Wrap Text
Consolidated unaudited financial results for the six-month period ended 30 September 2020
BRAIT SE
(Registered in Malta as a European
Company) (Registration No. SE1)
Share code: BAT ISIN: LU0011857645
Bond code: WKN: A2SBSU ISIN: XS2088760157
LEI: 549300VB8GBX4UO7WG59
("Brait", the “Company”, or the “Group”)
CONSOLIDATED UNAUDITED FINANCIAL RESULTS FOR THE SIX-MONTH PERIOD
ENDED 30 SEPTEMBER 2020
The Board of Directors (“Board”) hereby reports to shareholders on
the Group’s unaudited interim results for the six months ended 30
September 2020.
GROUP FINANCIAL HIGHLIGHTS
• R2.8 billion cash inflow from the portfolio (FY20: R1.6
billion).
• R5.6 billion de-gearing at Brait level:
o BML RCF drawings reduced from R4.6 billion to R2.7 billion;
o Repurchase and redemption of remaining 2020 Bonds using
Pound cash from the February 2020 Rights Offer, saving GBP3
million through early settlement offers and tender process.
• NAV per share of R7.71, a 6.8% decline on FY20’s R8.27:
o Uplift from the strong operational performance by Premier
and realising Iceland Foods at a premium to its carrying
value;
o Offset by the impact of Coronavirus on Virgin Active and
New Look.
• R1.9 billion available cash and facilities at reporting date.
• As an investment holding company, Brait's key reporting metric
is NAV per share. From an IAS34 interim reporting perspective,
Brait's loss per share and headline loss per share is
-34 cents (FY2019: -2,799 cents).
REVIEW OF THE SIX MONTHS ENDED 30 SEPTEMBER 2020
• Significant amount of time spent with the portfolio company
management teams focusing on:
o short term strategies to mitigate Coronavirus and
refreshing medium term strategies to align with Brait
(maximising value through the realisation of the portfolio
over a 3 to 5-year period);
o New management incentive schemes agreed and succession
plans in place at Virgin Active and Premier; and
o Recapitalisation of Virgin Active (UK/Europe and Asia
Pacific).
• New Look announced on 9 November 2020, the completion of its
comprehensive recapitalisation transaction.
• Disposals in line with Brait’s new strategy:
o DGB sale completed 13 May 2020, for R470 million (FY20
carrying value), with first tranche of R370 million
received on 1 June 2020; remaining R100 million deferred
proceeds to be received in two deferred payments of R50
million each by 31 March 2021 and 31 March 2022
respectively.
o Iceland Foods sale completed 8 June 2020, for GBP115
million, a significant premium to its FY20 carrying value
of GBP62.5 million. First tranche of GBP60 million (R1,275
million) proceeds received on 8 June 2020; GBP48.5 million
(R1,074 million) received on 15 September 2020, as final
early settlement for the two remaining deferred tranches
(GBP26.9 million by 30 July 2021; GBP28.1 million by 29
July 2022).
• Governance:
o At the Annual General Meeting held in Malta on 13 August
2020 (“AGM”), Shareholders approved the appointment of the
new Board of non-executive directors as proposed,
comprising 5 new members and 3 re-elected members
(respective biographies available at www.brait.com).
o At the Extraordinary General Meeting held in Malta on 30
October 2020, Shareholders approved:
- Brait’s registered office to be transferred from
Malta to Mauritius, where the Company’s main
investment subsidiary, Brait Mauritius Limited
(“BML”) is domiciled (the “Redomiciliation”). The
Redomiciliation process, expected to complete by 31
March 2021, will not impact the Company’s primary or
secondary listings, nor the terms and conditions of
the GBP150 million 6.5% Convertible Bonds due on 4
December 2024 (“2024 Bonds”).
- A five-year Long Term Incentive Plan (“LTIP”) for
Brait’s contracted advisor, Ethos Private Equity (the
“Advisor”), designed to align the interests of the
Advisor with those of Shareholders in delivering on
Brait’s new strategy of realising value from the
portfolio over the medium term, whilst minimising
dilution to Shareholders.
o In line with the Board’s focus on reducing costs:
- At the AGM, Shareholders approved the new Board’s
proposed compensation, at a significantly reduced
level (c.50%);
- Estimated annualised savings to Brait’s cash costs of
c.R508 million since 1 March 2020, which includes the
benefit of a c.3% reduction in SA Base Rates and 0.6%
margin reduction on the BML RCF following repayments
during the current period.
IMPACT OF CORONAVIRUS
The Coronavirus pandemic has materially impacted Virgin Active and
New Look. The respective portfolio company management teams have
taken appropriate measures to preserve liquidity, removing all but
essential capital expenditure investments and making operating
expense reductions where possible, including measures to defer
and/or reduce rental expenses. A key concern remains the resurgence
of a second Coronavirus wave and the restrictions imposed by
governments across Europe. Whilst trading in all territories had
improved significantly since the easing of the initial lockdown
restrictions, the new government restrictions will impact the UK
and European businesses. Virgin Active’s health clubs in the UK and
Italy, and New Look’s stores across the UK and Republic of Ireland
have closed due to the second Coronavirus wave. As with the first
lockdown, management have reduced all expenditure in the underlying
businesses and are benefitting from the government support that has
been offered in both the UK and Italy.
The safety of staff and customers across the Group’s portfolio of
companies is a top priority. Brait’s portfolio companies have
implemented effective measures to protect the health and safety of
staff and customers and have business continuity plans in place to
deal with the impacts of Coronavirus.
As announced on 13 May 2020, given the impact of the Coronavirus,
Board fees and the advisory fee were voluntarily reduced by 25% for
the quarter April – June 2020. In addition, the Advisor has
voluntarily agreed to reduce its advisory fee for calendar year
2021 from c.R105 million to R90 million.
PORTFOLIO COMPANY HIGHLIGHTS
Virgin Active (49% of total assets):
• One of the leading international health club operators, Virgin
Active’s results for the current reporting period have been
significantly impacted by the Coronavirus.
• Whilst group trading performance up to February 2020 was in line
with budget and up from the prior year, in accordance with
respective government directives to stop the spread of
Coronavirus, health clubs in all territories were closed by 25
March 2020. During this closure period, Virgin Active
implemented a “free membership freeze”, whereby memberships were
retained without members having to make payment during the
freeze period, resulting in no revenue generation for most
territories.
• Since early February 2020, management took measures to preserve
liquidity across all territories, removing all but essential
capital expenditure investments and making operating expense
reductions where possible, including measures to defer and/or
reduce rental expenses. Broadly, including all mitigants in the
form of government support programs and interventions by
management, operating cost cash outflows for Virgin Active
reduced by two thirds while clubs were closed during this
period.
• On 15 June 2020, shareholders contributed GBP20 million of new
funding (Brait’s share was GBP16 million) by way of shareholder
loans to enable the UK, Italy and Asia Pacific territories to
navigate appropriately through the exceptional circumstances as
a result of Coronavirus. In addition, Virgin Enterprises Limited
agreed to defer and subordinate GBP5 million of royalties
incurred during 2020 to beyond the maturity of Virgin Active’s
UK, Italy and Asia Pacific banking facilities. This aggregate
funding of GBP25m million was matched by a further GBP25 million
of new bank debt from the UK, Italy and Asia Pacific banking
syndicate, with the existing covenant package replaced by a
liquidity-based covenant until December 2021.
• Developing and rolling out digital content globally has been a
key part of Virgin Active’s strategy. This has been accelerated
by the Coronavirus pandemic in order to enable Virgin Active to
retain contact with its membership base and remain relevant.
• Results in Pound Sterling for the nine months ended 30 September
2020, quoted using actual currency on a pre-IFRS16 basis:
o Group revenue of GBP224.7 million compared to the prior
period of GBP450.8 million;
o Group EBITDA loss of GBP8.4 million compared to the prior
comparative profit of GBP102.4 million;
• Pleasingly, usage levels gradually improved across all
territories as member engagement increased pre the second
European Coronavirus lockdown. On a group basis, total active
members were down 33% since December 2019, due to terminations
and members remaining on freeze.
• Territory update:
o Southern Africa: Clubs in South Africa re-opened on 24
August 2020, with Namibia and Botswana reopened in June
2020. Member engagement has seen usage increase from below
10% to above 57% as at October. A high percentage of
members chose to remain on freeze, which is free until the
end of October 2020.
o Italy: Re-opened in May 2020, with strong member engagement
and usage levels exceeding 60%. Revolution (streaming of
Virgin Active content to subscribing members) was
successfully launched in September 2020, with more than
10,600 members already signed up. Italian clubs closed due
to the second wave Coronavirus lockdown on 26 October until
(at least) 24 November 2020.
o UK: Reopened later than expected, with 36 clubs opened on
26 July and 7 London clubs that have remained closed.
Whilst member engagement and usage levels (62%) were
pleasing, the region, especially in London, experienced
higher than anticipated terminations and members on
contract freeze, which has impacted yield and membership
levels. The second Coronavirus wave has resulted in the
closure of UK clubs from the beginning of November 2020
until the 2nd of December 2020.
o Asia Pacific: The region, with the exception of 3 clubs in
Australia, reopened in June 2020. Australia benefitted from
strong membership engagement and usage levels in excess of
80%, especially in suburban clubs. In Thailand, strong
membership engagement resulted in low terminations /
freeze. Despite a significant number of members on freeze,
Singapore achieved high usage and membership engagement.
• Valuation of R7,853 million (FY20: R9,355 million):
o Maintainable EBITDA based on a look-through to a medium-
term post Coronavirus sustainable level of GBP100 million
(FY20: GBP108 million), which represents a 30% reduction
from the GBP142 million actual EBITDA achieved for its
financial year ended 31 December 2019.
o The valuation multiple has been maintained at 9.0x. The 39%
increase in the peer average spot multiple to 15.0x (FY20:
10.8x), results in the level of discount increasing to 40%
(FY20: 17%).
o Net debt of GBP358.5 million per the September 2020
management accounts (March 2020: GBP344.3 million) has been
increased by GBP82.6 million (23% increase) to GBP441.1
million (FY20: GBP439.5 million) to take into consideration
the estimated effect of working capital and cost deferrals
as a result of the impact of the Coronavirus.
Premier (44% of total assets):
• A leading South African FMCG manufacturer, offering branded and
private label solutions, Premier produced a pleasing performance
during the six-month period ended 30 September 2020. This was
driven by a strong performance in its MillBake division relative
to a weak comparable period and continued focus on operating
cost containment, resulting in production costs (excluding cost
of sales, Coronavirus related costs and provisions for
incentives) increasing by only 4%.
• For the six months ended 30 September 2020, compared to 1HFY20
(quoted on a pre-IFRS16 basis):
o Revenue +14%
o EBITDA +21%
o EBITDA margin 9.7% (1HFY20: 9.1%)
• Divisional highlights for the six months ended 30 September
2020:
o Premier’s MillBake division (83% of group revenue)
delivered a strong performance, resulting in revenue growth
of 17% and EBITDA increasing by 26%. EBITDA margin, pre
head office costs, was maintained at 12.8%.
o Premier’s Groceries and International division (17% of
group revenue) increased revenue by 2%, with EBITDA growth
of 7% and EBITDA margin of 10.2%, pre head office costs
(FY20: 10.5%).
• The challenging lockdown operating conditions resulted in
additional costs of R76 million to maintain a safe work
environment and support communities. Management continues to
monitor the impact of the Coronavirus and are at the forefront
of developing protocols to prevent and mitigate any impact to
the business.
• Premier demonstrated very strong cashflows during the six months
with cashflow from operations of R570 million (1H20: R353
million) due to EBITDA growth and focused working capital
management.
• Premier repaid Brait R123 million of shareholder loans during
the current six-month period (FY20: R231 million), increasing
Brait’s share of realised proceeds received to date to R1,618
million. Premier’s leverage ratio for net debt owing to third
parties is 1.9x (FY20: 2.2x).
• Valuation of R6,989 million (FY20: R6,047 million):
o Maintainable EBITDA of R1,110 million represents Premier’s
Last Twelve Months (“LTM”) EBITDA to 30 September 2020, a
10% increase on its FY20 EBITDA of R1,010 million.
o The valuation multiple has been maintained at 8.0x. The
increase in the peer average spot multiple to 9.5x (FY20:
8.8x), results in the level of discount increasing to 16%
(FY20: 9%).
o Net debt of R1,829 million is based on Premier’s September
2020 net third party debt of R2,140 million, adjusted for
capex spent on new projects not yet generating EBITDA.
New Look:
• New Look is a UK based multichannel fashion brand, operating in
the value segment of the clothing, footwear and accessories
market, delivering value for money and ‘newness’ with broad
appeal ranges that cater for a broad spectrum of ages, from
early teens to 45 and over.
• New Look’s turnaround strategy to deliver financial and
operational stability was yielding positive results prior to the
UK government’s Coronavirus lockdown, which resulted in the
closure of stores from 20 March 2020 to 1 June 2020. Stores
reopened on a phased basis with all stores open by the start of
September 2020. Given the omni-channel nature of the business,
the impact of Coronavirus has been significant. During this
lockdown period, management focused on cost optimization,
maximising liquidity and progressing New Look’s online strategy.
Online sales outperformed the prior period driven by increased
conversion rates and units per transaction, underlining New
Look’s strong brand, broad appeal product offering and improved
availability. However, given the store closures, overall Q1 FY21
revenue was inevitably significantly lower than the prior year.
• For the stores that had reopened, up to 10 August 2020, store
sales were down 38% on a like-for-like basis predominantly due
to the impact of Coronavirus on footfall.
• On 13 August 2020, New Look announced a comprehensive
recapitalisation transaction involving:
o A re-basing of UK leasehold obligations through a Company
Voluntary Arrangement (“CVA”) resulting in a reduction in
rental costs through a turnover-based model for a period of
3 years, which fairly reflects the future performance of
New Look and the wider retail market;
o A debt-for-equity conversion of the Senior Secured Notes
(“SSNs”), reducing gross debt from GBP605 million to GBP165
million (including available operating facilities of GBP55
million) and significantly decreasing annual cash interest
from GBP40 million to GBP6 million;
o An amendment and extension of the Operating Facility and
RCF to June 2023 and June 2024, respectively; and
o An injection of GBP40 million of new capital, fully
backstopped by certain holders of the SSNs, to support the
three-year business plan.
• The CVA was voted on on 15 September 2020, with support from
81.6% of unsecured creditors. New Look is engaging with the four
landlords challenging the CVA.
• On 16 October 2020, all holders of SSNs voted for their
cancellation in exchange for a GBP40 million non-interest
bearing shareholder loan and 20% of New Look’s share capital.
• On 9 November 2020, New Look announced the completion of its
comprehensive recapitalisation transaction, which significantly
reduces its long-term debt and operating costs, providing
flexibility to execute on its strategy:
o Certain of the holders of SSNs injected GBP40 million
(Brait’s pro rata share was GBP7.3 million) of new money in
the form of a payment-in-kind (“PIK”) facility, issued at a
5% discount, accruing PIK interest of 16.5% per annum. The
new money providers received 80% of New Look’s share
capital.
• Valuation as at 30 September 2020:
o New Look’s SSNs were equitised on 9 November 2020, pursuant
to the completion of the recapitalisation transaction. For
the comparative periods, Brait’s 18.27% holding of SSNs
were valued using closing quoted prices (30 September 2019:
0.772; 31 March 2020: 0.54915), together with accrued
interest.
o Brait’s 18.3% holding of the shareholder loans / PIK
Facility and 17.4% of New Look’s equity (valued post
dilution for management’s incentive plan) have been valued
at the reporting date using an earnings multiple basis,
with the resulting carrying value included in the Other
Investments portfolio.
Other Investments (5% of Brait’s total assets):
• Brait realised its 91.3% shareholding in DGB for a total
consideration equal to its March 2020 carrying value of R470
million.
• Following the equitization of New Look’s SSNs, Brait’s equity
and shareholder loan investment in New Look, valued on a
maintainable EBITDA multiple basis, is included in Other
Investments at the reporting date.
• Other investments include Brait’s remaining private equity fund
investments, mostly relating to Brait IV’s investment in Consol
Glass, the largest manufacturer of glass packaging in Africa.
GROUP LIQUIDITY POSITION
• The remaining GBP149 million outstanding principal amount on
Brait’s five year, 2.75% Convertible Bonds due 18 September 2020
("2020 Bonds"), was settled during the period under review using
the cash in Pound Sterling converted from the proceeds of the
February 2020 Rights Offer and specific issue of shares.
• Brait repaid R2,719 million of the BML RCF during the current
six-month period using proceeds received from the portfolio,
resulting in the drawn amount outstanding at reporting date of
R2,698 million (FY20: R4,602 million).
• In line with the BML RCF agreement, the reduction in utilisation
resulted in the quantum of the facility decreasing from R6.3
billion to R4.4 billion, and the interest rate decreasing from
JIBAR plus 4.6% to JIBAR plus 4.0%.
• Brait is in compliance with all covenants at reporting date.
GROUP OUTLOOK
Brait’s portfolio companies delivered a robust performance pre-
Coronavirus, continuing to optimise their business models and key
operational metrics in an ongoing challenging macro-environment.
All of the portfolio company management teams have proactively
implemented plans to address the unexpected and unprecedented
impact of the Coronavirus, with a focus on health and safety of
staff and customers, reducing costs, preserving cash and maximizing
liquidity to manage their businesses though this difficult period.
The extent and severity of the second Coronavirus wave and
restrictions imposed by governments across Europe and the UK are
uncertain and continue to evolve daily.
In addition to the Long Form Results Announcement published on the
website of the Luxembourg Stock Exchange today, Brait’s 1HFY21
interim results presentation booklet is available at www.brait.com
This short form announcement is published under the responsibility
of the Board and is a summary of the information in the full
announcement available on the Luxembourg Stock Exchange website and
the Stock Exchange News Service (“SENS”) at:
https://senspdf.jse.co.za/documents/2020/JSE/ISSE/BAT/BSESep20.pdf
and on the Company’s website
http://brait.investoreports.com/investor-relations/results-and-
reports/
This announcement does not contain full details and should not be
used as a basis for any investment decision in relation to the
Company’s shares. The full announcement is available for
inspection, at no charge, at the Company’s registered office (4th
Floor, Avantech Building, St Julian’s Road, San Gwann, SGN 2805,
Malta) and the office of the sponsor during standard office hours.
San Gwann,
Malta
18 November 2020
Brait´s primary listing is on the Euro MTF market of the Luxembourg
Stock Exchange and its secondary listing is on the exchange
operated by the JSE Limited.
Sponsor:
Rand Merchant Bank (A division of FirstRand Bank Limited)
Date: 18-11-2020 08:00:00
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