Wrap Text
Unaudited results announcement for the period ended 30 September 2018
Brait SE
(Registered in Malta as a European Company)
(Registration No. SE1)
Share code: BAT ISIN: LU0011857645
Bond code: WKN: A1Z6XC ISIN: XS1292954812
LEI: 549300VB8GBX4UO7WG59
("Brait", the "Company" or "Group")
UNAUDITED RESULTS ANNOUNCEMENT
for the period ended 30 September 2018
Summary consolidated statement of financial position as at 30 September
Restated Unaudited Unaudited Restated
year ended six months six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2018 2017 2018 2018 2017 2018
R'm R'm R'm Notes EUR'm EUR'm EUR'm
ASSETS
36 497 40 023 37 710 Non-current assets 2 297 2 499 2 501
36 497 40 023 37 710 Investments 3 2 297 2 499 2 501
2 932 3 290 2 342 Current assets 143 205 201
25 3 273 Accounts receivable 4 17 - 2
2 907 3 287 2 069 Cash and cash equivalents 5 126 205 199
39 429 43 313 40 052 Total assets 2 440 2 704 2 702
EQUITY AND LIABILITIES
28 384 33 851 28 064 Ordinary shareholders equity and reserves 1 710 2 114 1 945
10 813 9 200 11 969 Non-current liabilities 729 574 741
5 443 5 883 6 124 Convertible Bonds 6 373 367 373
4 719 3 317 5 160 Borrowings 7 314 207 323
651 - 685 Financial guarantee liability 8 42 - 45
232 262 19 Current liabilities 1 16 16
232 262 19 Accounts payable and other liabilities 1 16 16
39 429 43 313 40 052 Total equity and liabilities 2 440 2 704 2 702
525.6 525.6 525.6 Ordinary shares in issue (m) 525.6 525.6 525.6
(17.5) (17.5) (17.5) Treasury shares (m) 10 (17.5) (17.5) (17.5)
508.1 508.1 508.1 Outstanding shares for NAV calculation (m) 508.1 508.1 508.1
5 586 6 662 5 523 Net asset value per share (cents) 336 416 383
Summary consolidated statement of comprehensive income for the six months ended 30 September
Restated Unaudited Unaudited Restated
year ended six months Six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2018 2017 2018 2018 2017 2018
R'm R'm R'm Notes EUR'm EUR'm EUR'm
(9 192) (7 957) (3 590) Investment losses (228) (530) (605)
287 125 197 Interest income 13 8 19
149 71 78 Dividend income 5 5 10
35 15 7 Fee income - 1 2
(219) 211 508 Foreign exchange gains/(losses) 32 14 (14)
(281) (135) (138) Operating expenses (9) (9) (18)
(651) - (34) Other expenses 8 (2) - (45)
(710) (317) (408) Finance costs (26) (21) (47)
(28) 7 (14) Taxation (1) - (2)
(10 610) (7 980) (3 394) Loss for the period (216) (532) (700)
Other comprehensive income/(loss)
(297) 2 540 3 074 Translation adjustments (19) (98) (99)
(10 907) (5 440) (320) Comprehensive loss for the period (235) (630) (799)
(2 092) (1 577) (668) Loss and headline loss per share (cents) - basic 9 (43) (105) (138)
Summary consolidated statement of changes in equity for the six months ended 30 September
Restated Unaudited Unaudited Restated
year ended six months six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2018 2017 2018 2018 2017 2018
R'm R'm R'm EUR'm EUR'm EUR'm
Ordinary shareholders' balance at beginning
37 802 39 580 27 125 of period 1 859 2 763 2 639
1 778 - 1 259 Restatement impact 86 - 124
Restated ordinary shareholders' balance at
39 580 39 580 28 384 beginning of period 1 945 2 763 2 763
(10 610) (7 980) (3 394) Loss for the period (216) (532) (700)
(297) 2 540 3 074 Translation adjustments (19) (98) (99)
(168) (168) - Net purchase of treasury shares - (11) (11)
169 169 - Cash dividend reinvestment - 11 11
(290) (290) - Cash dividend paid - (19) (19)
Ordinary shareholders' balance at end of
28 384 33 851 28 064 period 1 710 2 114 1 945
Summary consolidated statement of cash flows for the six months ended 30 September
Restated Unaudited Unaudited Restated
year ended six months six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2018 2017 2018 2018 2017 2018
R'm R'm R'm Note EUR'm EUR'm EUR'm
Cash flows from operating activities
123 28 375 Investment proceeds received 24 2 8
20 13 17 Fees received 1 1 1
446 24 177 Interest received 11 2 29
(293) (140) (140) Operating expenses paid (9) (9) (19)
(10) (10) - Other expenses paid - (1) (1)
(37) - (2) Taxation paid - - (2)
249 (85) 427 Operating cash flow before investments 27 (5) 16
(1 734) (226) (1 631) Purchase of investments (104) (15) (110)
(1 485) (311) (1 204) Net cash used from operating activities (77) (20) (94)
1 971 500 200 Drawdown of borrowings 13 33 120
1 438 - - Drawdown of third party borrowings - - 90
(1 461) - - Refinance of third party borrowings - - (86)
(293) - - Interest paid - - (20)
(42) (27) (9) Facility fees paid (1) (2) (3)
(166) (82) (94) Convertible bond coupon paid (6) (5) (11)
(168) (168) - Net purchase of treasury shares - (11) (11)
(290) (290) - Cash dividend paid - (19) (19)
169 169 - Cash dividend reinvestment - 11 11
1 158 102 97 Net cash from financing activities 6 7 71
(327) (209) (1 107) Net decrease in cash and cash equivalents (71) (13) (23)
Effects of exchange rate changes on cash and
(50) 212 269 cash equivalents (2) (12) (8)
3 284 3 284 2 907 Cash and cash equivalents at beginning of period 199 230 230
2 907 3 287 2 069 Cash and cash equivalents at end of period 5 126 205 199
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. Except as detailed in note 2 below, the accounting policies and methods of computation
are consistent with those applied in the Group annual financial statements for the year ended 31 March 2018. 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 2018 31 March 2018 30 September 2017
Closing Average Closing Average Closing Average
GBP/ZAR 18.4331 17.7589 16.5965 17.2166 18.1636 17.0727
EUR/ZAR 16.4167 15.7109 14.5952 15.1903 16.0183 15.0119
USD/ZAR 14.1450 13.3619 11.8408 12.9902 13.5655 13.1902
GBP/EUR 1.1228 1.1304 1.1371 1.1334 1.1339 1.1373
USD/EUR 0.8616 0.8505 0.8112 0.8552 0.8469 0.8786
2. RESTATEMENT
In the financial years 2011 to 2017 Brait accounted for the financial guarantees given by it for Fleet (the Investment Team's vehicle to
facilitate the holding of shares in Brait) under IAS 37 (Provisions, Contingent Liabilities and Contingent Assets) as required by IAS 39
(Financial Instruments: Recognition and Measurement). In the full year financials for 2018, and following extensive discussions with the
auditors, the decision was made to change the basis of accounting to consolidate Fleet in accordance with IFRS 10 (Consolidated Financial
Statements) and the comparative figures for 2016 and 2017 were restated accordingly.
During the current financial period, this basis of accounting has been rigorously reassessed by the Audit Committee and the auditors.
It has been concluded that variations in the size of the net exposure under the guarantee do not provide Brait with any incremental rights
over the relevant activities of Fleet or any decision-making power over Fleet or any ability to influence the variable returns of Fleet in
the periods prior to the due date of the loans guaranteed by Brait. This has been the case since inception. The assessment of the facts and
the conclusion reached has also been confirmed by a written opinion from Senior Counsel. As such, the directors are of the view that, in
accordance with IFRS 10 paragraph B85, their initial assessment of Brait's control of Fleet has not changed simply because of a change in the
net exposure.
Accordingly, Brait will again account for its net exposure as a financial guarantee as defined in IAS 39 and in accordance with IAS 37 and
will restate its comparative figures accordingly. The directors believe that this is a more accurate reflection of the commercial and legal
reality of the arrangements with Fleet. This is because, at any reporting period, Brait will recognise the amount payable under the financial
guarantee, if the loans were settled at that time.
2.1 Restatement impact on Group statement of financial position
Brait's net exposure in terms of its financial guarantee to Fleet is now recognized as a liability. The net exposure takes into account
the loan amount owing by Fleet to the Lenders at each reporting date, reduced by the pledged Brait shares held as collateral for this loan,
which are valued at the closing share price. The number of pledged Brait shares recognised as collateral is limited to the extent of the
loan amount owing by respective individual Investment Team Borrowers, calculated using the closing share price at each reporting date.
Previously Previously
reported Adjustment Restated Restated Adjustment reported
R'm R'm R'm March 2018 EUR'm EUR'm EUR'm
(4 482) (906) (5 388) Share capital and premium (565) (95) (470)
5 125 - 5 125 Foreign currency translation reserve 881 34 847
(864) - (864) Convertible Bond reserve (57) - (57)
(26 904) (353) (27 257) Retained earnings (2 204) (25) (2 179)
(27 125) (1 259) (28 384) Ordinary shareholders' equity and reserves (NAV) (1 945) (86) (1 859)
(1 910) 1 910 - Other liability - 131 (131)
- (651) (651) Financial guarantee liability (45) (45) -
(52.4) (34.9) (17.5) Number of treasury shares (m) (17.5) (34.9) (52.4)
5 732 (146) 5 586 Net asset value per share (cents) 383 (10) 393
2.2 Restatement impact on Group statement of comprehensive income
As a result of recognising the net exposure in terms of the financial guarantee to Fleet as a liability, the change in exposure during the
period is recognised in the line item "Other expenses"
Previously Previously
Reported Adjustment Restated Restated Adjustment Reported
R'm R'm R'm March 2018 EUR'm EUR'm EUR'm
(897) 187 (710) Finance costs (47) 12 (59)
- (651) (651) Other expenses (45) (45) -
(9 249) - (9 249) Other unchanged income/expense items (608) - (608)
(10 146) (464) (10 610) Loss for the year (700) (33) (667)
(297) - (297) Translation adjustments (99) - (99)
(10 443) (464) (10 907) Comprehensive loss for the year (799) (33) (766)
Earnings/Headline earnings per share - basic
(2 144) 52 (2 092) (cents) (138) 3 (141)
2.3 Restatement impact on Group statement of cash flows
Under the previous consolidation basis, repayments made by Fleet or the Investment Team Borrowers on their respective outstanding loan
amount gave rise to cash flows to Brait. As a result of recognising the net exposure in terms of the financial guarantee to Fleet as a
liability, Brait's cash flow statement will now only reflect a cash outflow should this be required at settlement.
R'm R'm R'm March 2018 EUR'm EUR'm EUR'm
(113) (55) (168) Net purchase of treasury shares (11) (5) (6)
(348) 55 (293) Interest paid (20) 3 (23)
134 - 134 Other unchanged cash flow items 8 - 8
(327) - (327) Net decrease in cash and cash equivalents (23) (2) (21)
(50) - (50) Effects of exchange rates on cash (8) 2 (10)
3 284 - 3 284 Cash and cash equivalents at beginning of year 230 - 230
2 907 - 2 907 Cash and cash equivalents at end of year 199 - 199
3. INVESTMENTS
The Group designates the majority of its financial asset investments as 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 debt 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, and price to book multiple. Listed investments are held at recent quoted
transaction prices.
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 EBITDA 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.
In accordance with IFRS 13, no control premium adjustment is considered for those portfolio investments in which the Group holds a majority
interest. 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 2018 investor presentation on the Group's website, www.brait.com.
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2018 2017 2018 2018 2017 2018
R'm R'm R'm EUR'm EUR'm EUR'm
36 497 40 023 37 710 The Group's portfolio of investments 2 297 2 499 2 501
Equity and shareholder funding investments
17 067 17 726 17 972 Virgin Active 1 095 1 107 1 169
10 735 12 030 9 945 Premier 606 751 736
6 287 8 511 6 602 Iceland Foods 402 531 431
- - - New Look - - -
2 408 1 756 3 191 Other Investments 194 110 165
Valuation metrics 30 September 2018 30 September 2017 31 March 2018
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 345 139 11.4x 336 144 11.4x 331
Premier (R'm) 1 084 11.4x 2 118 1 170 12.4x 1 768 1 065 12.4x 1 938
Iceland Foods (GBP'm) 153 8.4x 713 163 9.0x 687 157 8.4x 689
New Look (GBP'm) Note 1 Note 1 Note 1
Other investments Note 2 varied Note 2
Note 1 Brait's equity and shareholder loan investments in New Look are valued at nil based on the Enterprise Value at the reporting dates shown.
Note 2 As Brait was in the process of building a position in certain public market securities, this was referred to as a "Listed Position" at 31 March
2018. This Listed Position relates to New Look Senior Secured Notes ("SSNs"), which at 30 September 2018, applying closing quoted prices translated
at closing exchange rates, represents a carrying value of GBP111 million (R2.05 billion). The nominal value for this holding is GBP189 million, which
represents 18.2% of the SSNs in issue.
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.
The Level 1 classification relates to Brait's holding of SSNs. There are no financial assets that are categorised as Level 2 in the current or prior period.
All Level 3 investments have been valued using a maintainable earnings multiple model.
Level 1 Level 3 Total Level 1 Level 3 Total
R'm R'm R'm 30 September 2018 EUR'm EUR'm EUR'm
- 17 972 17 972 Virgin Active - 1 095 1 095
- 6 980 6 980 Premier - 425 425
- 6 602 6 602 Iceland Foods - 402 402
2 050 1 141 3 191 Other investments (1) 125 69 194
2 050 32 695 34 745 Investments at fair value 125 1 991 2 116
2 965 Premier shareholding funding 181
2 965 Investments at amortised cost 181
37 710 Total investments 2 297
(1) The Other Investments portfolio comprises Brait's holding of the SSNs, its investment in DGB and remaining private equity fund investments.
Audited Unaudited Unaudited Audited
year ended six months six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2018 2017 2018 2018 2017 2018
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25 3 273 4. ACCOUNTS RECEIVABLE 17 - 2
Included in accounts receivable is the outstanding balance
of GBP14.1 million (R260 million/EUR15.8 million) relating to the
New Look debtor factoring as per note 11.
5. CASH AND CASH EQUIVALENTS
2 907 3 287 2 069 Balances with banks 126 205 199
155 270 82 - ZAR cash 5 17 11
104 96 14 - USD cash 1 6 7
2 648 2 921 1 973 - GBP cash 120 182 181
Audited Unaudited Unaudited Audited
year ended six months six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2018 2017 2018 2018 2017 2018
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6. CONVERTIBLE BONDS
5 443 5 883 6 124 On 18 September 2015 Brait received GBP350 million from 373 367 373
the issuance of its five-year unsubordinated, unsecured
convertible bonds ("Bonds"). The Bonds listed on the
Open Market (Freiverkehr) segment of the Frankfurt
Stock Exchange on 15 October 2015 and 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 issues and cash dividend
alternative since date of issue, in accordance with the
Bonds terms and conditions. Using this conversion price,
the Bonds would be entitled to convert into 45.096 million
ordinary shares (8.6% of Brait's current share capital of
525.599 million ordinary shares) on exercise of bondholder
conversion rights.
In the event that the bondholders have not exercised
their conversion rights in accordance with the terms and
conditions of the Bonds, the Bonds are settled at par
value in cash on maturity on 18 September 2020. In accordance
with IAS32, the Bonds' liability component is measured at reporting
date as GBP 332.1, million (FY 2018: GBP 328.0 million; HY 2018:
GBP 332.9 million) and translated into Rands using the closing
GBP/ZAR exchange rate
Audited Unaudited Unaudited Audited
year ended six months six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2018 2017 2018 2018 2017 2018
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7. BORROWINGS
2 669 2 736 4 719 Opening Balance 323 177 186
372 81 241 Interest accrual 15 5 24
- - - Foreign currency translation (37) (8) 13
1 678 500 200 Net cash drawn from Borrowings 13 33 100
1 971 500 200 Drawdowns 13 33 120
(293) - - Repayments - - (20)
4 719 3 317 5 160 Closing Balance 314 207 323
The loan from FirstRand Bank Limited (trading through
its Rand Merchant Bank division) and Standard Bank of
South Africa Limited (the "Lenders") is Rand denominated,
bears interest at JIBAR plus 3.0% repayable quarterly,
with a right to rollup. The R8.5 billion facility expires in
December 2020 and is secured by Group assets.
Restated Unaudited Unaudited Restated
year ended six months six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2018 2017 2018 2017 2017 2018
R'm R'm R'm EUR'm EUR'm EUR'm
651 - 685 8. FINANCIAL GUARANTEE LIABILITY 42 - 45
At reporting date, Brait's net exposure in terms of its
financial guarantee is R685 million (FY2018: R651 million).
This represents the shortfall at reporting date between the
loan amount owing by Fleet to the Lenders of R2 007 million
(FY2018: R1 910 million), for which Brait has provided an
indemnity, and the R1,322 million (FY2018: R1 259 million)
value of Brait shares owned by the Investment Team and Fleet,
which are pledged as collateral to Brait for its indemnity,
and valued at the closing share price of R37.78 (FY2018: R36.10).
Fleet's loan owing to the Lenders is Rand denominated and bears
interest at JIBAR plus 3%, with quarterly compounding of interest.
The current term of the loan is 6 December 2020.
The number of pledged Brait shares owned by the Investment Team
available as collateral to Brait at each reporting date is limited to
the extent of the loan amount owing by respective Investment Team
Borrowers, calculated using the closing share price. As a result of
this calculation, 2.5 million pledged shares are not recognised by Brait
as collateral (FY2018: 2.6 million).
At 30 September 2017, Brait's net exposure of R440 million was recognised
as a contingent liability (refer to note 12.1). Brait has since recognised
its net exposure in terms of this financial guarantee as a liability, with
changes in exposure recognised in the line item "other expenses" in the
statement of comprehensive income.
9. HEADLINE EARNINGS RECONCILIATION
(10 610) (7 980) (3 394) Loss and headline loss (216) (532) (700)
507 506 508 Weighted average ordinary shares in issue (m) - basic 508 506 507
(2 092) (1 577) (668) Loss and headline loss per share (cents) - basic (43) (105) (138)
The conversion of the Bonds is anti-dilutive
Restated Restated
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2018 2017 2018 2018 2017 2018
10. TREASURY SHARES
Opening number of shares held for the vested
14 576 784 14 576 784 17 475 070 benefit of Brait SE 17 475 070 14 576 784 14 576 784
2 898 286 2 898 286 - Number of treasury shares purchased - 2 898 286 2 898 286
Closing number of shares held for the
17 475 070 17 475 070 17 475 070 vested benefit of Brait SE 17 475 070 17 475 070 17 475 070
11. 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 six month period ended 30 September 2018, Group companies entered into the following transactions with related parties who are not members of the Group:
On 10 May 2018, Brait Capital International Limited ("BCIL") (a wholly owned subsidiary of Brait SE) and New Look Retailers Limited ("NLR") (a wholly
owned subsidiary of New Look Retail Group Limited) entered into a Debtor Purchase Agreement ("Agreement"). The terms of the Agreement allow
NLR to sell and assign approved 3rd Party E-commerce debtor balances to BCIL, with no recourse. The credit assessment of debts offered and
the decision to purchase are at the sole discretion of BCIL. The trade terms of the debtors acquired vary between 30 days and 75 days. A factoring
charge of three-month LIBOR plus 2.0% per annum applies, which is within the pricing range quoted by third party banks. The current outstanding balance
of GBP 14.1 million is included as part of Accounts Receivable as per note 4.
Audited Unaudited Unaudited Audited
year ended six months six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2018 2017 2018 2017 2017 2018
R'm R'm R'm EUR'm EUR'm EUR'm
Loss from operations include:
(17) (8) (9) Non-executive directors' fees (1) (1) (1)
(2) (1) (1) Professional fees - M Partners S.à r.l (1) - - -
(2) (1) (1) Professional fees - Maitland International Holdings Plc (1) - - -
(3) - - Other expenses - Maitland International Holdings Plc (1) - - -
(1) HRW Troskie is a director and shareholder of Brait, and is a
director and shareholder of Maitland International Holdings Plc;
M Partners S.a r.l. is a Maitland network law firm; HRW Troskie is
neither a director nor a shareholder of M Partners S.a r.l.
Audited Unaudited Unaudited Audited
year ended six months six months year ended
31 March 30 Sept 30 Sept 30 Sept 30 Sept 31 March
2018 2017 2018 2018 2017 2018
R'm R'm R'm EUR'm EUR'm EUR'm
12. CONTINGENT LIABILITIES AND COMMITMENTS
12.1 Contingencies
As at 30 September 2017, Brait's net exposure for its
financial guarantee to fleet was R440 million. Given the
remaining term was more than three years, this amount was disclosed
as a contingent liability. Brait has since recognised its net exposure
in terms of this financial guarantee as a liability (refer to note 8)
12.2 Commitments
6 209 6 882 6 806 Convertible Bond commitments 415 430 425
160 175 177 - Coupon payment due within one year 11 11 11
240 350 177 - Coupon payments due between one and five years (1) 11 22 16
5 809 6 357 6 452 - Principal settlement due within five years (1) 393 397 398
(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 trading days after
9 October 2018. If the soft call is exercised,
coupons from 18 September 2018 to
18 September 2020 will not be payable.
15 88 16 Private equity funding commitments 1 5 1
Rental commitments (Malta and Mauritius)
2 2 2 - Within one year - - -
3 3 3 - Between one and five years - - -
6 229 6 975 6 827 Total commitments 416 435 426
12.3 OTHER
The Group has rights and obligations in terms of shareholder or purchase and sale agreements relating to its present or former investments.
13. POST-BALANCE SHEET EVENTS
No events have taken place between 30 September 2018 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 reports to shareholders on the Group's unaudited interim results for the six months ended 30 September 2018.
Commenting on the results, Brait's Chairman Jabu Moleketi said: "Brait has performed in line with expectations with a broadly flat performance in a
tough environment in both South Africa and the United Kingdom. Focus continues on driving growth and value for shareholders in its underlying portfolio
companies in addition to progressing strategies to reduce debt on Brait's own balance sheet and increasing cash flow at Brait itself".
FINANCIAL HIGHLIGHTS
- Key performance metric of NAV per share largely flat for the six months ended 30 September 2018 at ZAR55.23 (31 March 2018: restated NAV per
share of ZAR55.86 - Note 1)
- Valuation multiple for Premier reduced from 12.4x to 11.4x; Virgin Active and Iceland Foods unchanged
- The Listed Position refers to New Look Senior Secured Notes (GBP111 million carrying value), which are included in the Other Investments portfolio
- Cash received from portfolio for the current six-month period of ZAR545 million, which compares to ZAR484 million received during FY2018
- Available cash and facilities of ZAR3.4 billion at reporting date
- Operating costs to AUM at 0.68%, within target of being less than 0.85%
Note 1: The audited NAV per share at 31 March 2018 of ZAR57.32 has been restated to ZAR55.86. Refer to the discussion on the reversion to the previous accounting
treatment for Fleet.
REPORTED NAV PER SHARE
Brait's valuation policy is to reference the EV/EBITDA valuation multiple on a historical basis for each of its investments, relative to their peer group's
average 3-year trailing multiple. The EV/EBITDA historical valuation multiples used compared to respective peer average multiples are:
30 September 2018 31 March 2018 30 September 2017
% discount/ % discount/ % discount/
Valuation (premium) to Valuation (premium) to Valuation (premium) to
multiple peer average: multiple peer average: multiple peer average:
used used used
3-year spot 3-year spot 3-year spot
Virgin Active 11.4x 17% 24% 11.4x 16% 17% 11.4x 17% 15%
Premier 11.4x 10% (8%) 12.4x 5% 2% 12.4x 7% (10%)
Iceland Foods 8.4x 14% 5% 8.4x 18% - 9.0x 21% 20%
New Look (Note 2) - - - - - - - - -
Note 2: Brait's equity investment in New Look since 30 September 2017 is valued at zero based on the Enterprise Value at reporting dates
The composition of the peer groups applied are unchanged, with the exception of Iceland Foods, where as of 31 March 2018, following the delisting of
Booker, Iceland Foods' peer group includes Marks & Spencer as a replacement.
The valuation multiple for Premier was reduced from 12.4x to 11.4x at reporting date, largely to take consideration of the decline in the peer spot multiple
evidenced in the current period. The 11.4x multiple used represents a 10% discount to the peer average 3-year trailing multiple at reporting date.
The NAV breakdown is as follows:
Unaudited Restated Unaudited Unaudited Restated Unaudited
30 September 31 March 30 September 30 September 31 March 30 September
2017 2018 2018 2018 2018 2017
ZAR'm ZAR'm ZAR'm % EUR'm EUR'm EUR'm
40 023 36 497 37 710 Investments 94 2 297 2 501 2 499
17 726 17 067 17 972 Virgin Active 45 1 095 1 169 1 107
12 030 10 735 9 945 Premier 25 606 736 751
8 511 6 287 6 602 Iceland Foods 16 402 431 531
- - - New Look - - - -
1 756 2 408 3 191 Other investments 8 194 165 110
3 287 2 907 2 069 Cash and cash equivalents 5 126 199 205
3 25 273 Accounts receivable 1 17 2 -
43 313 39 429 40 052 Total assets 100 2 440 2 702 2 704
9 462 11 045 11 988 Total liabilities 730 757 590
5 883 5 443 6 124 Convertible bond 373 373 367
3 317 4 719 5 160 Borrowings 314 323 207
- 651 685 Financial guarantee liability 42 45 -
262 232 19 Accounts payable 1 16 16
33 851 28 384 28 064 NAV 1 710 1 945 2 114
508.12 508.12 508.12 Net issued ordinary shares ('mil) 508.12 508.12 508.12
6 662 5 586 5 523 NAV per share (cents) 336 383 416
Note: The closing GBP/ZAR exchange rates used to translate the Group's net Pound denominated assets into its rand presentation currency are as at 30 September 2018:
R18.43; 31 March 2018 - R16.60; 30 September 2017 - R18.16
KEY HIGHLIGHTS FOR THE GROUP'S INVESTMENT PORTFOLIO ARE:
Virgin Active
- For the nine months ended 30 September 2018, Virgin Active has focused on membership growth, investment into its existing club portfolio and
selected new club rollouts to support growth in several of its territories.
- Virgin Active has expanded its group exercise offering and enhanced its digital platform in order to improve the member experience.
- Using actual Pound Sterling exchange rates for the nine months ended 30 September 2018, revenue grew by 1%, with EBITDA decreasing by 6%
on the comparative period. EBITDA growth was impacted by the upfront recognition of increased commission costs associated with the substantial
growth in sales, new club start-up expenses and adverse exchange rate movements. Excluding these impacts, EBITDA at constant currency was up 7%.
All territories generated positive revenue growth, driven by volume growth in membership and the maturing of new and developing clubs.
- During the nine months ended 30 September 2018, Virgin Active has opened a net 5 new clubs, with the group now comprising 238 well
invested profitable clubs with 1.2 million members across 8 countries.
- Closing membership at 30 September 2018, excluding club closures, grew 3% over the comparative period, driven by membership sales that were up 13% relative to the
comparative period.
- Virgin Active continues to invest in boutique quality group exercise, where studio space has been increased across the UK estate. In South Africa,
9 new format group exercise studios have been introduced.
- Virgin Active has made further investment in improving its digital proposition. In Italy, new initiatives include digital coaching and Revolution Live, which
offers customers the ability to participate in digital cycle classes outside of the gym.
- Post the GBP25 million repayment of shareholder funding in September 2018, of which Brait received GBP19.8 million (ZAR365 million), Virgin Active's leverage
ratio for net debt owing to third parties, based on last twelve months (LTM) EBITDA, is 2.5x (30 September 2017: 2.4x)
- Virgin Active, in which Brait has an effective 71.9% (HY2018: 71.9%) equity value participation (post dilution for the performance based sweet equity
granted to the Virgin Active management team) and 79.2% (HY2018: 79.2%) shareholder funding participation, has a carrying value of ZAR18.0 billion
(HY2018: ZAR17.7 billion), representing 45% of Brait's total assets (HY2018: 41%).
Premier
- In a challenging macro environment Premier's focus on margin management delivered EBITDA growth of 10% for the six months ended 30 September
2018. Lower commodity prices and the resulting deflationary environment led to group revenue for the period reducing by 8% on the comparative.
- EBITDA margin of 10.2% compares favourably to the 8.5% for the prior period. Whilst gross profit margin for the current six-month period was largely
in line with FY2018, increased costs derived from the weakened rand, higher fuel prices, labour settlements and administration costs resulted in the
slight decrease in EBITDA margin compared to FY2018's 10.4%.
- The milling division, which represents 30% of net revenue, generated a 158% increase in EBITDA, led by the maize business, which continues to
improve profitability after the extreme price volatility experienced post the drought in 2016 and record maize crop in 2017/18.
- Premier's bread division, which accounted for 52% of the group's net revenue, recorded a satisfactory performance in a market which remains
deflationary. Sales volumes grew by 2.4% over the comparative period, with the average selling price per loaf remaining flat for the 278 million loaves
produced. EBITDA was down 9% due to substantial increases in fuel and wheat prices.
- No significant expansionary projects are budgeted for FY2019, with capital expenditure for the current six-month period at 3% of revenue
(HY2018: 3%).
- During the six-month period, Premier repaid Brait ZAR106 million shareholder funding, with a further ZAR111 million repaid on 1 October 2018.
Premier's leverage ratio for net debt owing to third parties, based on LTM EBITDA, is 1.9x (HY2018: 2.1x).
- Brait increased its shareholding in Premier in the six-month period from 93.7% to 96.0% (HY2018: 92.7%), through the exercise of put and call
option agreements.
- The reduction in valuation multiple from 12.4x to 11.4x takes into account the decline in the peer average spot multiple during the six-month reporting
period, and is the main reason for Premier's carrying value having reduced from ZAR10.7 billion to ZAR9.9 billion at reporting date (HY2018: ZAR12.0 billion),
which represents 25% of Brait's total assets (HY2018: 28%).
Iceland Foods:
- The UK retail market while in growth, partly driven by increasing inflation, continues to be competitive.
- Sales (in GBP) for the 24 weeks ended 14 September 2018 grew by 5.1%. LFL sales are 1% positive on the comparative period. Iceland benefitted
from the net 17 new stores opened in the period, which includes 15 Food Warehouse formats, and the net 30 new stores opened in the previous
financial year. The online business continues to achieve strong LFL growth.
- EBITDA for the period is down 21.5% on the comparative. This principally reflects increased staffing costs following the rise in the National Living Wage
from April 2018; increased costs due to both higher fuel prices and the need to adapt the distribution network to accommodate growing demand, and some
investment in price and promotions to drive transaction growth. Management believes that the third quarter provides the opportunity to recover the
EBITDA year on year shortfall, subject to sales performance.
- Iceland products were made available in September 2018 in three of The Range home, garden and leisure stores as an initial trial.
- During the period, Iceland refitted a total of 24 Iceland facia stores across the UK, taking the total number of completed refurbishments to 77 at
14 September 2018, with this group of refurbished stores consistently achieving LFL sales performance ahead of the company average. A new,
lower cost store refit has been trialled, with results from the initial five stores encouraging.
- The total estate at 14 September 2018 is 949 stores (FY2018: 932 stores) which includes 74 Food Warehouse stores. The pace of store openings will
increase during the second half of the financial year, aided by the acquisition of 19 former Poundworld stores from the receivers of that business.
- Liquidity remains strong, however, due to the increased capital expenditure for growing and refreshing the store estate and increased potential
stock holding, may result in the year-end net debt position being higher than the comparative. Management are comfortable with this position,
given the nature of these two drivers. Iceland's leverage ratio for net debt owing to third parties, based on LTM EBITDA is
4.8x (HY2018: 4.2x).
- Following a company share buyback during April 2018, Brait's shareholding in Iceland increased from 60.1% to 63.1% (HY2018:60.1%).
- Iceland's carrying value of ZAR6.6 billion (HY2018: ZAR8.5 billion) represents 16% of Brait's total assets (HY2018: 20%).
New Look
- New Look continues to deliver on its turnaround plan in a heavily promotional UK market. Its return to proven broad appeal product and better value is
evidenced by having outperformed the market by 5.6% (*), and consequently increasing its market share as the UK's number 2 womenswear retailer in
the 18 to 44 age range (#). Conversion rates have increased in UK stores to 24.4% (HY2018: 23.1%) and are +2.0% LFL for online.
- For the 26 weeks ended 22 September 2018, continued focus on more profitable sales within the E-commerce channel and the decline in franchise
revenue due to planned franchisee store reductions, were the main reasons for group revenue decreasing by 4.2% on the comparative.
- Group EBITDA for HY2019 increased by 106% to GBP49.8 million (HY2018: GBP24.2 million). Excluding operations in China, which New Look
announced on 18 October 2018 it would be exiting as part of its strategic review of international operations, group EBITDA for the period is
GBP57.9 million.
- Annual cost savings of GBP70 million have been identified and actioned for the group, of which GBP31.7 million has been recognised in the
HY2019 results.
- In terms of the CVA, the annual forecast EBITDA benefit has reduced by GBP5 million to GBP35 million due to landlord-enforced closure of
profitable stores and lease renewals. A total of 85 stores have closed or are in the process of doing so, with 13 negotiations ongoing. Landlords can no
longer terminate on 'B' classified stores.
- Positive year-on-year gross profit results continued for key clothing ranges where initial attention has been focused, with improved ranges in denim,
accessories and footwear having landed at the end of the period. Speed to market on key product categories has quickened and internal processes
continue to improve.
- Promotional activity was used to drive footfall, in line with the market, and manage slower moving stock lines, to maintain a clean stock position,
with underlying stock down 10.6% year on year. Tighter stock management and increased sourcing from countries closer to the UK enable shorter lead
times for seasonal fashion product, providing greater 'Open to Buy' flexibility and maximising full price trading of trends.
- Underlying operating profit for the E-commerce channel increased to GBP10.3 million (HY2018: GBP1.4 million). E-commerce is driving footfall into stores,
demonstrated by Click and Collect sales mix increasing from 28% to 41%, and online returns to stores mix now at 77% (HY2018: 65%).
- New Look's liquidity has improved from year-end, with total cash, liquidity and operating facilities available of GBP93.8 million at its interim reporting
date of 22 September 2018.
- Brait's equity investment and shareholder loan in New Look is valued at nil (HY2018: nil) based on the Enterprise Value at reporting date
- Footnotes: (*) measured by the British Retail Consortium (BRC) for the 26 weeks ended 22 September 2018 for Women's Clothing in UK stores; (#)
measured by KantarWorldPanel for the 24 weeks ended 23 September 2018, Womenswear by value
Other Investments:
- As Brait was in the process of building a position in certain public market securities, this was referred to as a "Listed Position" at 31 March 2018.
This holding relates to New Look Senior Secured Notes ("SSNs"), which at 30 September 2018, applying closing quoted prices translated at closing
exchange rates, represents a carrying value of GBP111 million (ZAR2.05 billion). The nominal value for this holding is GBP189 million, which represents
18.2% of the SSNs in issue.
- The net increase in carrying value for the Other Investments portfolio over the past twelve months is therefore a function of: (i) the investment in SSNs;
(ii) proceeds received in excess of ZAR200 million, which includes Brait IV's realisation of its investment in Primedia in December 2017; and
(iii) a decrease in the carrying value of DGB, which includes the impact of a discontinued contract, offset by a 10% increase in shareholding to 91.3%.
- At reporting date, the Other Investments portfolio carrying value of ZAR3.2 billion (HY2018: ZAR1.8 billion) comprises 8% of Brait's total assets
(HY2018: 4%).
Significant cash flow within the underlying assets over any 3-year period
Brait's portfolio of investments are highly cash flow generative. Currently, cash flow generated by the Group's portfolio of investments is mostly retained
within the portfolio for growth and deleveraging. Whilst ensuring growth is not compromised for the portfolio, Brait received ZAR545 million during the
current six-month period (HY2018: ZAR42 million), mostly in the form of shareholder funding repayments made by Virgin Active (GBP19.8 million) and
Premier (ZAR106 million). Premier repaid a further ZAR111 million on 1 October 2018.
LOW COST TO AUM RATIO FOR BRAIT
Brait's operating expenditure for the six-month period is ZAR138 million which is in line with the comparative period's ZAR135 million. On an annualised
basis, this equates to operating expenditure of ZAR276 million, compared to R281 million for FY2018. Using Brait's average AUM for the six-month period
as the reference basis, annualised operating costs are 0.68% (FY2018: 0.66%) and net after fee income of 0.64% (FY2018: 0.58%), compared to the
target of 0.85% or less.
GROUP FUNDING POSITION
The Group's committed revolving ZAR8.5 billion facility from the Lenders is Rand denominated, bears interest at JIBAR plus 3.0% payable quarterly, with
the right to rollup these quarterly interest payments. This facility is secured by the assets of Brait Malta Limited and its subsidiaries. At 30 September 2018,
the Group has available undrawn gearing facilities of ZAR1.3 billion, representing Brait's borrowing facility of ZAR8.5 billion, reduced for the amount drawn
of ZAR5.2 billion and the loan that Fleet owes its bankers of ZAR2.0 billion (which does not take into consideration the ZAR1.3 billion value of the pledged
shares held as collateral). Taking into account the Group's ZAR2.1 billion cash, this results in total liquidity of ZAR3.4 billion at reporting date.
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 conversion price, the Bonds would be entitled to convert
into 45.096 million ordinary shares (8.6% of Brait's current share capital of 525.599 million ordinary shares) on exercise of bondholder conversion rights.
In the event that the bondholders have not exercised their conversion rights in accordance with the terms and conditions of the Bonds, the Bonds are to
be settled at par value in cash on maturity date.
In accordance with IAS 32 (Financial Instruments: Presentation), the Bonds' liability component is measured at reporting date as GBP332.1 million.
Applying the closing GBP/ZAR exchange rate of ZAR18.43, results in the Bonds' translated carrying value of ZAR6.1 billion.
ORDINARY SHARE CAPITAL
Total issued ordinary share capital at 30 September 2018 is 525,599,215 shares of EUR0.22 each (HY2018: 525,599,215 shares). The Group has
17,475,070 purchased treasury shares at 30 September 2018 (HY2018: 17,475,070 purchased treasury shares held). This results in net ordinary share
capital in issue of 508,124,145 shares (HY2018: 508,124,145 shares).
As set out below, as a result of reverting to the 'Historic Basis' of accounting for Fleet (as set out in Brait's FY2018 results presentation), the Group no
longer recognises as treasury shares the pledged Brait shares held as collateral for the loan to Fleet.
CHANGE IN ACCOUNTING TREATMENT FOR FLEET
In the financial years 2011-2017 Brait accounted for the financial guarantees given by it for Fleet (the Investment Team's vehicle to facilitate the holding
of shares in Brait) under IAS37 (Provisions, Contingent Liabilities and Contingent Assets) as required by IAS39 (Financial Instruments: Recognition and
Measurement). In the full year financials for 2018, and following extensive discussions with the auditors, the decision was made to change the basis of
accounting to consolidate Fleet in accordance with IFRS10 (Consolidated Financial Statements) and the comparative figures for 2016 and 2017 were
restated accordingly.
During the current financial period, this basis of accounting has been rigorously reassessed by the Audit Committee and the auditors. It has been
concluded that variations in the size of the net exposure under the guarantee do not provide Brait with any incremental rights over the relevant activities
of Fleet or any decision-making power over Fleet or any ability to influence the variable returns of Fleet in the periods prior to the due date of the loans.
This has been the case since inception and as confirmed by Senior Counsel. As such, the Directors are of the view that, in accordance with IFRS 10
paragraph B85, their initial assessment of Brait's control of Fleet has not changed simply because of a change in the net exposure.
Accordingly, Brait will again account for its net exposure as a financial guarantee (as done in 2012 to September 2017) as defined in IAS39 and in
accordance with IAS37 and will restate its comparative figures accordingly. The Directors believe that this is a more accurate reflection of the commercial
and legal reality of the arrangements with Fleet. This is because, at any reporting period, Brait will recognise the amount payable under the financial
guarantee, if the loans were settled at that time. At 30 September 2018, this amounts to ZAR685 million (31 March 2018: ZAR651 million), representing
the shortfall between Fleet's loan amount of ZAR2.0 billion (31 March 2018: ZAR1.9 billion), for which Brait has provided an indemnity, and collateral held
in the form of 35.0 million pledged Brait shares held by Fleet and the Investment Team (31 March 2018: 34.9 million pledged shares), valued using the
closing Brait share price of ZAR37.78 (31 March 2018: ZAR36.10).
The restatement effect for the interim financial statements is isolated to the FY2018 reported results and a resulting restated NAV per share for FY2018 of
ZAR55.86, compared to the ZAR57.32 reported under the IFRS10 consolidation basis. The September 2017 interim results remain unchanged from that
previously reported (NAV per share of ZAR66.62).
GROUP OUTLOOK
Focus for the next 18 months is to position Brait to resume its previous success in growing NAV per share:
- Enhancing organic growth in Virgin Active, Premier and Iceland Foods and execution of New Look's turnaround strategy
- Materially reducing debt on Brait's own balance sheet and increasing cash flow at Brait itself
- Preparing for the possible redemption and repayment of Brait's Bonds due September 2020
- Positioning for a new acquisitive phase by the end of this period to achieve a wider investment spread but still primarily focused on consumer facing
and industrial investments mainly in our chosen geographies of South Africa and the UK
Executing on these plans should result in the reduction of the discount of Brait's share price to the reported NAV per share.
For the investment portfolio:
- Virgin Active's focus in the current year has been delivering on membership growth, setting a strong growth platform for the future. Further investment
is planned to enhance group exercise and personal training offerings including growing the group's digital proposition. A return to double digit EBITDA
growth is expected in the near term as revenue from members acquired in 2018 flows through to 2019
- Premier's focus remains on margin management across all categories, cost savings and efficiencies. Premier continues to optimise its bakery
manufacturing footprint, aligning capacity with demand and upgrading the inland bakeries to match the standard set by coastal. In keeping with
its growth strategy, Premier remains alert to potential value enhancing acquisitions to enter new categories and/or geographies.
- Iceland's sales continue to grow with positive LFL to date in its third quarter, providing the opportunity to recover the EBITDA year-on-year shortfall.
Liquidity remains strong. Iceland continues to focus on investing for the long-term success of the business.
- New Look continues to make good progress in delivering improved operational and financial stability with increasing UK market share demonstrating
its strengthened breadth of appeal. Although womenswear clothing performance is improving, key challenges in footwear and accessories remain.
The exit from China allows New Look to focus on core trading, with the review of its other international markets ongoing. A clean stock position at the
end of H1, supplemented with continued cost savings, sees New Look well placed for the coming peak trading quarter to deal with challenging market
conditions, uncertainties and headwinds.
In conclusion, Brait believes that driving value in the existing portfolio should remain the focus for the year ahead.
For and on behalf of the Board
PJ Moleketi
Non-Executive Chairman
12 November 2018
Directors (all non-executive)
PJ Moleketi (Chairman)*,JC Botts^, AS Jacobs(##), Dr LL Porter##, CS Seabrooke*, HRW Troskie**, Dr CH Wiese* (Alternate: JD 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)
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