Wrap Text
Net asset value (“NAV”) update for the third quarter ended 31 December 2016 (Q3 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 THIRD QUARTER ENDED 31
DECEMBER 2016 (Q3 FY2017)
Shareholders of the Company are advised that:
- Brait’s reported NAV per share at 31 December 2016 is
ZAR82.45
- The decrease of 21.5% compared to 30 September 2016’s NAV of
ZAR105.06, includes the adverse impact of the 5%
strengthening of the Rand against the Pound Sterling over the
quarter, from ZAR17.82 at 30 September 2016 to ZAR16.95 at 31
December 2016. Applying an unchanged exchange rate of
ZAR17.82 to the Company’s GBP denominated assets and
liabilities, Brait’s reported NAV per share at 31 December
2016 would be ZAR85.36; a decrease of 18.8%
- The three-year CAGR for reported Rand NAV per share to 31
December 2016 is 39.4% per annum (benchmark of 15% per
annum); including ordinary share dividends it is 40.4%
- Expressed in Pound Sterling, on the basis that Brait is most
invested in this currency, Brait’s NAV per share at 31
December 2016 is GBP4.86 compared to GBP5.90 at 30 September
2016, a decrease of 17.6%. The three-year Pound CAGR to 31
December 2016 is 40.6%; including ordinary share dividends it
is 41.1%
- Brait received investment proceeds of ZAR566 million during
the quarter (ZAR256 million from Premier; ZAR310 million from
the Other Investments portfolio)
Brait’s valuation policy is to reference the EV/EBITDA valuation
multiple on a historical basis for each of its investments to
their peer group’s trailing three-year average multiple. At 31
December 2016, the EV/EBITDA historical valuation multiples used
are:
31 December 2016 30 September 2016
Valuation Peer average: Valuation Peer average:
multiple 3 year multiple 3 year
used trailing used trailing
Virgin Active 11.4x 13.8x 11.4x 13.8x
Premier 13.2x 13.3x 13.2x 13.2x
New Look 10.3x 14.8x 11.3x 14.9x
Iceland Foods 9.0x 9.9x 9.4x 10.0x
The discounts when comparing the valuation multiples used to
respective peer average multiples are:
31 December 2016 30 September 2016
Discount to Discount Discount to Discount
peer average: to peer peer average: to peer
3 year average: 3 year average:
trailing spot trailing spot
Virgin Active 17% 11% 17% 17%
Premier 1% (3%) - 6%
New Look 30% 25% 24% 10%
Iceland Foods 9% 7% 6% 7%
Brait NAV Analysis:
31-Dec-16 30-Sep-16
R'm R'm
Investments 46,410 93% 58,142 94%
Virgin Active 15,190 30% 16,107 26%
Premier 13,184 27% 13,485 22%
New Look 8,696 17% 18,726 30%
Iceland Foods 7,295 15% 7,660 12%
Other investments 2,045 4% 2,164 4%
Cash and cash equivalents 3,509 7% 3,598 6%
Accounts receivable 2 - 4 -
Total Assets 49,921 100% 61,744 100%
Borrowings (2,608) (2,736)
Convertible bond (5,389) (5,630)
Accounts payable (114) (101)
Total liabilities (8,111) (8,467)
Net Asset Value 41,810 53,277
Number of issued shares ('mil)
excluding treasury shares 507.10 507.10
Net asset value per share (ZAR) 82.45 105.06
Virgin Active:
- For the financial year ended 31 December 2016, Revenue and
EBITDA measured in constant currency, for continuing
operations, increased 6% and 12% on the comparative year
respectively.
- 16 clubs were opened during the year, giving a total of 255
clubs at 31 December 2016. 13 of these club openings were in
South Africa, 2 in Thailand and 1 in Singapore. These
openings included 4 flagship Collection clubs in Cape Town,
Pretoria, Singapore and Bangkok, 6 Lifecentre clubs and 5
RED clubs in South Africa, and a Lifecentre club in
Thailand. Total adult membership closed the year at 1.2m
which is in line with the previous year on a continuing
operations basis.
- Virgin Active announced on 7 February 2017 the final
significant step in focusing its UK operations, in
accordance with its international strategy, on metropolitan
and commuter hubs in key markets. The sale of 16 UK clubs to
David Lloyd Leisure delivers a compelling valuation and is
expected to complete in the second quarter of 2017. Virgin
Active plans to continue its upgrade programme in 2017 and
will continue to operate 45 clubs in the UK, 33 of which are
in London.
- Virgin Active’s commitment to product innovation and an
outstanding member experience was evidenced in 2016 with the
further rollout of the Grid (a high intensity floor based
functional training class) across more of the estate; the
introduction of the Pack (a revolutionary group cycle
product) into all major territories and significant
enhancements to its digital offering.
- Virgin Active, in which Brait has an effective 70.5% equity
interest post dilution for the performance based sweet
equity granted to the management team and 78.3% of
shareholder funding, is valued at the reporting date using
an unchanged EV/EBITDA multiple of 11.4x, which represents a
discount of 17% to its peer group’s three year trailing
average multiple of 13.8x.
- Virgin Active’s carrying value in Pound Sterling reflects a
slight decrease of 0.9% for the quarter at GBP896 million
(30 September 2016: GBP904 million).
- Applying the closing GBP/ZAR exchange rate of ZAR16.95,
Virgin Active’s carrying value in Rand has decreased by 5.7%
for the quarter to ZAR15.2 billion (30 September 2016:
ZAR16.1 billion), which represents 30% of Brait’s total
assets (30 September 2016: 26%).
Premier
- For the six months ended 31 December 2016, revenue and EBITDA
increased 11% and 10% respectively on the comparative period,
with EBITDA margin at 10.0%.
- This is a pleasing result in the context of a challenging
market as a result of high raw material inflation, drought,
volatile currency exchange rates, wheat import tariffs and
increased competition.
- In December 2016 Premier refinanced its debt facilities and
used the proceeds from this to repay Brait ZAR256 million
shareholder funding, which gives rise to a slight decrease in
Premier’s carrying value for the quarter.
- During the quarter, Brait increased its shareholding in
Premier from 91.4% to 92.0% through the exercise of put and
call option agreements.
- Premier is valued at the reporting date using an unchanged
EV/EBITDA multiple of 13.2x, which represents a discount of
1% to its peer group’s three year trailing average multiple
of 13.3x.
- Premier’s ZAR13.2 billion carrying value at reporting date
represents 27% of Brait’s total assets (30 September 2016:
22%).
New Look
- The UK and European apparel and footwear sectors continued to
face a challenging, promotion-led market with reduced
footfall during the 13 weeks ended 24 December 2016 (Q3). In
response to the changing consumer “buy now, wear now” mind-
set, New Look has revised its buying processes to improve
speed to market and strengthened its Buying and Design teams
to deliver a stronger product proposition.
- Q3 Revenue (in GBP) increased by 0.8% on the comparative
period, as a result of good performances outside the UK,
online and in Menswear, evidencing that New Look’s strategy
of diversification is the right one for the business. Q3
Group LFL sales declined by 4.6%, with its UK LFL sales
decreasing by 4.7% in the quarter. Q3 EBITDA decreased by
19.7% on the comparative period.
- International sales increased by 17.9% YTD, mainly
attributable to the year-on-year increase in trading in
China, which continues to produce positive LFL sales, with
106 stores trading at the end of Q3. Domestic sourcing now
accounts for more than 75% of the range in China, with the
dedicated buying teams sourcing around 35% of the range
exclusively for the Chinese market. Work continues towards a
multichannel offering with a growing online presence on
TMall.
- Following the launch of New Look’s new online platform for
international websites in September 2016 and the ‘New Look
Delivery Pass’, which offers free annual delivery for a set
one-off fee, in November 2016, New Look experienced strong
online trade on Black Friday, Cyber Monday and Christmas,
particularly through the mobile channel. Own Website sales
increased by 18.2% for Q3, resulting in YTD growth of 12.9%.
- Third Party E-commerce sales have the benefit of being
internationally diverse and continue to perform well, with
sales increasing on the comparative period by 73.0% for Q3
and 36.8% YTD.
- A further four standalone Menswear stores opened during Q3,
bringing the total standalone Menswear stores to 19. YTD
Menswear sales were +14% on the comparative period, supported
by an improved gross margin.
- The group’s total estate closed the third quarter at 867
stores (24 September 2016: 850 stores).
- Notwithstanding unfavourable GBP/USD currency movements, New
Look remains committed to delivering sustainable improvements
in its gross profit margin in the long term. Work continues
with (i) supply chain partners to offset foreign currency
pressures and deliver improved intake margins; (ii)
investment in stock allocation, replenishment and management
systems to reduce levels of markdown; and (iii) managing
price architecture to ensure compelling entry prices.
- New Look has maintained a strong cash balance at GBP132.5
million, managing costs tightly and working capital
efficiently, whilst continuing to focus investment in its
core strategic initiatives in China, Menswear and E-commerce.
- New Look, in which Brait has an effective 79.9% equity
interest post dilution for the performance based sweet equity
granted to the management team and 90.2% of shareholder
funding, is valued at the reporting date using an EV/EBITDA
multiple of 10.3x. This represents a reduction to the 11.3x
valuation multiple applied at 30 September 2016, and at
reporting date, is at a discount of 30% to its peer average
three year trailing multiple of 14.8x (30 September 2016: 24%
discount) and a 25% discount to its peer average spot
multiple (30 September: 10% discount).
- New Look’s carrying value in Pound Sterling of GBP513 million
reflects a decrease of 51% for the quarter.
- Applying the closing GBP/ZAR exchange rate of ZAR16.95, New
Look’s carrying value in Rand has decreased by 54% for the
quarter to ZAR8.7 billion, which represents 17% of Brait’s
total assets (30 September 2016: 30%).
Iceland Foods:
- For the 40 weeks ended 30 December 2016, YTD turnover has
increased by 3.6% on the comparative period, with Q3 (16
weeks ending 30 December 2016) reflecting 7.0% growth.
- LFL sales growth of 3.8% for Q3 represents a continuous
improvement from Q2’s 0.8%, with YTD LFL now standing at
1.1%, a significant improvement on the full previous year’s
negative 2.7%.
- YTD EBITDA increased by 6.1% on the comparative period,
principally reflecting the strong Q3 sales performance.
- Iceland has opened 24 new stores in the UK during the current
40-week period, resulting in a net addition of 17 stores and
a total UK estate of 881 stores at 30 December 2016. The
roll-out of the successful Food Warehouse store format
continues, with 20 of the 24 new stores opened under The Food
Warehouse fascia, giving a total of 32 of these larger stores
trading at the end of Q3.
- The online business continues to show positive LFL growth,
benefitting from the significant investment in the website
and head office team.
- The business remains highly cash generative, with cash
balances standing at GBP207 million at 30 December 2016. Net
leverage, calculated as net debt to 12 month EBITDA, has
improved over Q3 from 4.6x to 4.2x.
- Iceland Foods, in which Brait holds 57.1%, is valued at
reporting date using an EV/EBITDA multiple of 9.0x, which
represents a discount of 9% to its peer group’s three year
trailing average multiple of 9.9x. The reduction in valuation
multiple from the 9.4x applied at 30 September 2016,
maintains the level of discount unchanged to the peer average
spot multiple at reporting date of 9.7x (30 September 2016:
10.1x).
- Iceland Food’s carrying value in Pound Sterling of GBP430
million is unchanged for the quarter. Applying the closing
GBP/ZAR exchange rate of ZAR16.95, the Rand carrying value
has decreased by 5% for the quarter to ZAR7.3 billion, which
represents 15% of Brait’s total assets (30 September 2016:
12%).
Other investments:
- DGB, which is the majority asset in this portfolio, continues
to deliver strong operating performance.
- The slight decrease in the Other Investments carrying value
for the quarter is a function of the ZAR310 million proceeds
that Brait received from this portfolio, which were mostly
from DGB.
Commentary on the rest of the balance sheet:
- Brait received investment proceeds of ZAR566 million during
the quarter comprising ZAR256 million from Premier and ZAR310
million from the Other Investments portfolio. The cash
holding of ZAR3.5 billion at 31 December 2016 is essentially
unchanged for the quarter largely as a result of pre-payments
on Brait’s gearing facility and the adverse effect of the
Pound Sterling having weakened against the Rand when
translating Brait’s GBP186m cash holding.
- The decrease in the Rand carrying value of Brait’s Pound
Sterling denominated Convertible Bond is a function of the
GBP/ZAR exchange rate.
The financial information on which this announcement is based has
not been reviewed and reported on by the Company’s external
auditors. The respective New Look and Iceland Foods Q3 FY2017 bond
investor presentations are available at www.brait.com.
Malta
14 February 2017
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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