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Quarterly update as at 31 March 2020
EPE CAPITAL PARTNERS LTD
(Incorporated in the Republic of Mauritius)
(Registration number: C138883 C1/GBL)
ISIN: MU0522S00005
Share Code: EPE
(“Ethos Capital” or “the Company”)
QUARTERLY UPDATE AS AT 31 MARCH 2020
Ethos Capital is an investment holding company, registered and incorporated in Mauritius. It is listed on
the Johannesburg Stock Exchange and offers shareholders potential long-term capital appreciation by
making commitments and investments into Funds or co-investments that are actively managed by Ethos
Private Equity (Pty) Limited (“Ethos”), providing the Company with exposure to a diversified portfolio of
unlisted private equity type investments (“Portfolio Companies”). “The Group” refers to the consolidated
results of the Company and a deemed controlled entity.
Below is a voluntary financial update of the Company since the interim results announcement made in
March 2020.
Net Asset Value (“NAV”)
In February 2020, Ethos Capital successfully raised R750 million through a fully underwritten Rights Issue to
fund its participation in the Brait SE (“Brait”) Rights Issue. This transaction resulted in an increase in the
number of shares in issue (excluding treasury shares) from 157.5 million to 257.5 million shares.
Post the Rights Issue and based on the Brait investment at a cost of R7.99 per share, Ethos Capital’s
adjusted NAV per share (“NAVPS”) as at 31 December 2019 would have been R9.94 compared with the
actual reported 31 December 2019 NAVPS of R11.48.
The unprecedented outbreak of the COVID-19 pandemic, followed by national lockdowns across the world,
has had a significant impact on most of the Portfolio Companies’ short-term profitability and resulted in
sharp declines in peer group multiples.
The Portfolio Company valuations as at 31 March 2020 take account of: i) adjustments to the maintainable
EBITDA given the outlook for the businesses post the COVID-19 pandemic; ii) a reduction in the applied
valuation multiples given decreases across the peer groups; and iii) adjustments to “sustainable” net debt
to account for accrued costs and working capital requirements to “restart” some of the businesses post the
lockdown.
The post-COVID-19 NAV of Ethos Capital’s unlisted (original) portfolio as at 31 March 2020 decreased from
R1,680 million at 31 December 2019 to R1,377 million. This was largely as a result of:
• A reduction in attributable EV / EBITDA multiples accounting for 45% of the reduction in the
unlisted NAV;
• A decrease in maintainable EBITDA accounting for 21% of the reduction in the unlisted NAV; and
• An increase in sustainable net debt accounting for 34% of the reduction in the unlisted NAV.
Brait recently announced its annual results with an audited NAVPS for the Brait portfolio of R8.27. Using
Brait’s NAVPS, the implied Ethos Capital NAVPS as at 31 March 2020 is R8.91.
As at 31 March 2020, the Brait share price was R3.75 (an implied share price discount of 55% to NAV).
Using the Brait share price, the implied Ethos Capital NAVPS as at 31 March 2020 was R6.65.
The table below shows the valuation and NAVPS as at 31 March 2020:
Ethos Capital portfolio Brait portfolio Combined portfolio
Dec 19 Mar 20 Mar 20 Mar 20
At R8.27 At R3.75 At R8.27 At R3.75
NAV ('million) 1,680 1,377 1,067 484 2,444 1,861
EV / EBITDA* 7.4x 7.0x 7.6x 6.6x 7.4x 6.7x
NAVPS - Rand
Invested capital 9.49 7.23
Net liabilities (0.58) (0.58)
Total 8.91 6.65
* excluding MTN and other companies not valued on an earnings-based valuation
The table below sets-outs the attributable movements of the portfolio valuation drivers post the
investment in Brait to 31 March 2020:
R'million R'million
At 31 Dec 19 1,680
Net acquisitions 1,012
Pre 31 Mar 20 revaluation 2,692
Earnings (176)
Multiple (133)
Debt (71)
Exchange rate movements 117
Brait/other (568)
At 31 Mar 20 1,861
** Net of proceeds from the sale of Eaton Towers
Update on the key Portfolio Companies
Channel VAS
Channel VAS is a leading provider of Airtime Credit Services (“ACS”) to prepaid mobile subscribers and has
expanded into Micro Finance Services (“MFS”) leveraging its existing credit scoring capability and access to
data. The business has continued to perform strongly with increasing ACS advances and new deployments
across a number of territories. COVID-19 did not have a significant direct impact on the business’ operating
performance although lockdowns limited customers’ ability to recharge their airtime which affected ACS
advances across some geographies. The business was impacted by the devaluation of several emerging
market exchange rates, in particular the devaluation of the Naira against the US Dollar. The business
continues to focus on enhancing operational efficiencies across its platform. Strong growth in profitability
was offset to some extent by the currency devaluations in the valuation.
Brait
Brait has released its audited annual results for the year ended 31 March 2020. The company has made
significant progress on its strategy of realising value from its underlying Portfolio Companies. Since 1
March 2020, when Ethos Private Equity took over as the Advisor to the Brait Board, Brait has completed the
disposal of two Portfolio Companies (Iceland and DGB) with proceeds of c.R3.0 billion and has significantly
reduced the Brait cash costs by c.R444 million on an annualised basis. The focus remains on stabilising and
growing its two key assets with a view to realising value from its remaining assets in the next 3 to 5 years.
i) Virgin Active
As part of government initiatives globally to limit the spread of COVID-19, all Virgin Active gyms worldwide
were closed and membership fees were “frozen” since the middle of March. Cash operating costs have
been tightly managed and the company has benefitted from the financial assistance in the countries in
which it operates. This has resulted in a reduction in the cash costs to approximately one third of the cost
base pre COVID. Virgin Active has secured additional funding from its banks in the UK / Europe and APAC
business and the South African business has sufficient liquidity based on its current projections for the
lockdown. Some territories in which Virgin Active operates (Australia, Italy, Thailand, Botswana, Namibia)
have reopened under strict safety protocols.
ii) Premier Foods
As a manufacturer of staple foods, Premier’s products were classified as essential goods during the COVID-
19 lockdown period in South Africa and the other countries in which it operates, which has enabled Premier
to continue with full production and operations. A strict focus on staff and customer health and safety has
resulted in additional costs being incurred. The business had a strong operational performance in 2H 2020
to 31 March 2020 and this has continued into the new financial year.
Echotel
Echotel is a corporate Internet Service Provider, providing Information and Communications Technology
(”ICT”) services through an aggregation of third-party networks. As an essential services provider in the
geographies in which it operates, the group continues to trade despite the lockdowns instituted due to
COVID-19. The growth in the company’s sales pipeline remains strong and demand for corporate ICT
solutions has increased as a result of the pandemic. The growth of its services across key sub-Saharan
African countries remains a key strategic focus although travel to these countries has not been possible
since the lockdown began.
Vertice MedTech
Vertice sells medical technology and supplies across a wide range of applications predominantly to support
emergency and critical procedures. Vertice’s business is expanding well and a number of bolt-on
acquisitions have been concluded at attractive prices. However, the COVID-19 crisis resulted in a slowdown
in revenue as many elective procedures have been delayed. This is being partially offset by selling supplies
that have experienced stronger demand due to the crisis. Much of the cost base is variable and the
business is not likely to experience liquidity problems unless the lockdown continues for an extended
period.
Synerlytic
The Synerlytic group operates in subsets of the Testing, Inspection and Certification market. As a non-
essential service provider, the imposition of the lockdown resulted in a cessation of trading for a significant
portion of the business. During this period, a number of cost saving measures were implemented, and
management’s business continuity plan focused on cash preservation and the company’s near-term
liquidity requirements. The phased relaxation of the lockdown measures has meant that the entire group is
now fully operational once again, with the majority of its customers having come back online.
Kevro
Kevro has been significantly impacted by COVID-19, initially in its supply chain from China at the outset of
the pandemic and latterly due to the impact of the lockdown on procurement and demand patterns. The
Company had also embarked on a consolidation of its distribution centres and a comprehensive IT
integration project. The combination of the impact of COVID-19 and issues arising from its integration
projects significantly impacted the business’ profitability and valuation.
Primedia
Primedia is one of the leading South African broadcasting and outdoor advertising businesses and has been
impacted by the significant decrease in advertising spend since the crisis began. As with most global media
businesses, Primedia has had to restructure its business to account for the lower advertising revenue. This
process has been largely completed resulting in a significantly optimised operating base. However,
profitability for the period will be lower than the previous year.
Disclaimer
The financial information on which this announcement is based, has not been audited, reviewed and
reported on by the Company’s external auditors.
Ebene, Mauritius (with simultaneous circulation in Johannesburg)
24 June 2020
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 24-06-2020 08:51:00
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