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Net asset value (“NAV”) update for the first quarter ended 30 June 2016 (Q1 FY2017)
Brait SE
(Registered in Malta as a European Company)
(Registration No.SE1)
Share code: BAT ISIN: LU0011857645
Bond Code: WKN: A1Z6XC ISIN: XS1292954812
("Brait", "the Company")
NET ASSET VALUE ("NAV") UPDATE FOR THE FIRST QUARTER ENDED 30 JUNE
2016 (Q1 FY2017)
Shareholders of the Company are advised that:
- NAV per share decreased by 3.2% to ZAR131.94 for the quarter
ended 30 June 2016 (31 March 2016: ZAR136.27 per share).
- NAV per share of ZAR131.94 reflects an increase of 64.2% for
the twelve months ended 30 June 2016 (30 June 2015: ZAR80.34
per share) and a three-year CAGR to 30 June 2016 of 67.9%.
- Inclusive of the ordinary share dividends paid to date, the
three-year CAGR to 30 June 2016 is 68.2%.
- The impact of the UK referendum vote to leave the European
Union resulted in the Pound weakening 7.5% against the Rand
from ZAR21.21 at 31 March 2016 to ZAR19.62 at 30 June 2016.
Applying an unchanged exchange rate of ZAR21.21 to translate
the Company’s GBP denominated assets and liabilities, Brait’s
reported NAV per share at 30 June 2016 would be ZAR139.93; an
increase of 2.7% for the quarter.
Brait’s valuation policy is to reference the EV/EBITDA valuation
multiple on an historical basis for each of its investments to
their peer group’s trailing three year average multiple, taking
into consideration the peer average spot multiple at reporting
date.
The EV/EBITDA historical valuation multiples used at 30 June 2016
are:
Valuation Peer average:
multiple used 3 year trailing spot
New Look 13.3x 15.1x 12.6x
Virgin Active 11.4x 13.7x 13.9x
Premier 13.1x 13.1x 13.1x
Iceland Foods 8.8x 10.0x 9.8x
The discounts to peer average multiples at 30 June 2016 are:
Valuation Discount to peer average:
multiple used 3 year trailing spot
New Look 13.3x 12% (6%)
Virgin Active 11.4x 17% 18%
Premier 13.1x - -
Iceland Foods 8.8x 12% 10%
The 24 June 2016 announcement of the UK referendum result to leave
the European Union adversely impacted share prices of companies
with UK exposures. This resulted in the average spot multiple for
New Look’s peer group declining from 13.3x, which was the
valuation multiple Brait applied at 31 March 2016, to 12.6x at 30
June 2016. However, share prices recovered soon thereafter, with
the average spot multiple for New Look’s peer group closing at
13.5x on 29 July 2016. Accordingly, Brait’s valuation multiple for
New Look at 30 June 2016 is unchanged at 13.3x.
Brait NAV Analysis:
30-Jun-16 31-Mar-16 30-Jun-15
R'm R'm R'm
Investments 70,994 73,036 42,920
New Look 31,279 34,869 14,963
Virgin Active 17,783 17,579 -
Premier 12,854 11,637 8,788
Iceland Foods 7,087 7,181 1,374
Other investments 1,991 1,770 2,397
Steinhoff - - 15,398
Loan receivable - - 588
Cash and cash equivalents 4,076 4,354 14,297
Accounts receivable 6 245 152
Total assets 75,076 77,635 57,957
Convertible bond (6,161) (6,621) -
Borrowings (1,977) (1,100) (14,916)
Accounts payable (80) (42) (64)
Total liabilities (8,218) (7,763) (14,980)
Preference share equity - - (1,964)
Net asset value 66,858 69,872 41,013
Number of issued shares ('mil)
excluding treasury shares 506.72 512.75 510.50
Net asset value per share (ZAR) 131.94 136.27 80.34
Key highlights for Brait’s investment portfolio:
New Look:
- The UK clothing and apparel sector has experienced a
challenging quarter as a result of unfavourable market
conditions, lower consumer confidence and consequent increase
in promotional sales. New Look’s results for this quarter
were further influenced by an out-performance in the prior
year comparative first quarter period.
- Revenue (in GBP) for the 13 weeks ended 25 June 2016 declined
by 4.2% on the comparative period, with New Look Brand like-
for-like sales down 6.6% and UK like-for-like sales down
7.0%. New Look’s UK womenswear market share* remains number
two overall and number one for under the age of 35.
- Own website sales growth was +9.0% on the comparative period,
driven by a further increase in online traffic. Third Party
E-commerce sales increased by 28.7%, driven by the increasing
volume of business with key partnerships.
- China continues to deliver positive like-for-like sales, with
conversion to sales improving as brand awareness increases
and product ranges are further refined for the local market.
Domestic sourcing now accounts for more than 65% of the
product offering. New Look opened 9 new stores in China
during the quarter, taking the total in operation to 94 with
a strong pipeline of new openings to come.
- Menswear continues to do well with sales growth of 21% on the
comparative period and an increasing Mens UK market share*,
driven by an improved product offering and standalone stores.
Two standalone Menswear stores were opened in the quarter,
taking the total in operation to 8, with a strong pipeline of
growth for the remainder of FY2017.
- The group’s total estate closed the current quarter at 852
stores (26 March 2016: 838), with a total of 467 stores in
the Concept format.
- New Look’s flexible supply chain enables tight inventory
management and good cash generation, with capex plans
actively reviewed to facilitate flexibility around planned
investment levels and hedges in place at pre-referendum
GBP/USD exchange rates for expected FY2017 inventory related
US Dollar payments.
- New Look, in which Brait has an effective 79.9% economic
interest post dilution for the performance based sweet equity
granted to the New Look management team, is valued at 30 June
2016 using an EV/EBITDA multiple of 13.3x (31 March 2016:
13.3x) which represents a discount of 12% to the peer group’s
three year trailing average of 15.1x. The weakening of the
Pound against the Rand by 7.5% for the quarter has impacted
New Look’s ZAR carrying value. Applying the closing GBP/ZAR
exchange rate of ZAR19.62, the resulting ZAR31.3 billion
carrying value represents 42% of Brait’s total assets. The
New Look FY2017 Q1 debt investor presentation is available at
www.brait.com.
(* Kantar WorldPanel data for the 24 weeks ending 5 June 2016 by
value)
Virgin Active:
- Virgin Active has continued to trade well for the five month
period ended 31 May 2016. Measured in constant currency,
revenue increased 6% and EBITDA 14% over the prior
comparative period, with growth achieved across all
territories.
- Total clubs increased by 18 over the last twelve months, with
three clubs opened in South Africa during the current year’s
five month period. The group is on plan to achieve its target
of 16 club openings for FY2016.
- Adult membership has increased by 2% on continuing operations
over the comparative period.
- The sale of 35 non-core UK clubs to Nuffield Health, which
Virgin Active announced on 14 June 2016, was completed on 31
July 2016. This transaction results in a stronger, more cash
generative UK estate focussed on prime sites in London, the
South East and other major metropolitan areas.
- Virgin Active is well diversified geographically with over
60% of its earnings sourced outside the UK.
- The Asia Pacific region remains a key strategic growth area
and early signs from the rollout are looking encouraging,
resulting in an acceleration of new club openings in
Singapore and Thailand scheduled over the next 12 months.
- Virgin Active, in which Brait has an effective 70.4% economic
interest post dilution for the performance based sweet equity
granted to the Virgin Active management team, is valued at
the reporting date using an EV/EBITDA multiple of 11.4x (31
March 2016: 11.0x), which represents a discount of 17% to its
peer group’s three year trailing average multiple of 13.7x.
Applying the closing GBP/ZAR exchange rate of ZAR19.62,
Virgin Active’s carrying value is ZAR17.8 billion, which
represents 24% of Brait’s total assets.
Premier:
- Premier’s strong trading continues through the 11 months
ended 31 May 2016, and sees the business well placed to
exceed its five-year target 10% EBITDA margin, having
delivered solid double digit EBITDA growth over this period.
Premier’s EBITDA margin at the time of Brait’s acquisition in
July 2011 was 4.5% on an EBITDA run-rate of ZAR225 million.
- All three divisions have delivered results ahead of plan in
the current year to date.
- The Baking division has benefitted from its focus on quality
and the ZAR370 million investment over the past two years to
upgrade facilities and increase capacity in the Western Cape
and Kwa-Zulu Natal operations. In a competitive environment,
Premier’s like-for-like bread volumes are up 6% with over 500
million loaves sold.
- The Milling division focussed on margin management as a
result of the significant increases in grain prices due to
the severe drought, depreciation of the Rand and the effect
of wheat import tariffs. The new range of breakfast products
launched in April 2016, which includes (i) instant maize
porridge, launched under Premier’s existing maize brands, and
(ii) a high protein, multi-grain cereal under a new brand
Thrive, are trading in line with plan.
- In the Groceries division, sugar confectionary, Lil-lets and
CIM have each performed well during the current period.
- Brait increased its shareholding in Premier to 91.4% (31
March 2016: 91.1%) through the exercise of put and call
option agreements. Premier is valued at the reporting date
using an EV/EBITDA multiple of 13.1x (31 March 2016: 12.7x),
which represents the peer group’s average three year trailing
and spot multiples at reporting date. Premier’s carrying
value of ZAR12.9 billion represents 17% of Brait’s total
assets.
Iceland Foods
- Based on the latest Kantar WorldPanel data for the 12 weeks
ending 17 July 2016, the UK grocery market grew by 0.1%, with
food deflation still at (1.4%). In this competitive and
price-driven market place, Iceland has sought to
differentiate itself by developing new products and improving
public awareness of the benefits of frozen food. These
include its quality, authenticity, freshness and convenience,
large range of choice and its many advantages in reducing
food waste, as well as its consistently great value.
Iceland’s programme of innovation has established it as the
UK’s leading fish and seafood specialist and the home of the
largest healthy eating brand being the exclusive Slimming
WorldTM range of frozen ready meals, which Iceland’s
manufacturing facility is dedicated to producing. Coupled
with the expansion of its larger store format, The Food
Warehouse, the growth of its online business, and the
distinctive Power of Frozen campaign, this differentiation is
helping Iceland to moderate the decline in like-for-like
sales and continue its strong record of cash generation.
- Sales (in GBP) for the 12 weeks ended 17 June 2016 decreased
by 0.6%, with like-for-like sales decreasing by 2.4%, a
modest improvement on the 2.5% decline recorded in the final
quarter of FY2016.
- The group added six stores in the quarter, including four
Food Warehouse stores. Taking into account two store
closures, the group had a total of 885 stores at period end,
which includes 16 Food Warehouse stores.
- As most of Iceland’s inputs are Pound denominated, its direct
exposure to foreign currency is relatively low.
- Iceland Foods, which is 57.1% owned by Brait, is valued at
the reporting date using an EV/EBITDA multiple of 8.8x (31
March 2016: 8.8x) which represents an unchanged discount of
12% to its peer group’s three year trailing average multiple
of 10.0x. Applying the closing GBP/ZAR exchange rate of
ZAR19.62, Iceland Foods’ carrying value is ZAR7.1 billion,
which represents 9% of Brait’s total assets. The Iceland
Foods Q1 FY2017 debt investor presentation is available at
www.brait.com
Other investments:
- The increase in Brait’s carrying value is attributable to
DGB’s continued strong performance.
Commentary on the rest of the balance sheet:
- The decrease in the carrying value of cash and the
Convertible Bond is largely a function of the GBP/ZAR
exchange rate.
- The decrease in the number of issued ordinary shares is a
result of treasury shares purchased during the quarter.
- Brait continues to explore alternative sources of funding to
enhance flexibility and efficiency.
Whilst the UK referendum vote to leave the European Union
introduced foreign exchange rate and equity market volatility,
Brait’s affected portfolio companies have (i) mostly hedged their
exchange rate exposures for the remainder of the financial year,
whilst (ii) equity markets have largely retraced, resulting in a
normalisation in the peer group average multiples.
Brait’s investment portfolio has strong fundamental
characteristics in terms of geographical diversity, brand, product
offering, innovation and experienced and aligned management teams.
Furthermore, relating to the UK, the value positioning of New Look
and Iceland Foods, premium positioning of Virgin Active’s UK
estate, the limited exposure to credit sales and strong cash
generation sees Brait’s UK investment portfolio well placed in the
medium to longer term to deal with challenges facing that region.
The financial information on which this announcement is based has
not been reviewed and reported on by the Company’s external
auditors.
Malta
10 August 2016
Brait’s primary listing is on the Euro MTF market of the
Luxembourg Stock Exchange and its secondary listing is on the
Johannesburg Stock Exchange.
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
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