Wrap Text
Unaudited summarised interim results for the six months ended 31 December 2017
EPE CAPITAL PARTNERS LTD ("ETHOS CAPITAL" OR "THE COMPANY")
INCORPORATED IN THE REPUBLIC OF MAURITIUS
REGISTRATION NUMBER: C138883 C1/GBL
ISIN: MU0522S00005
SHARE CODE: EPE
UNAUDITED SUMMARISED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2017
INTRODUCTION
EPE Capital Partners Ltd ("Ethos Capital" or "the Company") is an investment holding company, registered and incorporated in Mauritius and listed on the JSE Limited
("JSE"). It invests directly into Funds or Direct Investments, managed by Ethos Private Equity (Pty) Limited ("Ethos"), which give the Company indirect exposure to a
diversified portfolio of unlisted private equity-type investments ("Portfolio Companies"). By nature, private equity is a long-term investment, requiring long-term
thinking and a patient strategy.
A. RESULTS ANNOUNCEMENT
KEY HIGHLIGHTS FOR THE PERIOD ENDED 31 DECEMBER 2017
- Net asset value ("NAV") increased to R1.9 billion and NAV per share ("NAVPS") to R10.76
- +R400 million invested, increasing invested capital to 39% of NAV and providing exposure to 11x Portfolio Companies; which has increased to 41% and 12x since the
period-end
- Committed capital to Ethos Funds of R1.3 billion with an additional R1.8 billion approved
- Value-weighted average EV/EBITDA and Debt/EBITDA valuation multiples of 6.9x and 2.0x respectively
- Strong pipeline of new Funds and investment opportunities across all Funds
OVERVIEW
The 2017 year was economically and politically challenging for South Africa. GDP growth remained subdued, consumer confidence was soft, and policy and political
uncertainty severely impacted companies' strategic deployment of capital and investor confidence.
South Africa's longer-term outlook has, however, improved significantly of late. Political changes - both within the ANC and also at national government with
Mr Cyril Ramaphosa taking over as South Africa's new president in February 2018 - are likely to result in a significant uplift in both consumer and business
confidence. The subsequent changes to key government ministerial leadership will hopefully drive the implementation of clear policies in crucial sectors of the
economy. Enhanced governance at key state-owned enterprises will also provide for growth in many dependent sectors across the economy. While it will take time for
revised government mandates and structural changes to take full effect, we are confident that South Africa's long-term growth prospects are greatly improved.
Private equity is a long-term investment strategy which requires patient capital and an activist mindset to outperform. Given the difficult economic conditions,
growth in the private sector has been constrained, and many of Ethos's Portfolio Companies have not been immune to the downturn. The underlying attributable EBITDA
growth across the various Funds' portfolios over the past 12 months has been relatively modest. Importantly, the Ethos Fund teams, together with the in-house Value
Add capability, have spent significant time and effort to ensure that each Portfolio Company is optimally positioned, both strategically and operationally, to
benefit from the turnaround in the economic cycle. With economic prospects likely to improve in the medium term, we believe that the value-accretive strategies
implemented at Portfolio Companies should start delivering accelerated growth.
The Board's medium-term objective remains to fully invest Ethos Capital's NAV, while managing liquidity and commitment strategies in a disciplined way. In support
thereof, Ethos is continuing to review opportunities to develop and grow its product offerings, with the launch of Ethos Healthcare Investments being the most
recent initiative. The strategies that Ethos Capital is invested in are detailed alongside:
Ethos Mid Market Fund I
The Ethos Mid Market Fund I ("EMMF I") had its first close in November 2016, and is expected to have its final close by the end of May 2018, with commitments of
over R2 billion.
To date, the Fund has invested in six Portfolio Companies, representing 44% of the total commitments to the Fund. The Fund has a strong pipeline of potential
investments in the mid-market space and its broad-based black economic empowerment ("B-BBEE") credentials are providing a competitive advantage in sourcing such
opportunities.
Ethos Fund VI
Ethos Capital completed a secondary transaction of a stake in Ethos Fund VI ("EF VI") in November 2016. The stake is relatively small (a US$10 million commitment)
at 3% of the NAV, but currently provides exposure to nine Portfolio Companies.
Since June 2017, the Fund has successfully exited one investment at a Fund return of 2.7x cost invested. A further two exits are expected to be completed in Q2 2018.
Ethos Fund VII
Fund raising for Ethos Fund VII ("EF VII") was launched in August 2017, with a target size of R8 billion to R10 billion. Ethos Capital has made a first close
commitment to this Fund of R1.25 billion with an intended final commitment of up to R2.3 billion; this will provide investors with exposure to large buyout
Portfolio Companies based in South Africa and other select sub-Saharan countries. The first close for this Fund is likely to occur in Q2 2018.
Ethos Mezzanine Partners Fund 3
Ethos Mezzanine Partners Fund 3 ("EMP 3") is likely to have its first close in March/April 2018, with strong demand from international investors, especially
development finance institutions.
The pipeline of opportunities for this Fund is strong, with particular application of the mezzanine product to growth opportunities in sub-Saharan Africa. The Fund
has signed two term sheets for transactions which are likely to close in Q2 2018. Aligned with this strategy, Ethos recently opened a satellite office in Nairobi,
Kenya, and believes this footprint will further enhance deal origination and investment management into the future. The Fund operates in a relatively uncontested
niche, which has resulted in strong demand both from potential investors and also companies looking to access growth capital. Ethos Capital has made a first close
commitment of R250 million to this Fund with an intended final commitment of R320 million.
Ethos Healthcare Investments
Ethos Healthcare Investments ("EHI") is a platform that has been established to invest in hospitals and other healthcare-related industries in South Africa and in
other sub-Saharan African countries. The two key principals in this Fund are Michael Flemming and Jonathan Lowick, who were instrumental in establishing, operating
and growing Life Healthcare, one of South Africa's largest hospital groups. The pipeline of opportunities remains strong, and the first investment has been signed
and is subject to regulatory approval. Ethos Capital has made a commitment of R250 million to EHI.
Direct Investments
During the period, a Direct Investment of R100 million was made in Kevro Holdings (Pty) Ltd ("Kevro"), alongside EMMF I. In addition, a further Direct Investment of
R171 million was made in Primedia Holdings (Pty) Ltd ("Primedia"), alongside EF VI. The Company continues to assess a number of interesting additional co-investment
opportunities alongside the various Ethos Funds.
OUTLOOK
The pipeline of opportunities across all of the Funds remains very strong. While there is improvement in the macroeconomic environment, it is important that the
Funds continue to invest selectively in assets that have a robust and defensible business case.
Across the various Funds, Ethos is in exclusive discussions on seven investments. Two have been signed and are subject only to regulatory approval. A further two
investments are well progressed and have signed term sheets. While there can be no guarantee that all of these transactions will close, Ethos remains confident that
it will be able to close on the majority of these investments.
The amount of capital required by Ethos Capital into these transactions, should the Funds be successful in closing all of them, would be approximately R400 million.
INVESTOR PRESENTATION
The Company will host a webcast presentation at 12:00 pm on Monday 19 March 2018, covering the above results and outlook. Participants should please register for
the webcast in advance by navigating to this website:
http://services.choruscall.za.com/DiamondPassRegistration/register?confirmationNumber=5478956&linkSecurityString=1a49fad60
To access the call, dial one of the numbers supplied and then enter the passcode and PIN provided in the confirmation (which will be sent to you upon registration).
If you experience any issues with the registration, or do not have web access, please contact Arlene Byrne at 011 328 7414 for assistance.
B. REVIEW OF THE NAV AND INVESTMENTS
NAV
During the six months ended 31 December 2017, the NAV increased to R1.9 billion, equivalent to R10.76 per share.
At 31 December 2017, Ethos Capital's unlisted invested capital (including guarantees) was 39% of the NAV, with the balance largely invested in Temporary Investments.
An analysis of the movements in the NAV and NAVPS is detailed below:
NAV NAVPS
R'000 Cents
At 30 June 2017 1 867 079 10.37
Net return on Temporary Investments 52 427 0.29
Return on investment portfolio 28 511 0.16
Share buybacks (17 344) 0.03
Expenses and tax (10 457) (0.06)
Fees paid to Ethos (6 207) (0.03)
At 31 December 2017 1 914 009 10.76
The net return on Temporary Investments during the period was R52.4 million, representing a net annualised return of 7.6%. The net return on the unlisted investment
portfolio was R28.5 million, implying a cumulative IRR of the investment portfolio of 12.2%.
Operating expenses and tax for the Company totalled R10.5 million, constituting 0.5% of NAV, of which R4.2 million relates to transaction-related fees in respect of
completed and aborted transactions. The fees payable to Ethos include advisory fees on Primary and Direct Investments, charged at 1.5% per year on the average
invested capital over the period, and management fees on Temporary Investments, charged at 0.25% per year less any fees payable to Ashburton Fund Managers
Proprietary Limited ("Ashburton") for managing the portfolio of Temporary Investments. Further details on expenses are provided in note 9 of the Notes to the
Interim Financial Statements.
SHARE PRICE ANALYSIS
Ethos Capital's share price as at 31 December 2017 was R8.70, which represented a 19.1% discount to the NAVPS at 31 December 2017.
As noted previously, the Ethos Capital Board is committed to a policy of enhancing long-term shareholder value. The Company has continued to repurchase shares to
enhance shareholder value and the shares acquired by the Company are held in treasury. During the six months to 31 December 2017, the Company repurchased an
additional 2 034 038 shares representing 1.1% of the unencumbered issued A Ordinary Share capital.
Since the period-end, the Company has continued to repurchase shares and the Board will continue to monitor the Company's share price performance and the discount
to NAV.
COMMITMENTS
Ethos Capital's Investment Strategy is to make investment commitments into Funds managed by Ethos, through a combination of Primary, Direct and Secondary
Investments, or making commitments to Direct Investments. As at 31 December 2017, Ethos Capital had liquid resources of R1.2 billion to meet any outstanding
commitments. In addition, the Company has agreed a four-year revolving credit facility with Rand Merchant Bank ("RMB") that, once activated, will provide access to
c. R0.6 billion of additional resources for the Company.
As at 31 December 2017, the Company's closed and approved - subject to legal Fund closings - commitments to Ethos Funds were as follows:
Type Vintage Original Undrawn
R'000 R'000
Closed
EMMF I Primary 2016 900 000 532 085
Primedia Direct 2017 171 105 8 199
EF VI Secondary 2011 123 050 17 670
EMMF ID* Direct 2017 100 000 -
1 294 155 557 954
Approved
EF VII 1 250 000 1 250 000
EMP 3 320 000 320 000
EHI 250 000 250 000
3 114 155 2 377 954
* Investment in Kevro via the Ethos Mid Market Fund I Direct Partnership ("EMMF ID").
INVESTMENT PORTFOLIO
At 31 December 2017, the investment portfolio and invested capital consisted of the following:
Cost Valuation
R'000 R'000 % of NAV
Investments
EMMF I 362 265 403 957 21.1
Primedia 160 275 160 275 8.4
EMMF ID* 100 000 100 000 5.2
EF VI 65 402 65 458 3.4
Total investments 687 942 729 690 38.1
Unfunded guarantees
EF VI** - 20 064 1.1
Total invested capital 688 088 749 754 39.2
* Investment in Kevro via the Ethos Mid Market Fund I Direct Partnership ("EMMF ID").
** Guarantees provided by the Fund to raise financing that was used to invest in Portfolio Companies.
During the period, the investments in two Portfolio Companies (Kevro and Primedia) were completed as well as the EMMF I investment into MTN Zakhele Futhi (the BEE
shareholder of the MTN Group). This increased Ethos Capital's underlying exposure to 11 Portfolio Companies across a number of sectors which provide a
diversified portfolio exposure.
Post-December, EMMF I completed the acquisition of Echotel Proprietary Limited ("Echo"), of which Ethos Capital's contribution was R34.0 million. Echo is a
South African corporate Internet Service Provider and primarily services domestic high-end SME and enterprise clients.
The above increased Ethos Capital's invested capital to 41% of NAV and its underlying exposure to 12 Portfolio Companies.
REALISATIONS
During October 2017, Ethos Capital received R11.9 million as its share of the sale of Kevro by EF VI which generated a Fund return of 2.7x cost invested.
A further two exits are expected to be completed in Q2 2018.
UNDERLYING PORTFOLIO COMPANIES
The Ethos Funds - making up Ethos Capital's investment portfolio - invest in a diversified pool of unquoted investments (Portfolio Companies) and provide the
Company with indirect exposure to the Funds' underlying investments. At 31 December 2017, the investments (excluding guarantees) constituting 38.1% of total NAV,
consisted of the following 11 companies and other surplus cash and current assets at the Fund level:
Name Fund Business description Year* % of NAV
Kevro EMMF I/EMMF ID Corporate clothing and promotional 2017 11.3
Primedia EF VI/Direct Media 2017 8.9
Autozone EF VI/EMMF I Retailer and wholesaler of automotive parts 2014 5.5
MTN Zakhele Futhi EMMF I Telecommunications 2017 3.7
Twinsaver EF VI/EMMF I Industrials (FMCG) 2015 3.5
Eazi Access EF VI/EMMF I Industrial support services 2016 3.2
Eaton Towers EF VI Shared telecoms towers 2015 0.6
Waco International EF VI Industrial support services 2012 0.6
The Beverage Company EF VI Carbonated drinks 2017 0.3
RTT EF VI Logistics 2014 0.2
Neopak EF VI Paper and packaging 2015 0.2
Other EF VI/EMMF I Cash and current assets 0.1
38.1
* Initial acquisition date by Ethos Fund
PORTFOLIO COMPANY PERFORMANCE
Ethos Capital's investment portfolio at 31 December 2017 provides exposure to 11 Portfolio Companies that, in aggregate (excluding the results of the MTN Group),
have sales of over R24 billion and EBITDA of more than R4 billion. The companies span a number of sectors providing diversified portfolio exposure.
The economic environment in South Africa and sub-Saharan Africa has remained subdued in the past 12 months, with some prevalent macroeconomic headwinds.
However, the Portfolio Companies' performance held up relatively well and the Funds benefited from sectoral diversity in the portfolio and some of the initiatives
undertaken to optimise operations. The growth in the aggregate sales of the Portfolio Companies (excluding the results of the MTN Group) over the last 12 months
("LTM") to 31 December 2017 was 6.1% while the portfolio grew its LTM aggregate EBITDA by 4.6%.
PORTFOLIO COMPANY VALUATION ANALYSIS
The NAV of each Fund is derived from the valuations of the underlying Portfolio Companies, which are prepared in accordance with International Private Equity and
Venture Capital Guidelines ("IPEV Guidelines"). Valuations are performed quarterly, audited semi-annually and approved by each Fund's Advisory Board. The IPEV
Guidelines set out best practice where private equity investments are reported on at fair value.
As at 31 December 2017, the Ethos Capital portfolio of investments was valued at an average EV/EBITDA multiple of 6.9x. The IPEV Guidelines require the Manager to
ascribe a series of adjustments to the Portfolio Company valuation multiples to reflect their unlisted nature and company-specific factors. As at 31 December 2017,
the average EV/EBITDA multiple represents an average discount of 41% compared to the equivalent multiple of the Portfolio Companies' peer groups.
The value-weighted average Net Debt/EBITDA of the portfolio was 2.0x.
C. UNAUDITED SUMMARISED INTERIM FINANCIAL STATEMENTS
UNAUDITED SUMMARISED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 2017
Unaudited
Notes 31 Dec 2017 31 Dec 2016 30 June 2017
R'000 R'000 R'000
ASSETS
Non-current assets
Unlisted investments at fair value 4 729 690 340 175 307 939
Total non-current assets 729 690 340 175 307 939
Current assets
Other assets and receivables 21 621 24 156 26 758
Money market investments at fair value 5 1 141 236 1 421 383 1 529 281
Cash and cash equivalents 25 782 10 756 10 044
Total current assets 1 188 639 1 456 295 1 566 083
TOTAL ASSETS 1 918 329 1 796 470 1 874 022
EQUITY AND LIABILITIES
Capital and reserves
Issued capital 6 1 747 668 1 765 359 1 765 012
Retained earnings 166 341 28 871 102 067
Total equity 1 914 009 1 794 230 1 867 079
Current liabilities
Other liabilities and payables 3 657 889 3 775
Current tax liabilities 663 1 351 3 168
Total current liabilities 4 320 2 240 6 943
TOTAL EQUITY AND LIABILITIES 1 918 329 1 796 470 1 874 022
NET ASSET VALUE 1 914 009 1 794 230 1 867 079
Net asset value per share (Rand) 11.2 10.76 9.97 10.37
Attributable shares in issue at end of
period/year ('000) 11.1 177 926 180 000 179 960
UNAUDITED SUMMARISED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 31 DECEMBER 2017
Unaudited
Six months Six months
ended ended Year ended
31 Dec 2017 31 Dec 2016 30 Jun 2017
Notes R'000 R'000 R'000
Income
Investment income 7 60 121 50 627 123 901
Net fair value gains/(losses) 8 21 850 (8 971) 2 683
Total income 81 971 41 656 126 584
Expenses
Management and administration fees 9.1 (7 240) (1 693) (4 820)
Legal and consultancy fees 9.2 (4 641) (5 938) (8 917)
Other operating expenses 9.3 (4 361) (3 803) (7 612)
Total expenses (16 242) (11 434) (21 349)
Profit before tax 65 729 30 222 105 235
Income tax expense (1 455) (1 351) (3 168)
Profit for the period/year 64 274 28 871 102 067
Other comprehensive income for the period/year - - -
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD/YEAR 64 274 28 871 102 067
Earnings per share
Basic and diluted earnings per share (Rand) 11.1 0.36 0.16 0.57
The above relate to continuing operations as no operations were acquired or discontinued during the year.
UNAUDITED SUMMARISED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 31 DECEMBER 2017
Unaudited
Six months ended 31 Dec 2017
Share Retained Total
capital earnings equity
Notes R'000 R'000 R'000
Balance at 1 July 2017 1 765 012 102 067 1 867 079
Buy-back of ordinary shares 6 (17 344) - (17 344)
Income for the period 11.1 - 64 274 64 274
Balance at 31 December 2017 1 747 668 166 341 1 914 009
Unaudited
Six months ended 31 Dec 2016
Share Retained Total
capital earnings equity
R'000 R'000 R'000
Issue of ordinary shares 6 1 800 075 - 1 800 075
Share issue costs 6 (34 716) - (34 716)
Income for the period 11.1 - 28 871 28 871
Balance at 31 December 2016 1 765 359 28 871 1 794 230
Year ended 30 Jun 2017
Share Retained Total
capital earnings equity
R'000 R'000 R'000
Issue of ordinary shares 6 1 800 075 - 1 800 075
Share issue costs 6 (34 716) - (34 716)
Buy-back of ordinary shares 6 (347) - (347)
Income for the year 11.1 - 102 067 102 067
Balance at 30 June 2017 1 765 012 102 067 1 867 079
No comparative financial information as at 1 July 2016 has been presented as no Statement of Changes in Equity was presented in the 30 June 2016 financial
statements.
UNAUDITED SUMMARISED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2017
Unaudited
Six months Six months
ended ended Year ended
31 Dec 2017 31 Dec 2016 30 Jun 2017
R'000 R'000 R'000
Net cash (used in)/generated by operating activities before
investment activities (21 843) 6 067 (16 769)
Net cash generated by/(used in) investing activities 55 019 (1 755 168) (1 732 697)
Cash generated by/(used in) operating and investing activities 33 176 (1 749 101) (1 749 466)
Net cash (used in)/generated by financing activities (17 344) 1 765 359 1 765 012
Net increase in cash and cash equivalents 15 832 16 258 15 546
Cash and cash equivalents at the beginning of the period/year 10 044 - -
Effects of exchange rate changes on the balance of cash held
in foreign currencies (94) (5 502) (5 502)
Total cash and cash equivalents at the end of the period/year 25 782 10 756 10 044
NOTES TO THE SUMMARISED INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2017
1 GENERAL INFORMATION
EPE Capital Partners Ltd ("Ethos Capital", or "the Company") was registered and incorporated in Mauritius as a private company on 26 May 2016 under the Mauritius
Companies Act, Act No. 15 of 2001, and was converted to a public company on 15 July 2016. The Company is licensed as a Category One Global Business Licence company
by the Financial Services Commission of Mauritius and is designed to offer shareholders long-term capital appreciation by investing into Funds or Direct Investments
that provide the Company exposure to a diversified portfolio of unlisted private equity-type investments.
2 APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")
The following new and revised standards and interpretations are relevant to the Company and have been adopted in these Summarised Interim Financial Statements.
Their adoption has not had any significant impact on the amounts reported in these Summarised Interim Financial Statements but may have affected the accounting and
disclosure of transactions and arrangements. These standards are effective for companies with financial year-ends beginning on or after the effective date as noted
for each standard.
Standard Description/name of standard Effective date
IAS 7 Statement of Cash Flows 1 January 2017
IFRS 2 Share-Based Payments 1 January 2017
IFRS 17 Insurance Contracts 1 January 2017
IAS 12 Income Taxes 1 January 2017
IFRS 12 Disclosure of Interest in Other Entities 1 January 2017
The standards issued but not yet effective for the financial year ending on 30 June 2018 that are relevant to the Company and not implemented early, are the
following:
Standard Description/name of standard Effective date
IFRS 15 Revenue from Contracts with Customers 1 January 2018
IFRS 9 Financial Instruments 1 January 2018
IFRIC 22 Foreign Currency Transactions and Advance Consideration 1 January 2018
IFRS 16 Leases 1 January 2019
The Directors anticipate that these amendments will be applied in the Summarised Interim and Annual Financial Statements for the annual periods beginning on or
after the respective dates as indicated above. The Directors have not yet assessed the potential impact of the adoption of these amendments.
3 SIGNIFICANT ACCOUNTING POLICIES
3.1 Basis of preparation
These Summarised Interim Financial Statements have been prepared in accordance with: IFRS as issued by the International Accounting Standards Board; the SAICA
Financial Reporting Guides, as issued by the Accounting Practices Committee; the Financial Reporting Pronouncements, as issued by the Financial Reporting
Standards Council; as a minimum, the information required by IAS 34; the Listings Requirements of the JSE; and the requirements of the Mauritius Companies Act,
Act No. 15 of 2001, in so far as applicable to Category One Global Business License companies.
The accounting policies applied in the preparation of these Summarised Interim Financial Statements are, where applicable to the prior financial year,
consistent in all material respects with those used in the prior financial year and with IFRS.
The Summarised Interim Financial Statements have been prepared on the historical cost basis except for financial instruments and investments which are
measured at fair value.
The Directors believe the Company has adequate resources to settle its obligations as and when they become due, therefore these Summarised Interim Financial
Statements have been prepared on the going concern basis.
These Summarised Interim Financial Statements were compiled under the supervision of the Chief Financial Officer, Mr Jean-Pierre van Onselen, CA(SA), and were
approved by the Board on 13 March 2018.
3.2 Segmental reporting
Since the Company has only one business segment, and all its investments are managed as one segment investing in private equity-type investments, segmental
reporting is not applicable.
4 UNLISTED INVESTMENTS AT FAIR VALUE
The Company obtains exposure to and has indirect interests in a diversified pool of unquoted investments ("Portfolio Companies") by investing into Fund Limited
Partnerships ("Funds"), managed by Ethos Private Equity (Pty) Limited ("Ethos"), that typically have a 10-year life cycle. The Company becomes a Limited Partner of
the Fund and the investments are made through commitments into the Funds. Alternatively, the Company can also make direct commitments to invest into Portfolio
Companies alongside the Funds.
In November 2016, the Company made a R550 million commitment to the Ethos Mid Market Fund I Partnership ("EMMF I"), which was increased to R900 million in July 2017.
The Company also acquired a US$10 million (R123 million) commitment in Ethos Fund VI (Jersey) LP ("EF VI") in November 2016, through a secondary transaction. During
the current period, a commitment of R100 million was made to the Ethos Mid Market Fund I Direct Partnership ("EMMF I Direct"), to facilitate the Company's first
Direct Investment, which was followed by a R171 million commitment to invest directly in Primedia Holdings (Pty) Ltd.
31 Dec 2017 31 Dec 2016 30 Jun 2017
R'000 R'000 R'000
Investments held at fair value through profit and loss:
Unlisted investment in EMMF I 403 957 292 142 247 412
Unlisted investment in EF VI 64 458 48 033 60 527
Unlisted investment in EMMF I Direct 100 000 - -
Unlisted investment in Primedia Holdings (Pty) Ltd 160 275 - -
729 690 340 175 307 939
Consisting of:
Cost 687 942 344 272 288 505
Unrealised capital appreciation/(depreciation) at end
of period/year 27 340 (4 294) 7 515
Accrued income 14 408 197 11 919
729 690 340 175 307 939
At 31 December 2017, the underlying investments of the above Funds (Portfolio Companies), constituting 38.1% of the Company's net asset value ("NAV"), consisted of
the following 11 unlisted companies and other surplus cash and current assets held at the Fund level:
Name Fund/type Business description/sector % of NAV
31 Dec 2017
Kevro EMMF I/EMMF I Direct Corporate clothing and promotional 11.3
Primedia EF VI/Direct Media 8.9
Autozone EF VI/EMMF I Retailer and wholesaler of automotive parts 5.5
MTN Zakhele Futhi EMMF I Telecommunications 3.7
Twinsaver EF VI/EMMF I Industrials (FMCG) 3.5
Eazi Access EF VI/EMMF I Industrial support services 3.2
Eaton Towers EF VI Shared telecoms towers 0.6
Waco International EF VI Industrial support services 0.6
The Beverage Company EF VI Carbonated drinks 0.3
RTT EF VI Logistics 0.2
Neopak EF VI Paper and packaging 0.2
Other EF VI/EMMF I Cash and current assets 0.1
38.1
Capital
appreciation/ Accrued
Cost (depreciation) income Total
R'000 R'000 R'000 R'000
Reconciliation of movements:
Balance at 1 July 2017 288 505 7 515 11 919 307 939
Acquisitions 408 396 - - 408 396
Realisations (8 959) (1 360) (801) (11 120)
Revaluation increase at end of period - 21 185 3 290 24 475
Balance at 31 December 2017 687 942 27 340 14 408 729 690
Balance at 1 July 2016 - - - -
Acquisitions 349 160 - - 349 160
Realisations (4 888) - - (4 888)
Revaluation (decrease)/increase at end of period - (4 294) 197 (4 097)
Balance at 31 December 2016 344 272 (4 294) 197 340 175
Balance at 1 July 2016 - - - -
Acquisitions 293 393 - - 293 393
Realisations (4 888) - - (4 888)
Revaluation increase at end of year - 7 515 11 919 19 434
Balance at 30 June 2017 288 505 7 515 11 919 307 939
5 MONEY MARKET INVESTMENTS AT FAIR VALUE
31 Dec 2017 31 Dec 2016 30 Jun 2017
R'000 R'000 R'000
Investments held at fair value through profit and loss:
Floating rate notes 502 001 552 433 637 091
Negotiable certificates of deposit 567 475 383 368 577 473
Treasury bills 69 241 426 858 179 185
Cash and call accounts 2 519 58 724 135 532
1 141 236 1 421 383 1 529 281
Consisting of:
Cost 1 140 684 1 420 851 1 528 622
Unrealised appreciation at end of period/year 552 532 659
1 141 236 1 421 383 1 529 281
The money market investments, or Temporary Investments, are managed by Ashburton Fund Managers Proprietary Limited ("Ashburton") under a discretionary investment
management agreement dated 28 July 2016. These investments are currently invested in money market instruments that consist of a combination of floating rate notes,
negotiable certificates of deposit ("NCD") and treasury bills.
At 31 December 2017, the following range of interest rates was applicable to the respective categories of money market instruments, from which the accrued income at
31 December 2017 was derived:
31 Dec 2017
Low High
% %
Floating rate notes 7.8500 8.0750
NCD 7.1000 8.2750
Treasury bills 7.6538 7.6538
6 ISSUED CAPITAL
31 Dec 2017 31 Dec 2016 30 Jun 2017
Number Number Number
Issued:
A Ordinary Shares issued at R10.00 per share 180 000 000 180 000 000 180 000 000
A Ordinary Shares issued at R0.01 per share 7 500 000 7 500 000 7 500 000
B Ordinary Shares issued at R0.01 per share 10 000 10 000 10 000
Total issued at time of listing 187 510 000 187 510 000 187 510 000
A Ordinary Shares purchased (2 074 140) - (40 102)
Total issued share capital 185 435 860 187 510 000 187 469 898
31 Dec 2017 31 Dec 2016 30 Jun 2017
R'000 R'000 R'000
Issued:
A Ordinary Shares issued at R10.00 per share 1 800 000 1 800 000 1 800 000
A Ordinary Shares issued at R0.01 per share 75 75 75
B Ordinary Shares issued at R0.01 per share - - -
Less: Share issue costs (34 716) (34 716) (34 716)
Total issued at time of listing 1 765 359 1 765 359 1 765 359
A Ordinary Shares purchased (17 691) - (347)
Total issued share capital 1 747 668 1 765 359 1 765 012
During the period, the Company purchased 2 034 038 of its A Ordinary Shares at an average price of R8.53 per share. These shares are currently held in treasury.
7 INVESTMENT INCOME
Six months Six months
ended ended Year ended
31 Dec 2017 31 Dec 2016 30 Jun 2017
R'000 R'000 R'000
Interest from unlisted investments 6 359 50 15 854
Dividends from unlisted investments 101 761 1 314
Interest from money market investments 47 988 33 656 80 251
Interest from bank and call deposits 382 1 330 1 486
54 830 35 797 98 905
Amortisation of net discount 5 291 14 830 24 996
5 291 14 830 24 996
60 121 50 627 123 901
8 NET FAIR VALUE GAINS/(LOSSES)
Six months Six months
ended ended Year ended
31 Dec 2017 31 Dec 2016 30 Jun 2017
R'000 R'000 R'000
Unrealised:
Net gains/(losses) arising on changes in the fair value of
unlisted investments 19 825 (4 294) 7 515
Net (losses)/gains arising on changes in the fair value of money
market instruments (107) 532 659
Net foreign exchange losses on conversion of cash and cash
equivalents (94) - (282)
19 624 (3 762) 7 892
Realised:
Gains on realisation of unlisted investments 2 226 - -
Gains on realisation of money market instruments - 11 11
Net foreign exchange losses on conversion of cash and cash
equivalents - (5 220) (5 220)
2 226 (5 209) (5 209)
Net fair value gains/(losses) 21 850 (8 971) 2 683
9 PROFIT BEFORE TAX
Profit before tax has been arrived at after charging:
Six months Six months
ended ended Year ended
31 Dec 2017 31 Dec 2016 30 Jun 2017
R'000 R'000 R'000
9.1 Management and administration fees
Management fees - Ethos 2 513 - 1 286
Advisory fees - Ethos* 2 821 - -
Administration fee - Ethos 873 736 1 482
Administration fee - Ashburton 1 033 957 2 052
7 240 1 693 4 820
* Payable from 1 July 2017.
9.2 Legal and consultancy fees
Legal and consultancy fees 73 4 409 5 154
Fund formation fees 255 1 431 1 809
Expenses relating to the acquisition of investments 4 313 98 1 954
4 641 5 938 8 917
9.3 Other operating expenses
Company secretarial, accounting and other administration fees 758 800 1 517
Directors' emoluments 1 960 1 526 3 353
Auditors' remuneration 419 473 852
Insurance costs 321 191 431
Sponsor and listing-related fees 377 112 408
Other expenses 526 701 1 051
4 361 3 803 7 612
10 CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
Original Outstanding
31 Dec 2017 31 Dec 2017 31 Dec 2016 30 Jun 2017
R'000 R'000 R'000 R'000
Capital commitments:
Unlisted investment in EMMF I 900 000 532 085 255 442 319 205
Unlisted investment in EF VI 123 050 17 670 81 815 55 874
Unlisted investment in EMMF I Direct 100 000 - - -
Unlisted investment in Primedia Holdings (Pty) Ltd 171 105 8 199 - -
1 294 155 557 954 337 257 375 079
Contingent liabilities:
Rand Merchant Bank ("RMB") 105 000 118 143 106 369 113 424
105 000 118 143 106 369 113 424
Total commitments and contingent liabilities 1 399 155 676 097 443 626 488 503
Refer to note 4 for further details on the capital commitments.
The Company has provided a guarantee against a R105 million five-year non-recourse loan facility (plus any outstanding interest thereon) issued by RMB to
Black Hawk Private Equity Proprietary Limited ("Black Hawk"), expiring on 29 July 2021. The proceeds of the facility, signed on 28 July 2016, were used by
Black Hawk to subscribe to R105 million of A Ordinary Shares on behalf of the two non-executive Directors, who are members of the Company's Investment Committee.
The above amount represents the current outstanding balance on the facility, including any accrued interest charges to 31 December 2017. Interest currently accrues
at a rate that is based on JIBAR plus a 1% margin, and the interest is intended to be rolled-up and settled with the capital amount outstanding upon the maturity
of the loan or an earlier repayment event.
11 EARNINGS AND NET ASSET VALUE PER SHARE
As detailed in note 6, the Company issued 187 500 000 A Ordinary Shares, 7 500 000 of which were issued to the EPE Allocation Trust and are currently notionally
encumbered. Until these shares are released from their encumbrance (through the notional performance participation), the Company has an irrevocable right and
option to acquire the notionally encumbered A Ordinary Shares at a repurchase price of R0.01 per share, being each share's fair value, and then to apply for the
delisting of such shares acquired. The holders of these shares are therefore restricted from selling the shares to any party other than the Company and obtaining
or sharing in any economic benefit derived from the shares, until they are released from their encumbrance.
Given the restrictions the encumbered shares place on the holder and the probability of the shares being delisted unless certain contingent conditions are met,
they are excluded from the calculations to determine the earnings, headline earnings and net asset value per share ("NAVPS") respectively. The calculations below
therefore reflect the earnings, headline earnings and NAV attributable to the unrestricted A Ordinary shareholders.
11.1 Earnings and headline earnings per share
Six months Six months
ended ended Year ended
31 Dec 2017 31 Dec 2016 30 Jun 2017
R'000 R'000 R'000
Total comprehensive profit attributable to ordinary
shareholders 64 274 28 871 102 067
Reconciliation of basic earnings to headline earnings:
Total comprehensive profit attributable to ordinary
shareholders 64 274 28 871 102 067
Items attributable to headline earnings - - -
Headline earnings for the period/year 64 274 28 871 102 067
'000 '000 '000
Attributable shares:
Number of shares in issue during the period/year 187 500 187 500 187 500
Less: Treasury shares (2 074) - (40)
Less: Notionally encumbered shares (7 500) (7 500) (7 500)
Number of attributable shares in issue at the end
of the period/year 177 926 180 000 179 960
Weighted average number of ordinary shares for
the purpose of earnings per share 178 631 180 000 180 000
Basic and diluted earnings per share (Rand) 0.36 0.16 0.57
Basic and diluted headline earnings per share (Rand) 0.36 0.16 0.57
11.2 Net asset value per share
31 Dec 2017 31 Dec 2016 30 Jun 2017
R'000 R'000 R'000
Net assets 1 914 009 1 794 230 1 867 079
Net asset value per share (Rand) 10.76 9.97 10.37
12 FINANCIAL RISK FACTORS AND INSTRUMENTS
12.1 Overview
The Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework. The Company's risk
management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks
and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the products offered.
Through the Company's activities, it is exposed to a variety of risks that could result in changes to the NAV or its performance.
The main risks the Company is exposed to which could result in changes to the NAV or its performance are: capital risk; valuation risk; market risk
(comprising currency risk, interest rate risk and equity price risk); credit risk; and liquidity risk.
These risks are detailed in note 23 of the Notes to the Annual Financial Statements as at 30 June 2017.
12.2 Fair value classification of investments
Financial assets and liabilities carried at fair value need to be classified within the appropriate level of hierarchy on which their fair values are based.
The information below sets out the different levels, as well as the classification of the Company's assets and liabilities where appropriate.
Investments trading in active markets and deriving their fair value from quoted market prices of identical assets are classified within level 1.
These prices provide the most reliable fair value classification and the Company does not need to adjust the quoted prices to measure the fair value of
investments. The quoted market price used for investments held by the Company is the current bid price.
Investments trading in markets not considered to be active and deriving their fair value from observable inputs other than quoted prices included within
level 1 are classified within level 2. These inputs need to be directly or indirectly observable for the investment and can include: quoted market prices
for similar assets in active or non-active markets; observable inputs other than quoted prices; and inputs derived or corroborated by observable market date.
The Company's money market investments will typically be classified within level 2.
Level 3 classification applies to investments where observable inputs are not available for the asset to determine its fair value. Unobservable inputs are
used to measure fair value where relevant observable inputs are not available. The unlisted investments in Fund Limited Partnerships are within this level.
The financial assets and liabilities measured at fair value in the Statement of Financial Position can be summarised as follows within the fair value
hierarchy:
Level 1 Level 2 Level 3 Total
R'000 R'000 R'000 R'000
Assets:
Unlisted investments - - 729 690 729 690
Money market investments - 1 141 236 - 1 141 236
Accrued income on money market investments - 19 035 - 19 035
- 1 160 271 729 690 1 889 961
During the period, there were no transfers of assets from level 1 to level 2 or 3, level 2 to level 1 or 3 or level 3 to level 1 or 2.
The following table presents the movement in level 3 assets during the period by class of financial instrument:
Unlisted
investments
31 Dec 2017
R'000
Non-current assets:
Opening balance 307 939
Acquisitions 408 396
Realisations and equalisations at carrying value of acquisitions (11 120)
Net gains included in the Statement of Comprehensive Income 24 475
729 690
The Board of Directors has approved the valuation method for level 3 investments as set out in the accounting policies. The valuation techniques used and
the inputs available to determine the fair value of each investment, are detailed in note 4 of the Notes to the Annual Financial Statements as at
30 June 2017. The inputs available to the Investment Advisor to determine the valuation of the underlying Portfolio Companies, from which the NAV of the
Funds is derived, are mainly the maintainable earnings of the relevant companies and valuation multiples that are derived from the public markets.
The main inputs available to the Investment Advisor to determine the valuation on a case-by-case basis for each of the underlying Portfolio Companies, from
which the NAV of the Funds is derived, are: maintainable earnings, trading multiples and capital structures. Earnings, for instance EBITDA, can be based on
budgeted EBITDA, most recent or historic reported EBITDA, last-12-months EBITDA or EBITDA adjusted to a normalised earnings level.
Trading multiples are determined by identifying comparable public companies based on, for instance, their industry, size, growth stage, revenue generation,
and strategy. Once a public company's trading multiple is calculated, the Investment Advisor can then adjust the multiple for considerations such as
illiquidity, capital structure and other differences between the public company and the Portfolio Company, based on company-specific facts and differences.
The Investment Advisor can also, in addition to the original transaction multiples, consider recent private transactions in similar securities as the
Portfolio Company or third-party transactions, and adjust the trading multiples as deemed appropriate.
The capital structure of each Portfolio Company determines the ranking or distribution waterfall of how the fair value is allocated, firstly, to each type of
security, and secondly, to each holder of such securities, for example, taking into consideration preferred rights or incentive schemes upon an exit scenario,
possible earn-out payments, etc. Other subjective inputs to use might be based on the Investment Advisor's assessment of the quality of earnings, third-party
external debt, comparability differences and probability of default.
All these numerical and subjective inputs are recorded and maintained, for each Portfolio Company, in a valuation model designed and updated by the
Investment Advisor. The Board of Directors has no direct access or input to these valuation models or the subjective assessments that were considered in
deriving the fair value and are not reasonably available to the Board. All these inputs and considerations are largely interdependent and subjective, and
the models are highly complex for an outside party to manage. Therefore, it is not reasonable, and potentially misleading, for the Board to determine and
present to the shareholders of the Company a sensitivity analysis of the potential impact of changes to one or more of the underlying inputs to fair value.
12.3 Interest rate risk
Interest rate risk is the risk that the value of a financial instrument will fluctuate based on changes in market interest rates. The Company has exposure
to interest rate risk through its Temporary Investments (money market investments) that are largely invested in fixed rate instruments and floating rate
notes with a relatively short re-pricing period. The fair value of the money market instruments is largely dependent on the market interest rates and could
fluctuate with changes in the latter.
The performance, maturity profile and sensitivity analysis of Temporary Investments are reviewed regularly and Ashburton aims to match the liquidity profile
with the Company’s liquidity requirements to optimise the returns. The Temporary Investments are managed by Ashburton under an investment management
agreement that sets certain permitted securities and limits within which they have to manage the portfolio to provide a balance of risk and returns that the
Board is comfortable with.
The table below demonstrates the sensitivity in the fair value of the Temporary Investments held at 31 December 2017 based on assumed changes to the market
interest rates (measured in basis points (“bps”)) at different intervals and taking into account the maturity dates of the securities.
Fair value
adjustment
31 Dec 2017
R’000
Change in market interest rates assumed:
-75 bps 1 959
-50 bps 1 306
-25 bps 653
+25 bps (653)
+50 bps (1 306)
+75 bps (1 959)
13 EVENTS AFTER THE REPORTING PERIOD
There have been no material events after the reporting date that would require disclosure or adjustment to the Summarised Interim Financial Statements for the six
months ended 31 December 2017.
D. CORPORATE INFORMATION
Directors
Yvonne Stillhart (Chairperson)
Derek Prout-Jones
Kevin Allagapen
Michael Pfaff
Yuvraj Juwaheer
Senior Advisors
Jean-Pierre van Onselen (CFO)
Peter Hayward-Butt (CEO)
Investment Advisor
Ethos Private Equity (Pty) Limited
35 Fricker Road
Illovo
Johannesburg, 2196
Company Secretary and Registered Office
Ocorian (Mauritius) Limited
4th floor,
Standard Chartered Tower
19 Bank Street
Cybercity
Ebene
Mauritius
Auditors
Deloitte & Touche
Level 7, Standard Chartered Tower
19 Bank Street
Cybercity
Ebene
Mauritius
Deloitte & Touche
20 Woodlands Drive
Woodmead
Sandton
Johannesburg, 2196
Listing
JSE Limited
Abbreviated name: ETHOSCAP
JSE code: EPE
Sector: Financials - Speciality Finance
Transfer Secretary
Computershare Investor Services (Pty) Ltd
Rosebank Towers
15 Biermann Avenue
Rosebank, 2196
Sponsor
Rand Merchant Bank
1 Merchant Place
Cnr Fredman Drive and Rivonia Road
Sandton
Johannesburg, 2196
Johannesburg
19 March 2018
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 19/03/2018 07:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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