Wrap Text
Unaudited interim results for the six months ended 30 September 2017
BRAIT SE
(Registered in Malta as a European Company)
(Registration No. SE1)
Share code: BAT ISIN: LU0011857645
Bond code: WKN: A1Z6XC ISIN: XS1292954812
LEI code: 549300VB8GBX4UO7WG59
("Brait", the "Company" or "Group")
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2017
KEY HIGHLIGHTS
– Brait's reported Rand NAV per share at 30 September 2017 is ZAR66.62
- For the quarter, this represents a decrease of 10.1% compared to the ZAR74.14 reported at 30 June 2017
- For the six month period, this represents a decrease of 14.8% compared to 31 March 2017's reported NAV per share of ZAR78.15
- For the twelve month period, this represents a decrease of 36.6% compared to 30 September 2016's NAV per share of ZAR105.06
- The three year CAGR for reported Rand NAV per share to 30 September 2017 is 24.2% per annum (benchmark of 15% per annum); including ordinary
share dividends it is 25.5%
- Since 1 April 2011's NAV per share of ZAR16.50, the 6.5 year CAGR to 30 September 2017 for reported Rand NAV per share is 24.0% per annum
Performance against targets (1)
Performance metric Position at 30 September 2017
1 NAV CAGR > 15% per year over any - 24.2% CAGR since 30 September 2014
3 year period - 24.0% CAGR since 1 April 2011
2 Dividend: 1% – 2.5% of closing NAV - FY2017: 1% of R78.15 NAV paid August 2017 (2)
– bonus shares or cash dividend alternative
3 Operating costs: < 0.85% of Brait AUM - 0.61% of average AUM (3) (FY2017: 0.64%)
- 0.54% net after fee income (3) (FY2017: 0.54%)
4 Minimal cash drag: < 25% of NAV - 9.7% of NAV (FY2017: 8.3%)
5 Primarily unlisted investments - 100% of investment portfolio
6 Demonstrate cash flow within underlying - Strong cash flow conversion across portfolio
investments over any 3 year period
(1) Going forward, shareholders are notified that in line with other listed investment companies, Brait will update the market on its NAV per
share on a six monthly basis at interim and final reporting dates
(2) Shareholder election: 26% elected to receive bonus shares, 43% elected to reinvest their cash dividend of R169m and subscribe for new shares;
and the remaining 31% elected to receive their cash dividend of R121m
(3) Percentages quoted are annualised based on operating expenses of R135 million and fee income of R15 million for the six months ended 30 September 2017.
(FY2017: Operating expenses R401 million; fee income R62 million). Brait's average AUM for the six months ended 30 September 2017 is R45 billion (FY2017: R63 billion)
Summary consolidated statement of financial position as at 30 September
Audited Unaudited Unaudited Audited
year ended six months six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2017 2016 2017 2017 2016 2017
R'm R'm R'm Notes EUR'm EUR'm EUR'm
ASSETS
44 408 58 142 40 023 Non-current assets 2 499 3 767 3 100
44 408 58 142 40 023 Investments 2 2 499 3 767 3 100
3 289 3 602 3 290 Current assets 205 233 230
5 4 3 Accounts receivable – – –
3 284 3 598 3 287 Cash and cash equivalents 3 205 233 230
47 697 61 744 43 313 Total assets 2 704 4 000 3 330
EQUITY AND LIABILITIES
39 580 53 277 33 851 Ordinary shareholders equity and reserves 4 2 114 3 451 2 763
8 065 8 366 9 200 Non-current liabilities 574 542 563
5 396 5 630 5 883 Convertible Bonds 5 367 365 377
2 669 2 736 3 317 Borrowings 6 207 177 186
52 101 262 Current liabilities 16 7 4
52 101 262 Accounts payable and other liabilities 16 7 4
47 697 61 744 43 313 Total equity and liabilities 2 704 4 000 3 330
520.6 521.0 525.6 Ordinary shares in issue (m) 525.6 521.0 520.6
(14.6) (13.9) (17.5) Treasury shares (m) (17.5) (13.9) (14.6)
506.0 507.1 508.1 Outstanding shares for NAV calculation (m) 508.1 507.1 506.0
7 815 10 506 6 662 Net asset value per share (cents) 416 681 546
Summary consolidated statement of comprehensive income for the six months ended 30 September
Audited Unaudited Unaudited Audited
year ended six months six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2017 2016 2017 2017 2016 2017
R'm R'm R'm Note EUR'm EUR'm EUR'm
(15 085) (3 915) (7 957) Investment losses (530) (240) (978)
244 122 125 Interest income 8 7 16
409 80 71 Dividend income 5 5 27
62 32 15 Fee income 1 2 4
(319) (264) 211 Foreign exchange gains/(losses) 14 (16) (21)
(401) (228) (135) Operating expenses (9) (14) (26)
(76) (66) – Other expenses – (4) (5)
(659) (274) (317) Finance costs (21) (17) (43)
(29) (7) 7 Taxation – – (2)
(15 854) (4 520) (7 980) Loss for the period (532) (277) (1 028)
Other comprehensive income
(12 879) (10 565) 2 540 Translation adjustments (98) (337) (266)
(28 733) (15 085) (5 440) Comprehensive loss for the period (630) (614) (1 294)
(3 119) (887) (1 577) Loss and Headline loss per share (cents) – basic 7 (105) (54) (202)
(2 809) (785) (1 421) Loss and Headline loss per share (cents) – diluted 7 (95) (48) (182)
Summary consolidated statement of changes in equity for the six months ended 30 September
Audited Unaudited Unaudited Audited
year ended six months six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2017 2016 2017 2017 2016 2017
R'm R'm R'm Note EUR'm EUR'm EUR'm
69 872 69 872 39 580 Ordinary shareholders' balance at beginning of period 2 763 4 164 4 164
(15 854) (4 520) (7 980) Loss for the period (532) (277) (1 028)
(12 879) (10 565) 2 540 Translation adjustments (98) (337) (266)
(930) (881) (168) Net purchase of treasury shares (11) (57) (65)
– – 169 Cash dividend reinvestment 4 11 – –
(629) (629) (290) Cash dividend paid 4 (19) (42) (42)
39 580 53 277 33 851 Ordinary shareholders' balance at end of period 2 114 3 451 2 763
Summary consolidated statement of cash flows for the six months ended 30 September
Audited Unaudited Unaudited Audited
year ended six months six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2017 2016 2017 2017 2016 2017
R'm R'm R'm Note EUR'm EUR'm EUR'm
Cash flows from operating activities
300 7 28 Investment proceeds received 2 – 21
56 30 13 Fees received 1 2 4
65 41 24 Interest received 2 3 4
266 – – Dividends received – – 18
(401) (225) (140) Operating expenses paid (9) (15) (26)
(59) – (10) Other expenses paid (1) – (4)
(35) (11) – Taxation paid – (1) (2)
192 (158) (85) Operating cash flow before investments (5) (11) 15
(190) (92) (226) Purchase of investments (15) (6) (12)
2 (250) (311) Net cash (used in)/from operating activities (20) (17) 3
1 491 1 550 500 Net drawdown of borrowings 33 101 85
(391) (86) (109) Finance costs paid (7) (6) (24)
(710) (661) (168) Net purchase of treasury shares (11) (43) (42)
(629) (629) (290) Cash dividend paid (19) (41) (42)
– – 169 Cash dividend reinvestment 11 – –
(239) 174 102 Net cash from/(used in) financing activities 7 11 (23)
(237) (76) (209) Net decrease in cash and cash equivalents (13) (6) (20)
(833) (680) 212 Effects of exchange rate changes on cash and cash equivalents (12) (21) (10)
4 354 4 354 3 284 Cash and cash equivalents at beginning of period 230 260 260
3 284 3 598 3 287 Cash and cash equivalents at end of period 3 205 233 230
Notes to the summary consolidated financial statements for the six months ended 30 September
1 ACCOUNTING POLICIES
1.1 Basis for preparation
The financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by
the European Union, on the going concern principle, using the historical cost basis, except where otherwise indicated. The summarised
financial statements are presented in accordance with IAS 34: Interim Financial Reporting and in accordance with the framework concepts,
measurement and recognition requirements of IFRS. The accounting policies and methods of computation are consistent with those applied
in the Group annual financial statements for the year ended 31 March 2017. The Group has only one operating segment being that of an
investment holding company.
The Group's financial statements are prepared using both the Euro (EUR) and SA Rand (R/ZAR) as its presentation currencies. The Group's
subsidiaries have one of three functional currencies: Pound Sterling (GBP), SA Rand or US Dollar (USD/US$). The holding company, Brait SE,
and its main consolidated subsidiaries use GBP as their functional currency. The financial statements have been prepared using the following
exchange rates:
30 September 2017 31 March 2017 30 September 2016
Closing Average Closing Average Closing Average
USD/ZAR 13.5655 13.1902 13.4247 14.0513 13.7268 14.5313
GBP/ZAR 18.1636 17.0727 16.8674 18.4171 17.8155 19.9926
EUR/ZAR 16.0183 15.0119 14.3232 15.4319 15.4336 16.3167
USD/EUR 0.8469 0.8786 0.9373 0.9105 0.8894 0.8906
GBP/EUR 1.1339 1.1373 1.1776 1.1934 1.1543 1.2253
2. INVESTMENTS
The Group designates the majority of its financial asset investments as at FVTPL as the Group is managed on a fair value basis, with any resultant
gain or loss recognised in investment gains/losses. Fair Value is determined in accordance with IFRS 13.
Statement of financial position items carried at fair value include investments in equity instruments and shareholder funding instruments.
The Group applies a number of methodologies to determine and assess the reasonableness of the fair value, which may include the following:
– Earnings multiple
– Recent transaction prices
– Net asset value
– Price to book multiple
Listed investments are held at recent quoted transaction prices. Where the listed investment is either thinly traded and/or the market is inactive, the
valuation applied to determine the carrying value is based on the applicable unlisted investment methodology set out below.
The primary valuation model utilised for valuing unlisted portfolio investments is the maintainable earnings multiple model.
Maintainable earnings are derived with reference to the mix of prior year audited and latest available current year forecast EBITDA per the portfolio
company, adjusted for any non-recurring income/expenditure. As the year progresses, so the weighting is increased towards the portfolio
company's forecast.
The Directors decide on an appropriate group of comparable quoted companies from which to base the EV/EBITDA multiple. The three year trailing
average multiple of the comparable quoted companies, is adjusted for points of difference, where required, to the portfolio company being valued.
The peer average spot multiple at reporting date is also considered. The equity valuation takes consideration of the portfolio company's net debt/cash
on hand as per its latest available financial results. Further valuation information can be obtained from the 30 September 2017 investor presentation
on the Group's website, www.brait.com.
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2017 2016 2017 2017 2016 2017
R'm R'm R'm EUR'm EUR'm EUR'm
44 408 58 142 40 023 The Group's porfolio of investments 2 499 3 767 3 100
15 516 16 107 17 726 Virgin Active 1 107 1 044 1 083
12 395 13 485 12 030 Premier 751 874 865
7 367 7 660 8 511 Iceland Foods 531 496 514
7 066 18 726 – New Look – 1 213 493
2 064 2 164 1 756 Other investments 110 140 145
Valuation metrics 30 September 2017 30 September 2016 31 March 2017
3rd Party 3rd Party 3rd Party
EBITDA Multiple Net Debt EBITDA Multiple Net Debt EBITDA Multiple Net Debt
Virgin Active (GBP'm) 139 11.4x 336 135 11.4x 370 140 11.4x 411
Premier (R'm) 1 170 12.4x 1 768 1 211 13.2x 1 508 1 140 13.2x 1 850
Iceland Foods (GBP'm) 163 9.0x 687 153 9.4x 688 160 9.0x 675
New Look (GBP'm) Note 1 203 11.3x 1 100 155 10.3x 1 136
Other investments varied varied varied
*Note 1 Until such time as its turnaround strategy has taken shape, New Look is valued at Nil
Fair Value Hierarchy
IFRS 13 provides a hierarchy that classifies inputs used to determine fair value. Investments measured and reported at fair value are classified and
disclosed in one of the following categories:
Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices).
Level 3 Inputs for the assets or liability that are not based on observable market data
There are no financial assets that are categorised as Level 1 and Level 2 and no transfers between levels in the current or prior year. All Level 3
investments have been valued using a maintainable earnings multiple model.
R'm 30 September 2017 EUR'm
17 726 Virgin Active 1 107
9 010 Premier 562
8 511 Iceland Foods 531
1 514 Other investments 95
36 761 Investments at fair value 2 295
3 020 Premier shareholding funding 189
242 Other investments shareholder funding 15
3 262 Investments at amortised cost 204
40 023 Total investments 2 499
Audited Unaudited Unaudited Audited
year ended six months six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2017 2016 2017 2017 2016 2017
R'm R'm R'm EUR'm EUR'm EUR'm
3. CASH AND CASH EQUIVALENTS
3 284 3 598 3 287 Balances with banks 205 233 230
196 171 270 – ZAR cash 17 11 14
77 78 96 – USD cash 6 5 5
3 011 3 349 2 921 – GBP cash 182 217 211
39 580 53 277 33 851 4. ORDINARY SHAREHOLDERS' EQUITY AND RESERVES 2 114 3 451 2 763
Share Capital and Premium
Authorised share capital
1 500 000 000 at par value of EUR0.22 per share
Issued share capital
31 March 2017 521 012 174
Bonus share issue 1 665 192 (1)
Cash dividend reinvestment 2 921 849 (2)
30 September 2017 525 599 215
(1) 26% of shareholders elected bonus shares
The par value of the bonus shares issued are accounted for in Ordinary Share
Premium with no adjustment to any other reserves in Equity. The bonus share
issue option was converted at the 15 day Volume Weighted Average Price
(VWAP) of R62.37 per share to result in the R0.7815/EUR0.0525 dividend per share
translating into 1.25301 shares for every 100 shares held.
(2) 43% of shareholders elected to reinvest their cash dividend of ZAR169 million.
The remaining 31% of shareholders elected to receive cash of R121 million.
(3) The dividend amount reflected for 30 September 2016 is ZAR629 million.
The variance of R19 million to the amount previously reported is due to a
classification change with the line item "Translation Adjustments".
Audited Unaudited Unaudited Audited
year ended six months six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2017 2016 2017 2017 2016 2017
R'm R'm R'm EUR'm EUR'm EUR'm
5. CONVERTIBLE BONDS
5 396 5 630 5 883 On 18 September 2015 Brait received GBP350 million from 367 365 377
the issuance of its five year unsubordinated, unsecured
convertible bonds (Bonds). The Bonds carry a fixed coupon of
2.75% per annum payable semi-annually in arrears.
The initial conversion price of GBP7.9214 per ordinary share
represented a 30% premium to the VWAP of Brait's ordinary
shares between launch and pricing on 11 September 2015.
The adjusted conversion price at reporting date is GBP7.7613
per ordinary share, which takes into account Brait's bonus share
issue and cash dividend alternative since date of issuance,
in accordance with the Bonds' terms and conditions. Using
the adjusted conversion price, the Bonds will convert into
45,095,538 ordinary shares (8.6% of Brait's current issued share
capital) on exercise of bondholders conversion rights. In the
event that the bondholders have not exercised their conversion
rights, the Bonds are settled at par value in cash on maturity on
18 September 2020. Brait has a soft call to early settle the Bonds
at their par value after 9 October 2018 if the value of the ordinary
shares underlying the Bonds is equal to or exceeds GBP130,000
for more than 20 of the 30 consecutive trading days up to
9 October 2018.
The Bonds are listed on the Open Market (Freiverkehr)
segment of the Frankfurt Stock Exchange.
6. BORROWINGS
2 669 2 736 3 317 The loan from First Rand Bank Limited (trading through its 207 177 186
Rand Merchant Bank division) and The Standard Bank of
South Africa Limited is Rand denominated, bears interest at
JIBAR plus 3.0% repayable quarterly, with a right to rollup.
The ZAR8.5 billion facility expires in December 2020 and is
secured by Group assets.
Audited Unaudited Unaudited Audited
year ended six months six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2017 2016 2017 2017 2016 2017
R'm R'm R'm EUR'm EUR'm EUR'm
7. HEADLINE EARNINGS RECONCILIATION
(15 854) (4 520) (7 980) Loss and Headline loss for the period (532) (277) (1 028)
508 510 506 Weighted average ordinary shares in issue (m) – basic 506 510 508
(3 119) (887) (1 577) Loss and headline loss per share (cents) – basic (105) (54) (202)
(15 854) (4 520) (7 980) Loss and Headline loss for the period (532) (277) (1 028)
318 171 150 Adjustment for Bond interest saved if Bond converted to shares 10 10 21
(15 536) (4 349) (7 830) Diluted loss and Headline loss (522) (267) (1 007)
553 554 551 Weighted average ordinary shares in issue (m) – diluted (1) 551 554 553
(2 809) (785) (1 421) Loss and headline loss per share (cents) – diluted (95) (48) (182)
(1) All ordinary shares underlying the Bonds are treated as dilutive and weighted from
issue of the Bonds on 11 September 2015
8. RELATED PARTIES
Transactions between the Company and its subsidiaries have
been eliminated on consolidation or on fair value of subsidiaries
and are not disclosed in this note. During the year, Group
companies entered into the following transactions with related
parties who are not members of the Group:
Loss from operations include:
(17) (9) (8) Non-executive directors fees (1) (1) (1)
(5) (1) (1) Professional fees – M Partners S.à r.l – – –
(1) (3) (1) Professional fees – Maitland International Holdings Plc – – –
(8) – – Other expenses – Maitland International Holdings Plc – – (1)
Audited Unaudited Unaudited Audited
year ended six months six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2017 2016 2017 2017 2016 2017
R'm R'm R'm EUR'm EUR'm EUR'm
9. CONTINGENT LIABILITIES AND COMMITMENTS
9.1 Contingencies
2 048 1 942 2 160 Loan to Fleet Holdings Ltd (Fleet) 135 126 143
(2 048) (1 942) (2 160) Loan from Fleet (135) (126) (143)
– – – Net loan to Fleet – – –
Fleet (the Investment Team's SPV) refinanced its loan
from the Group with The Standard Bank of South Africa
Limited and First Rand Bank Limited (trading through
its Rand Merchant Bank division) ("The Lenders").
The proceeds from the refinance were advanced back to
the Group as a new separate loan.
The loans both bear interest at the 3 month
Johannesburg Inter Bank Acceptance Rate ("JIBAR") plus
3.45%, with the right to roll up interest. The loans both
mature on 4 July 2021.
Brait has provided the Lenders to Fleet with an indemnity
for the amount owing, for which Brait holds collateral in
the form of the pledged Brait shares held by Fleet and
the Investment Team. The amount owing is repayable to
the Lenders on maturity, at which time the indemnity will
either be released or claimed by the Lenders. Applying the
closing 30 September 2017 Brait share price of ZAR53.50,
the market value of the pledged shares is ZAR440 million
less than the amount owing to the Lenders. Given the
remaining term is more than three years, this amount is
disclosed as a contingent liability at reporting date.
9.2 Commitments
6 472 6 920 6 882 Convertible Bond commitments 430 448 451
162 171 175 – Coupon payments due within one year 11 11 11
406 514 350 – Coupon payments due between one and five years (1) 22 33 28
5 904 6 235 6 357 – Principal settlement due within five years (1) 397 404 412
(1) The coupon payments due amounts reflect the semi-annual coupons
payable in arrears over the Bond's five year term. The principal settlement
due amount is only payable in the event that the bondholders have not
exercised their conversion rights. Brait has a soft call to early settle the
Bonds at their par value after 9 October 2018 if the value of the ordinary
shares underlying the Bonds is equal to or exceeds GBP130,000 for more
than 20 of the 30 consecutive trading days up to 9 October 2018. If the soft
call is exercised, coupons from 18 September 2018 to 18 September 2020
will not be payable.
121 119 88 Private equity funding commitments 5 8 8
Rental commitments (Malta and Mauritius)
2 2 2 – Within one year – – –
3 3 3 – Between one and five years – – –
6 598 7 044 6 975 Total commitments 435 456 459
9.3 Other
The Group has rights and obligations in terms of shareholder or purchase and sale agreements relating to its present or former investments.
10 POST BALANCE SHEET EVENTS
No events have taken place between 30 September 2017 and the date of the release of this report, which would have a material impact on either the
financial position or operating results of the Group.
Review of operations
The Board of Directors hereby report to shareholders on the Group's interim results at 30 September 2017.
VALUE DRIVERS
Growth in NAV is the Group's key performance measure together with the following additional factors comprising the core value drivers of the business:
– Low cost to Assets Under Management ("AUM") ratio;
– Minimal balance sheet cash drag;
– Significant cash flow within the investment portfolio; and
– Predictable and consistent ordinary dividend to closing NAV yield.
Going forward, shareholders are notified that in line with other listed investment companies, Brait will update the market on its NAV per share on a six
monthly basis at interim and final reporting dates.
Growth in NAV
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 30 September 2017, the EV/EBITDA historical valuation multiples used were:
30 September 2017 30 September 2016
Valuation Peer average: Valuation Peer average:
multiple used 3 year trailing multiple used 3 year trailing
Virgin Active 11.4x 13.7x 11.4x 13.8x
Premier 12.4x 13.3x 13.2x 13.2x
Iceland Foods 9.0x 11.4x 9.4x 10.0x
New Look Note 1 14.1x 11.3x 14.9x
The discount/(premium) when comparing the valuation multiples used to respective peer average multiples are:
30 September 2017 30 September 2016
Discount/(premium) to: Discount/(premium) to:
Peer average: Peer average: Peer average: Peer average:
3 year trailing spot 3 year trailing spot
Virgin Active 17% 15% 17% 17%
Premier 7% (10%) – 6%
Iceland Foods 21% 20% 6% 7%
New Look Note 1 Note 1 24% 10%
Note 1: Until such time as its turnaround strategy has taken shape, Brait's investment in New Look is valued at nil.
The NAV break-down is as follows:
30 Sep 30 Sep 30 Sep 30 Sep
2016 2017 2017 2016
ZAR'm ZAR'm % EUR'm EUR'm
58 142 40 023 Investments 93 2 499 3 767
16 107 17 726 Virgin Active 41 1 107 1 044
13 485 12 030 Premier 28 751 874
7 660 8 511 Iceland Foods 20 531 496
18 726 – New Look – – 1 213
2 164 1 756 Other investments 4 110 140
3 598 3 287 Cash and cash equivalents 7 205 233
4 3 Accounts receivable – – –
61 744 43 313 Total assets 100 2 704 4 000
8 467 9 462 Total liabilities 590 549
2 736 3 317 Borrowings 207 177
5 630 5 883 Convertible bond 367 365
101 262 Accounts payable 16 9
53 277 33 851 Net asset value 2 114 3 451
507.10 508.12 Number of issued ordinary shares ('mil‚ excluding treasury shares) 508.12 507.10
10 506 6 662 Net asset value per share (cents) 416 681
KEY HIGHLIGHTS FOR THE GROUP'S INVESTMENT PORTFOLIO ARE:
Virgin Active
– For the nine months ended 30 September 2017, Revenue and EBITDA in Pound Sterling, for continuing operations, increased by 15% and 16% on the
comparative period respectively. On a constant currency basis, Revenue and EBITDA for continuing operations increased by 5% and 2% respectively.
– The discontinued operations relate to the value enhancing disposals of (i) 36 non-core UK traditional clubs, of which 35 were sold to Nuffield Health in
July 2016; (ii) 14 racquet clubs sold to David Lloyd Leisure, which completed on 31 May 2017; and (iii) the non-core Iberian business, with 8 clubs in
Spain and 4 clubs in Portugal sold to Holmes Place on 2 October 2017.
– On a continuing operations basis, 17 new clubs opened during the last twelve months, of which 9 were opened in the current nine month period
(5 in South Africa, 2 in Asia Pacific, 1 in Italy and 1 in the UK) giving a total of 236 clubs and 1.2 million members as at 30 September 2017.
– On a continuing operations basis, for the current 9 month period, Asia Pacific, Italy and the UK territories each generated growth in Revenue and
EBITDA margin expansion, driven by cost savings. While Revenue increased in Southern Africa, a challenging South African economy, cost inflation
and investment in sales and marketing led to EBITDA margin contraction for the territory and consequently a strong focus on cost control over the
remaining quarter has been implemented.
– Net debt for the period ending September 2017 reduced to GBP326 million (30 September 2016: GBP392 million) and comprised GBP380 million of
interest bearing bank debt, GBP25 million of finance leases, and GBP79 million of cash. The net debt leverage ratio reduced to 2.4x (30 September
2016: 2.9x).
– Virgin Active's commitment to product innovation and an outstanding membership experience is illustrated with the following highlights during the
current period: (i) the trialling of a new group exercise focused studio format (approximately 1,000m2 footprint), with the May 2017 opening of Holland
Village in Singapore and the September 2017 opening of Wireless Road in Bangkok, Thailand; (ii) the September 2017 opening of the group's first
boutique cycle studio – Revolution by Virgin Active, in Milan, Italy; (iii) further progress on the member's digital journey, with the launch of online
joining in the UK; (iv) new group exercise formats including Pound (a dance based program from the US) and Punch (a boxing based format launched in the
UK); and (v) later this year, Virgin Active will be the first to market an exciting global cycle innovation in partnership with Les Mills in Asia.
– Virgin Active, in which Brait has an effective 71.9% (HY2017: 70.5%) economic interest post dilution for the performance based sweet equity granted
to the Virgin Active management team, is valued at reporting date using an EV/EBITDA multiple of 11.4x (HY2017: 11.4x), which represents a discount
of 17% to the peer group's three year trailing average multiple of 13.7x and a 15% discount to the peer average spot multiple. Applying the closing
GBP/ZAR exchange rate of ZAR18.16, Virgin Active's carrying value is ZAR17.7 billion (HY2017: ZAR16.1 billion), which represents 41% of Brait's total
assets (HY2017: 26%).
Premier
– The Baking division, which constitutes nearly half of Premier's net revenue, has performed well in a highly competitive market, maintaining its average
bread pricing over the six month reporting period. Whilst competitor promotional pricing put some pressure on sales volumes, Premier retained its
national market share in the formal market across all its bread brands, with strong positions in the Western Cape, KwaZulu-Natal and Eastern Cape
provinces. Premier continues to supply around 70% of its bread sales to the informal sector sales channel.
– In a first to market in South Africa, Premier launched Blue Ribbon "Sandwich Squares", a sandwich alternative product, in the Gauteng market
in February 2017. The product was subsequently rolled out in Kwa-Zulu Natal and Western Cape in September 2017, which has boosted sales
volumes significantly.
– The Milling division, which represents around a third of Premier's net revenue, has been impacted by the extreme commodity market pricing volatility,
which is the main reason for the group's net revenue for the six months ending 30 September 2017 declining by 10%. The worst drought in 110 years,
followed by the best maize crop ever had a significant effect on the price of white maize, causing the price per ton to drop 50% during the period
December 2016 to April 2017.
– Whilst Premier's cost saving initiatives meant that its operating costs remained in line with the prior period, margins in the Milling division were impacted
as a result of the reduced demand for the expensive 2016 season crop. This led to lower trading volumes which delayed Premier's ability to mill lower
priced new 2017 season crop until June 2017. The resulting decline in the Milling division's marginal contribution (being revenue after all production and
direct selling costs) was the main factor in the group EBITDA decreasing by 24%, and the EBITDA margin of 8.3% for the current six month reporting
period (six months ended 30 September 2016: 9.9%).
– The Milling division's performance normalised in line with historical trends during the second quarter of FY2018.
– Premier's Mozambican operations (CIM, the leading food and animal feed producer in that country) was negatively impacted by a combination of
poor macro-economic conditions (currency devaluation and high interest rates) and the expensive maize positions which accounted for the bulk of
the decline in CIM's EBITDA. CIM has shown signs of volume recovery in September 2017, with good momentum into October. A stabilised forex
environment, improved margins in maize meal, the launch of a new biscuit line (producing creamed biscuits) and entry into the rice market (which is
significantly larger than the maize meal market in Mozambique) underpin CIM's profitability recoverability. Elsewhere in the Groceries division, Sugar
Confectionery and Lil-lets South Africa performed according to plan.
– Following five years of significant capital expenditure, which resulted in an aggregate investment of some ZAR3 billion into a number of major
completed projects that have generated both attractive returns and qualitative benefits, no major expansionary projects are forecast for FY2018.
Premier repaid a further ZAR100 million of Brait's shareholder funding on 31 October 2017. Whilst ensuring growth is not compromised, Premier is
forecast to make further shareholder funding repayments during the remainder of FY2018.
– Premier, in which Brait owns 92.7% (HY2017: 91.4%), is valued at reporting date using an EV/EBITDA multiple of 12.4x (HY2017: 13.2x), which
represents a discount of 7% to the peer group's average three year trailing multiple and a 10% premium to the peer group's average spot multiple.
The reduction in valuation multiple is largely to take consideration of the trend over the past twelve months of the peer average spot multiple trading at
an increased discount to its three-year trailing average. Premier's carrying value of ZAR12.0 billion (HY2017: ZAR13.5 billion) represents 28% of Brait's
total assets (HY2017: 22%).
Iceland Foods
– Iceland continues to grow through both new store openings and positive like-for-like ("LFL") sales.
– Sales (in GBP) for the 24 weeks ended 8 September 2017 increased by 7.3%, with LFL sales 4.3% positive on the comparative period, reflecting an
increase in both transactions and average basket values. In addition to this, Iceland benefited from sales generated by the net 17 new stores opened in
the current period and the net 21 new stores opened in the previous financial year.
– EBITDA growth for the period was 5.2%, driven by the improved sales performance.
– Strong product innovation continues, with new ranges for summer 2017 and a comprehensive range of bread, cakes and morning goods launched
under Iceland's own Luxury brand, together with forming a new partnership with Warburtons to become Iceland's sole supplier of branded
bread products.
– The "Power of Frozen" marketing campaign continues to maintain its focus on the high quality of Iceland's food and the award winning Online service,
complemented by press advertising and door drops highlighting Iceland's value for money proposition.
– Expansion of The Food Warehouse is on track, with 11 new stores opened in the period and 27 openings in the last 12 months taking The Food
Warehouse estate to 47 stores at the period end. These larger stores have continued to perform well, with established stores achieving LFL growth.
– The new Iceland format has been extended to 22 stores, with 19 refits completed during the period. These stores extend Iceland's customer appeal
through their bold new modern look, improved in-store navigation and equipment and an extended product range. All are achieving LFL sales growth
ahead of Iceland's average.
– Iceland's Online business which leverages off its established Home Delivery infrastructure, continues to achieve strong LFL growth, with more than
15,000 new registrations a week expanding the existing database of some two million customers. The business has benefited from investments to
Iceland's website and head office team, as well as a growing awareness of the industry-leading levels of customer satisfaction achieved. This has been
recognised through a number of awards, including "Online Retailer of the Year" at the IGD Awards in October 2017 and "Online Supermarket of the
Year" in the Grocer Gold Awards in June 2017. In July 2017, Iceland opened its second dedicated online picking centre in Manchester, offering online
customers in the area a wider range and better service. This releases 17 stores in the area from online picking, allowing them to focus on developing
their traditional Home Delivery business for in-store purchases.
– The group opened 18 stores during the period, with 1 store closure, resulting in a total estate of 919 stores. The UK store portfolio at the end of the
period, including The Food Warehouse stores and two Online Picking centres, stood at 896.
– Iceland remains highly cash generative, with cash balances on hand of GBP133.4 million. The reduction from the GBP170.6 million cash holding at the
same point last year, reflects the redemption on 26 June 2017 of GBP50 million Floating Rates Notes ("FRN's") due in 2020.
– After the period end, Iceland completed a refinancing of the majority of the FRN's and all the Senior Secured Notes ("SSN") due in 2021, by raising
a new SSN of GBP550 million due 2025. The GBP170 million SSN due in 2024 remains in place. This refinance generates an annual interest saving
of approximately GBP5.7 million and, assuming the remaining GBP79.5 million FRN's are repaid through internally generated cash, results in no
refinancing requirement for Iceland until at least 2023.
– Net debt, including finance leases, at reporting date of GBP687.4 million, has reduced to a net leverage ratio of 4.2x (HY2017: 4.6x), based on the last
twelve months EBITDA.
– Iceland Foods, which since April 2017 is 60.1% owned by Brait (HY2017: 57.1%), is valued at reporting date using an EV/EBITDA multiple of 9.0x
(HY2017: 9.4x), which represents a discount of 21% to the peer group's average three year trailing multiple of 11.4x and a 20% discount to the peer
group's average spot multiple. Applying the closing GBP/ZAR exchange rate of ZAR18.16, Iceland Foods' carrying value of ZAR8.5 billion (HY2017:
ZAR7.7 billion) represents 20% of Brait's total assets (HY2017: 12%).
– The Iceland Foods HY2018 debt investor presentation is available at www.brait.com.
New Look
– The 26 week period ending 23 September 2017, reflects a disappointing performance, suffering from a combination of challenging market conditions
and a number of self-inflicted issues. Group revenue (in GBP) decreased by 4.5% on the comparative period, with group LFL sales declining by 8.6%.
UK LFL sales decreased by 8.4%. Third Party E-commerce sales increased by 17.0%, whilst Own Website Ecommerce declined by 7.6%.
– In response to this underperformance, changes to the New Look leadership have been made. As announced on 1 September 2017,
Anders Kristiansen stepped down from his role as CEO by mutual agreement. On 6 November 2017 Alistair McGeorge was appointed as Executive
Chairman of New Look. Alistair has significant industry experience and the requisite expertise having previously led New Look's turn-round and
recovery in 2011-2014. Furthermore, Tom Singh, New Look's Founder, has taken a more active product role, working alongside Roger Wightman,
the reinstated Chief Product Officer.
– Some of the key reasons for New Look's underperformance include: (i) its product positioning had moved away from its successful broad appeal,
becoming too young and edgy; (ii) its customer messaging had become overly fashionable and in the process, no longer highlighting New Look's value
proposition; (iii) excessive product options and increased complexity throughout the organization resulted in the business being late to certain trends
and as a result not clearing ranges by season end; and (iv) reduced flexibility and speed as well as an increased cost base.
– The following corrective measures are being taken: (i) a progressive return to broad appeal product at a great price, reconnecting New Look with
its heartland customer and restoring its market position in keeping with its strong brand; (ii) strict focus and action already being implemented to
reduce the cost base and preserve an adequate liquidity profile; (iii) applying a 'back to basics' mentality and clarifying store layout and messaging;
(iv) optimizing the E-commerce platform; and (v) improving the planning cycle which should enhance speed and flexibility.
– New Look has an adequate liquidity profile, with total cash, liquidity and operating facilities available of GBP242.5 million at reporting date.
– Until such time as New Look's turnaround strategy has taken shape, New Look is valued at nil. Brait remains committed to being a long-term
shareholder of New Look.
– The New Look HY2018 debt investor presentation is available at www.brait.com.
Other investments
– The decrease in carrying value over the twelve month period is largely due to the receipt of ZAR343 million proceeds, comprising mostly dividend
income received from Brait's 81.3% investment in DGB, which continues to be the majority asset in this portfolio.
– During September 2017, Brait IV signed a Sale and Purchase agreement to sell its investment in Primedia, with the transaction expected to complete in
the last quarter of this calendar year.
– At reporting date, the Other Investments portfolio carrying value of ZAR1.8 billion (HY2017: ZAR2.1 billion) comprises 4% of Brait's total assets
(HY2017: 4%).
Low cost to AUM ratio
Operating expenditure for the six month period reduced to ZAR135 million (HY2017: ZAR228 million). On an annualized basis, using average AUM for the
period as the reference basis, operating costs are 0.61% (FY2017: 0.64%) and net after fee income are 0.54% (FY2017: 0.54%), compared to the target
of 0.85% or less.
Minimal balance sheet cash drag
To manage dilution of overall returns, the Group targets minimal cash holdings on balance sheet, whilst maintaining access to large undrawn committed
facilities. The Group's cash and equivalents position at 30 September 2017 of ZAR3.3 billion (FY2017: ZAR3.3 billion) represents 9.7% of NAV
(FY2017: 8.3%), which is well within the benchmark maximum of 25% of NAV.
Significant cash flow within the underlying assets over any 3 year period
Brait's portfolio of investments are highly cash flow generative with high earnings-to-cash conversion ratios.
Predictable and consistent ordinary dividend to NAV yield
The Group's policy is an ordinary bonus share issue or cash dividend alternative election, of 1% to 2.5% of closing NAV, considered annually when the
results for each year are published, taking into account the Group's available resources.
During the current six month period, a bonus share issue, with a cash dividend alternative, of 1% of ZAR78.15 per share, relating to the year ended
31 March 2017, was paid in August 2017 ("FY2017 Dividend"). In terms of shareholder elections, 26% elected to receive bonus shares, 43% elected
to reinvest their cash dividend of ZAR169 million and subscribe for new shares; with the remaining 31% electing to receive their cash dividend of
ZAR121 million.
ORDINARY SHARE CAPITAL
As a result of the shareholder elections for the FY2017 Dividend, during August 2017 the Company issued 1,665,192 bonus shares (August 2016:
387,339 bonus shares issued), as well as 2,921,849 new shares issued to shareholders that elected to reinvest their cash dividend. This resulted in
total issued ordinary share capital at 30 September 2017 of 525,599,215 shares of EUR0.22 each (FY2017: 521,012,174 shares). The Group held
17,475,070 treasury shares at 30 September 2017 (FY2017: 14,576,784 treasury shares held), resulting in ordinary share capital, net of treasury shares,
of 508,124,145.
CONVERTIBLE BOND
Brait's GBP350 million unsubordinated, unsecured convertible bonds are listed on the Open Market (Freiverkehr) segment of the Frankfurt Stock Exchange
("Bonds"). The Bonds have a five year term ending 18 September 2020 and carry a fixed coupon of 2.75% per annum payable semi-annually in arrears. In
accordance with the terms and conditions of the Bonds, Brait's bonus share and cash dividend alternatives issued / paid during the Bonds' term result in
adjustment to the Bonds' conversion price, which at reporting date is GBP7.7613. Using this latest adjusted conversion price, the Bonds' will convert into
45.096 million ordinary shares (8.6% of Brait's current issued share capital) on exercise of bondholder conversion rights. In the event that the bondholders
have not exercised these rights, the Bonds are cash settled at par value on maturity date.
In accordance with IAS 32 (Financial Instruments: Presentation), the Bonds' liability component is measured at reporting date as GBP323.9 million.
Applying the closing GBP/ZAR exchange rate of ZAR18.16, results in the Bonds' translated carrying value of ZAR5.9 billion.
GROUP FUNDING POSITION
The Group's committed revolving ZAR8.5 billion facility from First Rand Bank Limited (trading through its Rand Merchant Bank division) and The Standard
Bank of South Africa Limited is Rand denominated, bears interest at JIBAR plus 3.0% and is repayable quarterly, with the right to rollup capital and interest
repayments. This facility expires in December 2020 and is secured by Group assets. At 30 September 2017, the Group has available undrawn gearing
facilities of ZAR3.3 billion, resulting in total cash and available facilities of ZAR6.6 billion.
GROUP OUTLOOK
– Virgin Active remains focused on delivering an outstanding member experience through continued innovation and investment. A streamlined, more
cash generative UK estate, positive momentum in Italy and a strong pipeline in Asia Pacific provides good momentum and medium term growth
opportunities in these territories. In South Africa, the challenging consumer market looks set to continue, consequently Virgin Active is moderating the
roll-out pipeline, focusing future growth at lower price points, as well as trialling different membership options.
– The extreme maize commodity price volatility significantly impacted Premier's milling business over the period January 2017 to July 2017. Having
cleared through the expensive 2016 season maize, performance normalised during the second quarter of FY2018. With sales volumes increasing as
the market restocks, the milling business expects to outperform the comparable period for the second half of FY2018. Premier continues to execute on
its strategy of brand building, producing consistent quality offerings and product innovation, as well as operational efficiencies, with its core brands well
positioned to compete in their respective markets.
– Iceland's growth remains ahead of the market into its third quarter due to new stores, however LFL growth has softened due to tougher comparatives
and increased value messaging by its competitors. The 50th Food Warehouse store opened in September 2017 and 34 new format Iceland store refits
have now been completed and continue to perform well. The recent refinancing gives a strong platform from which to pursue Iceland's well-established
long-term strategy for growth and deleveraging with the benefit of lower borrowing costs.
– New Look's H2 FY2018 will remain difficult and thus the immediate focus is on short term stabilisation together with a strict focus on costs to preserve
an adequate liquidity profile. The necessary changes have been made in senior management. New Look is a proven brand with a clear market position
and thus when looking beyond FY2018, the 'back to basics' mentality and progressive return to broad appeal, with a heightened focus on an improved
planning cycle combined with speed appropriate for today's market, will serve to reconnect New Look with its heartland customer. The business has
the appropriate liquidity and operating facilities in place to implement its plans and thereby provide time to recover.
Brait continues to explore new pools of capital to enhance its capital structure and ensure that it is well placed to execute on opportunities. Driving value in
the existing portfolio remains the key focus for the year ahead.
For and on behalf of the Board
PJ Moleketi
Non-Executive Chairman
15 November 2017
Directors (all non-executive)
PJ Moleketi (Chairman)*, JC Botts^, AS Jacobs##, Dr LL Porter##, CS Seabrooke*, HRW Troskie**, Dr CH Wiese*
## British ^American **Dutch *South African
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)
Date: 15/11/2017 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.