Post on 10-Jun-2021
ETHOS CAPITAL INVESTOR PRESENTATION28 SEPTEMBER 2020
CO
NT
EN
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Executive summary
Liquidity analysis
Portfolio overview
4
2
3
1
Outlook
© Ethos | 3
Financial year ended 30 June 2020 headlines at a glance
EXECUTIVE SUMMARY
NAV per share:
R9.12on an aggregate basis
with Brait assets at NAV
NAV per share:
R6.65on an accounting basis with the Brait
investment at the Brait share price
Brait investment and R750m Ethos Capital
Rights Issue completed in
February
Carrying value of invested Capital
as at June 2020:
R1.9bn99% of total assets invested
Total capital invested
R1.3bnduring FY2020
Brait disposals:
Disposal of DGB &
Iceland Foods
for a total of R2.9bn
Estimated annualised
savings to Brait’s cash costs of
R493mthrough actions taken since
1 March 2020
Ethos Capital currently* trades at a
discount to the R9.12 NAVPS of
c.62%
Unlisted portfolio valued at
7.0x LTM EBITDA
* As at 25 September 2020
© Ethos | 4
PERFORMANCE REVIEW
PORTFOLIO PERFORMANCE
ETHOS CAPITAL LIQUIDITY
– 20% reduction in Net Asset Value Per Share (“NAVPS”) for the year to 30 June 2020 from R11.34 to R9.12 as a result of:
• R750m capital raise in February 2020
• EV / EBITDA multiple reduction across most Portfolio Companies
• Lower maintainable EBITDA of many of the Portfolio Companies
– NAVPS assuming Brait is valued at its 30 June 2020 share price decreased to R6.65
– Attributable maintainable EBITDA* decreased by 8% with the average EV / EBITDA multiple decreasing to 7.0x
– Ethos Capital is fully invested with Invested Capital of R1,892m
– Current RMB base facility of R500m of which R40m was utilised as at 30 June 2020
– Current undrawn net commitments total c.R380m across the various Ethos Funds
– Sufficient liquidity to fund Ethos Capital commitments
COVID IMPACT
– Significant impact on most of the Portfolio Companies (18 of 24 Portfolio Companies were closed during lockdown)
– Impact on maintainable EBITDA, multiples and also sustainable net debt
– Measures put in place by management teams were all successful and there were no corporate “casualties”
* Adjusted for acquisitions/realisations and fx
© Ethos | 5
PERFORMANCE REVIEW
BRAIT PORTFOLIO
INVESTMENTS AND DISPOSALS
– Significant amount of time spent with Portfolio Company boards and management teams focusing on:
• Short term strategies to survive the impact of COVID
• Understanding and aligning behind Brait’s new strategy with new / refreshed strategies to optimise value in the 3 to 5-
year time horizon
• New management incentive schemes and succession plans in place at Virgin Active and Premier
– Strategic reset and growth plan implemented at Premier
– Virgin Active refinancing, liquidity plan and launch of global digital offerings
– New Look capital restructuring and CVA announced and largely completed
– Consol debt restructuring completed
– R2.3bn invested in FY20 by Ethos Funds, largely into Brait, Gondwana and Vertice - Ethos Capital share R1.3bn
– Ethos Capital investment into Brait of R1,034m completed in February 2020
– Sale of Eaton Towers completed in January 2020 by Ethos Fund VI (2.5x TMB, 22% IRR in ZAR)
– DGB sale completed in April 2020 – Brait proceeds of c.R470m in line with current Net Asset Value (“NAV”)
– Sale of Iceland Foods in May 2020 – Brait proceeds of GBP115m in three tranches at an 84% premium to NAV, second
and third tranches totaling GBP48.5m received as part of early settlement agreement on 15 September
© Ethos | 6
PERFORMANCE REVIEW
BRAIT DEBT
BRAIT OPERATIONS
– Refinancing and significant reduction in Brait net debt:
• BML debt reduced from R4.6bn (March 2020) to R2.7bn post receipt of Iceland proceeds and GBP7m New Look investment
• Interest saving of R310m on an annualised basis
– Increased headroom on covenants for both the Brait debt facility and the 2024 Convertible Bonds
– Repayment of 2020 convertible bonds:
• Savings of c.R66m through early settlement offers and tender process
– Brait / Ethos team integration complete
– Significant reduction of R493m of cash costs on an annualised basis
• Operating cost reduction of R183m
• Reduced interest costs of R310m
– Redomiciliation process from Malta largely complete; process to be completed by March 2021
STRATEGIC OUTLOOK
– Current focus of Ethos Funds on portfolio optimisation and exits
– Ethos Capital Board is focused on maximising value and return of capital to shareholders
– No new Fund commitments until Funds’ realisation strategies and shareholder distributions have been demonstrated
© Ethos | 7
Overview of Ethos key unlisted portfolio companies
PORTFOLIO COMPANY PERFORMANCE OVERVIEW
– Strong operational performance has continued despite COVID
– >40% growth in LTM EBITDA in ZAR to June 2020 broadly across territories and customers
– Growth opportunities in new customer deployments, new products and MFS deployments
– Robust operational performance with significant increase in the company’s sales pipeline
– Management focused on integrating the Gondwana acquisition to drive pan SSA growth to key customers
– Strategy remains to look for in-fill acquisitions of complementary businesses
– Very significant (86%) growth in maintainable EBITDA driven by both organic growth and in-fill acquisitions
– Business impacted by the slowdown in elective procedures due to COVID which is likely to reverse
– Impacted by the lockdown but business was operational in Level 3 and performing in line with budget
– Integration of acquisition (AFS) has boosted profitability, management assessing other bolt-on acquisitions
– 1H 20 adversely impacted by supply chain issues, IT platform integration and consolidation of distribution centres
– Demand remains robust and 1H issues have been resolved
– Significant decrease in advertising spend in Q2 20 impacted both the broadcasting and outdoor businesses
– Advertising spend has seen an encouraging post lockdown increase although remains well below previous years
© Ethos | 8
Brait portfolio company overview
PORTFOLIO COMPANY PERFORMANCE OVERVIEW
– Clubs opened in Italy, Thailand, Singapore, Australia and the UK (7 remain closed in London)
– Early indications are positive with usage levels above and freeze / terminations in-line with management’s forecasts
– South Africa opened on 24 August, lower terminations than forecast and usage at 37% by week 3
– However, likely to take at least 18 months (based on management’s forecasts) to revert to 2019 levels
– Strong operational and financial performance has continued with Q1 revenue and EBITDA increasing 12% and 20%
respectively
– Management highly focused on enhancing operational efficiency and dealing with Coronavirus mitigants to the business
– Strategy remains to look for in-fill acquisitions of complementary products to leverage the Premier platform
– Sold to Iceland management for a total consideration of GBP115.0m; a premium to the March 2020 carrying value of
GBP62.5m
• Early settlement of deferred payments of GBP48.5m received on 15 September
– Operational turnaround plan was on track, however significantly impacted by Coronavirus with store closures
– Capital restructuring and CVA process to reduce costs largely complete
– Strong 2019 performance halted by Coronavirus and impacted by the renewed alcohol ban in South Africa; operations
have reopened and will take time to ramp up to full capacity
© Ethos | 9
Brait cash cost savings, debt and covenants
BRAIT LIQUIDITY & CASH COST ANALYSIS
6,348
2,925 2,851 2,851
6,402
4,6023,597
2,680
Sep 19 (prerestructure)
31 March 2020 30 June 2020 30 June 2020(Adjusted)
Total Group debt (R million)
2020 Convertible Bond 2024 Convertible Bond Drawn BML RCF
CASH COST SAVINGS DEBT & COVENANTS
12,750
6,4485,531
7,527
Jun-20 Adjusted reflects the illustrative drawn balance
outstanding on the drawn RCF, post receipt of the remaining
Iceland deferred sales proceeds of GBP48.5m and NL
investment
30%
26%5%
29%
8%3%
R493m cash cost
reduction (1)
INTEREST RATES
Refinancing of BML
facility (annual interest
saving – including Base
Rate reduction) (2)
ADVISOR FEE
Reduction in the BML
Advisory Fee (3)
Voluntary reduction in Q1
Advisory Fee
OPERATING COSTS
– Re-domiciliation from
Malta to Mauritius
– Reduction cost of the Brait
Board
– Voluntary reduction in Q1
directors’ remuneration
DISPOSALS
Asset disposal
process, resulting in
annual interest rate
savings
CB REPURCHASE
Liquidity management:
Repurchase of a portion
of 2020 Convertible
Bonds at a discount
PREMIER LOAN REPAYMENT
Liquidity management:
R150m of shareholder loan proceeds
from Premier (interest saving)
(1) Represents an illustrative estimate of “annualised” cost savings; (2) Includes the benefit of a 300bps reduction in SA Base Rates; (3) Reduction of Advisory fee from R215 million to R100 million p.a.
CO
NT
EN
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Executive summary
Liquidity analysis
Portfolio overview
Outlook4
1
3
2
© Ethos | 11
Changes in NAV since June 2019
ETHOS CAPITAL NAV ANALYSIS
AuditedImpact of the Rights Issue
and Brait investmentIllustrative Proforma Audited
30 June Equity
raise
Brait
investment
30 June 30 June
2019 2019 2020
Investments 1,427 74.1% - 1,034 2,461 92.4% 2,529 99.4%
Brait (at cost / NAV) - - 1,034 1,034 38.8% 1,068 42.0%
Channel Vas 408 21.2% 408 15.3% 549 21.6%
Echo 28 1.5% 28 1.1% 178 7.0%
Vertice 61 3.2% 61 2.3% 153 6.0%
Kevro 202 10.5% 202 7.6% 115 4.5%
Synerlytic 105 5.4% 105 3.9% 114 4.5%
Other investments 623 32.3% 623 23.4% 352 13.8%
Cash and cash equivalents 485 25.0% 735 (1,034) 186 7.0% 8 0.4%
Accounts receivable 17 0.9% 17 0.6% 5 0.2%
Total assets 1,929 100.0% 735 - 2,664 100.0% 2,542 100.0%
Borrowings (Drawn RCF) - - (40)
Borrowings (Black Hawk Debt) (135) (135) (145)
Non-current liabilities (135) (135) (185)
Accounts payable & provisions (8) (8) (8)
Current liabilities (8) (8) (8)
Total Liabilities (143) - - (143) (193)
NAV to ordinary shareholders 1,786 735 2,521 2,349
# of shares ('mil) excl treasury 157.5 100.0 257.5 257.5
NAV PER SHARE 11.34 7.35 9.79 9.12
© Ethos | 12
31 December 2019 vs 30 June 2020
PORTFOLIO OVERVIEW
COVID-19 PANDEMIC
Carrying value of
Capital
Invested
R1.9bn
EV / EBITDA
(unlisted)
7.0x
EV / EBITDA (Brait portfolio based on its
share price)
6.7x*
Ethos Capital
NAVPS @ Brait
NAV (R8.27)
R9.12
Ethos Capital
NAVPS @ Brait
share price
R6.65
Capital
Invested
R2.7bn
# of Portfolio
Companies
24
EV / EBITDA
(unlisted)
7.4x
Ethos Capital
all-in Brait
entry price
R7.99
Ethos Capital
NAVPS
R9.89
At 30 June 2020
* Ethos Capital’s unlisted
portfolio is valued at 4.6x
based at EC’s share price
Pro forma at 31 December 2019 – adjusted for Rights Issue and Brait investment
© Ethos | 13
3%
1% 1% 1%2% 2% 2%
4% 5%
6% 6%
8% 8%
9%
13%
29%
Other * MTN Chibuku Autozone New Look Twinsaver TymeBank Gammatek Primedia Synerlytic Kevro Vertice Premier Echotel Virgin ChannelVas
90% of total assets
The largest 10 assets constitute 90% of total assets
TOTAL ASSET CONTRIBUTION
53%40%
7%
South Africa
Rest of sub-Saharan Africa
International
© Ethos | 14
The majority of companies (by value) grew both revenue and EBITDA
PORTFOLIO COMPANY PERFORMANCE OVERVIEW
250 246 292
5886 42
3
< -15% -15% to < 0% 0% to < 15% 15% and greater
Value - R'm Number
223
43
562 5484
3
7 1
< -15% -15% to < 0% 0% to < 15% 15% and greater
Value - R'm Number
LTM SALES GROWTH BY UNLISTED COMPANY
LTM EBITDA GROWTH BY UNLISTED COMPANY
(111.9)
(80.6)
(41.0)
(40.9)
(28.5)
(25.0)
(21.7)
(19.5)
10.5
16.9
27.7
146.8
Brait
Kevro
Primedia
Twinsaver
Other
Autozone
Gammatek
Eazi
MTN
Synerlytic
Echo
Vertice
ChannelVas
(603.0)
INVESTMENT RETURN
%
Change
35%
22%
11%
10%
(48%)
(64%)
(26%)
(55%)
(26%)
(56%)
(49%)
(49%)
(58%)
© Ethos | 15
Decrease in NAVPS and NAV since 30 June 2019
NAV MOVEMENT ANALYSIS
– Capital raising: NAVPS declined by R1.55 due as a result of the rights issue with R750m raised through the issuance of 100m shares
– EBITDA: the maintainable EBITDA of the unlisted portfolio companies (adjusted for acquisitions and fx) fell by 8% which resulted in a R0.41 per share decline in value
– EV/EBITDA multiple: the average EV/EBITDA of the unlisted portfolio reduced from 7.5x in June 2019 to 7.0x in June 2020, accounting for a R0.44 per share decline
– Net debt: whilst actual net debt was relatively flat, adjustments to account for accrued expenses during lockdown and working capital reduced values by R0.15 per share
– FX impact: the weaker US$/ZAR (R14.1 in June 2019 to R17.4 in June 2020) positively impacted Channel VAS’s EBITDA resulting in a R0.40 increase in NAVPS
– Listed valuations – this comprises Brait and MTN Zakhele Futhi listed shares both of which declined significantly (Brait 58% and MTN 48%) during the course of the year
NAVPS (Rand): BY VALUATION DRIVER NAV (R’millon): BY VALUATION DRIVER
The Ethos Capital NAV decreased from R1.8bn in June 2019 (pre-Rights Issue) to R1.7bn in June 2020, driven by the following factors:
11.34
6.65
0.08
0.40
(1.55)
(0.41)(0.44) (0.15)
(2.49)
(0.13)
June 19NAVPS
RightsIssue
Realisedgains
EBITDA Multiple Debt FXimpact
Listedand
other*
Netexpenses
June 20NAVPS
1,786 1,712
735
22 102
(106)(114)
(38)(640)
(35)
June 19NAV
RightsIssue
Realisedgains
EBITDA Multiple Debt FXimpact
Listedand
other*
Netexpenses
June 20NAV
* Brait, MTN, Chibuku and TymeBank
© Ethos | 16
Ethos Capital share price implies the following EV / LTM multiples
PORTFOLIO COMPANY IMPLIED VALUATIONS
4.2x
3.3x3.5x
5.4x 5.3x5.5x
5.2x5.4x
5.1x
2.8x
4.8x5.2x
1.5x
4.0x
5.4x
5.8x 9.0x 5.5x 10.5x 9.5x 9.0x 7.3x 11.4x 9.1x 11.7x 14.4x 11.1x 3.7x 9.8x 11.5x
4.6x
ChannelVas
Echotel Vertice Kevro Synerlytic Primedia Gammatek Twinsaver Autozone SterKinekor
Eazi Bevco Neopak Waco RTT
Fund VI / VII Ai Fund Mid Market Fund Implied
- - - - EV / EBIAT
average
EV/EBITDA
7.9x average
© Ethos | 17
The combined NAV of the top 2 assets exceeds EC’s market capitalisation
NAV COMPOSITION BY PORTFOLIO COMPANY
(1) Brait listed share price as at 30 June 2020 (R3.34), (2) Brait NAV as at 31 March 2020 of R8.27,
(3) Ethos Capital share price as at 25 September 2020 , (4) Consisting of Other investments of R196m less net liabilities of R180m
548
431
178
153
115
114 84
73 16
636
Channel Vas Brait listed value(1)
Echotel Vertice Kevro Synerlytic Primedia Gammatek Other Brait NAVincrease (2)
NAV (Brait at 30 June share price)
Attributable NAV (Brait at 30 June NAV)
47%
62%
Current marketcapitalisation (3)
(4)
© Ethos | 18
CHANNEL VAS UPDATE
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
29% 548m 1.52x 20%
% of Total Assets Value (Rm) TMB Ethos stake
LTM
PERFORMANCE
– Strong growth continued across all territories and most customers
• LTM revenue growth of 48% in ZAR
• ACS advances increased by 19% year on year in USD
• LTM EBITDA growth of 40% in ZAR
– Revenue growth a result of 12 new deployments and increased penetration of existing
deployments
IMPACT OF
COVID-19
– Business largely unaffected by COVID although impact on Nigerian economy has an indirect impact
on profitability (due to FX conversion)
– COVID had an impact on new deployments and marketing efforts
– Constant adjustment of credit scorecards to take account of the impact on consumer spend
– Innovative approach to mitigating potential currency risks in certain countries
OPERATIONAL
OUTLOOK
– Business continues to experience strong demand for its products
– Focused on further operational efficiencies and new product / customer deployments
– Early indications of positive progress in MFS
VALUATION
– LTM EBITDA increased 40% in ZAR, however adjustment made for potential future depreciation in
Naira / US$ resulted in maintainable EBITDA YoY growth of only 20%
– No change to EV / EBITDA multiple (same as Ethos entry multiple)
– No debt in the business, R22m of dividends received by Ethos during the year
20%15%
48%40%
Revenue EBITDA
YoY growth
US$ ZAR
423
548
2019 2020
Valuation change *
* 2019 adjusted for current year investment; dividends of R22m received during the year
© Ethos | 19
VIRGIN ACTIVE UPDATE
Virgin Active is one of the leading international health club operators and strives to provide customers with a combination of outstanding exercise experiences and a world
class digital offering
13% 243m n/a 10%
% of Total Assets Value (Rm) TMB Ethos stake
ITALY
– Current usage levels for clubs at 61% usage, higher at clubs opened first, lower in inner city gyms
– Active members are 14% below prior year with total membership numbers 10% lower as a result of
increase in members on freeze
AUSTRALIA
– Current like-for-like usages levels are at 87%; suburban clubs close to 100% usage, with inner city
clubs at c.50% as businesses work through their return to office strategies
– Active membership are 16% below prior year levels with total membership numbers 8% down
THAILAND &
SINGAPORE
– Opened all 8 clubs in Thailand and all 6 clubs in Singapore, current usage levels:
• Thailand clubs at 73% usage with 5% of membership on freeze
• Singapore clubs at 89% usage with 21% of members on freeze
– Overall active membership numbers for Thailand and Singapore are 13% and 29% down on prior
year with total membership numbers 12% and 18% down
UNITED
KINGDOM
– Opened 36 clubs (6 remain closed) - current usage levels are at 53% of the prior year
– Active membership numbers are 36% down on prior year due to higher members on freeze with total
memberships down 26% due to increase in terminations
SOUTH AFRICA
– Opened all clubs on 24 August, two clubs in Namibia and one in Botswana re-opened in June
– Still early days but usage has steadily increased to 37% of prior year levels with active membership
base 30% down however, total membership base down only 6%
– Contract structure of SA membership base remains a positive for Virgin Active
140
108
2019 2020
EBITDA change (GBPm)
897
422
2019 2020
Valuation (GBPm)
© Ethos | 20
ECHO UPDATE
Echo is a corporate Internet Service Provider, providing Information and Communications Technology (”ICT”) services through an aggregation of
third-party networks
9% 178m 1.12x 62%
% of Total Assets Value (Rm) TMB Ethos stake
LTM
PERFORMANCE
– Company continues to grow strongly with new client wins and additional contracts with existing
customers resulting in third party revenue growth of 20% in the SA business
– Investment in sales force paid off with the weighted sales pipeline increasing 37% YoY
– Focus remains on converting the pipeline to revenue and scaling the business to benefit from
operational leverage
IMPACT OF
COVID-19
– Echo has a broad range of customers across a number of industries
– To date the impact on the debtor book has been limited
– Integration of the Gondwana business has been impacted to some extent by the travel ban
STRATEGIC
OUTLOOK
– Demand for the company’s products and its focus on customer service has remained strong
– The Gondwana acquisition provides the business with a competitive pan SSA offering that
enables it to compete for business with larger regional customers
– Management continue to consider potential in-fill acquisitions in certain geographies
– Focus on driving operational leverage in the business as it continues scale up
VALUATION
– L-f-L third party Revenue growth of 20% YoY and a strong forward sales pipeline for the current year
– No long-term debt in the business
– R133m of capital injected to fund the Gondwana acquisition which completed in October 2019
– Core Echo valuation increased by 15%
20%
22%
Revenue Gross Profit
YoY growth
161
178
2019 2020
Valuation change *
* 2019 adjusted for current year investment
© Ethos | 21
PREMIER UPDATE
Premier is a leading South African FMCG manufacturer offering branded and private label solutions. The business has strong heritage brands in bread, maize meal, wheat
flour, feminine hygiene and sugar confectionary
8% 157m n/a 13%
% of Total Assets Value (Rm) TMB Ethos stake
OPERATIONAL
PERFORMANCE
– 12% revenue growth continued in Q1 FY21 (over prior year) driven by Milling (growth of 20%),
Baking (12%) and Grocery and International (3%)
– EBITDA growth of c.20% for Q1 FY21 (over prior year) driven by Milling, Baking and Grocery and
International
– Strong performance has continued into Q2 FY21
MARKET SHARE
– Bread market share of 23.5% (31 Mar 2020: 22.8%) across five brands
– Maize market share of 15.5% (31 Mar 2020: 16.2%) across its four regional brands
– Wheat share market share of 30.0% (31 Mar 2020: 26.1%)
– Sugar-based confectionery market share of 8.2% (31 Mar 2020: 7.7%)
– SA feminine hygiene products market share of 15.8% (31 Mar 2020: 17.4%)
OPERATIONAL
AND STRATEGIC
– Increased unemployment, consumer spend pressure and rising raw material costs require continued
focus on operating cost containment
– Covid-19 related costs of R43m mainly for transport, screening and additional labour costs
– Benefited from reduced fuel costs for distribution and production
– Management considering strategic in-fill acquisitions of complementary products
CASH
GENERATION
AND DEBT
– Strong cashflow generation, net third party debt of R2.2bn at the end of Q1 FY21
– Investment in working capital due to increased inventories and wheat price increases
– Beneficiary of lower base rates
12%
20%
Revenue EBITDA
Q1 21 growth
65
145
@ share price @ NAV
Valuation range
© Ethos | 22
VERTICE UPDATE
Vertice sells medical technology and supplies across a wide range of applications predominantly to support
emergency and critical procedures
8% 153m 1.25x 88%
% of Total Assets Value (Rm) TMB Ethos stake
LTM
PERFORMANCE
– Strong organic and acquisition-led growth over the past 12 months:
• Revenue up 73%
• EBITDA up 86%
– 3 bolt-on acquisitions of complementary products leveraging the same customer base and operating
platform
– Significant progress made on supplier, customer and product diversification
IMPACT OF
COVID-19
– COVID resulted in a slight slowdown in the revenue growth rate as elective procedures were delayed
– Likely to pick up again as COVID hospitalisations decrease
OPERATIONAL
OUTLOOK
– New product development and increasing use of data is enhancing the value-add aspect of the
business
– Additional bolt-on acquisitions to further extend the value-add / IT services component of the
business should result in further revenue growth
– Focus on adding complementary product offerings / services to the existing platform
VALUATION
– Maintainable EBITDA more than doubled - reduced slightly to account for COVID
– EV / EBITDA multiple largely flat despite larger, more diversified business
– Net incremental capital of R65m injected to fund acquisitions
126
153
2019 2020
Valuation change *
73%
86%
Revenue EBITDA
YoY growth
* 2019 adjusted for current year investments
© Ethos | 23
KEVRO UPDATE
Kevro is the largest supplier of corporate-branded clothing and promotional
products in South Africa
6% 115m 0.57x 29%
% of Total Assets Value (Rm) TMB Ethos stake
LTM
PERFORMANCE
– Significant underperformance in the past six months largely as a result of the company’s IT
integration project and distribution centre consolidation
• IT system issues have been resolved and the operational platform is now fully functional
• Distribution centres consolidated into one site resulting in significant operational and cost
efficiencies
– New management team has managed the change management process well
– Demand side remains strong with a significant reduction in the number of independents
IMPACT OF
COVID-19
– Impact of initial lockdown on supply chain particularly from China
– Supply side issues resolved and impact is now indirectly through impact on customer spend
OPERATIONAL
OUTLOOK
– Significant cost reduction program (c.14% of total cost base) will drive operational efficiencies
– New IT system and distribution centre efficiencies should improve operating performance and
customer service
– Management succession (replacement for interim CEO) has commenced
VALUATION
– Reduction in maintainable EBITDA (11% reduction)
– EV / EBITDA multiple decreased to reflect post COVID reality
– Increase in net debt as a result of COVID lockdown and operational issues
227
115
2019 2020
Valuation change *
* 2019 adjusted for current year acquisition
© Ethos | 24
SYNERLYTIC UPDATE
The Synerlytic group operates in subsets of the Testing, Inspection and Certification market and is one of the leading condition monitoring and fluid analysis specialists in
Africa (through WearCheck) and supplier of certified reference materials to mining laboratories across the world (through AMIS)
6% 114m 1.26x 89%
% of Total Assets Value (Rm) TMB Ethos stake
-3%
5%
Revenue EBITDA
YoY growth
104
114
2019 2020
Valuation change *
* 2019 adjusted for current year realisation
LTM
PERFORMANCE
– Solid operational performance with organic and acquisition-led growth in revenue
• Strong performance from AFS (recent acquisition) in WearCheck resulted in strong cross
selling and revenue growth
• Solid growth in the AMIS business
• Strategic changes in Set Point Labs business also showing early positive signs
– Recent SANAS accreditation likely to unlock new contract opportunities
– Strong cost focus resulted in 5% growth in maintainable EBITDA
IMPACT OF COVID-
19
– The business was impacted by COVID with many of its clients closed during the lockdown
– Business performance has picked up sharply since the lockdown restrictions eased
– Unlikely to be a material long term impact on the business (impact larger on smaller
competitors)
OPERATIONAL
OUTLOOK
– Operational changes and cost reductions will benefit the business as volumes normalize
to pre COVID levels
– Further in-fill acquisitions being assessed to leverage the platform
VALUATION
– Maintainable LTM EBITDA increased by 5% accounting for the impact of COVID
– EV / EBITDA multiple increased slightly
– Slight increase in net debt as a result of COVID
© Ethos | 25
PRIMEDIA UPDATE
Primedia is one of the leading South African broadcasting and outdoor advertising businesses
5% 84m 0.56x 24%
% of Total Assets Value (Rm) TMB Ethos stake
LTM
PERFORMANCE
– Operational performance significantly impacted by low GDP growth environment and the impact of
COVID on advertising spend
• Radio advertising spend fell 15% in LTM
• Outdoor advertising spend fell 22% in LTM
– Advertising spend has started to improve significantly post lockdown but still well below prior
years
IMPACT OF
COVID-19
– Very significant impact on general advertising spend across all media
– Radio adspend decreased 15% YTD (40% decrease in Q2 20) with Outdoor adspend falling 22%
YTD (c.50% in Q2 20)
– Will take some time for adspend to return to pre COVID levels
OPERATIONAL
OUTLOOK
– Significant focus on renewed line-ups in the talk radio stations to drive market share and audience
ratings
– Cost cutting across all divisions to drive operational efficiencies given top line pressure
– Changes to executive management at head office and divisional level
– Business remained cashflow generative throughout the lockdown period
VALUATION
– Maintainable EBITDA decreased by 21%
– EV / EBITDA multiple reduced by 15%
– Slight reduction in group net debt over past 12 months
-15%-22%
-40%
-50%
Radio Outdoor
Advertising spend change
YTD Q220
165
84
2019 2020
Valuation change
© Ethos | 26
Overview of other Ethos unlisted portfolio companies
PORTFOLIO COMPANY PERFORMANCE OVERVIEW
– Leading distributor of mobile accessories and low technology products
– COVID impacted sales but new products and sales channels have underpinned recent performance
– Digital banking platform exclusively leveraging the Pick n Pay and Boxer store footprint
– Strong LTM growth in KPIs (>2m customers (+300%), 530k active accounts (+400%), strong transactional volume
growth, significant cost rationalisation), raising capital to fund growth aspirations
– Market leading provider of industrial equipment for working at height
– Impacted by COVID, significant cost saving initiatives, management changes and recent pick up in activity
– One of the largest emerging market MNOs (Ethos Capital’s investment through BEE vehicle MTN Zakhele Futhi)
– Decent growth in underlying EBITDA and focus on reducing group debt, share price has re-rated from lows
– Second largest manufacturer of tissue paper in South Africa in addition to other HPC products
– Strong demand drove significant growth in revenue and profit in the past twelve months
– Leading supplier of automotive parts to the retail and wholesale market in South Africa
– Turnaround strategy implemented 12 months ago yielding positive results despite difficult trading environment
4%
2%
1%
1%
2%
1%
% of
Total Assets
CO
NT
EN
TS
Executive summary
Liquidity analysis
Portfolio overview
Outlook4
1
3
2
© Ethos | 28
Sufficient liquidity to fund outstanding fund commitments
LIQUIDITY PROFILE
* Available liquidity = Cash plus Debt Facility less Net Investment outflows / Realisation inflows
3,245 3,108
(112)
137
2,728
460
32
Totalcommitments
Fee provision Netcommitments
Investedcapital
Base facility Treasuryshares
Commitmentgap
FY21 FY22 FY23 FY24
Realisations
Existing outflows
Available liquidity
CO
NT
EN
TS
Executive summary
Liquidity analysis
Portfolio overview
Outlook
1
2
4
3
© Ethos | 30
OUTLOOK FOR ETHOS CAPITAL
Significant uncertainty remains regarding the impact and longevity of COVID, particularly the effects of a second lockdown invarious jurisdictions
Underlying performance of most Portfolio Companies have rebounded strongly since the reopening of the South African economy which should reflect in positive underlying valuations
Ethos Capital has sufficient liquidity to meet its commitments however, continues to assess ways to unlock / realisevalue from its portfolio
The performance of Ethos Capital’s larger assets (by value contribution) were largely unaffected by the impact of COVID and continue to perform strongly
The board continues to focus on NAVPS accretive strategies and believes that share buybacks are an important part of that (liquidity permitting)
No new Fund commitments until Funds’ realisation strategies and shareholder distributions are demonstrated
DISCLAIMER
THE INFORMATION CONTAINED HEREIN IS PROVIDED FOR INFORMATIONAL AND DISCUSSION PURPOSES ONLY AND IS NOT, AND MAY NOT BE RELIED ON IN ANY MANNER AS, LEGAL, TAX OR INVESTMENT ADVICE OR AS AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY A LIMITED PARTNERSHIP INTEREST IN ANY ETHOS
FUNDS. A PRIVATE OFFERING OF INTERESTS IN THE FUNDS WILL ONLY BE MADE PURSUANT TO A CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM (THE “OFFERING MEMORANDUM”), THE FUND’S LIMITED PARTNERSHIP AGREEMENT AND SUBSCRIPTION AGREEMENTS, WHICH WILL BE FURNISHED TO QUALIFIED INVESTORS ON A
CONFIDENTIAL BASIS AT THEIR REQUEST FOR THEIR CONSIDERATION IN CONNECTION WITH SUCH OFFERING AND WILL BE SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN SUCH DOCUMENTS. THE INFORMATION CONTAINED HEREIN WILL BE QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OFFERING MEMORANDUM,
WHICH CONTAINS ADDITIONAL INFORMATION ABOUT THE INVESTMENT OBJECTIVE, TERMS AND CONDITIONS OF AN INVESTMENT IN THE FUNDS AND ALSO CONTAINS TAX INFORMATION AND RISK DISCLOSURES THAT ARE IMPORTANT TO ANY INVESTMENT DECISION REGARDING THE FUNDS. INTERESTS IN THE FUND WILL ONLY BE
OFFERED TO INVESTORS WHO (A) ARE “ACCREDITED INVESTORS” AS DEFINED IN REGULATION D UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, “QUALIFIED PURCHASERS” UNDER THE U.S. INVESTMENT COMPANY ACT OF 1940, AS AMENDED, AND “QUALIFIED CLIENTS” UNDER THE U.S. INVESTMENT ADVISERS ACT OF
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AN INVESTMENT IN THE FUNDS WILL INVOLVE SIGNIFICANT RISKS, INCLUDING THE LOSS OF THE ENTIRE INVESTMENT, DUE TO, THE NATURE OF ITS INVESTMENTS. THE FUNDS WILL BE ILLIQUID, AS THERE IS NO SECONDARY MARKET FOR INTERESTS IN THE FUNDS AND NONE IS EXPECTED TO DEVELOP. RESTRICTIONS APPLY TO
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IN CONSIDERING ANY PERFORMANCE DATA CONTAINED HEREIN, YOU SHOULD BEAR IN MIND THAT PAST OR TARGETED PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS, AND THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL ACHIEVE COMPARABLE RESULTS OR THAT TARGET RETURNS WILL BE MET. IN ADDITION, THERE
CAN BE NO ASSURANCE THAT UNREALISED INVESTMENTS WILL BE REALISED AT THE VALUATIONS SHOWN AS ACTUAL. REALISED RETURNS WILL DEPEND ON, AMONG OTHER FACTORS, FUTURE OPERATING RESULTS, THE VALUE OF THE ASSETS AND MARKET CONDITIONS AT THE TIME OF DISPOSITION, ANY RELATED TRANSACTION
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