The return on equity per share equates to 56.2 percent, following 36.4 percent the year before. At the Annual Meeting and against the backdrop of this very satisfactory performance, the Board of Management and the Supervisory Board will recommend raising the dividend to 1.00 euro per share in addition to paying an extraordinary surplus dividend of 2.50 euros per share.

The positive business trend is also reflected in the movement of the shares in Deutsche Beteiligungs AG. The share price rose from 17.35 euros at the beginning of the financial year to 24.10 euros at the balance sheet date. Including the dividend distribution of

60 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

3.00 euros, the value of shares in the Company surged by 57.3 2002, the fund has invested in ten portfolio companies. Two percent in the reporting year. Our shares thus outperformed the investments and major business units from the portfolio of key benchmark indices. Hochtemperatur Engineering GmbH have meanwhile been realised. The investment in Homag Group AG was partially exited Good levels of earnings recorded by portfolio through the stock market. All complete and partial realisations companies and rise in stock prices augment fair value generated considerable value growth. Supported by a robust global economy, earnings developed positively for the majority of our portfolio companies. With strong The completion of DBAG Fund IV’s investment period marked the levels of demand for capital goods worldwide, the companies commencement of the investment period for follow-on fund operating in the mechanical engineering sector in particular DBAG Fund V, which has assets of 434 million euros. The new achieved high earnings growth. This, and the upward price trend co-investment fund had a promising start: Within a short period on capital markets effected a rise in the fair value of our invest- of time, approximately 25 percent of the capital committed to ments, which led to a record-high result from investing activity of the fund had been drawn down. The capital was spent on an 165.0 million euros and is directly reflected through income. increase of the fund’s stake in Homag Group AG and investments in Coperion GmbH and MCE AG. High level of cash inflows from realisations and returns from fund investments Further share buyback programmes conducted In 2006/2007, we again achieved a high level of cash inflows The sizeable sales proceeds recorded this past financial year and from realisations and partial sales, totalling 106.1 million euros. the two preceding years resulted in a significant cash position. At A major contributor was the sale of more than 40 percent of the the 2007 Annual Meeting, the Board of Management therefore investment in Homag Group AG through an initial public offer- requested new authorisation to buy back up to ten percent of the ing. We recorded proceeds of 54.7 million euros from the issu- share capital. Within the scope of this authorisation, the ance. Subsequent to its stock market listing, Homag remains the Company acquired a block of shares representing some five per- largest investment in the portfolio with a carrying amount of 70.6 cent of the share capital from IVEC Institutional and Venture million euros at 31 October 2007. The sale of Dörries Scharmann Equity Capital AG (HDI Gerling-Lebensversicherung) for 24.38 Technologie GmbH to Austria-based A-Tec Industries AG also led euros per share. The sum of 18.3 million euros was spent on this to sizeable cash inflows. The major part of the other proceeds transaction. comes from returns from the Harvest Partners IV and Quartus Capital Partners I co-investment funds. Both funds sold several For the repurchase of the remaining five percent of the share investments, each of which produced positive results. capital, a bank was commissioned in August 2007 to independently act as the dealer managers for an on-market share buyback Strong rise in new investments programme for a maximum price of 25.00 euros per share. Up to Investments in the portfolio, amounting to 40.4 million euros, 31 October 2007, 313,367 shares were repurchased under this were considerably above the previous year’s 21.6 million euros. programme for an average price of 24.29 euros per share. In We invested in two new transactions: Coperion GmbH (acquisi- total, 7.6 million euros were spent on the purchase of these tion cost: 10.4 million euros) and MCE AG (acquisition cost: 8.0 shares; this does not include the cost of acquiring the shares. million euros). Additionally, the Company funded an increase of its stake in Homag Group AG. The US-based buyout fund Harvest We paid an average price of 24.35 euros per share for the Partners IV drew down further capital. 1,063,367 shares repurchased this past financial year. This is less than the net asset value per share of 25.09 euros at 31 October Successful start for DBAG Fund V co-investment fund 2007. In financial year 2006/2007, the DBAG Fund IV co-investment fund completed its investment period; the acquisition of Homag Group AG was the fund’s final investment. Since its launch in

61 Use of measurement options Since financial year 2004/2005, Deutsche Beteiligungs AG has and discretionary scope as well as funded pension benefit entitlements, the present value of which grooming transactions: was 17.0 million euros at 31 October 2007, by contributions to plan assets through a bilateral contractual trust arrangement. In Financial assets uniformly measured at the accounts, the present value of pension entitlements is netted fair value against the fair value of plan assets managed externally by a bank and unrealised actuarial losses. At 31 October 2007, the net Balance sheet contraction by separating amount was +0.6 million euros; since plan assets exceed obliga- out pension commitments tions, the net amount represents an asset. This procedure leads to a balance sheet contraction.

Interests in associated companies have been allocated to the The differences between the expected trend and actual develop- category of financial assets at fair value through profit and loss. ment of benefit entitlements and the fair value of plan Based on the allocation to this category, these are required to be assets result in actuarial gains and losses. These are recognised in carried at fair value instead of the usually applicable equity the balance sheet without effects on income, insofar as they are method. Thus, all financial assets have uniformly been measured less than ten percent of the higher amount arising from the at fair value. The fair value is the amount for which an asset could obligation and the fair value of plan assets. Actuarial gains and be exchanged between knowledgeable, willing parties in an losses that fall outside a range of ten percent are disseminated arm’s length transaction. The fair value therefore comes close to over the average remaining service period (corridor method). the enterprise values negotiated by Deutsche Beteiligungs AG At 31 October 2007, actuarial gains/losses not recognised in when purchasing or selling investments. The fair value for all our income amounted to -0.9 million euros. investments is measured by our internal valuation guidelines, the procedures of which are presented on page 70. The fair value provides investors with qualified information with which to assess the Company’s business position.

Compared with the equity method, fair value recognition may lead to greater fluctuations in valuations and in the result of investment activity, since, in addition to the investee businesses’ earnings development, changes in price levels on capital markets are also considered.

62 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Earnings position: Strong cyclical uptrend in mechanical engineering industry Consolidated profit for the year The net result of valuation and disposal, which again topped that sets new record high of the previous year, derives from an exceptionally favourable sectoral trend in the mechanical engineering industry. At the Result benefited from strong economic trend balance sheet date, 68 percent of our financial assets 13) were attributable to this sector. Almost all portfolio companies operat- Return on equity per share totals 21.4 percent ing in this industry profited from the strong global demand for their products. This trend is reflected in significant earnings Recommended dividend distribution improvements and reduced levels of debt. Additionally, the of 49.3 million euros capital market multiples used to measure enterprise value also saw a rise. The uptrend in all relevant measurement parameters led to significant uplifts on the value of investments. Net result of valuation sets new record high at 165.0 million euros The value growth recorded on the investment in Homag Group The strong rise in the consolidated profit for the year 2006/2007 AG was partially realised in financial year 2006/2007. Homag to 136.5 million euros, up from 82.7 million euros the preceding shares were listed on the stock exchange at an issue price of year, stems from a distinct improvement in the net result of valu- 31.00 euros per share. Deutsche Beteiligungs AG sold ation and disposal of financial assets and loans and receivables 40.3 percent of its shares in conjunction with the IPO and (net result of valuation and disposal). It reached 155.0 million achieved a considerable profit on sale. The investment in Homag euros, following 93.9 million euros the prior year. This item con- Group AG delivered the largest contribution towards the net tains the value movements of investments, loans and receivables result of valuation and disposal. One influential aspect was that as well as profits/losses over valuation from disposal of financial an obligatory 25 percent discount which previously existed on assets. this formerly family-owned investment was retrieved and recognised through income.

The remaining Homag shares in the portfolio were valued at their closing quotation at 31 October 2007, less a lock-up discount of five percent. Even subsequent to the partial sale, the investment in Homag, valued at 70.6 million euros, is still the largest by far in the portfolio. At the closing date on 31 October 2007, Homag Net result of valuation and disposal accounted for 34 percent of the carrying amount of the total of financial assets and loans and receivables Emn portfolio.

A further appreciable contributor towards the net result of valu- 155.0 ation and disposal came from the sale of the Company’s interests

125 in Dörries Scharmann Technologie GmbH, a manufacturer of 93.9 tooling machines, to A-Tec Industries AG, a quoted company

75 based in Austria. 46.9

04/05 05/06 06/07

13) See footnote 4) page 49. 63 Other portfolio investments Personnel costs recede due to also delivered significant contributions to results lower performance-linked emoluments Major contributions to profits also came from realisations from Personnel expenses receded in 2006/2007 to 17.9 million euros, the portfolios of the Harvest Partners IV (USA) and Quartus a decline of 4.1 million euros from 22.0 million euros. The Capital Partners I (France) buyout funds. Other investments addi- decrease primarily results from lower performance-related salary tionally delivered positive contributions to the net result of valua- components linked to complete and partial realisations, as com- tion and disposal through improved earnings and higher price pared with the previous year. Variable, performance-related levels on capital markets. profit share systems (schemes for investments up to the year 2000 and for investments beginning in 2001) amounted to The net result of valuation and disposal contains a special effect 6.8 million euros, following 8.9 million euros the year before. of 20.0 million euros. This ensues from the scheduled conversion Performance-linked income falls due upon realisation of the value of the valuation method employed upon completion of the growth; this item therefore contains performance-related compo- investment period of a fund that co-invests alongside DBAG Fund nents from value appreciation achieved in previous years. IV. This investment fund is now measured at fair value, after it The previous year’s amount was significantly determined by the had been valued at historical cost. Members of the Board of complete sale of the largest investment in the portfolio at that Management and a select group of staff of Deutsche Beteili- time, Bauer AG. gungs AG directly hold shares in this investment fund. The profit share attributable to this group of individuals is recognised in the Rise in income from advisory and management net result of valuation and disposal, but is offset by a counter services following investment start of DBAG Fund V entry in line item “Minority interest” of the consolidated income Other operating income, totalling 15.8 million euros, exceeded statement. the previous year’s 12.4 million euros. The most significant items in other operating income are management fees from the Income from financial assets and loans Company’s managed funds of 7.2 million euros, consultancy fees and receivables below previous year’s level of 2.2 million euros and reimbursed costs of 2.7 million euros. due to special effect In the previous year, management fees amounted to 5.6 million In financial year 2006/2007, current income from financial assets euros, consultancy fees 0.5 million euros and reimbursed and loans and receivables amounted to 9.9 million euros. This costs 2.8 million euros. falls short of the previous year’s 20.5 million euros by 10.6 million euros. Pursuant to company law, current income in the preceding year contained a profit share attributable to the investment team of 6.0 million euros from a co-investment fund, which, due to consolidation rules, was required to be disclosed in the income Other operating income Emn statement of Deutsche Beteiligungs AG and offset through a counter entry in line item “Minority interest”.

15.8 13.9 15 2.7 12.4 6.4 10 6.2 4.7 n 2.2 Others 0.5 n Structuring, 5 consultancy and 6.6 5.6 7.2 support fees n Management fees 04/05 05/06 06/07

64 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Fees for management services depend on the size of the Other operating expense declined following co-investment funds managed through subsidiaries of Deutsche special charges in the preceding year Beteiligungs AG. With the commencement of the investment Other operating expense fell by 3.7 million euros to 11.8 million period of DBAG Fund V in the second quarter of the reporting euros on the previous year’s 15.5 million euros. This item largely year, total fund assets under management increased. Fee income relates to expenses from investment management activity, mean- from the management of these funds rose correspondingly. ing the purchase, monitoring and disinvestment of companies or Funds whose investment phase has ended pay decreasing fees fund investments. These declined versus 2005/2006. The major over the course of the realisation phase that follows. Conse part of the decrease in other operating expense is due to the fact quently, management fee income from funds in the disinvest- that, in the previous year, this item contained expenses incurred ment phase declined. in conjunction with the flotation of Bauer AG.

Consultancy fees contain a balancing item through which man- Furthermore, other operating expense includes numerous agement and consultancy fees are netted against expenses that smaller items relating to costs incurred in the ordinary course of incur for the identification and screening of transaction oppor business. tunities; the net amount was higher this financial year than the previous year and was decisive for the increase in the aggregate Net interest higher amount of this item. Interest income was 5.9 million euros in 2006/2007, exceeding the previous year’s 3.6 million euros by 2.3 million euros. The rise In financial year 2006/2007, other operating income also con- is due to higher levels of cash funds on average over the year and tains uplifts on current assets of 2.7 million euros. These largely higher interest rates. relate to reversals of write-downs on accrued interest receivable. Other income in the reporting year pertains to reimbursed Interest expense decreased to 1.1 million euros in 2006/2007, expenses as well as fees for service on supervisory boards and down by 0.8 million euros from 1.9 million euros the previous advisory councils. year. Similar to the prior year, this item contains interest on additional tax claims.

Net interest Emn

4.0 4

1.8 2

0.7 1

04/05 05/06 06/07

65 Rise in consolidated profit for the year results A total of 47.9 million euros from distributable profit in higher NAV return to be paid to shareholders The Deutsche Beteiligungs AG Group recorded a profit for the From the consolidated profit for the year, 30 million euros will be 2006/2007 financial year of 136.5 million euros. The profit appropriated to retained earnings. The total distributable profit achieved for the previous year was 82.7 million euros. The NAV amounts to 118.2 million euros. return – or return on equity per share – is 56.2 percent. In the preceding year, it had amounted to 36.4 percent. At the Annual Meeting, the Board of Management and the Supervisory Board will recommend paying a dividend of 1.00 The average return on equity per share over the last ten-year euro per share and a surplus dividend of 2.50 euros per share period is 21.4 percent (previous year: 17.9 percent) from the distributable profit. Based on the 13,676,358 shares outstanding on 14 December 2007, the sum to be distributed to shareholders is 47.9 million euros.

Consolidated profit for the year Return on equity per share after taxes Emn %

160 56.2 60 136.5 140 50 120 41.0 40 100 36.4 82.7 29.9 80 30 23.7 60 20.0 41.3 20 40 37.5 32.1 10.8 20.5 18.2 10 9.2 20

3.1 3.6 2,1

(15.8) (9.7)

97/98 98/99 99/00 00/01 02/03 03/04 04/05 05/06 06/07 97/98 98/99 99/00 00/01 02/03 03/04 04/05 05/06 06/07

The consolidated profit set out above is based on German accounting standards for the The return on equity set out above is based on German accounting standards years from 1996/1997 to 2003/2004 and thereafter on the IFRS format. for the years from 1996/1997 to 2003/2004 and thereafter on the IFRS format.

66 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Financial position: The sizeable liquidity of 155.8 million euros posted at the close of financial year 2006/2007 not only creates scope for the payment Level of cash resources remains high of another extraordinary surplus dividend, but also permits conducting further share buyback programmes. There are, moreover, Cash inflows again significantly exceed investment sufficient financial resources available for future acquisitions.

High returns for our shareholders No liabilities to banks In financial year 2006/2007, Deutsche Beteiligungs AG financed its activities from equity. At 31 October 2007, the Group recorded Capital resources to be adapted to market conditions equity capital of 353.6 million euros; equity capital at 31 October Major payment flows in our operations stem from a limited 2006 had totalled 289.0 million euros, or 64.6 million euros number of annual corporate investments and disinvestments. The less. success of these transactions is dependent on numerous external factors that Deutsche Beteiligungs AG can only conditionally The capital-to-asset ratio remains unchanged at a high level of control. It follows that payment flows are irregular and only 89.7 percent (previous year: 90.3 percent). roughly predictable. We respond to these conditions through our finance management: For the short to mid-term, we draw on Minority interest rises through special effect existing liquidity – as is currently the case – or, alternatively, on Non-current liabilities, totalling 17.1 million euros at 31 October borrowings. For longer planning horizons, we steer the amount 2007, exceeded the previous year’s 3.4 million euros. This item of equity capital, inter alia, through share repurchases or, if contains long-term provisions and minority interest. The latter appropriate, capital increases. We have frequently utilised these rose by 13.7 million euros to 16.2 million euros. This increase instruments to adapt capital resources to market opportunities relates to the rise in value of an investment fund that invests and conditions in the past. The capital increase in 2004 was fol- alongside DBAG Fund IV, in which members of the Board of lowed by share buybacks in 2005, 2006 and 2007. Management and a select group of staff directly hold shares; these shares are recognised in “Minority interest”. The increase in value of this investment fund results from the fact that, after the investment period ended, the fair value of this investment is no longer measured by acquisition cost, but by the present value of the expected returns from this investment.

Current liabilities amounted to 23.7 million euros at the balance Cash flows from investing activities sheet date. This is a decline of 4.0 million euros against the prior Emn year’s 27.7 million euros.

191.0 200.0 Significant cash flows from realisations 168.8 156.5 Cash and cash equivalents receded from 164.7 million euros the 150.0 132.2 previous year to 155.8 million euros, a decrease of 8.9 million 106.1 euros. Changes in cash and cash equivalents stem primarily from 100.0 payments for investments in the portfolio netted against pro- 65.0 n Acquisition of financial assets ceeds from disposals of investments. Cash inflows from investing 50.0 n Proceeds from disposals

n Cash flows

from investing activities

(24.3) (22.2) (41.1)

04/05 05/06 06/07

67 activity, totalling 65.0 million euros, again developed at very sat- Asset position and isfactory levels. They were 103.8 million euros below the preced- portfolio development: ing year’s exceptionally high cash inflows of 168.8 million euros. Carrying amount of portfolio increased considerably Key contributors were proceeds from disposals of financial assets, including profits over valuation. They amounted to 106.1 million Considerable value growth achieved euros in 2006/2007, or 84.9 million euros less than the previous by existing investments year’s very high total of 191.0 million euros, which was largely influenced by the initial public offering of Bauer AG. In 2006/2007, Investment sum of 40.4 million euros the sale of shares in Homag Group AG, which again was realised significantly exceeds that of the previous year through an initial public offering, delivered the largest contribution, totalling approximately 55 million euros. Further significant cash inflows were generated by the sale of Dörries Scharmann The value of the Group’s assets is reflected in the balance sheet Technologie GmbH and returns from the Harvest Partners IV and items financial assets as well as loans and receivables. The sum of Quartus Capital Partners I fund investments. Both funds achieved both of these items, the investment portfolio, amounted to 209.7 a number of profitable realisations in the reporting year. million euros at 31 October 2007 and chiefly consists of investments in 30 companies and private equity funds. At 31 October Payments for investments in financial assets grew from 21.7 mil- 2006, the carrying amount of the portfolio had totalled 121.7 lion euros in the previous year to 40.7 million euros in 2006/2007, million euros invested in 32 companies. The strong rise in the due to the Company’s very brisk investment activity. In addition portfolio value is due both to the value appreciation of existing to new investments in MCE AG and Coperion GmbH, the investments recorded this reporting year and to new invest- Company increased its interests in Homag Group AG. ments.

Marginal decrease in liquidity position Corporate strategy successfully implemented In 2006/2007, more capital was returned to shareholders through through investments in MBOs dividend distributions and share buyback programmes than in the In financial year 2006/2007, we invested the sum of 40.4 million preceding year. This is reflected in the cash flows from financing euros in new and existing portfolio companies. Of that amount, activities, which fell from -40.7 million euros to -71.4 million 8.0 million euros were spent on the investment in MCE AG and euros in 2006/2007. 10.4 million euros in Coperion GmbH. We acquired both new investments through MBOs, thereby successfully pursuing our The sum of payments for investments and for share repurchases investment strategy. The remaining 22.0 million euros were spent and dividends exceeded the inflows from disposals of financial to increase existing investments. A major part of this amount assets, resulting in a reduction of the preceding year’s very high (13.6 million euros) is attributable to the increase of the invest- liquidity position of 164.7 million euros to 155.8 million euros. ment in Homag Group AG, which we jointly transacted with our This amount is available for new investments, the recommended co-investment funds. We also invested further capital in interna- dividend and surplus dividend payments, and, if appropriate, tional private equity funds. further share repurchase programmes. Robust economic trend and favourable capital market environment boost portfolio value In 2006/2007, disposals, partial disposals and returns from fund investments amounting to 44.7 million euros caused the portfolio value – measured by the opening amount at the beginning of the financial year – to decline. Major sums stem from the partial disposal of the shares held in Homag Group AG through that

68 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Development of financial assets (IFRS) Emn

9 29 300 255 92 1 22 210 199 200

(94) 41 (45) 122

(100) 100

Portfolio at Investments Valuation Disposals Portfolio Investments Valuation Disposals Portfolio Investments Valuation Disposals Portfolio 31 Oct. in FY changes in FY at 31 Oct. in FY changes in FY at 31 Oct. in FY changes in FY at 31 Oct. 2004 2005 2006 2007

Investments Emn

40.4 40

23.8 21.7 20

04/05 05/06 06/07

Holding periods for investments Geographical dissemination of investments (measured by IFRS value *) (measured by IFRS value *)

Other Rest of world < 2 years European 3 % 21 % countries 9 % USA > 10 years 6 % 37 % Germany 82 % 2 to 5 years 20 %

5 to 10 years 22 %

* See footnote 4) page 49. * See footnote 4) page 49.

69 company’s initial public offering and returns from the fund invest- Should neither of these procedures prove applicable, valuations ments in Harvest Partners IV and Quartus Capital Partners I. The are usually determined on the basis of comparable companies: investment in Hucke AG was completely divested. The invest- n Valuation based on recent M&A transactions of comparable ment in HSBC Private Equity Fund Ltd. ended after the fund’s companies; portfolio had been completely realised. Additionally, the invest- n Valuation based on peer-group comparisons of quoted ment in IRMC Holdings was concluded. companies.

The value of the investments remaining in the portfolio totalled Additionally, other procedures may be applied, such as the dis- 209.7 million euros at the end of the financial year, which is 88.0 counted cash flow method to determine the value of expected million euros over the value determined for the portfolio the year returns from fund investments. The fair value of silent participa- before. Both the robust business trend recorded by most portfolio tions and loans granted by Deutsche Beteiligungs AG to its port- companies and higher price levels on capital markets contributed folio companies corresponds to their historical cost (or, if applica- to the very satisfactory development. ble, the lower market value). The same applies to the fair value of new investments in the first year after acquisition, insofar as Valuation of investments performed there is no material impairment. using differentiated procedures We measure the fair value of our investments at quarterly inter- Slight change in current assets vals; the valuation changes are reflected through profit or loss. Current assets (without cash and cash equivalents) were 27.3 The fair value of our investments in conformity with the IFRS million euros at 31 October 2007 (previous year: 30.8 million is determined on the basis of our internal valuation guidelines. euros). These assure consistency in performing valuations over time. To that end, we employ different methods: n Stock market prices (at the valuation date) for quoted companies, in case of lock-up restrictions, with a discount applied; n Recent purchase offers;

Valuation methods applied for investments (measured by IFRS value *)

Other Historical cost 17 % 13 %

Stock market 37 %

Multiples method 33 %

* See footnote 4) page 49.

70 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

General financial position: Investments and Report on the economic position payments to shareholders financed by sales proceeds of the Group: and reduction of surplus liquidity Deutsche Beteiligungs AG pursues its business with a long-term Group economically well poised focus. Phases of high investment activity alternate with phases in which there will be numerous realisations. In the past three years, Positive state across all business we took advantage of the receptivity of M&A and equity markets and financial indicators for disinvestments, and thereby achieved high levels of cash inflows. These were used to finance the investment volume, which was significantly higher in the reporting year, for the pay- In the opinion of the Board of Management at the time this ment of an extraordinary surplus dividend and for share repur- report was drawn up, the Deutsche Beteiligungs AG Group is chases. There was a reduction in cash funds compared with the economically well positioned. All business and financial indicators preceding year, but liquid resources remained high. Since the are indicative of this. In the year ended 31. October 2007, the ability to completely reinvest the cash resources in attractive Company significantly augmented the value of the investment investments at short notice is limited, the option exists of portfolio and realised an appreciable part of that value growth. continuing the past policy of utilising parts of the surplus liquid- This supports our opinion on the quality of the portfolio. The sum ity for dividend distributions and share buyback programmes. invested grew strongly: By entering into new, promising investments, we increased the potential for the portfolio’s value growth – a key requisite for future profits. In light of existing liquidity resources, the Group’s financial position can be judged as being very sound; the liquidity gives the Group ample scope to finance future acquisitions.

Balance sheet structure Emn

05/06 06/07 06/07 05/06

124.6 211.3 289.0 Non-current assets n n Shareholders’ equity 100 n Receivables and other 30.8 353.6 Non-current liabilities current assets n n Current liabilities 200 Cash and equivalents n 164.7 27.3

3.4 300 155.8 27.7 320.1 17.1 320.1 23.7 400 Assets Shareholders’ equity 394.4 394.4 and liabilities

71 Events after the balance sheet date: Potential, rewards and risks

Quotations on capital markets deteriorated after the balance sheet date; this applies in particular to mechanical engineering Risk management: companies. The price of Homag shares, the largest investment, fell distinctly, from 28.14 euros at the balance sheet date to Regular analysis of rewards and risks 20.57 euros on 19 December 2007. This equates to a negative effect on results of 19.0 million euros, or 1.35 euros per share Group rests on solid foundation in relation to the net asset value per share in Deutsche Beteiligungs AG. Control of risk is of particular importance to investment business The share buyback programme was continued in the first part of the current financial year and completed on 14 December 2007. Risk management integrated into Up to that date, we acquired a further 414,138 shares for the business processes sum of 9.4 million euros. The authorisation for the repurchase of own shares granted on 28 March 2007 is thus exhausted. Risk management and surveillance system Germany’s business tax reform will become effective on 1 January contributes towards the Company’s performance 2008. Since the earnings of the Deutsche Beteiligungs AG Group Our risk management and surveillance system is designed to chiefly stem from the sale of interests in companies, of which avoid or reduce exposure to, and manage major risks inherent in only five percent are subject to taxation irrespective of the tax the Group’s business. Its purpose is to create a suitable set of reform, we do not expect that the business tax reform will instruments to identify, analyse, control and monitor risk expo- have any material effect on current and deferred taxes of the sure. That requires developing recommendations on the adapta- Deutsche Beteiligungs AG Group. tion of risk management processes, on the control of risks as well as the ratio of business-specific rewards to risks.

Furthermore, our risk management and surveillance system has the objective of providing a comprehensive overview of the Group’s exposure to risk at all times. Events involving material negative financial effects for the Group must be recognised promptly in order to define and take counteraction to reduce or avoid risk exposure or to manage these risks. The risk management and surveillance system is conducive to identifying and seizing opportunities and therefore contributes towards the Company’s performance.

72 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

In 2001, we altered our strategy: since then, investments have Our investment strategy consists of further selection criteria been focussed on mid-market management buyouts in German- which are also conducive to reducing risk exposure. This invest- speaking countries, and our business model is aligned to raising ment strategy is presented on pages 48 to 52. and managing co-investment funds. Both have led to a gradual change in the Group’s portfolio and risk profile, which is still in Effective risk management through progress. documentation and personal accountability The basis of the risk management and surveillance system is a risk Exposure to risk related to raising and managing co-investment management manual, which depicts and analyses all types of funds has gained in importance. The risk management and sur- exposure to risk. In response, we have specified action to control veillance system was adapted successively to these changes and and monitor these risks. This action is firmly embedded in the will continue to be adapted, as the need arises. In our estimation, Group’s organisational workflows. The monitoring, adaptation individual or cumulative risks do not currently endanger the con- and optimisation of the risk management and surveillance system tinuation of the Group as a going concern. are the responsibility of a risk manager, who reports to the Board of Management. The results of ongoing risk surveillance are pre- Business strategy designed to avoid sented to the Board of Management in a quarterly risk manage- high exposure to risk ment report. Our business and strategy are designed to balance rewards and risk, thus ensuring that the Company is a going concern: An appropriate evaluation of exposure to risks and how they are Key elements of our approach to risk management are contained dealt with is the responsibility of the Board of Management. in our business model itself; this is supplemented by other suit It regularly reviews whether assessments have changed and able instruments that are applied in the operative business which action is to be taken in response. Risks that emerge through the risk management system. The business processes unexpectedly – for instance, from certain individual investments within the Company have been set up to integrate risk manage- – must be reported immediately. Basically every investment is ment into organisational workflows. managed by a team of investment professionals headed by a member of the Board of Management. This ensures that the Limiting our investments to mature enterprises avoids exposure Board of Management gains direct knowledge of any major to risk linked to companies with unproven business models. potential risk. Endeavouring to achieve a wide span of diversity in the portfolio also serves to minimise risk exposure. By investing alongside Risk surveillance embedded in business processes co-investment funds, we achieve a diversification effect through We ensure that the risk management system is integrated into a sufficiently large number of portfolio companies. Ensuring that the Company’s routine workflows through organisational direc- the portfolio is balanced across industrial sectors is also conducive tives and the definition of certain processes. Additionally, there to spreading risk. The weighting of industrial sectors may, are numerous instruments and measures that we employ to however, shift over a period of years; thus, the share of individu- monitor and manage specific entrepreneurial risks. al sectors of the total portfolio can vary considerably. This could be the case, if, for instance, certain sectors undergo specific industry-related cycles during that period and the value development of the portfolio companies concerned outpaces or falls short of that of the rest of the portfolio. This currently holds true for the mechanical engineering industry; totalling 68 percent at 31 October 2007, this sector’s share of the carrying amount of the portfolio 14) was high. 14) See footnote 4) page 49.

73 Individual risks: The development of individual portfolio companies directly influ- ences the performance of Deutsche Beteiligungs AG. Should an Focus on investment risks and rewards individual investment exhibit a negative business trend and its value be impaired, such developments must not lead to the Intensive due diligence and diversification Company itself being at risk as a going concern. To reduce expo- are central elements in reducing risk exposure sure to this risk, we principally limit the amount invested in any one investment. The acquisition cost of any single investment is Network and market focus warrant not to exceed ten percent of the Company’s equity at the time access to transaction opportunities the investment is made. Exceptions to this rule are possible in certain cases, specific conditions permitting. This limit was No bottlenecks foreseeable in raising capital exceeded when the investment in Homag Group AG was for fund business increased in January 2007; we were very familiar with the risk profile of this investment following a holding period of several years. The principal risks to which Deutsche Beteiligungs AG is exposed and the counteraction to be taken to address these risks are When entering into new investments, we avoid sector-based described in the following. concentration, if possible. We analyse not only the sectors in which a potentially new portfolio company operates, but also the Investment risk: Clear definition of scope sectors of industry served by the target company’s customers. At and differentiated investigation processes the closing date, the mechanical engineering sector had the The investment strategy determines the Group’s risk/reward pro- greatest weight in the portfolio 15), accounting for 68 percent. file. It was developed on the basis of the long and wide-ranging However, the companies in our portfolio operate in various geo- experience Deutsche Beteiligungs AG has in the private equity graphical and very different niche markets of the mechanical business. New investments must principally meet the following engineering industry. criteria: n They must be established companies in German-speaking Cyclical and industry-related risks: countries that have business models with which we are well Addressed by diversification and support familiar and in which financial investors hold the majority; The performance of our investments is influenced by a very dif- n An impairment loss of an individual investment must not ferent set of market factors. These include geographical and endanger the operational existence of Deutsche Beteili- industry-related economic cycles, political scenarios and com- gungs AG as a going concern; modity price trends. The performance of our portfolio companies n The portfolio’s diversification across various sectors of – specifically, their earnings and financial position – determines industry will be considered when entering into new the development of the investments’ fair value which, in turn, investments. has a direct impact on the Group’s earnings and financial position. Additionally, conditions on capital and finance markets are Our investment strategy is presented in section “The Group and mirrored in the measurement of the fair value of our portfolio general business conditions – Strategy” (pages 48 to 52). companies.

These market factors sometimes change at very short notice, and the Company’s ability to address them may, of course, be limited. Success in private equity, however, is not measurable by short- term results, rather it is the long-term performance that counts. The holding periods for investments generally extend beyond the time spans of individual cyclical phases.

15) See footnote 4) page 49.

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Risk exposure to cyclical downtrends is addressed by carefully In seeking informational leads, the Company utilises existing selecting portfolio companies. In addition to diversifying the port- contacts that stem from its long-standing market presence. It folio across industries, we employ a set of qualifying criteria when attaches great importance to cultivating its network of contacts, entering into new investments and making assessments in the which has been built up over many years. The network consists decision-taking process; this, not least, also applies to the price of former investment partners, representatives of banks, consult- for which we acquire new investments. We chiefly invest in enter- ants, attorneys, auditors and a circle of experienced industrial prises with outstanding market positions; experience shows that experts. Furthermore, we utilise the contacts generated by the such companies are generally more resilient in periods of eco- Company’s large investment team. Drawing from their own expe- nomic weakness than less well-positioned competitors. rience, the team members identify attractive investment opportunities in their respective industrial sectors. Through targeted The greatest part of the financial assets of Deutsche Beteiligungs public relations activity and the cultivation of its network of con- AG is invested in portfolio companies whose registered office is tacts, Deutsche Beteiligungs AG augments awareness of its serv- domiciled in Germany. The economic trend in Germany is, there- ices and strengthens its presence in the market. fore, an influential factor for the performance and, consequently, the value of our investments. However, the activities of the This past financial year, Deutsche Beteiligungs AG received majority of these companies also extend to countries outside enquiries on more than 180 investment opportunities (previous Germany or the European Union. Less than 20 percent of the year: 190), of which some 165 (previous year: 170) were initially carrying amounts of the Company’s financial assets are attribut- followed up. In view of the number of projects that came to our able to enterprises that are largely dependent on Germany’s attention and were pursued, there is currently no recognisable domestic economy. Based on the international diversification of material risk arising from an insufficient deal flow. The new the portfolio companies’ businesses, specific country-related eco- investments Deutsche Beteiligungs AG made this past financial nomic trends only conditionally affect the value development of year confirm this assessment. the total portfolio. Impairment of investments: Addressed through The private equity market and access to investment a differentiated set of valuation instruments and opportunities (deal flow): Securing business through management co-investments market observation and networking The strategy of Deutsche Beteiligungs AG is primarily focussed on Deutsche Beteiligungs AG requires access to new investment realising a value appreciation on its investments. Current income opportunities for its operations. Only through a sufficient stream from these investments in the form of dividends, profit sharing of attractive opportunities as well as profitable realisations are we and interest income is also an important source of earnings; its able to ensure the successful continuity of the Group’s business annual volume, however, is limited. Consequently, a key business- model. linked risk is attached to investee enterprises achieving their business objectives, thus enabling the realisation of the projected Currently, there is no evidence of an insufficient stream of invest- value appreciation. Negative developments within an enterprise ment opportunities. However, we have no influence on the could lead to a total loss of the capital invested. development of the private equity market. Correspondingly, our ability to minimise the exposure to risk from a decline in the number of potential transactions is limited. The strategy of Deutsche Beteiligungs AG is primarily targeted at gaining proprietary access to the transaction potential in the private equity market. We aim to have early knowledge of potential transactions in German-speaking regions and possess the resources and instruments to ensure a prospective high-quality deal flow. In light of its importance, this issue is the direct responsibility of a member of the Board of Management.

75 We have developed a comprehensive set of instruments to The foundations for profitable realisations are laid as early as the monitor and mitigate exposure to these risks. These include investing phase. We will only enter into investments where, in working on projects in project teams consisting of a number of case of an exit, sufficient buying interest on the part of trade staff and at least one member of the Board of Management, as buyers or financial investors can be expected. Prospective eligibil- well as binding procedures for the acquisition, holding and reali- ity for a stock market listing may also be a significant criterion for sation phases. This ensures professional and systematic processes an investment decision. In reviews of the performance of portfo- and is thus the platform for successful purchasing and selling lio companies, which is done on a quarterly basis, exit opportuni- decisions and for early response to developments that may ties are also regularly discussed. endanger the targeted value appreciation. The currently employed risk management instruments are, in our During the acquisition phase only such investment projects are opinion, suited to ensure early identification of possible negative pursued as meet our rigid investment qualifications. An exacting developments in portfolio companies, allowing for any necessary due diligence investigation, which may include calling in external counteraction to be taken. consultants, precedes every purchase decision. In this way, exposure to risks inherent in an investment decision is analysed and, if Fund-raising activity: Track record a fundamental appropriate, limited, redeployed or otherwise reduced. This, for requirement for future co-investment funds instance, is achieved through appropriate formulation of contract For many years, Deutsche Beteiligungs AG has been managing terms, guarantee agreements or insurances. co-investment funds that invest alongside Deutsche Beteiligungs AG. Current fee income from fund management services serves During the development phase, meaning the holding period, the to cover a significant part of the Company’s administration investment team supports the investee company’s management costs. and closely monitors the achievement of mutually defined objectives. The support is rendered by taking offices on supervisory We will only be able to pursue our strategy in its present form boards or advisory councils as well as by regular communication over the long-term, if we succeed in soliciting capital commit- with the responsible management teams in the investee busi- ments to new co-investment funds. A fundamental requirement nesses. The data is analysed through specified controlling proce- for successfully raising such funds is the ability to boast a positive dures. These include its documentation in a controlling system, track record – meaning a record of accomplishments in private independent analyses of data by the investment controlling unit, equity investments that have generated attractive returns for discussion of projects based on quarterly reports as well as discus- investors on the invested capital. Other prerequisites are the sta- sion and decision-taking processes in meetings of the Board of bility and experience of the investment team, staffed by members Management and in project meetings of the investment team. of the Management Board and select professionals, as well as pro-active relations with current and potential investors. Furthermore, a personal co-investment by the managements of portfolio companies constitutes an incentive to implement the After a short fund-raising process, we successfully closed the strategies and programmes as agreed. fund-raising activity for the DBAG Fund V in early 2006 with commitments of 434 million euros, thereby exceeding the fund’s projected volume. The Company thus has sufficient financial resources to implement its business model. There is, if any, only a

76 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

low short-term risk for the funding our of investment projects. The Company has successfully completed several capital increases We estimate the prospects of soliciting capital commitments for in the past. Continually addressing existing and potential inves- a follow-on fund to DBAG Fund V as being good. tors as a core activity of its investor relations creates the basis for the Company to access the capital market to generate additional International investors require a reliable taxation framework. equity, if necessary. As in the past two years, Deutsche Beteiligungs Fundamental changes to tax legislation that would lead to impos- AG again used the sizeable inflow of liquidity from profitable ing taxes on foreign partners of German fund companies would realisations in the reporting year to repurchase own shares. We have serious disadvantages for Deutsche Beteiligungs AG. have thus signalled to our shareholders and other market partici- International investors could, for instance, make private equity pants that the balance sheet will be flexibly adapted to capital investments in Germany via competitors of Deutsche Beteiligungs requirements. AG who invest in Germany through foreign fund structures. Adverse taxation conditions could compel us to make radical Having repaid all bank borrowings in 2005, the Company still structural changes, including a relocation of the Company’s maintains relationships to the three banks whose loan facilities domicile. we have drawn upon in the past. Based on current assessments, the Company would again have access to sufficient lines of Deutsche Beteiligungs AG manages co-investment funds. It credit, if required. receives management fees or an advance profit share for these services. These management services may be revoked. Exposure At 31 October 2007, the Group’s net liquidity amounted to 155.8 to risk stemming from the revocation of contractual relations is million euros (previous year: 164.7 million euros). Against this currently deemed to be very low. Rules governing the revocation background and including the recommended dividend distribu- of management authority for DBAG Fund V are presented in the tion of 49.3 million euros, there are no recognisable material Notes to the consolidated financial statements in section “Related finance risks for the Group in the foreseeable future. party transactions”. No bottlenecks in financing acquisitions Sufficient equity for investments We use our own capital and the capital of our co-investment The main treasury activities ensue in conjunction with the pur- funds to finance investments; a further part of the transactions is chase and sale of investments. These transactions are not reliably usually financed by bank loans. To achieve commensurate returns foreseeable and can only be planned on a rough time scale. on our investment projects, we require acquisition finance at Deutsche Beteiligungs AG therefore requires access to finance, acceptable terms. Readiness on the part of banks to extend loan credit and capital markets to offset exposure to finance risks from facilities depends on the economic environment and conditions irregular payment flows from realisations and for investments. on credit markets; we have no influence on these.

We aim to have banks see us as professional, sound and depend- able partners. We influence the readiness of banks to extend facilities through risk-conscious procedures in selecting and struc-

77 turing investment projects. This includes focusing the investment Currency and interest rate risk: strategy on established companies, whose operations have a Targeted hedging if required comparatively low risk profile. At the balance sheet date, 16.4 percent (previous year: 34.7 percent) of the carrying amounts of the Group’s financial Even in overheated market phases, we ensure that purchase assets were attributable to investments denominated in US prices are commensurate. We want the returns from our invest- dollars. We no longer hedge individual transactions denominated ments to come from earnings growth, not from aggressive in foreign currency, since both the holding periods and the pro- indebtedness. These guidelines form a good basis for relation- ceeds from these investments are uncertain. A contract generally ships to banks that provide finance. Through its long-standing, hedging a significant deterioration of the US dollar was prema- successful market presence, Deutsche Beteiligungs AG is regard- turely terminated this past financial year. Currently, no contracts ed by banks as a reliable partner. exist to hedge currency rate risk. As realisations from fund investments still existing in this currency progress, the portfolio Repercussions of the turmoil in global finance markets triggered held in US dollars will decline. by the US mortgage market in summer 2007 were felt in the private equity industry. Planned private equity deals were stopped In the fair value measurement of financial investments outside for the time being, since banks exhibited restraint after a phase the euro zone, the closing rate at the balance sheet date is in which funding was liberally granted. This largely related to applied. Changes in the fair value of these financial investments mega private equity transactions. The segment of small and due to exchange rate differences are recognised through the mid-market transactions, in which Deutsche Beteiligungs AG Group’s profit or loss. The net effect from exchange rate changes operates, was less affected. Irrespective of this, the crisis led amounted to -5.0 million euros in financial year 2006/2007 to an increase in the cost of leverage and more rigid terms. After (previous year: -1.8 million euros). This resulted from the change a period of low interest rates and liberal loan covenants, the in the exchange rate of the US dollar against the euro from situation is, in our opinion, beginning to normalise. We cannot 1.2695 at 31 October 2006 to 1.4459 at 31 October 2007 exclude that prices paid for investments through private equity (2005/2006: from 1.2042 to 1.2695). transactions will recede due to more restrictive finance conditions. Deutsche Beteiligungs AG may choose to use leverage to finance acquisitions, if appropriate. In these cases, based on the amount The Company’s business in 2006/2007 was not affected by the of borrowings and the anticipated interest rate trend, we care- crisis on credit markets. From today’s point of view, there is no fully consider whether to hedge interest rate exposure. Currently, indication that in financial 2007/2008 terms will tighten on no such hedging instruments exist. those applicable in the final quarter of this past financial year, although it should be emphasised that the current market turmoil makes it difficult to forecast.

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Operational risk: Exposure avoided Report on expected developments: through organisation procedures Operational risk involves risks that may impair the due and The adopted course will be maintained proper processing of administrative transactions. Operational risk plays a subordinate role in the private equity business in view of MBO business will continue to grow the relatively low number of administrative transactions, the relatively low number of staff and the involvement of several employ- Group is well placed to meet growing ees in larger transactions. The Company avoids exposure to competition operational risk through appropriate organisational procedures. Terms for acquisition finance tightening Other operational risks relate to corporate sectors that are of a supportive nature for the private equity business. These include Return target remains unchanged the organisational units of finance, human resources, legal, organisation/IT and public relations/investor relations. Deutsche Beteiligungs AG ensures proper organisational workflows in Objective of building value and realising these corporate sectors through a sufficient number of qualified value growth persists staff and the provision of suitable equipment and financial We intend to pursue and develop our proven business model in resources. the future. We plan to make new investments, and will focus on building value in existing investee businesses and realising that There was no recognisable exposure to operational risk in the value growth upon an investment’s ultimate sale. To that end, we past financial year. The Company does not expect this to change will draw upon our experience and our proven approaches to in the future. developing portfolio companies.

Group not endangered as a going concern Dealings continue to be geared In the estimation of the Board of Management of Deutsche to long-term performance Beteiligungs AG, individual or cumulative risks do not currently The business operations of Deutsche Beteiligungs AG are of a endanger the business continuity of the Group as a going con- long-term nature. The results of individual financial years only cern. This estimation is based on the analysis and assessment of conditionally reflect the long-term performance of our investing the individual risks to which the Company is exposed as well as activity. The consolidated profit for a financial year is frequently the installed risk management system discussed above. The risk determined by events or trends that were not precisely calculable situation can presently be termed as being good. at the onset of the year. Although IFRS-formatted accounting discloses value changes on an ongoing basis, certain individual events, such as the success or failure of an initial public offering, can still fundamentally influence the result. The success of an investment can generally only be judged after four to seven years upon its sale. This report on expected developments therefore covers a period of five years.

79 MBO business will continue to grow Business development expected to be positive, based Transactions based on MBOs have been on the uptrend since on strong market position 1997. There are no structural aspects foreseeable that could On a platform of long-standing market presence, an outstanding impair this trend. Deutsche Beteiligungs AG is well poised to track record and the expertise of our investment team, we confi- participate in the growth of this market. dently look ahead to successfully conducting our business even under more difficult market conditions and to maintaining our More intense competition in private equity could strong market position even if competition grows more intense. have a bearing on profitability We anticipate that returns in the private equity business will tend There has been a strong rise in commitments to private equity to recede. That, however, does not affect our objective of achiev- funds in recent years. Investments in private equity promise better ing earnings in excess of the cost of equity on the long-term returns than investing in shares or bonds, thus attracting huge average. sums into this investment category worldwide. The records set by private equity companies for funds raised since 2005 are indica- Uncertainty about the trend in purchase prices tive of this. The strong rise in capital commitments to private As a consequence of banks’ more restrictive finance policy, we equity funds will, in our opinion, drive competition and result in cannot exclude that purchase prices for target companies will fall. lower returns. This would facilitate entering into investments at new, attractive terms. On the vendor side, this development would lead to lower Normalisation of credit terms conducive sales proceeds, particularly for divestments to other private to market’s sound development equity investors, i.e., secondary buyouts. On the other hand, the Banks’ more restrictive borrowing terms, triggered by the sub- robust economic trend has significantly improved the financial prime crisis, are currently having a dampening effect on the position of many companies, creating the potential for a more overall private equity market. In our view, this trend will not be active trade buyer market – this is conducive to demand and permanent and should be seen as a corrective phase after a cycli- prices. cal period of overheating. The return to normality in credit terms will contribute towards putting the mid and long-term growth Economic research institutes expect global foreseeable for the private equity market on a sound economic economic dynamism to decelerate slightly in foundation. Irrespective of this estimation, Deutsche Beteiligungs first year of forecast period AG must be prepared for more rigid terms for leveraged finance The global economy’s constitution can be described as strong at in the future. the beginning of the period covered by this report. In the Joint Economic Forecast Autumn 2007 commissioned by the German Federal Ministry of Economics and Technology, the economic research institutes involved expect that global economic dynamism will lessen somewhat in 2008, compared with 2007. The world economy will, however, remain on a pattern of growth. For industrialised countries, the real gross domestic product is expected to grow 2.2 percent, following 2.4 percent the previous year; in emerging markets, growth rates are forecast to fall slightly from 6.2 percent in the preceding year to 5.9 percent in 2008. Thus, the global economy is anticipated to register growth of 3.0 percent in 2008, compared with 3.2 percent the year before. 16)

16) “Aufschwung legt Pause ein” – Joint Economic Forecast Autumn 2007, Joint Economic Project Group, Essen, October 2007.

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Consumer spending to support Global economic risks could impact results Germany’s economic growth in 2008 The growth dynamism in a number of emerging markets should, For Germany, the Joint Economic Forecast Autumn 2007 predicts in our estimation, remain a mainstay for global economic devel- a rise in the real gross domestic product of 2.2 percent, following opment over the period of this forecast. On the other hand, there 2.6 percent the preceding year. Consumer spending is expected is evidence of risk factors that may negatively impact the world to gain 1.9 percent (previous year: -0.1 percent), due to the economy, for instance, the current effects of the subprime crisis upturn in employment and wage hikes, which will thus support on the US economy and cyclical signs of overheating in certain the growth trend. Growth rates are forecast to slacken for sectors or regions. It cannot be excluded that the earnings posi- expenditure on industrial machinery and equipment (5.0 percent, tion of portfolio companies may be affected by such factors in following 10.1 percent) and exports (6.5 percentage points, fol- the coming years. Price levels on stock markets could also fall if lowing 7.8 percent). This is not immaterial to Deutsche Beteiligungs the economic trend weakens. These factors could induce lower AG, since a major part of the portfolio companies operate in the valuations and, consequently, lead to negative contributions to capital goods industry and these companies generate significant results for Deutsche Beteiligungs AG. parts of their revenues in international markets. Attention should therefore also be drawn to the production forecast published by Investment in Homag Group AG strongly affects the German Engineering Federation (Verband des Deutschen development of the total portfolio Maschinen- und Anlagenbaus – VDMA): after advancing eleven The carrying amount of the investment in Homag Group AG percent in 2007, the Federation expects production to grow by equated to 34 percent of the total portfolio value at 31 October another five percent in 2008. 2007. The carrying amount is measured at quarterly intervals based on the price of shares in Homag Group AG. The share price According to the Joint Economic Forecast, the effects of movement, which, in addition to the fundamental development Germany’s business tax reform, which will come into force at the of Homag Group AG, is also contingent upon equity market beginning of 2008, are difficult to quantify. The Forecast does not conditions, could significantly influence the value development of exclude an impact on the economy, should upward exchange the total portfolio. rate pressure of the euro against the dollar continue. Focus on new acquisitions and the development of the portfolio Numerous sales and partial sales of successfully developed portfolio companies in the last three financial years have created a significant cash position. Our focus will now be directed more strongly to identifying, analysing and acquiring new investments Expected growth rates as well as augmenting the value of the existing portfolio. of select economic regions 2008 (GDP, real) %

12 10.5 10 8.5 8

4 3.0 2.2 2.1 2.1 2

Germany Eurozone USA India China World

81 Good business prospects anticipated on average financial years. It is impossible to quantify the result, as this would for portfolio companies require predicting the stock market trend, in addition to estimat- The Company expects that the valuation-related performance ing the current portfolio companies’ business development. data of most portfolio companies will continue to develop posi- Neither are we in a position to foresee the additions to and tively on average over the coming years. In view of the current releases from the portfolio. period of brisk economic activity, it cannot be precluded that, due to a slackening of the economy within this five-year forecast Operating expenses over the next five years will presumably be period, portfolio companies may post declines in earnings. below those posted in 2005/2006 and 2006/2007; we expect Consequently, average earnings improvements over the forecast that, among other things, performance-related salary compo- period may be weaker than the earnings growth achieved in the nents will tend to be lower, in line with the expected trend in last three years. results.

Based on the 2008 business tax reform, the deductibility of inter- In total, the Company expects positive annual results on average est expense will be limited, which will particularly affect compa- over the coming five-year period. They will presumably be lower nies with high levels of debt. In our estimation, this will, in total, than the high levels achieved in the past three financial years. not put an extra charge on our portfolio companies, since there will be a synchronous reduction in tax rates. Cash flows from investing activities expected to be positive over forecast period Given stable pricing ratios on capital markets, we are confident In the forecast period, Deutsche Beteiligungs AG plans to pursue that the value of the portfolio, including proceeds from realisa- its investment strategy unchanged and aims to make two to tions, will grow over this forecast horizon. three new investments each financial year. As the portfolio companies continue their pattern of progress, we expect a compara- Positive trend in result of valuation ble number of realisations from the portfolio. Since successful and disposal to persist acquisitions and realisations of investments are greatly depend- The net result from investing activity is the item that has the ent on prevailing conditions and cannot be reliably predicted, greatest effects on the Company’s results. In light of the estima- purchases or sales may predominate during certain time spans of tion discussed above, we anticipate that Deutsche Beteiligungs the forecast period. AG will post a positive net result from investing activity on average over the next five financial years. However, in our estimation, Cash flows from investing activities, or payments for portfolio it will, on average, not reach the levels achieved in the past three investments netted against proceeds from disposals of investments, are the key sources for the generation of cash from the operating business. The Company expects that cash flows from investing activity will, in total, be positive over the forecast period. Insofar as acquisitions predominate in a certain period over the term of this forecast, cash flows from investing activities may be negative in that period. In this case, the Company would be able to fall back on abundant liquidity reserves to offset that event. If necessary, the Company could effect the financing by raising loans or equity capital via the equity market.

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Liquidity reserves will presumably decline Remuneration report Following the profitable realisations achieved in the three preceding financial years, the Company has sizeable cash funds available which it will not be able to immediately reinvest in acquisitions The Executive Committee of the Supervisory Board, whose mem- that conform to its strategy. We therefore endeavour to return to bers currently consist of Supervisory Board Chairman Andrew shareholders liquidity reserves that exceed our operating require- Richards, its Vice Chairman Professor Rolf-Dieter Leister and Dr ments through dividend distributions and share buyback pro- Hans-Peter Binder, is responsible for defining the structure and grammes. Consequently, we expect that the cash position will amount of remuneration paid to the Board of Management. The decline over the forecast period. Supervisory Board as a whole approves them. The framework is regularly reviewed, most recently in summer 2006. Total remu- General forecast is positive neration of the members of the Board of Management consists Deutsche Beteiligungs is well positioned for the coming years: of the following components: The Company is a firmly established, successful market partici- n a fixed annual salary, pant, who has constantly gained in importance. It possesses a n a variable annual bonus, promising investment portfolio, an excellent cash position, a n profit share awards and stock options as components good risk profile and an experienced, highly motivated staff. with a long-term incentive effect, n non-cash components and In total, the Board of Management expects that Deutsche n pension benefits. Beteiligungs AG will generate positive results over the current and the next four financial years. It will not be easy to roll over Criteria for the appropriateness of remuneration levels are, in the exceptionally high returns on equity per share achieved in the particular, the sphere of responsibilities of the respective Board of last three years. Our aim is to generate an average return on Management member, his personal performance as well as the equity at a rate that exceeds the cost of equity. financial position, performance and prospects of Deutsche Beteiligungs AG. To that end, the structure and level of schemes common to the private equity industry are also considered.

The members of the Board of Management receive no emoluments for offices held in subsidiaries. No change-of-control clauses have been laid down in the employment contracts of the members of the Board of Management. There are no arrangements for settlements. Neither advances nor loans have been granted to Board of Management members.

Components not linked to performance consist of the annual salary paid on a monthly basis and non-cash emoluments. Non- cash emoluments largely pertain to the tax basis applicable for the use of a company car. They amount to T€33 for Mr von Hodenberg, T€18 for Mr Grede, T€24 for Mr Mangin, and T€15 for Dr Scheffels.

83 Bonus as a performance-related component The profit share scheme for investments up to the year 2000 is An annual variable bonus rewards the current performance of calculated on the basis of the extent to which the annual return Deutsche Beteiligungs AG and the personal performance of the on equity before taxes is exceeded and on profit shares of 15 respective Board of Management member. Personal performance percent. The computation base of the equity relates exclusively to is measured based on annual objectives and in consideration of investments included in the profit share scheme, which chiefly market conditions. Corporate performance is derived from an consist of the investments in Homag Group AG, Grohmann overall consideration of the accomplishments, consisting, for GmbH and the Vogler group. With the divestment of these older instance, of the number and quality of new investments, realisa- portfolio companies, this profit share scheme will decline in tions from the portfolio and the price performance of the shares importance. For the performance achieved in financial year in Deutsche Beteiligungs AG. 2006/2007, the members of the Board of Management will receive a total of 1.9 million euros under this remuneration com- Bonus payments must principally not exceed fixed base salaries. ponent. Payment will be made following the adoption of the In its meetings on 22 November 2007 and 17 December 2007, financial statements of Deutsche Beteiligungs AG and approval of the Executive Committee fixed the amount of the bonus payment the consolidated financial statements for financial year for financial year 2006/2007. The bonus will be paid following 2006/2007. the adoption of the financial statements of Deutsche Beteiligungs AG and approval of the consolidated financial statements for The profit share scheme installed for investments made from financial year 2006/2007. 2001 to 2006 is common to the private equity industry. Profit shares are awarded beginning at a minimum return on the invest- Components with long-term incentive effects comprise two ments of eight percent annually after calculatory costs; they are performance share schemes offering Board of Management exclusively paid from realised profits. The sum attributable to members an opportunity to share in the performance of the members of the Board of Management under this profit share investments entered into by Deutsche Beteiligungs AG as well as scheme totals 1.8 million euros for financial year 2006/2007. Two a stock option programme. Not all members of the Board of thirds of these entitlements are paid after the close of a financial Management have received both profit share awards. year. Entitlement to the remaining one third is subject to a final review after completion of the disinvestment phase of all invest- Allowing investment teams to share in the performance of investments involved, and is paid in the amount of the final entitlement ments is a standard remuneration element in the private equity remaining. industry. To that end, the focus is commonly not on the performance of a single investment. Rather, the profit effects of a pool of Performance-related components will no longer be awarded for investments made over a specific investment period are consid- investments entered into in 2007 – i.e., the commencement of ered. Thus, this procedure also reflects downside developments. the investment period of DBAG Fund V – and those that will Based on these principles, the members of the Board of be made in the future. The members of the Board of Manage Management participate in the annual performance of investment share in the performance of these investments through ments to which the Company had committed up to 31 December a private co-investment. This co-investment is detailed in note 33 2000, as well as the pool of investments entered into from 2001 “Information based on IAS 24, Participation in carried interest to 2006. Both profit share schemes are exclusively geared to schemes by key management staff” in the Notes to the con realised profits. An investment’s profitability will generally only be solidated financial statements. determinable at its ultimate sale after a holding period of several years. Both schemes are linked to that performance and therefore constitute long-term incentives.

84 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Within the scope of a stock option programme from 2001 Pension arrangements based on two models to 2005, an annual total of 70,000 stock options was granted Pension arrangements for members of the Board of Management to members of the Board of Management serving at the time of are based on two models. Pension arrangements for Mr von the grant. The options are only exercisable, if the performance Hodenberg and Mr Grede provide for defined annual pension of the shares of Deutsche Beteiligungs AG, including dividend benefits; they amount to T€164 for Mr von Hodenberg and payments and subscription rights, exceeds that of the S-Dax in T€87 for Mr Grede. Mr Mangin and Dr Scheffels participate in the period of grant to the last day of trading prior to the onset of a contribution plan that is also applicable to other staff of the exercise period (reference period). Deutsche Beteiligungs AG; for each year of service, participants are entitled to a pension contribution that is measured by The tranches of the stock option programme granted on 11 April a percentage of the total compensation paid for that year. The 2001 and 16 April 2002 were forfeited at 31 October 2007. pension contribution consists of a one-time payment of 0.75 per The tranches granted on 11 April 2003 and 2 April 2004 were cent of the total compensation, and six percent on those parts almost completely exercised in financial year 2006/2007. of the emoluments exceeding the income threshold set by the The members of the Board of Management received cash settle- State pension scheme. The inclusion of variable components is ments under the stock option programme totalling 0.6 million limited to 1.5 times the fixed salary. euros in financial year 2006/2007. In financial year 2006/2007, the service cost for pension commit- At 31 October 2007, stock options chiefly exist from the tranche ments to members of the Board of Management amounted to granted on 1 April 2005, which will be exercisable in financial 0.23 million euros. The present value of defined benefit obliga- year 2007/2008 for the first time. For this tranche, the value of tions for Board of Management members was 1.8 million euros the reference index S-Dax is 3,546.94 points and the reference at 31 October 2007. price for the shares in Deutsche Beteiligungs AG 11.58 euros.

The remuneration of the Board of Management in financial year 2006/2007 amounted to a total of 8.0 million euros, which is disseminated over the individual components as follows:

Components Components not linked Performance-related with long-term to performance components incentive effects Total

TE 2006/2007 2005/2006 2006/2007 2005/2006 2006/2007 2005/2006 2006/2007 2005/2006

Wilken von Hodenberg 533 569 500 600 1,468 1,539 2,501 2,708 Torsten Grede 518 435 500 744 1,345 1,378 2,363 2,557 André Mangin 424 354 400 659 446 345 1,270 1,358 Dr Rolf Scheffels 415 349 400 459 1,053 1,149 1,868 1,957 Reinhard Löffler 431 0 804 1,235 Total 1,890 2,138 1,800 2,462 4,312 5,215 8,002 9,815

85 In 2006/2007, former Board of Management members fully The performance-related component falls due, if the net asset exercised the stock options allotted to them for the tranches value per share has increased by more than twelve percent on the granted on 11 April 2003 and 2 April 2004. Deutsche Beteili preceding year. It amounts to 1,500 euros for each full percent- gungs AG made use of its right to settle stock rights through age point by which the increase exceeds twelve percent. cash payments. Thus, at 31 October 2007, stock options exist The maximum amount of the performance-related component is from the tranches granted on 1 April 2005, which will be exercis- 30,000 euros for each member of the Supervisory Board. This able in 2007/2008 for the first time. For this tranche, the value of maximum amount was reached in financial year 2006/2007. the reference index S-Dax is 3,546.94 points and the reference price for the shares in Deutsche Beteiligungs AG is 11.58 euros. Remuneration paid to members of the Supervisory Board totalled 0.43 million euros in 2006/2007. It was distributed as follows: This past financial year, the sum of 2.1 million euros (previous year: 0.7 million euros) was paid to former Board of Management Performance- members or their surviving dependents. Fixed related TE fee Bonus component Total

The present value of pension obligations to former Board Andrew Richards of Management members or surviving dependents totalled (Chairman) 30 30 30 90 11.0 million euros (previous year: 8.5 million euros) at the Professor Dr h. c. Rolf-Dieter Leister balance sheet date. (Vice Chairman) 30 15 30 75 Dr Hans-Peter Binder 30 8 30 68 New remuneration arrangements for Walter Schmidt 30 30 60 Supervisory Board in 2006/2007 Remuneration arrangements for members of the Supervisory Dr Herbert Meyer 30 30 60 Board are defined by the Articles of Association and determined Professor Dr Günther Langenbucher 30 15 30 75 by shareholders at the Annual Meeting. Through a resolution Total 180 68 180 428 passed by shareholders at the Annual Meeting on 28 March 2007, remuneration arrangements now consist of three components: an annual fixed fee of 30,000 euros, bonuses for the In the previous year, remuneration paid to members of the chairmanship, vice chairmanship and Committee membership Supervisory Board amounted to 0.23 million euros. Variable and a performance-related component geared to the increase in components were not paid. net asset value per share within a specific financial year. In 2006/2007, Professor Dr h. c. Rolf-Dieter Leister/Infra Beratung The Chairman of the Supervisory Board receives a maximum of GmbH received fees of approximately 0.13 million euros twice the basic fixed fee, irrespective of his membership on vari- (net, previous year: 0.14 million euros) for consultancy services. ous Committees. The Vice Chairman of the Supervisory Board and the Chairman of the Audit Committee receive a maximum of one and a half times the basic fixed fee. Membership on the Executive Committee is compensated by one quarter of the basic fixed fee.

86 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Other information At the Annual Meeting on 28 March 2007, the Board of Management was authorised, up to and including 27 September 2008, to purchase own shares of up to ten percent of the then Disclosures and commentary consistent issued share capital for purposes other than trading in own with § 315 (4) German Commercial Code (“HGB”) shares. The Board of Management may choose to acquire shares The share capital of Deutsche Beteiligungs AG amounted to via the stock exchange or via a tender offer to all shareholders or 48,533,334.20 euros at 31 October 2007. It is denominated an invitation to submit such a tender. Moreover, the Board of into 14,403,864 no-par value bearer shares. Arithmetically, the Management may choose, under certain conditions named in capital attributable to each share is approximately 3.37 euros. the authorisation, to purchase shares with the exclusion of Various classes of shares do not exist. There are no shares shareholders’ pre-emptive tender rights by ways other than via carrying special rights. the stock exchange or via a tender offer to all shareholders or an invitation to submit such a tender. The Board of Management knows of no restrictions relating to voting rights or the vesting of shares, neither were there notifi The Board of Management is authorised, subject to consent cations concerning interests held directly or indirectly in excess of by the Supervisory Board, to resell own shares or use them as ten percent of the voting shares. Insofar as employee shares are consideration for third parties in conjunction with corporate concerned, employees directly exercise their control rights. acquisitions or mergers or acquisitions of investments in enterprises under suspension of shareholders’ pre-emptive rights in In accordance with the Articles of Association of Deutsche other ways than via the stock exchange or by a public offer Beteiligungs AG, the Board of Management consists of at to all shareholders. least two individuals. Its actual number is determined by the Supervisory Board, who, pursuant to § 84 (1) German Stock Furthermore, the Board of Management is authorised, subject Corporation Act (Aktiengesetz – AktG) appoints the members of to consent by the Supervisory Board, to retire and cancel own the Board of Management for a maximum period of five years. shares acquired, wholly or in part, without the cancellation or In accordance with the Articles of Association, the Supervisory execution thereof requiring a further resolution by the Annual Board may exempt all or individual members of the Board of Meeting of Shareholders. The cancellation effects a reduction in Management, in general or in individual cases, from the restric- the share capital, insofar as the Board of Management decides tions in § 181 German Civil Code (Bundesgesetzbuch – BGB). not to reduce the share capital, thereby raising the proportional To date, no use has been made of these provisions. Based on amount of the share capital attributable to the remaining shares, § 84 (3) German Stock Corporation Act, the revocation of an in accordance with § 8 (3) German Stock Corporation Act. In this appointment is only admissible for reasonable cause. case, the Board of Management is authorised to adapt the reference to the number of shares in the Articles of Association. In conformity with § 179 (2) German Stock Corporation Act, an amendment to the Articles of Association may only be At 31 October 2007, the Company repurchased 1,063,367 effected with a majority of three quarters of the share capital shares under this programme. Thus, 70.2 percent of the represented at the time the resolution is made. The Supervisory programme were drawn upon. Board may adopt amendments to the Articles of Association that relate merely to the wording. Frankfurt am Main, December 2007

The Board of Management

Consolidated income statement for the period from 1 November 2006 to 31 October 2007

1 Nov. 2006 1 Nov. 2005 in T€ Notes to 31 Oct. 2007 to 31 Oct. 2006

Net result of investment activity Net result of valuation and disposal of financial assets and loans and receivables [7] 155,040 93,906 Current income from financial assets and loans and receivables [8] 9,911 20,452 Total net result of investment activity 164,951 114,358

Other income/expense Personnel costs [9] 17,855 21,966 Other operating income [10] 15,824 12,425 Other operating expense [11] 11,827 15,515 Depreciation and amortisation on property, plant and equipment and intangible assets [15] 276 196 Interest income [12] 5,896 3,639 Interest expense [13] 1,087 1,869 Total other income/expense (9,325) (23,482)

Net income before taxes 155,626 90,876

Income taxes [14] 5,655 2,129 Net income after taxes 149,971 88,747

Minority interest [24] (13,512) (6,041) Consolidated profit 136,459 82,706

Earnings per share in euros [30] 9.20 5.02 Diluted earnings per share in euros [30] 9.17 5.01

Carryover to consolidated distributable profit Consolidated profit 136,459 82,706 Profit carried forward from previous year 57,217 21,737 Dividends [23] (45,462) (11,113) Withdrawals from other revenue reserves [23] 18,285 23,432 Expenses for retirement of shares [23] (18,285) (29,545) Allocations to retained earnings [23] (30,000) (30,000) Consolidated distributable profit 118,214 57,217

Management . Shares . Investments . Management´s report . Financial statements . Additional information

Consolidated cash flow statement for the period from 1 November 2006 to 31 October 2007

Inflows (+) / Outflows (-) 1 Nov. 2006 to 1 Nov. 2005 to in T€ Notes 31 Oct. 2007 31 Oct. 2006

Consolidated profit 136,459 82,706 Valuation gains (-) / losses (+) on financial assets and loans and receivables, depreciation and amortisation on property, plant and equipment and intangible assets [7], [15], [16], [17] (91,887) (971) Gains (-) / losses (+) from disposals of non-current assets [7] (61,242) (90,718) Increase (+) / decrease (-) in non-current liabilities [21], [24], [25],[26] 13,636 744 Increase (-) / decrease (+) in income tax assets, increase (+) / decrease (-) in tax provisions [21] (1,449) (8,324) Increase (-) / decrease (+) [18], [19], [20], in other assets (netted) [21], [22] 7,432 (245) Increase (+) / decrease (-) in other liabilities (netted) [25], [27] (5,554) 12,711 Cash flows from operating activities (2,605) (4,097)

Proceeds from disposals of property, plant and equipment and intangible assets [15] 0 20 Purchase of property, plant and equipment and intangible assets [15] (410) (495) Proceeds from disposals of financial assets and loans and receivables [7], [16], [17] 106,066 190,965 Acquisition of non-current financial assets and investments in loans and receivables [7], [16], [17] (40,666) (21,712) Cash flows from investing activities 64,990 168,778

Payments for share repurchases [23] (25,897) (29,545) Payments to shareholders (dividends) [23] (45,462) (11,113) Cash flows from financing activities (71,359) (40,658)

Change in cash funds from cash-relevant transactions (8,974) 124,023 Cash funds at beginning of period 164,739 40,716 Cash funds at end of period 155,765 164,739

Consolidated balance sheet at 31 October 2007

Assets in T€ Notes 31 Oct. 2007 31 Oct. 2006

Non-current assets Intangible assets [15] 39 76 Property, plant and equipment [15] 989 818 Financial assets [16] 209,551 121,546 Loans and receivables [17] 153 153 Deferred tax assets [21] 0 2,025 Other non-current assets [18] 613 0 Total non-current assets 211,345 124,618

Current assets Receivables [19] 8,819 9,239 Other financial instruments [20] 612 333 Income tax assets [21] 13,263 10,729 Cash and cash equivalents 155,765 164,739 Other current assets [22] 4,583 10,462 Total current assets 183,042 195,502

Total assets 394,387 320,120

Management . Shares . Investments . Management´s report . Financial statements . Additional information

Shareholders´ equity and liabilities in T€ Notes 31 Oct. 2007 31 Oct. 2006

Shareholders’ equity [23] Subscribed capital 48,533 48,533 Capital reserve 141,791 142,281 Retained earnings 45,054 40,951 Consolidated distributable profit 118,214 57,217 Total shareholders’ equity 353,592 288,982

Liabilities Non-current liabilities Pension provisions [26] 0 54 Minority interest [24] 16,168 2,458 Other provisions [25] 551 937 Deferred tax liabilities [21] 366 0 Total non-current liabilities 17,085 3,449

Current liabilities Other current liabilities [27] 4,586 8,004 Tax provisions [21] 3,522 2,437 Other provisions [25] 15,602 17,248 Total current liabilities 23,710 27,689

Total liabilities 40,795 31,138

Total shareholders’ equity and liabilities 394,387 320,120

Consolidated statement of change to shareholders’ equity at 31 October 2007

Retained earnings

Consolid ated Sub- Other First distribut scribed Capital Legal revenue adoption able in T€ Notes capital reserve reserve reserves IFRS profit Total

Equity at 1 Nov. 2005 48,533 141,906 403 4,184 15,996 35,537 246,559 Dividends [23] (11,113) (11,113) Allocations to retained earnings through Annual Meeting 13,800 (13,800) 0 Share repurchases [23] (23,432) (6,113) (29,545) Share-based payments [34] 375 375 Consolidated profit 82,706 82,706 Allocations to retained earnings [23] 30,000 (30,000) 0 Equity at 31 Oct. 2006 48,533 142,281 403 24,552 15,996 57,217 288,982

Equity at 1 Nov. 2006 48,533 142,281 403 24,552 15,996 57,217 288,982 Dividends [23] (45,462) (45,462) Share repurchases [23] (25,897) (25,897) Share-based payments [34] 206 206 Share-based payments (stock options exercised) [34] (696) (696) Consolidated profit 136,459 136,459 Allocations to retained earnings [23] 30,000 (30,000) 0 Equity at 31 Oct. 2007 48,533 141,791 403 28,655 15,996 118,214 353,592

Management . Shares . Investments . Management’s report . Financial statements . Additional information

Notes to the consolidated financial statements for financial year 2006/2007

General information

1. Principal activity Deutsche Beteiligungs AG provides equity and financial instruments of a similar nature to established, medium-sized enterprises. The Company essentially generates its income by appreciating the value of its investments. The subsidiaries of the Group pursue the same business activities or provide supporting services.

Deutsche Beteiligungs AG is domiciled on Kleine Wiesenau 1 in 60323 Frankfurt am Main, Federal Republic of Germany.

2. Basis of preparation Deutsche Beteiligungs AG has prepared these consolidated financial statements at 31 October 2007 in conformity with the International Financial Reporting Standards (IFRS) as adopted by the European Union. Additionally, the commercial law requirements stipulated in § 315a (1) of the German Commercial Code have been accounted for.

The consolidated financial statements fairly present the asset, financial and earnings position as well as cash flows. To that end, the information contained herein constitutes a faithful representation of the effects of transactions, other events and conditions in conformity with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the IFRS framework.

On 20 December 2007, the Board of Management of Deutsche Beteiligungs AG authorised the consolidated financial statements for issue to the Supervisory Board, whose duty it is to review and declare whether it approves them.

The income statement was classified based on the nature of expense method. These consolidated financial statements have been drawn up in euros. Except when stated otherwise, all amounts are presented in thousands of euros (T€).

3. Voluntary early application of IFRS rules In the consolidated financial statements at 31 October 2007, no use was made of early application on a voluntary basis of the latest amendments to standards.

This applies in particular to IFRS 7 “Financial Instruments: Disclosures”, which replaces IAS 30 “Disclosures in the financial statements of banks and similar financial institutions” and parts of IAS 32 “Financial Instruments: Disclosure and Presentation”. Many disclosure requirements in IAS 32 on the significance of financial instruments for the financial position and performance of companies were taken over in IFRS 7. IFRS 7 also contains new requirements regarding qualita- tive and quantitative disclosures on risks arising from financial instruments.

Additionally, no use was made of early application on a voluntary basis of IFRS 8 “Segment Re- porting”. We expect that the first-time application of this standard will not have an effect on the consolidated financial statements.

4. Consolidated companies In addition to Deutsche Beteiligungs AG, the consolidated financial statements include those Group companies in which Deutsche Beteiligungs AG is able to exercise control within the meaning of IAS 27. Control as defined by IAS 27 is when the power exists to govern the financial and operating policies of an enterprise in order to obtain benefits from its activities.

Joint ventures are recognised in the consolidated financial statements on a pro rata basis (proportionate consolidation).

Foreign-based companies are not included in the group of consolidated companies of Deutsche Beteiligungs AG.

The consolidated financial statements at 31 October 2007 include the following companies:

Management . Shares . Investments . Management’s report . Financial statements . Additional information

DBG Beteiligungsgesellschaft mbH, in which Deutsche Beteiligungs AG directly holds 100 percent of the voting shares, was not consolidated, since the commercial risk for its business activities – and, consequently, the business policy – lies with other non-group companies.

DBG Fifth Equity Team GmbH & Co. KGaA, in which a subsidiary of Deutsche Beteiligungs AG holds 100 percent of the limited partner´s shares, was not consolidated in the accounts, since significant and long-lasting restrictions exist that impair rights in respect of this company´s assets and management.

Q.P.O.N. Beteiligungs GmbH, a joint venture, has been proportionately consolidated at a rate of 50 percent. Attributable to the 50-percent share are non-current assets of 0 euros, current assets of T€31, non-current liabilities of 0 euros, current liabilities of T€7, income of 0 euros and expenses of T€1,284.

Changes in the composition of the Group against the prior year were as follows:

DBAG Fund V Konzern GmbH & Co. KG, which was founded in financial year 2006/2007 and in which Deutsche Beteiligungs AG holds 99 percent of the voting rights, was initially consolidated. This company constitutes the co-investment vehicle of Deutsche Beteiligungs AG in conjunction with DBAG Fund V, which commenced its investment activity in financial year 2006/2007. From the date of its initial consolidation until 31 October 2007, DBAG Fund V Konzern GmbH & Co. KG achieved an annual profit of T€4,554.

DBG Managing Partner GmbH & Co. KG, founded in financial year 2005/2006, was initially consolidated in the reporting year. DBG Managing Partner GmbH & Co. KG is the managing general partner of two vehicles of DBAG Fund V, which commenced its investment activity in 2006/2007, that co-invest alongside Deutsche Beteiligungs AG. Of the limited partners´ shares in DBG Managing Partner GmbH & Co. KG, 20 percent are held by DBAG and 80 percent by Messrs Grede, von Hodenberg, Mangin and Dr Scheffels. Despite the absence of the voting majority, this company was consolidated by Deutsche Beteiligungs AG, since DBG Managing Partner GmbH & Co. KG constitutes a special purpose entity according to SIC 12 and Deutsche Beteiligungs AG obtains the majority of the benefits from this company. From the date of its initial consolidation up to 31 October 2007, DBG Managing Partner GmbH & Co. KG achieved a profit for the year of T€3,267.

5. Principles of consolidation The financial statements of consolidated subsidiaries were drawn up based on common accounting policies.

In conformity with the rules of IFRS 3, capital consolidation has been performed using the purchase method.

Since the conversion of the accounting to the IFRS format, no goodwill has been incurred from capital consolidation that was capitalised.

6. Accounting policies

Financial assets Financial assets have been designated as “financial assets at fair value through profit and loss”, since, pursuant to our investment strategy, these assets are managed and their performance evaluated on a fair-value basis.

Based on the Company's classification as a venture capital firm and in conformity with the rules stipulated in IAS 39, financial assets are principally measured at their fair value. The net result of valuation (changes in fair value) is disclosed in the income statement in line item “Net result of valuation and disposal of financial assets and loans and receivables”.

Valuation guidelines have been adopted for the application of fair value accounting. According to these rules, investments in quoted enterprises for which an active and liquid market exists are valued at their stock market price at the valuation date or at the stock market price on the last day of trading prior to this date. For all other investments in unquoted companies or quoted companies for which no active or liquid market exists, the fair value is measured using generally accepted methodologies. These include, in particular, the multiples method and the discounted cash-flow method.

In applying the multiples method, the enterprise value is determined by using multiples of a peer group of companies. In using the discounted cash-flow method, expected future cash flows for a detailed budgetary period are discounted at the valuation date; for the subsequent period, the present value of an expected government perpetual is determined.

Fixed-interest securities, silent participations and loans with embedded derivates (hybrid instruments) are recognised in income at fair value.

The valuation parameters used for valuation procedures are applied consistently and are based on available corporate and market data. If the fair value for equity instruments cannot be measured reliably, that equity instrument will be valued at acquisition cost.

Management . Shares . Investments . Management’s report . Financial statements . Additional information

Loans and receivables The item “Loans and receivables” comprises non-current loans, shareholder loans and receivables with a fixed term and without an embedded derivative.

Loans and receivables are recognised at amortised cost in conformity with the categorisation of IAS 39. Loans and receivables are subject to regular review as to whether objective evidence of an impairment loss exists. If this is the case, the impairment loss is determined as in IAS 39.

Intangible assets/property, plant and equipment Intangible assets and property, plant and equipment are valued at purchase cost, less regular straight-line depreciation based on normal useful life. Useful life for intangible assets is determinable and extends from two to five years. For property plant and equipment, useful economic life is termed from three to nineteen years. Additions are depreciated pro rata temporis beginning in the month of acquisition. Depreciation is disclosed in the income statement under the caption “Depreciation and amortisation on property, plant and equipment and intangible assets”.

Beyond that, intangible assets and property, plant and equipment are subject to review, if certain events and/or changes in circumstances indicate that the carrying amount may no longer be recoverable. An impairment loss amounting to the difference between the carrying amount and the recoverable amount is recognised. The recoverable amount is the higher of an asset's fair value (less costs to sell) or its utility value.

Deferred taxes According to the IFRS, deferred taxes are to be recognised on temporary differences arising between the tax bases of assets and liabilities and their IFRS carrying amounts in the accounts (balance sheet-orientated method). Temporary differences based on the IFRS are all differences that are not of a permanent nature. The IFRS require recognition of both deferred tax assets and liabilities, if the criteria for recognition exist.

Additionally, expected tax reductions from loss carryovers are capitalised in the IFRS format, if an appropriate level of taxable income is expected to be achieved in the foreseeable future against which unused tax loss carryovers may be offset. The tax rates expected to apply at the balance sheet date are used to determine deferred taxes.

Changes to deferred taxes are principally recognised in income, insofar as the circumstances to which they relate were recognised in income and were not charged or credited to equity.

Provisions for pension obligations and similar obligations Pension provisions are determined in the IFRS format based on the projected unit credit method. In addition to the present value of pension obligations at the balance sheet date, this method accounts for future salary and benefit increases by an assumed trend rate.

According to the IFRS, actuarial gains and losses falling outside a range of ten percent of the higher amount arising from the obligation and the fair value of plan assets are disseminated over the average remaining service period (corridor method).

Current service cost is presented as personnel costs in the IFRS format, whereas the net interest portion of allocations to provisions is disclosed in interest expense.

Other provisions Other provisions are carried in liabilities, if a third-party obligation and the probability of the availment of the obligation exist. Non-current provisions are discounted.

Stock option programme The tranches of the stock option programme subject to disclosure are recognised as personnel expense in the income statement and disseminated on a pro rata basis over the estimated vesting period. The equity is raised correspondingly. The stock options are measured at their fair value at the date of grant. This is performed using generally accepted option-pricing models.

Insofar as Deutsche Beteiligungs AG chooses to make use of its right to settle the calculatory benefit of exercised stock options in cash, the capital reserve allocated for this purpose in preceding years is reversed and the remaining difference to the exercise appreciation recognised in personnel costs.

Liabilities Liabilities of the Company are carried in other liabilities in conformity with IAS 39. They are valued at amortised cost using the effective interest method. Interest on liabilities is directly expensed.

Treasury shares Treasury shares are charged to equity (retained earnings).

Management . Shares . Investments . Management’s report . Financial statements . Additional information

Recognition of revenues Revenues from current services are recognised when the services are rendered. Services rendered over time are recorded in the proportion attributable to the period. Revenues from disposals of financial assets are recognised when claims from guarantee commitments are no longer likely.

Net result of valuation and disposal of financial assets and loans and receivables This item contains realised gains and losses from the disposal of financial assets and from changes in the fair value of financial assets. This caption also includes the recognition of impairment losses to financial assets that are principally valued at acquisition cost, as well as loans and receivables carried at amortised cost.

Leases Only operating lease commitments exist. Lease payments are recognised as an expense.

Foreign currency Liabilities stated in foreign currency are recognised in the income statement using the closing rate method at the balance sheet date.

Since the group of consolidated companies of Deutsche Beteiligungs AG does not include foreign-based companies, there are no effects from currency translations in this context.

Offsetting Offsetting assets against liabilities and income against expense is principally prohibited, except if this is stipulated or expressly permitted by a requirement.

Notes to the income statement

7. Net result of valuation and disposal of financial assets and loans and receivables

in T€ 2006/2007 2005/2006

Changes in value 92,163 1,167 Realised income/expense 61,242 90,718 Other 1,635 2,021 155,040 93,906

Similar to the previous year, “Other” largely contains income from the non-availment of guarantee liabilities for disposed portfolio companies in financial year 2006/2007.

8. Current income from financial assets and loans and receivables

in T€ 2006/2007 2005/2006

Profit entitlements 7,968 19,805 Interest 1,943 647 9,911 20,452

Profit entitlements contain dividends from corporations and profit shares from both commercial and dormant partnerships. Interest relates to loans granted to portfolio companies.

9. Personnel costs

in T€ 2006/2007 2005/2006

Wages and salaries 16,816 19,492 thereof, for stock options exercised 712 0 thereof, for stock options outstanding 206 375 Social contributions and expenses for pension plans 1,039 2,474 thereof, service cost 398 605 thereof, for defined contribution plans (including employers’ contributions to state pension plans) 330 344 17,855 21,966

100

Management . Shares . Investments . Management’s report . Financial statements . Additional information

Of the social contributions and expenses for pension plans, T€568 (previous year: T€1,955) were attributable to pension benefits. The employer’s contributions to state pension plans have been allocated to social contributions, not to expenses for pension plans.

Number of employees (without Board of Management members):

31 Oct. 2007 31 Oct. 2006

Employees (full-time) 38 34 Employees (part-time) 4 5 Apprentices 5 5

During financial year 2006/2007, the Board of Management consisted of four members (previous year: five members).

In financial year 2006/2007, an average of 39 employees (previous year: 42) and 4 apprentices (previous year: 4) were employed at Deutsche Beteiligungs AG.

10. Other operating income

in T€ 2006/2007 2005/2006

Management fees 7,236 5,648 Reimbursed expenses 2,714 2,756 Reversals of write-downs/provisions 2,688 2,737 Structuring and consultancy fees 2,247 528 Other 939 756 15,824 12,425

Management fees relate to fee income for the management of third-party private equity funds that co-invest alongside Deutsche Beteiligungs AG. Please see Note 33.

Reimbursed expenses comprise advances on behalf of co-investment funds and portfolio companies.

Reversals of write-downs in the reporting period mainly pertain to claims from a loan agreement and interest charges and, in the previous year, a guarantee provision. These concern the same investment in both years.

Structuring and consultancy fees are generated in conjunction with the purchase or sale of investments.

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11. Other operating expense

in T€ 2006/2007 2005/2006

Consultancy 5,494 5,893 Office rental 970 962 Sales tax 921 859 Financial assets 866 4,281 Other 3,576 3,520 11,827 15,515

Consultancy expenses primarily relate to investment transactions, tax and legal counselling as well as EDP advisory services. Consultancy expenses are partially reimbursable by managed co-investment funds or portfolio companies.

Office rental mainly pertains to rent for premises. Additionally, lease expenditure for cars amounted to T€79 in financial year 2006/2007 (previous year: T€198).

Sales tax comprises tax that is non-deductible as value-added tax and ensues from non-taxable original turnovers.

Expenses for financial assets arose in conjunction with the sale of portfolio investments.

“Other” consists of miscellaneous operating expenses, in particular for consultancy/screening, travel, Supervisory Board, public relations, motor vehicles, etc.

Other operating expense contains costs for share repurchases totalling T€29 (previous year: T€100).

12. Interest income

in T€ 2006/2007 2005/2006

Fixed-term deposits/cash in banks 5,008 2,328 Revenue Office 544 161 Current assets/securities 228 1,029 Other 116 121 5,896 3,639

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Fixed term deposits/cash in banks pertains to interest on liquid funds. The item ”Revenue Office” relates to interest income on tax returns based on tax audits. Current assets/securities chiefly contains interest income from deferred consideration from silent participations and loans granted to portfolio companies. Interest income of T€10 (previous year: T€5) stems from loans contained in item “loans and receivables”.

13. Interest expense

in T€ 2006/2007 2005/2006

Interest expense for pension provisions 773 722 Expected returns on plan assets (706) (608) 67 114

Revenue Office 1,036 1,694 Valuation, interest cap (35) 29 Loans 1 2 Other 18 30 1,087 1,869

Interest expense Revenue Office is attributable to interest on additional tax claims based on tax audits. For information on the accounting treatment of pension obligations, please see Note 26.

14. Income taxes

In T€ 2006/2007 2005/2006

Current taxes 3,265 2,699 Deferred taxes 2,390 (570) 5,655 2,129

Current tax expense in financial year 2006/2007 in the amount of T€1,777 is attributable to previous years. This sum largely consists of tax expenses in conjunction with a tax audit conducted for 2000 to 2003 at Deutsche Beteiligungs AG (T€3,293). Reciprocally, there was an increase in corporation tax assets of T€1,505 resulting from this tax audit.

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Current tax expense of three Group companies was reduced by utilising as yet unused loss carryforwards of T€2,227, for which no deferred tax assets had been capitalised in the comparable period. The major effect relates to Deutsche Beteiligungs AG, where, in conjunction with the sub-annual preparation of the tax return for 2006 a significant reduction in taxable profit for 2006 resulted, due to taxable profit allocations from investments in partnerships.

Deferred tax expense was reduced by an increase in tax assets on loss carryforwards not yet capitalised. In total, due to reciprocal effects from lower corporation tax rates, this results in an increase in deferred tax assets from T€580 for the comparable period to T€606 in the reporting year.

Deferred tax expense of T€2,588 is attributable to the occurrence or reversal of temporary differences between the IFRS carrying amounts and the tax purpose-based carrying amounts of assets and debt. Temporary differences primarily exist for financial assets and pension provisions.

Reconciliation between the theoretically anticipated tax charge for an incorporated company and the current amount recognised in the consolidated financial statements is as follows:

in T€ 2006/2007 2005/2006

Earnings before taxes 155,626 90,876 Theoretical tax rate for corporations 40.14% 40.86% Theoretical tax income/expense 62,468 37,132

Change in theoretical tax income expense: - Tax-exempt positive result of valuation and disposal (59,287) (40,936) - Non-deductible negative result of valuation and disposal 3,804 6,837 - Tax-exempt current income (3,094) (4,177) - Non-deductible expense 537 699 - Taxes from previous years 3,282 1,756 - Corporation tax assets capitalised (1,505) 0 - Other effects (550) 818 Income taxes 5,655 2,129 Taxation ratio 3.6% 2.3%

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The theoretical tax rate for corporations is composed of corporation tax and a solidarity surcharge (26.375 percent) as well as municipal trade tax. The tax rate for Deutsche Beteiligungs AG is 26.375 percent, since Deutsche Beteiligungs AG is recognised as an investment company that is exempt from municipal trade tax.

Based on the business tax reform effective in 2008, the corporation tax rate will be reduced to 15 percent plus a solidarity surcharge beginning with assessment period 2008. Deductibility of municipal trade tax was eliminated. Reciprocally, the measure for municipal trade tax will be reduced from 5 percent to 3.5 percent. With a percentage of the base rate of 460 percent (City of Frankfurt), this results in a combined tax rate of 31.925 percent. The effects of the tax reform have been accounted for in determining deferred taxes. The corresponding effect from the change in the tax rate results in income of T€173.

In addition to tax income from the initial recognition of tax loss carryforwards (through utilisation of tax losses or capitalisation of deferred tax assets), “other effects” also contain, reciprocally, the effects from the change in the tax rate for Deutsche Beteiligungs AG.

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Notes to the balance sheet

15. Intangible assets/property, plant and equipment

Acquisition cost

in T€ 1 Nov. 2006 Additions Disposals 31 Oct. 2006

Intangible assets 350 8 1 357 Property, plant, equipment 1,716 402 2 2,116 2,066 410 3 2,473

Depreciation/amortisation Carrying amount

in T€ 1 Nov. 2006 Additions Disposals 31 Oct. 2006 31 Oct. 2007 31 Oct. 2006

Intangible assets 274 45 1 318 39 76 Property, plant, equipment 898 231 2 1,127 989 818 1,172 276 3 1,445 1,028 894

Changes to the group of consolidated companies had no effects on intangible assets and property, plant and equipment in the reporting year.

16. Financial assets

in T€ 2006/2007 2005/2006

Status at beginning of financial year 121,546 198,946 Additions 40,666 21,681 Disposals 44,824 100,248 Changes in value 92,163 1,167 Status at end of financial year 209,551 121,546

Financial assets are exclusively measured at fair value. Changes in value are recorded under the caption “Net result of valuation and disposal of financial assets and loans and receivables” on the income statement (see Note 7).

17. Loans and receivables

in T€ 2006/2007 2005/2006

Status at beginning of financial year 153 122 Additions 0 31 Disposals 0 0 Status at end of financial year 153 153

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Loans and receivables relate to claims arising from loan agreements with portfolio companies.

The fair value of loans and receivables corresponds to the carrying amount, since loans and receivables carry interest at market rates. Rates of interest range from six to twelve percent annually.

18. Other non-current assets

in T€ 31 Oct. 2007 31 Oct. 2006

Pensions and similar obligations/plan assets 613 0 613 0

Please refer to our commentary in Note 26.

19. Receivables

in T€ 31 Oct. 2007 31 Oct. 2006

Receivables from associated companies 42 42 Receivables from portfolio companies 8,777 9,197 8,819 9,239

Receivables from portfolio companies largely relate to the clearing account with one portfolio company and loan arrangements with portfolio companies.

20. Other financial instruments

in T€ 31 Oct. 2007 31 Oct. 2006

Short-term equity shares 612 0 Derivatives 0 333 612 333

Short-term equity shares in incorporated companies relate to shares that are to be sold to the management of a portfolio company within a year.

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21. Tax assets, tax provisions and deferred taxes

in T€ 31 Oct. 2007 31 Oct. 2006

Deferred tax assets 0 2,025 Income tax credits 13,263 10,729 Deferred tax liabilities 366 0 Tax provisions 3,522 2,437

Deferred tax assets and liabilities are offset in conformity with IAS 12.74.

Income tax credits contain imputable taxes, corporation tax capitalised by Deutsche Beteiligungs AG at net present value and tax prepayments.

Tax provisions reflect the anticipated tax expense, without accounting for imputable taxes and tax prepayments.

Tax loss carryforwards have been recognised as follows in deferred taxes:

in T€ 31 Oct. 2007 31 Oct. 2006

Tax loss carryforward, corporation tax 35,750 37,467 thereof, usable 3,827 2,198 deferred tax assets recognised 606 580 Tax loss carryforward, trade tax 20,685 22,516 thereof, useable 0 0

Tax loss carryforwards for which no deferred tax assets were recognised relate to Group companies not expected to generate future taxable income.

Deferred tax assets (+) and liabilities (-) are attributable to the following items:

in T€ 31 Oct. 2007 31 Oct. 2006

Loss carryforwards 606 580 Pension provisions 331 882 Other provisions 14 71 Financial assets (1,317) 492 (366) 2,025

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22. Other current assets

in T€ 31 Oct. 2007 31 Oct. 2006

Loans 1,591 214 Receivables from co-investment funds 1,579 2,405 Expenses advanced 679 3,276 Receivables from purchase price retentions 0 2,410 Other 734 2,157 4,583 10,462

The loans were extended to managers of portfolio companies to finance the acquisition of interests.

Receivables from co-investment funds largely comprise reimbursable expenses.

Expenses advanced relates to portfolio companies.

23. Equity

Subscribed capital/number of shares outstanding All shares in Deutsche Beteiligungs AG are no-par value bearer shares (ordinary shares). Each share is entitled to one vote.

The shares are admitted for trading on the Frankfurt Stock Exchange (Prime Standard) and on the Düsseldorf Stock Exchange. Shares of the Company are also traded on the Open Market of the Berlin-Bremen, Hamburg, Hanover, Munich and Stuttgart Stock Exchanges.

Changes in the number of shares outstanding were as follows:

Number of shares 2006/2007 2005/2006

Status at beginning of financial year 15,153,864 16,837,329 Shares cancelled (750,000) (1,683,465) Shares repurchased (313,367) 0 Status at end of financial year 14,090,497 15,153,864

In financial year 2006/2007, the Company repurchased 750,000 own shares from IVEC Institu- tional and Venture Equity Capital AG, Cologne, for 24.38 euros per share and subsequently cancelled them without reducing the capital stock. The total value of the shares repurchased was T€18,285. The number of shares outstanding thus fell from 15,153,864 to 14,403,864. Arithmetically, the capital attributable to each share now equals approximately 3.37 euros per share, following 3.20 euros per share previously.

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On 16 August 2007, the Board of Management announced its intention to additionally repurchase up to 727,505 shares in Deutsche Beteiligungs AG via the stock exchange and commissioned a bank as the independent dealer managers for the buyback. The Board of Manage- ment specified that the maximum purchase price would be 25.00 euros per share. By 31 October 2007, a total of 313,367 shares were repurchased for the sum of 7.6 million euros; consequently, the number of shares outstanding at the balance sheet date was 14,090,497. The shares repurchased will be retired and cancelled without reducing the share capital.

Sale of own shares to employees and retirees The Board of Management offers employees and retirees of Deutsche Beteiligungs AG and of a subsidiary an employee share purchase plan at preferential terms which are orientated around tax legislation and limits. This has resulted in the following transactions involving treasury shares in financial year 2006/2007:

Purchase/sales price per share Share of subscribed capital Number of in € in T€ ‰ shares Status 1 Nov. 2006 0 0.0 0.0 Date of purchase 5 June 2007 27.70 2,319 6.7 0.1 Date of sale/transfer 15 June 2007 16.87 2,319 (6.7) (0.1) Status 31 Oct. 2007 0 0.0 0.0

Authorised capital The Board of Management is, with the consent of the Supervisory Board, authorised to raise the capital stock of the Company by up to a total of 24,266,665.80 euros through one or more issues of new shares in exchange for cash or non-cash contributions (authorised capital). The authorisation is valid until 16 March 2010.

Contingent capital There is contingent capital of up to 19,413,334.20 euros to grant holders or creditors of warrants and/or convertible bonds issued until 16 March 2010 option rights or conversion rights for up to 5,761,545 new shares in the Company, representing a proportionate share of the subscribed capital, in conformity with the specific terms of the warrants or convertible bonds.

There is also contingent capital of up to 1,820,000.00 euros available to enable the issuance of shares to members of the Company's management team who contribute to the performance of the Company's stock. The terms of the stock option programme are discussed in Note 34.

Capital reserve The capital reserve comprises amounts achieved from the issuance of shares in excess of the par value. Additionally, it contains those tranches of the stock option programme required to be recognised in the accounts.

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Management . Shares . Investments . Management’s report . Financial statements . Additional information

in T€ 2006/2007 2005/2006

Status at beginning of financial year 142,281 141,906 Additions 206 375 Disposals (696) 0 Status at end of financial year 141,791 142,281

Additions include stock options still outstanding within the scope of the stock option programme.

Disposals relate to stock options exercised in the reporting year. The capital reserve declined by the amounts allocated to the capital reserve in previous periods up to the date of exercise of the stock options.

Please refer to Note 6 for further information on the accounting treatment of the stock option programme.

Retained earnings Retained earnings comprise:

• the legal reserve, as stipulated by German stock corporation law, • first-time adopter effects from the IFRS opening balance at 1 November 2003, • other retained earnings, which also contain reconciliation amounts from capital consolidation in conformity with the German Commercial Code.

With the consent of the Supervisory Board, the Board of Management allocated a part of the consolidated profit for the year amounting to 30,000,000 euros to other retained earnings within the scope of the annual closing.

Consolidated distributable profit At the Annual Meeting on 28 March 2007, shareholders voted to pay a dividend of 0.50 euros per share (7,576,932.00 euros) plus an extraordinary surplus dividend of 2.50 euros per share (37,884,660.00 euros) for financial year 2005/2006.

in € 2006/2007 2005/2006

Dividends paid 7,576,932.00 5,556,318.57 Surplus dividends paid 37,884,660.00 5,556,318.57 Total distribution 45,461,592.00 11,112,637.14

The Board of Management and the Supervisory Board recommend appropriating the distributable profit of Deutsche Beteiligungs AG for financial year 2006/2007 amounting to 55,531,973.20 euros as follows:

Payment of a dividend of 1.00 euro on each dividend-carrying share plus an extraordinary surplus dividend of 2.50 euros on each dividend-carrying share. The remaining amount of 7,664,716.70 euros shall be carried forward to new account.

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The recommended appropriation of profits accounts for treasury shares held by the Company until 20 December 2007, which, pursuant to § 71b of the German Commercial Code, are not entitled to dividend payments. By the time the Annual Meeting convenes, the number of dividend-carrying shares may decrease through further share repurchases. The amount that falls to these shares shall also be carried forward to new account and is contained in the sum of 7,664,716.70 euros.

Since the introduction of the “half-income system” (“Halbeinkünfteverfahren”), 95 percent of dividends disbursed to shareholding corporations are exempt from corporation tax in Germany. If certain requirements are fulfilled, dividends are also exempt from trade tax to the same extent. For natural persons, 50 percent of dividends are tax-exempt.

The distributable profit contains imputable corporation tax credits that arose during the validity of the imputation system of taxation prior to the introduction of the “half-income system”. These were previously only realisable through a reduction in corporation tax in conjunction with dividend distributions. Based on a new directive, corporation tax credits will be reimbursed in ten equal annual amounts beginning in 2008. Deutsche Beteiligungs AG has corporation tax credits of 1.9 million euros. The discounted reimbursements result in an amount totalling T€1,505 at 31 October 2007.

24. Minority interest

in T€ 2006/2007 2005/2006

Status at beginning of financial year 2,458 1,019 Additions 345 187 Disposals (147) (4,789) Profit share 13,512 6,041 Status at end of financial year 16,168 2,458

Minority interest relates to DBG Advisors Kommanditaktionär GmbH & Co. KG, DBAG Fund V Konzern GmbH & Co. KG as well as DBG Managing Partner GmbH & Co. KG. For a commentary on minority interest, please refer to the information on co-investment funds in Note 33.

Minority interest attributable to DBG Advisors Kommanditaktionär GmbH & Co. KG (co-investment fund DBAG Fund IV) developed as follows:

in T€ 2006/2007 2005/2006

Status at beginning of financial year 2,458 0 Additions 105 187 Disposals (101) (3,770) Profit share 13,391 6,041 Status at end of financial year 15,853 2,458

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Minority interest attributable to the newly consolidated DBAG Fund V Konzern GmbH & Co. KG and DBG Managing Partner GmbH & Co. KG (both co-investment fund DBAG Fund V) has changed as follows in financial year 2006/2007:

DBAG Fund V DBG Managing Konzern GmbH Partner GmbH & in T€ & Co. KG Co. KG

Status at beginning of financial year 0 0 Additions 218 22 Disposals (46) 0 Profit share 120 1 Status at end of financial year 292 23

25. Other provisions

1 Nov. Write- 31 Oct. in T€ 2006 Availment backs Additions 2007

Non-current other provisions 937 300 105 19 551 Current other provisions 17,248 12,444 1,876 12,674 15,602 thereof, personnel- related commitments 12,698 11,355 2 10,580 11,921 thereof, financial assets 3,782 511 1,709 1,136 2,698 thereof, other 768 578 165 958 983 18,185 12,744 1,981 12,693 16,153

Non-current other provisions relate to payment obligations to a former member of the Board of Management. It is expected that availment of the provision in the amount of T€405 will be made within one year, and for the amount of T€155 in one to five years. The difference between the expected availment and the provision at 31 October 2007 results from discounting expected future payments. During financial year 2006/2007, expenses of T€19 occurred from accrued interest.

Provisions for financial assets in current other provisions are attributable to the investment business (e.g. guarantee commitments). Provisions for personnel-related commitments chiefly refer to performance-linked emoluments. Performance-related emoluments pertain to members of the Board of Management and staff of Deutsche Beteiligungs AG. The performance-related compensation systems for staff largely correspond to those in which the members of the Board of Management participate. Please refer to the remuneration report in Management’s report for information on the design of these compensation systems.

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Non-current provisions fall due in less than one year to a maximum of five years. Current other provisions are due within a year.

Other provisions were made for contingent obligations, the occurrence of which is considered probable. The probability of an obligation occurring is estimated to be greater than the probability of its non-occurrence.

26. Provisions for pensions and similar obligations and plan assets The balance sheet disclosure has been determined as follows:

in T€ 31 Oct. 2007 31 Oct. 2006 31 Oct. 2005 31 Oct. 2004 1 Nov 2003

Present value of benefit entitlements 17,007 18,565 17,237 13,415 13,231 Fair value of plan assets (16,727) (16,620) (14,309) 0 0 Actuarial losses/ gains not offset (893) (1,891) (2,554) 487 0 Other non-current assets 613 0 0 0 0 Provisions for pensions and similar obligations 0 54 374 13,902 13,231

The net sum from the present value of benefit entitlements, the fair value of plans assets and actuarial losses/gains not offset developed as follows:

in T€ 2006/2007 2005/2006

Status at beginning of financial year 54 374 Increase 473 1,922 Benefits paid 115 322 Allocations to plan assets (1,255) (2,564) Status at end of financial year (613) 54

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The present value of benefit entitlements was determined on the following premise:

31 Oct. 2007 31 Oct. 2006

Discount rate % 5.25 4.25 Salary trend rate (incl. career trend) % 2.50 2.50 Benefit trend rate % 2.00 2.00 Year of “actuarial charts” by Dr. Klaus Heubeck 2005 G 2005 G

The present value of benefit entitlements results from various defined benefit plans as well as from individual defined benefit commitments. Application of the plans depends on the date an employee joins the Company. Retirement benefits are based on employees´ salaries and years of service.

Plan assets have been funded through a bilateral contractual trust arrangement. The plan assets consist of unit holdings and are managed by a bank. The fair value of plan assets was netted against the present value of benefit entitlements. Expected returns on plan assets amount to 4.25 percent for financial year 2006/2007.

Plan assets developed as follows this past financial year:

in T€ 2006/2007 2005/2006

Fair value of plan assets at beginning of financial year 16,620 14,309 Expected returns 706 608 Allocations to plan assets 1,255 2,564 Benefits paid (857) (816) Actuarial losses (997) (45) Fair value of plan assets at end of financial year 16,727 16,620

The following amounts were recognised in the income statement:

in T€ 2006/2007 2005/2006

Service cost 398 605 Past service cost 0 1,143 Interest expense 773 722 Amortisation of actuarial losses 8 60 Expected returns on plan assets (706) (608) 473 1,922

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27. Other current liabilities

in T€ 31 Oct. 2007 31 Oct. 2006

Trade accounts payable 1 150 Liabilities to associated companies 140 225 Liabilities to portfolio companies 9 10 Liabilities to co-investment funds 572 4,982 Prepaid income 1,756 671 Other liabilities 2,108 1,966 thereof, taxes 420 333 4,586 8,004

Prepaid income mainly comprises deferred fee income from two co-investment funds.

Other current liabilities at 31 October 2006 and 2007 are all due in less than one year.

28. Other financial commitments, contingent liabilities and trusteeships Other financial commitments are detailed as follows:

in T€ 31 Oct. 2007 31 Oct. 2006

Call commitments 10,409 18,657 Permanent debt obligations 3,454 4,407 13,863 23,064

Possible call commitments relate to payments which may be drawn down by private equity funds, depending on the progress of investing activity.

Permanent debt obligations largely pertain to office rental. The following provides an overview of the due dates of permanent debt obligations at 31 October 2007:

in T€ < 1 year 1-5 years > 5 years Total

Permanent debt obligations 950 2,504 0 3,454 thereof, leases 17 0 0 17

The office lease contract runs until 31 August 2011 and features two prolongation options of five years each. The last lease contract for motor vehicles was concluded in April 2005. Car lease contracts generally involved a non-terminable lease term of three years. Since April 2005, motor vehicles have been purchased.

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Contingent liabilities amounted to T€9,408 at 31 October 2007 (previous year: T€9,408). Contingent liabilities almost exclusively relate to exposure to guarantee risks in conjunction with former portfolio investments. Discounting was not performed due to the uncertainty and the indefinite settlement date of future payments.

Trust assets totalled T€10,497 at 31 October 2007 (previous year: T€10,569). They primarily concern three portfolio investments (T€8,107) held for a managed fund. Trust liabilities exist in an equivalent amount.

29. Notes to the cash flow statement Cash flow statements based on IAS 7 are aimed at reporting on and creating transparency in a company's relevant flows of cash. Cash flows are differentiated according to operating activities as well as investing and financing activities. For cash flows from operating activities, the indirect presentation method was applied.

Proceeds and payments relating to financial assets and to loans and receivables have been presented in cash flows from investing activities instead of in cash flows from operating activities, since this classification gives a truer representation, from our point of view. There were no cash flows from acquisitions/sales concerning companies or other entities included in the group of consolidated companies.

Cash funds at the beginning and end of the period existed in the form of cash in banks. Cash funds of the proportionately consolidated Q.P.O.N. Beteiligungs GmbH amount to T€31 (previous year: T€37).

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Other information

30. Earnings per share based on IAS 33

2006/2007 2005/2006

Consolidated profit for the year (T€) 136,459 82,706 Number of shares issued at balance sheet date 14,403,864 15,153,864 Number of shares outstanding at balance sheet date 14,090,497 15,153,864 Weighted average number of shares outstanding 14,836,842 16,486,607 Basic earnings per share (€) 9.20 5.02 Diluted earnings per share (€) 9.17 5.01

Basic earnings per share are computed by dividing the consolidated profit for the year attributable to Deutsche Beteiligungs AG by the weighted average number of shares outstanding during the reporting year. The shares repurchased, but not yet cancelled, in conjunction with the share buyback programme reduce the number of shares outstanding. Dilution of earnings per share can occur through so-called potential shares. At the balance sheet date, recognition of dilutive potential shares from the stock option programme in determining the diluted earnings per share had an effect of three euro cents per share.

31. Segment reporting The private equity operations of Deutsche Beteiligungs AG are conducted on a global basis, i.e. without differentiating between segments, such as geographical regions or industrial sectors. Thus, there is only one segment to the Company´s business. We wish to draw attention to the fact that this segment may be comprised of business fields with differing risk exposure and reward opportunities.

Through the management of co-investment funds in which third parties invest, Deutsche Beteiligungs AG gains access to transactions requiring a greater equity investment and generates current fee income from fund management services, which serves to cover costs. However, this does not give rise to a segment of its own.

Segment information is therefore not reportable.

32. Declaration of Conformity pursuant to § 161 German Stock Corporation Act (“AktG”) A “Declaration of Conformity” in accordance with § 161 of the German Stock Corporation Act (“AktG”) was submitted by the Board of Management and the Supervisory Board of Deutsche Beteiligungs AG and is permanently accessible to shareholders at the Company´s Internet site.

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33. Information based on IAS 24

Remuneration based on employment or services contracts for key management staff Key management personnel within the meaning of IAS 24 are the members of the Board of Management and senior executives of Deutsche Beteiligungs AG.

The policies of the remuneration system and the total remuneration paid to the members of the Board of Management and the Supervisory Board are presented in the remuneration report. The remuneration report is an integral part of Management’s report. Personalised information in conformity with § 314 (1) No. 6 of the German Commercial Code is also disclosed there.

Total payments to key management personnel consist of cash and non-cash remuneration. Total cash payments amounted to T€13,500 in financial year 2006/2007 (previous year: T€14,487). The share of total cash payments attributable to members of the Board of Management differs from the emoluments stated in the remuneration report, since the total exercise profit of stock options exercised is contained there, whereas total cash payments presented here only include the difference between the total exercise profit and of that recognised in personnel costs in previous periods. Non-cash remuneration primarily consists of the amounts recognised in accordance with the tax basis for the use of company cars.

In the reporting year, a total of T€478 was allocated to pension provisions (previous year: T€ 1,890) as defined by the IFRS for key management staff (service cost and interest cost); thereof, service cost: T€348 (previous year: T€1,654). Defined benefit obligations for key management staff amounted to T€ 3,156 (previous year: T€ 6,813) at the balance sheet date.

No loans or advances were granted to members of the Board of Management or the Supervisory Board. The DBAG Group has not entered into any guarantees for members of the Board of Management or the Supervisory Board.

No member of the Supervisory Board or the Board of Management holds shares, share options or other derivatives representing one percent or more of the subscribed capital.

For financial year 2006/2007, the members of the Supervisory Board received fixed fees totalling T€248 (consisting of a fixed amount and special bonuses) and variable compensation of T€180. In the previous year, remuneration paid to the members of the Supervisory Board amounted to T€233. A variable component was not paid.

For consultancy services in 2006/2007, Professor Dr h. c. Rolf-Dieter Leister/Infra Beratung GmbH received net fees totalling T€129 (previous year: T€135).

Regarding transactions and balances of key management personnel in their capacity as minority partners in consolidated companies, please refer to Note 24.

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Participation in carried interest schemes by key management staff Key management personnel have committed to invest in the DBAG Fund IV and DBAG Fund V co-investment funds. For those participating, this can result in a superior profit share, if superior results are realised from the investments in a specified investment period. The profit shares are only paid, if the Deutsche Beteiligungs AG Group and the investors in the respective co-investment funds have realised a minimum return on their invested capital. This minimum return amounts to eight percent anually. The structure of the profit share, its implementation and performance conditions are in conformity with common practice in the private equity industry and constitute a prerequisite for the placement of private equity funds.

For the individuals participating, their partnership status constitutes a privately carried investment risk and is aimed at promoting the staff’s initiative and dedication to the portfolio companies.

DBAG Fund IV DBAG Fund IV consists of the following fund companies that make co-investments at a fixed ratio:

Investment share held by Max. investment team profit share Fund company Qualification (%) (%)

DBAG Fund IV GmbH & Co. KG Related party 1 20.8 DBAG Fund IV International GmbH & Co. KG Related party 1 20.8 DBG Fifth Equity Team GmbH & Co. KGaA Related party 0.67 approx. 30 DBG Fourth Equity Team DBAG Group GmbH & Co. KGaA subsidiary 0

The investment team of DBAG Fund IV is virtually identical to key management personnel. They have invested their own money at a fixed ratio in the companies listed above. DBG Advisors IV GmbH & Co. KG, which is a related party and not included in the consolidated accounts of DBAG, acts as an intermediary for investments in the first two fund companies stated above. Key management personnel are invested directly in DBG Advisors IV GmbH & Co. KG or indirectly through DBG Investment Team GmbH & Co. KG.

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Interests in DBG Fifth Equity Team GmbH & Co. KGaA are held indirectly through DBG Advisors Kommanditaktionär GmbH & Co. KG. Interests in DBG Advisors Kommanditaktionär GmbH & Co. KG are recognised in minority interest, since DBG Advisors Kommanditaktionär GmbH & Co. KG is a Group subsidiary. Key management personnel have not yet provided capital contributions in DBG Advisors Kommanditaktionär GmbH & Co. KG amounting to T€11.

Beyond that, no outstanding balances exist between DBG Advisors Kommanditaktionär GmbH & Co. KG and related parties.

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Key management personnel have made the following investments or have the following repayments from investment activity attributable to them:

Investments Investments Repayments from in T€ in the period at the closing date investment activity

Manage- Senior Manage- Senior Manage- Senior ment Execu- ment Execu- ment Execu- Board tives Board tives Board tives Financial year 1 Nov. 2005 to 31 Oct. 2006 DBG Advisors IV GmbH & Co. KG 58 0 328 0 3,078 0 DBG Advisors Kommanditaktionär GmbH & Co. KG 7 0 71 0 920 0 DBG Investment Team GmbH & Co. KG 26 59 247 565 1,599 3,805 Total 2005/2006 91 59 646 565 5,597 3,805

Financial year 1 Nov. 2006 to 31 Oct. 2007 DBG Advisors IV GmbH & Co. KG 76 0 403 0 122 0 DBG Advisors Kommanditaktionär GmbH & Co. KG 13 0 83 0 12 0 DBG Investment Team GmbH & Co. KG 60 133 304 698 90 191 Total 2006/2007 149 133 790 698 224 191

DBAG Fund V DBAG Fund V consists of the following fund companies that make co-investments at a fixed ratio:

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Investment share held by Max. investment team profit share Fund company Qualification (%) (%)

DBAG Fund V GmbH & Co. KG Related party 1 20.8 DBAG Fund V International GmbH & Co. KG Related party 1 20.8 DBAG Fund V Co-Investor GmbH & Co. KG Related party 1 approx. 45 DBAG Fund V Konzern DBAG Group GmbH & Co. KG subsidiary 1 20.8

The investment team of DBAG Fund V is virtually identical to key management personnel. They have invested their own money at a fixed ratio in all of the four fund companies listed above. The interests in DBAG Fund V GmbH & Co. KG and DBAG Fund V International GmbH & Co. KG are transacted through the investing limited partner of these fund companies, DBG Advisors V GmbH & Co. KG, which is a related party to DBAG. DBG Advisors V GmbH & Co. KG acts as the sole limited partner of DBAG Fund V Co-Investor GmbH & Co. KG. DBG Advisors V GmbH & Co. KG is the sole general partner of DBAG Fund V Konzern GmbH & Co. KG. Shares held in DBAG Fund V Konzern GmbH & Co. KG are recognised in minority interest, since this company is a DBAG Group subsidiary.

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Since the beginning of the investment period on 15 February 2007, key management personnel have made the following investments or have the following repayments attributable to them:

Investments Investments Repayments from in T€ in the period at the closing date investment activity

Period from Man- Man- Man- 15 Feb. 2007 agement Senior agement Senior agement Senior to 31 Oct. 2007 Board Executives Board Executives Board Executives DBG Advisors V GmbH & Co. KG 733 533 733 533 93 140

Other related parties DBAG manages the following co-investment funds that invest alongside DBAG:

Fund Status

DBG Fonds I End of investment period on 31 Dec. 1997 DBG Fonds III End of investment period on 31 Oct. 2001 DBAG Fund IV End of investment period on 15 Feb. 2007 DBAG Fund V Beginning of investment period on 15 Feb. 2007

DBAG has earned the following material fees for management services to the co-investment funds that are recognised in other operating income:

in T€ 2006/2007 2005/2006

DBG Fonds I 721 761 DBG Fonds III 316 325 DBAG Fund IV 2,767 4,549 DBAG Fund V 3,385 0 7,189 5,635

DBG Fonds I consists of the fund management company Deutsche Beteiligungsgesellschaft mbH & Co. Fonds I KG. DBG Fonds III comprises the fund management company Deutsche Beteili- gungsgesellschaft Fonds III GmbH. DBAG Fund IV and DBAG Fund V consist of several entities. All fund companies are related parties to DBAG, insofar as they have not already been qualified as Group subsidiaries.

DBG Fonds I, DBG Fonds III and DBAG Fund IV are directly managed by DBAG Group companies.

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For DBAG Fund V, the fund companies DBAG Fund V GmbH & Co. KG and DBAG Fund V Interna- tional GmbH & Co. KG are managed by the managing general partner DBG Managing Partner GmbH & Co. KG, a DBAG Group company. DBAG Fund V Co-Investor GmbH & Co. KG is managed through Group subsidiary DBG Management GmbH & Co. KG.

Deutsche Beteiligungs AG is the managing limited partner of DBG Managing Partner GmbH & Co. KG. Deutsche Beteiligungs AG and Messrs Grede, von Hodenberg, Mangin and Dr Scheffels each hold a 20 percent interest in this company. Deutsche Beteiligungs AG receives 80 percent of this company’s profits for the management of the company. After deducting the liability charges of the general partner and expense for interest paid on balances in shareholders’ accounts, Deutsche Beteiligungs AG is also entitled to the company’s residual profits. Since expenses of DBG Managing Partner GmbH & Co. KG are currently low (T€4) and an appreciable increase is not expected, nearly all profits of DBG Managing Partner GmbH & Co. KG flow to Deutsche Beteiligungs AG. The general partner of DBG Managing Partner GmbH & Co. KG can terminate the management agreement with DBAG at three months’ notice to the end of a quarter. In this case, too, Deutsche Beteiligungs AG would be entitled to the total residual profits, after deducting the general partner’s liability charges, expense for interest paid on balances in shareholders’ accounts and, if appropriate, costs for setting up own operations for the management of DBAG Fund V. Costs for setting up own business operations would incur if management services were no longer rendered by Deutsche Beteiligungs AG and would be performed by DBG Manag- ing Partner GmbH & Co. KG itself.

The interests in the general partner of DBG Managing Partner GmbH & Co. KG are held by DBG Managing Partner GmbH & Co. KG itself; the chief executives of the general partner of DBG Managing Partner GmbH & Co. KG are Messrs Grede, von Hodenberg, Mangin and Dr Scheffels. Through the management services described above for several of the DBAG Fund V companies, Deutsche Beteiligungs AG has sourced annual income amounting to two percent of the capital commitments of 419 million euros to these fund companies, and two percent of the historical cost for the investments of the fund companies after the investment period has been completed. A requisite for raising the fund commitments was that Messrs Grede, von Hodenberg, Mangin and Dr Scheffels would be available for the management of the fund companies over the long term, regardless of whether they remain appointed as members of the Board of Management of Deutsche Beteiligungs AG.

Key management personnel of Deutsche Beteiligungs AG partly serve on supervisory bodies of companies in the portfolio of the DBG Fonds I, DBG Fonds III, DBAG Fund IV and DBAG Fund V co-investment funds. For the period from 1 November 2006 to 31 October 2007, they are entitled to compensation totalling T€219 (previous year: T€166) for these services, which have been transferred to Deutsche Beteiligungs AG and recognised in other operating income.

Treuinvest Service GmbH and Deutsche Treuinvest Stiftung are related parties that act as trustees within the scope of a bilateral contractual trust arrangement for pension-related plan assets. Both companies together receive an annual fee of 6,000 euros for administration services.

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34. Stock option programme At the Annual Meeting on 27 March 2001, shareholders adopted a resolution to conditionally raise the subscribed capital by up to T€1,820. The contingent capital increase exclusively serves to grant option rights to those members of the management team of Deutsche Beteiligungs AG who contribute towards the performance of the Company´s stock. The increase may only be executed to the extent that holders of option rights granted up to 24 March 2006 exercise their options on the basis of the authorisation adopted by shareholders at the Annual Meeting on 27 March 2001.

Authorisation for the Board of Management and Supervisory Board The Board of Management was authorised, with the consent of the Supervisory Board, to grant up to 700,000 option rights to members of the Company's management team in one or several tranches in the period from 27 March 2001 until 24 March 2006. 350,000 of these option rights were granted to members of the Board of Management and an equal number to other members of the management team. For members of the Board of Management, the granting of stock rights was exclusively the responsibility of the Supervisory Board.

Exercise period and exercise freeze period The option rights were granted for a term of five years and are exercisable not earlier than three years after the date of grant within a period of four weeks following an ordinary Annual Meeting and the publication of a semi-annual report. For the options outstanding at 31 October 2007, the weighted average remaining period is 2.4 years.

Exercise conditions The options are only exercisable, if the performance of the shares of Deutsche Beteiligungs AG, including dividend payments and subscription rights, exceeds that of the S-Dax in the period from the date of grant to the last day of trading prior to the onset of the exercise period (reference period).

Exercise price The exercise price is the average stock market price of the shares of Deutsche Beteiligungs AG in the ten days of trading prior to the onset of the exercise period divided by a performance coefficient. The performance coefficient is derived by dividing the relative price movement of the Company´s shares (including dividends and subscription rights) by the relative price movement of the S-Dax over the reference period.

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Non-transferability/dividend rights for new shares The rights granted to optionees are non-transferable, except in case of death. The new shares carry full dividend rights from the beginning of the financial year in which they were issued.

Tranches The number of stock options developed as follows in financial year 2006/2007:

Number of stock Number of options stock granted Options Options Options options Date of grant 1 Nov. 2006 exercised forfeited expired 31 Oct. 2007

16 April 2002 140,000 0 0 (140,000) 0 11 April 2003 140,000 (133,500) (6,500) 0 0 2 April 2004 140,000 (129,000) (7,000) 0 4,000 1 April 2005 140,000 0 (6,500) 0 133,500 Total 560,000 (262,500) (20,000) (140,000) 137,500

The weighted average share price of exercised stock options on the day of exercise was 24.76 euros.

The following core data applies to the stock options still outstanding at 31 October 2007:

Number Value of of stock reference Earliest Latest options Reference index exercise exercise Date of grant granted price € S-Dax date date

2 April 1 April 2 April 2004 4,000 11.48 2,866.23 2007 2009 1 April 31 March 1 April 2005 133,500 11.58 3,546.94 2008 2010 Total at 31 Oct. 2007 137,500

Stock options for the tranches granted on 2 April 2004 were exercisable at the end of the reporting period based on the option terms. Since the minimum holding period for the tranche granted on 1 April 2005 had not yet been reached in financial year 2006/2007, these stock options were not yet exercisable at 31 October 2007.

Settlement of stock rights Deutsche Beteiligungs AG is entitled to settle stock rights through cash payments instead of delivering shares.

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Accounting treatment and valuation For the stock rights attached to the tranches granted on 11 April 2003 and 2 April 2004 that were exercised in financial year 2006/2007, Deutsche Beteiligungs AG made use of its right to settle the stock options through cash payments. The total exercise appreciation amounts to 1.4 million euros. The capital reserve appropriated in preceding years for options exercised (0.7 million euros) was reversed and the remaining difference to the exercise appreciation (0.7 million euros) was recognised in personnel costs.

The expense for the stock options still outstanding at 31 October 2007 has been recognised in the accounts in conformity with the rules of the IFRS. Valuation of the stock options outstanding was performed by applying an option pricing model that reflects the terms and conditions of the stock option programme. For the stock options outstanding at 31 October 2007, the measurement at the date of grant and at 31 October 2007 was based on the following parameters:

Valuation date 2 April 2004 1 April 2005 31 Oct. 2007

Volatility of DBAG shares % 46.51 45.98 32.31 Volatility of S-Dax % 11.94 11.48 12.78 Correlation between DBAG shares and S-Dax % 86.95 30.79 93.98 Zero-risk interest rate % 2.99 2.98 4.49 Value of one option at the valuation date € 4.09 4.44 Value of one option at 31 October 2007 € 6.74 9.68

The volatility of DBAG shares, the S-Dax and the correlation between DBAG shares and the S-Dax relate to the four-year period prior to the valuation date. The four-year period corresponds to the assumed vesting period. The zero-risk interest rate is that at the valuation date.

At all valuation dates, expected dividends up to the respective forfeiture dates of the tranches have been accounted for.

The average fair value of the stock options outstanding amounted to 9.59 euros per stock option at 31 October 2007.

35. Fair value of financial instruments The key items in the accounts of Deutsche Beteiligungs AG containing financial instruments are already completely (financial assets) or largely (other financial instruments) carried at fair value. Financial instruments carried at amortised cost are almost exclusively recognised in current assets or current liabilities. Their term is less than one year. For these instruments, we assume that the carrying amount reflects the fair value.

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36. Risk management For information on risk management objectives and methods, please refer to the discussion in Management's report, insofar as the information has not been provided in the discussion of individual items in the Notes.

37. Interests in large corporations The complete list of subsidiaries and investments constitutes an attachment to the consolidated financial statements for financial year 2006/2007.

The Group holds interests in excess of five percent of the voting shares in the following large corporations:

Name of company Domicile

Grohmann Engineering GmbH Prüm, Germany Homag Group AG Schopfloch, Germany

38. Audit fees and audit-related services The fees for the annual audit amounted to T€265 (DBAG parent company: T€ 243; subsidiaries: T€22), for tax consultancy services T€112 (DBAG parent: T€81; subsidiaries: T€31) and for various certification and assessment services as well as expert appraisals T€73 (DBAG parent: T€73; subsidiaries: 0 euros).

39. Events after the balance sheet date Quotations on capital markets deteriorated after the balance sheet date; this applies in particular to mechanical engineering companies. The price of Homag shares, the largest investment, fell distinctly, declining from 28.14 euros at the balance sheet date to 20.57 euros on 19 December 2007. This equates to a negative effect on results of 19.0 million euros, or 1.35 euros per share in relation to the net asset value per share in Deutsche Beteiligungs AG.

We completed the share buyback programme in December 2007. After the balance sheet date we acquired a further 414,138 shares.

Germany’s business tax reform will become effective on 1 January 2008. Since the earnings of the Deutsche Beteiligungs AG Group chiefly stem from the sale of interests in companies, of which only five percent are subject to taxation irrespective of the tax reform, we do not expect that the business tax reform will have any material effect on current and deferred taxes of the Deutsche Beteiligungs AG Group.

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40. Members of the Supervisory Board and Board of Management

Supervisory Board *

Andrew Richards, Glashütten/Taunus (Chairman) Executive Director of PARE-Unternehmensberatung GmbH, Glashütten/Taunus

Comparable office in Germany and internationally • Deutsche Beteiligungsgesellschaft Fonds III GmbH, Frankfurt am Main

Professor Dr h. c. Rolf-Dieter Leister, Lucerne (Vice Chairman) Economic Advisor

Statutory offices • BÖWE SYSTEC AG, Augsburg (until 24 May 2007) • DaimlerChrysler Financial Services AG, Berlin Comparable offices in Germany and internationally • Südwestdeutsche Medien Holding GmbH, Stuttgart • Deutsche Beteiligungsgesellschaft Fonds III GmbH, Frankfurt am Main (Vice Chairman)

Dr Hans-Peter Binder, Berg Former Director of Deutsche Bank AG

Statutory offices • BAUER COMP Holding AG, Munich (Vice Chairman) • Dierig Holding AG, Augsburg (Chairman) • Faber-Castell AG, Stein/Nuremberg (Vice Chairman) • Knorr-Bremse AG, Munich (Chairman until 31 March 2007, since 1 April 2007 member) • Knorr-Bremse Systeme für Nutzfahrzeuge GmbH, Munich • Saint-Gobain Oberland AG, Bad Wurzach • SCA Hygiene Products AG, Munich Comparable offices in Germany and internationally • A.W. Faber-Castell Unternehmensverwaltung GmbH & Co., Stein/Nuremberg • Deutsche Beteiligungsgesellschaft Fonds III GmbH, Frankfurt am Main

Professor Dr Günther Langenbucher, Stuttgart Former Board Member of Ernst & Young AG, Stuttgart

Statutory offices: • BÖWE SYSTEC AG, Augsburg (Vice Chairman) • DEKRA AG, Stuttgart

* Statutory offices: offices held on other statutory supervisory boards; Comparable offices in Germany and internationally: offices held in comparable domestic and international supervisory bodies of commercial enterprises, at 31 October 2007, respectively.

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• Carl Schenck AG, Darmstadt (until 19 March 2007) • WANDERER-WERKE AG, Augsburg (Chairman)

Comparable offices in Germany and internationally: • Deutsche Beteiligungsgesellschaft Fonds III GmbH, Frankfurt am Main • Ernst & Young AG, Stuttgart • Papierwerke Klingele GmbH & Co. KG, Remshalden (since 1 January 2007)

Dr Herbert Meyer, Königstein/Taunus President of Deutsche Prüfstelle für Rechnungslegung e. V. (DPR) / Financial Reporting Enforce- ment Panel (FREP), Berlin

Statutory offices: • Heidelberger Druckmaschinen Vertrieb Deutschland GmbH, Heidelberg (until 31 December 2006) • Demag Cranes AG, Düsseldorf (since 21 February 2007) • KUKA AG, Karlsruhe • Sektkellerei Schloss Wachenheim AG, Wachenheim • Webasto AG, Stockdorf (since 25 October 2007) Comparable offices in Germany and internationally: • Deutsche Beteiligungsgesellschaft Fonds III GmbH, Frankfurt am Main • Goss International Corporation, USA • Heidelberg Graphic Equipment Ltd., UK (until 31 December 2006) • Heidelberg Americas, Inc., USA (until 31 December 2006) • Heidelberg USA, Inc., USA (until 31 December 2006) • Heidelberger Druckmaschinen Austria Vertriebs-GmbH, Austria (until 31 December 2006) • Heidelberger Druckmaschinen Osteuropa Vertriebs-GmbH, Austria (until 31 December 2006) • IDAB WAMAC International A. B. Eksjö, Sweden (Chairman, until 31 December 2006) • Verlag Europa Lehrmittel GmbH, Haan

Walter Schmidt, Kaarst Spokesman of the Management of AmpegaGerling Investment GmbH, Cologne Executive Director of AmpegaGerling Asset Management GmbH, Cologne Board Member of IVEC Institutional Venture and Capital AG, Cologne Board Member of BVI, Frankfurt am Main

Statutory office • AmpegaGerling Immobilien Management GmbH, Cologne Comparable office in Germany and internationally • Deutsche Beteiligungsgesellschaft Fonds III GmbH, Frankfurt am Main

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Board of Management*

Wilken Freiherr von Hodenberg, Königstein/Taunus (Spokesman)

Statutory offices • Bauer AG, Schrobenhausen • Dörries Scharmann Technologie GmbH, Mönchengladbach (until 18 October 2007) Comparable offices in Germany and internationally • Quartus Gestion S.A., Paris • DBG Osteuropa-Holding GmbH, Frankfurt am Main (Chairman)

Torsten Grede, Frankfurt am Main

Statutory offices • AKsys GmbH, Worms (Chairman) • Homag Group AG, Schopfloch (Chairman, since 19 March 2007) • Homag Holzbearbeitungssysteme AG, Schopfloch (Chairman, since 19 March 2007) • MCE AG, Linz, Austria (since 23 April 2007) Comparable offices in Germany and internationally • Hochtemperatur Engineering GmbH, Mainz-Kastel (Chairman, until 18 December 2006) • Clyde Bergemann Power Group, Inc., Delaware, USA • Grohmann Engineering GmbH, Prüm

André Mangin, Königstein/Taunus

Comparable offices in Germany and internationally • Coveright Surfaces Beteiligungs GmbH, Düsseldorf (since 5 November 2006)

Dr Rolf Scheffels, Frankfurt am Main

Statutory offices • Preh GmbH, Bad Neustadt a. d. Saale (Chairman) Comparable offices in Germany and internationally • JCK Holding GmbH Textil KG, Quakenbrück • Bauunternehmung August Mainka GmbH & Co. KG, Lingen (Chairman) • DBG Second Equity Team GmbH & Co. KGaA, Frankfurt am Main • DBG Third Equity Team GmbH & Co. KGaA, Frankfurt am Main • DBG Fourth Equity Team GmbH & Co. KGaA, Frankfurt am Main • DBG Fifth Equity Team GmbH & Co. KGaA, Frankfurt am Main • Lewa GmbH, Leonberg (Chairman)

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Frankfurt am Main, 20 December 2007 The Board of Management

Wilken Freiherr von Hodenberg Torsten Grede

André Mangin Dr Rolf Scheffels

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Auditors’ Report

We have audited the consolidated financial statements prepared by the Deutsche Beteiligungs AG, Frankfurt am Main, comprising the balance sheet, the income statement, statement of changes in equity, cash flow statement and the notes to the consolidated financial statements, together with the group management report for the business year from November 1, 2006 to October 31, 2007. The preparation of the consolidated financial statements and the group management report in accordance with IFRSs, as adopted by the EU, and the additional requirements of German commercial law pursuant to § 315a Abs. 1 HGB are the responsibility of the parent company’s management. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with § 317 HGB [Handelsgesetzbuch “German Commercial Code”] and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs, as adopted by the EU, the additional requirements of German commercial law pursuant to § 315a Abs. 1 HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.

Frankfurt am Main, December 20, 2007

KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft

(Bernhard) (Dr Lemnitzer) Wirtschaftsprüfer Wirtschaftsprüfer (German Public Auditor) (German Public Auditor)

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List of subsidiaries and associates at 31 October 2007

Operating Equity Equity result of past share capital financial year Name Domicile % T€ T€

1 Subsidiaries

1.1 Consolidated companies

1 Bowa Beteiligungsgesellschaft mbH & Co. KG Bielefeld, Germany 100.00 2,233 (3,126) 2 DBG Advisors Kommanditaktionär GmbH & Co. KG Frankfurt am Main, Germany 33.33 4,955 9,081 3 DBG Fourth Equity Team GmbH & Co. KGaA Frankfurt am Main, Germany 100.00 95,800 3,744 4 DBG Management GmbH & Co. KG Frankfurt am Main, Germany 100.00 192 796 5 DBG New Fund Management GmbH & Co. KG Frankfurt am Main, Germany 100.00 2 3,349 6 Deutsche Beteiligungsgesellschaft mbH Königstein/Taunus, Germany 100.00 34,690 3,699 7 DBAG Fund V Konzern GmbH & Co. KG Frankfurt am Main, Germany 2) 100.00 – – 8 DBG Managing Partner GmbH & Co. KG Frankfurt am Main, Germany 20.00 21 (5)

1.2 Non-consolidated companies 9 Bowa Geschäftsführungs GmbH Bielefeld, Germany 100.00 45 2 10 DBG Beteiligungsgesellschaft mbH Frankfurt am Main, Germany 100.00 68 (16) 11 DBG Development Capital Eastern Europe Ltd. St. Helier, Jersey 2) 100.00 0 0 Channel Islands 12 DBG Epsilon GmbH Frankfurt am Main, Germany 100.00 27 1 13 DBG Fifth Equity Team GmbH & Co. KGaA Frankfurt am Main, Germany 100.00 8,941 8,699 14 DBG Fourth Equity International GmbH Frankfurt am Main, Germany 100.00 26 0 15 DBG Lambda GmbH Frankfurt am Main, Germany 100.00 23 0 16 DBG My GmbH Frankfurt am Main, Germany 100.00 271 138 17 DBG Second Equity Team GmbH & Co. KGaA Frankfurt am Main, Germany 100.00 44 0 18 DBG Third Equity Team GmbH & Co. KGaA Frankfurt am Main, Germany 100.00 44 0 19 DBG UK Management Ltd. London, Great Britain 3) 100.00 – – 20 DBG Ypsilon GmbH Frankfurt am Main, Germany 100.00 24 0 21 DBV Drehbogen GmbH Frankfurt am Main, Germany 100.00 36 0 22 LOI Beteiligungs GmbH Frankfurt am Main, Germany 100.00 24 (1) 23 Gizeh Verpackungen Beteiligungs-GmbH Bergneustadt, Germany 99.67 277 6 24 DBG Managing Partner Verwaltungs GmbH Frankfurt am Main, Germany 20.00 23 (1) 25 DBG Alpha 4 GmbH Frankfurt am Main, Germany 100.00 25 0 26 DBG Alpha 5 GmbH Frankfurt am Main, Germany 100.00 25 0 27 DBG Alpha 6 GmbH Frankfurt am Main, Germany 100.00 25 0 28 DBG Alpha 7 GmbH Frankfurt am Main, Germany 2) 100.00 – – 29 DBG Alpha 8 GmbH Frankfurt am Main, Germany 2) 100.00 – – 30 DBG Alpha 9 GmbH Frankfurt am Main, Germany 2) 100.00 – – 31 DBG Alpha 10 GmbH Frankfurt am Main, Germany 2) 100.00 – – 32 DBG Alpha 11 GmbH Frankfurt am Main, Germany 2) 100.00 – –

135 Operating Equity Equity result of past share capital financial year Name Domicile % T€ T€

2 Joint ventures

33 Q.P.O.N. Beteiligungs GmbH Frankfurt am Main, Germany 1) 50.00 46 (2,569)

3 Associates

34 DBG Asset Management, Ltd. Jersey, Channel Islands 50.00 198 (27) 35 DBG Eastern Europe Management Ltd Jersey , Channel Islands 49.99 1,328 (58) 36 DBG Alpha 2 GmbH Frankfurt am Main, Germany 22.04 25 0 37 Deutsche MG Development Capital Italy S. A. Luxembourg 33.33 2,445 (213) 38 DS Technologie Holding GmbH Mönchengladbach, Germany 40.73 8,085 (193) 39 Duodecima Beteiligungs GmbH Frankfurt am Main, Germany 49.80 58 0 40 EUVITA Holding GmbH & Co. KG Ehrenkirchen, Germany 49.00 4,934 (5) 41 EUVITA Holding Verwaltungs GmbH Ehrenkirchen, Germany 49.00 6 (1) 42 Grohmann Engineering GmbH Prüm, Germany 25.10 14,991 3,579 43 Heim & Haus Holding International GmbH Frankfurt am Main, Germany 23.40 30,585 (15) 44 HT Engineering GmbH Wiesbaden, Germany 24.60 102,283 74,345 45 Quartus Gestion S. A. Paris, France 35.00 1,463 54 46 RQPO Beteiligungs GmbH Frankfurt am Main, Germany 49.00 29 1 47 RQPO Beteiligungs GmbH & Co. Papier KG Frankfurt am Main, Germany 44.10 754 (13) 1) proportionately consolidated 2) (consolidated) financial statements not available 3) (consolidated) financial statements not issued

136 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Glossary

Carried interest Profit-share entitlement to a fund management company or its managers linked to the performance of managed private equity funds. After fund investors have received repayment of their invested capital and a guaranteed minimum return, fund managers share in the profit at a fixed ratio.

Co-investment fund A third-party fund that co-invests (usually by a fixed percentage) alongside another investor; at Deutsche Beteiligungs AG: the funds managed by Deutsche Beteiligungs AG. Investors commit a certain amount of capital which is successively drawn down as soon as appropriate investment opportunities arise. Following the sale of the fund’s investment, the proceeds are paid to the investors. A co-investment fund in Germany is generally organised as a limited partnership (“Kommanditgesellschaft”).

Corporate Governance Standards for the management and supervision of public companies defining the spheres of accountability for supervisory boards, management boards, shareholders and other interested parties.

Deal flow Sum of investment opportunities offered to an investment company. Deutsche Beteiligungs AG endeavours to have early knowledge of investment opportunities; it uses its closely-knit network to that end.

D&O insurance Directors and Officers’ Liability Insurance; an insurance for members of supervisory boards and management boards of legal entities covering legal liabilities for wrongful acts committed in their capacities as management and supervisory board members.

Designated sponsor Consultant to a securities issuer. Designated sponsors ensure a minimum amount of liquidity of a certain stock on the stock exchange by inputting immediately marketable buy or sell offers with a low spread into the trading system for that stock, consecutively or upon request.

Discounted cash-flow method Procedure used to measure the enterprise value, determined by the sum of discounted cash flows expected in the future. Discounting is performed using an interest rate for a long-term risk-free investment plus a risk premium.

EBIT Abbreviation for earnings before interest and taxes. An absolute indicator, determined on the basis of net income before taxes, net interest and extraordinary earnings. This indicator reveals a company’s operative profitability, independent of its individual equity structure.

Expansion financing investment Minority investment in an enterprise, generally with the objective of preparing for a public offering.

Exit The sale of an investment from an investor’s portfolio. Principally, there are three exit routes: trade sale (sale to another company), initial public offering (stock market listing) or secondary buyout (sale to another financial investor). Deutsche Beteiligungs AG considers all three variants in realising its investments.

137 Fair disclosure Simultaneously communicating corporate information required to assess a certain stock to all market participants.

Fair value The current amount for which an investment could be exchanged between knowledgeable, willing and independent parties.

Fund-raising The soliciting of equity commitments to a private equity fund.

IFRS International Financial Reporting Standards; accounting standards that have been obligatory for quoted companies in the European Union since 2005. A major difference compared with the German accounting standards is the valuation of financial assets by their fair value at the respective balance sheet date. This value may exceed their historical acquisition cost.

LPX 50 Global private equity performance index; the LPX 50 consists of the 50 largest quoted private equity companies worldwide, measured by their market capitalisation. The shares of Deutsche Beteiligungs AG are a constituent of the LPX 50.

M&A market Mergers & Acquisitions; market for negotiating businesses or shares in businesses to buyers and sellers.

Market capitalisation Current stock market value of a class of shares: number of issued shares multiplied by the current price.

MBO Management buyout; the takeover of a company by its management with the support of a financial investor who finances the transaction.

Mid-market segment The market for investment transactions is divided into three segments: transactions with a value of less than 50 million euros are considered “small”; next comes the mid-market segment with transactions valued from 50 to 300 million euros; transactions with a value of more than 300 million euros form the upper market segment.

Multiples method Method used to value enterprises; determined by multiplying a relevant indicator (e.g. EBIT) by a multiple derived from current market prices. This multiple is calculated on the basis of the quotient from a peer group of companies with their respective earnings indicators.

Peer group A group of companies similar in terms of industry, structure, products and revenues, used for comparison purposes.

Portfolio Here: all the holdings of an investment company.

Prime Standard Segment on the German Stock Exchange with high standards of transparency. Admission to the Prime Standard is a prerequisite for inclusion in one of the stock indices, such as the S-Dax.

138 Management . Shares . Investments . Management’s report . Consolidated financial statements . Additional information

Private equity Private capital; capital provided to non-quoted companies for the mid to long-term.

Public-to-private Delisting of a quoted company; sometimes referred to as taking private.

Return on equity per share Key target and performance indicator of Deutsche Beteiligungs AG (is equal to return on NAV per share). The closing NAV per share at the end of the financial year is set against the opening NAV per share at the beginning of the financial year, less dividends paid in the course of that year.

Secondary buyout A kind of second management buyout: the financial investor and MBO managers sell to a new generation of managers and to a new private equity investor.

Spin-off The splitting off of a division or subsidiary from a company/large corporation and creation of an independent company.

Stock options Rights granted for the purchase of a company’s stock at a fixed price (or a price determined on the basis of a certain scheme). The stock option programme of Deutsche Beteiligungs AG expires on 31 March 2010; stock options were granted to Board of Management members and the Company’s management team for the last time on 1 April 2005.

Trade sale The sale of an investment to a company that wants to complement its product portfolio, expand its market presence or achieve other strategic goals.

Transaction value Value of the debt-free enterprise.

Venture capital Risk capital; mostly private capital provided to start-ups or emerging businesses.

Xetra Electronic market trading system.

139 Contact and financial calendar

Shareholder information Deutsche Beteiligungs AG Investor Relations and Public Relations Thomas Franke Kleine Wiesenau 1 60323 Frankfurt am Main, Germany Telephone: +49 (0) 69 9 57 87 - 361 Fax: +49 (0) 69 9 57 87 - 391 E-mail: [email protected] Internet: www.deutsche-beteiligung.de

Financial calendar Annual Press Conference 2006/2007, Frankfurt am Main 29 January 2008 Analysts’ Conference, Frankfurt am Main 29 January 2008 Road Show London/Edinburgh 6 and 7 February 2008 Road Show USA 11 to 13 February 2008 Report on the First Quarter/Analysts’ Conference Call 14 March 2008 Annual Meeting 2008, Frankfurt am Main 14 March 2008 Dividend payment 2008 17 March 2008 Report on the Second Quarter/Analysts’ Conference Call 16 June 2008 Road Show London/Benelux June 2008 Report on the Third Quarter/Analysts’ Conference Call 15 September 2008 Road Show Paris September 2008 German Mid Cap Conference, Frankfurt am Main November 2008 Annual Press Conference 2007/2008, Frankfurt am Main January 2009

Forward-looking statements This report contains forward-looking statements related to the prospects and progress of Deutsche Beteiligungs AG. These statements reflect the current views of the management of Deutsche Beteiligungs AG and are based on projections, estimates and expectations. Our assumptions are subject to risks and uncertainties, and actual results may vary materially. Although we believe these forward-looking statements to be realistic, there can be no guarantee.

The Annual Report is published in German and in English. The German version of this report is authoritative.

Imprint Publisher: The Board of Management of Deutsche Beteiligungs AG Editing and coordination: Thomas Franke Design and realisation: Berichtsmanufaktur GmbH, Hamburg Printed by: Dürmeyer GmbH, Hamburg Photography: Werner Bartsch (p. 2), Stephan Döberl (p. 12/13, 19, 20), Martin Joppen (p. 16), Willy Mevissen (p. 12/13), Raymond Semple (p. 21), René Spalek (p. 12/13, 14/15, 17/18) and Deutsche Beteiligungs AG Status: 22 January 2008

140 IFRS German GAAP Five-year financial summary 2006/2007 2005/2006 2004/2005 2003/2004 2002/2003

Development of portfolio and value Investment € mn 40 22 24 61 31 “Portfolio value” (31 Oct.) € mn 189 121 197 251 257 Number of investments (31 Oct.) 30 32 35 40 43

Earnings position EBIT € mn 150.8 89.1 41.6 21.4 7.6 Earnings before taxes (EBT) € mn 155.6 90.9 42.3 19.4 4.4 Profit for the year € mn 136.5 82.7 41.3 18.2 3.1 Consolidated distributable profit/loss € mn 118.2 57.2 35.5 15.8 (2.4)

Financial position Cash flows from operating activities € mn (2.6) (4.1) (35.6) 3.3 11.7 Cash flows from investing activities € mn 65.0 168.8 132.2 (10.8) 14.8 thereof, proceeds from disposals of financial assets € mn 106.1 191.0 156.5 51.0 45.8 thereof, purchase of financial assets € mn (40.7) (21.7) (24.1) (61.7) (30.7) Cash flows from financing activities € mn (71.4) (40.7) (57.1) 3.6 (21.7) Change in cash funds € mn (9.0) 124.0 39.5 (3.9) 4.8

Asset position Non-current assets € mn 211.3 124.6 201.1 251.6 257.7 Current assets € mn 183.0 195.5 65.2 57.7 33.8 thereof, liquid funds € mn 155.8 164.7 40.7 1.2 5.1 Equity € mn 353.6 289.0 246.6 227.9 158.4 Liabilities/provisions € mn 40.8 31.1 19.7 80.9 132.5 thereof, to banks € mn 0.0 0.0 0.0 28.0 75.8 Long-term asset coverage € mn 394.4 320.1 266.3 309.4 291.9

Key indicators Return on NAV/equity per share after taxes 1) % 56.2 36.4 20.0 10.8 2.1 Equity as a percentage of total assets % 89.7 90.3 92.6 73.7 54.3 Long-term asset coverage % 175.4 234.7 123.9 96.4 66.7

Information on shares 2) Cash flow per share 3) € 3.00 4.96 1.79 1.48 0.92 Earnings per share € 9.20 5.02 2.27 1.07 0.21 NAV/equity per share € 25.09 19.07 14.64 12.21 10.85 Dividend per share (2006/07: recommended, incl. extraordinary surplus dividend) € 3.50 4) 3.00 4) 0.66 5) 0.33 0.00 Total amount distributed 6) € mn 47.9 45.5 11.1 6.2 – Number of shares at end of FY 14,403,864 15,153,864 16,837,329 18,666,667 14,000,000 thereof, held by the Company 313,367 Share price at end of FY € 24.10 17.35 13.25 9.88 13.00 Market capitalisation at end of FY € mn 347.1 262.9 223.1 184.4 182.0

Number of employees 47 44 50 50 50

1) Closing NAV/equity per share at end of financial year in relation to opening NAV/equity per share at beginning of financial year, less dividends per share. 2) Adjusted; earnings and cash flow per share in relation to weighted average number of shares outstanding; figures for 2002/2003 adjusted for effects of capital increase 2004. 3) IFRS: result for period less value changes to financial assets and loans and receivables, plus depreciation and amortisation on property, plant and equipment and intangible assets; German GAAP: result for period plus write-downs/write-ups on non-current assets. 4) Including extraordinary surplus dividend of 2.50 euros per share. 5) Including bonus of 0.33 euros per share. 6) Relates to the respective financial year; 2006/2007: recommended; without (non-dividend carrying) own shares.