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Edited Transcript of EPEJ.J earnings conference call or presentation 12-Mar-20 8:00am GMT

Half Year 2020 EPE Capital Partners Ltd Earnings Call

EBENE Mar 26, 2020 (Thomson StreetEvents) -- Edited Transcript of EPE Capital Partners Ltd earnings conference call or presentation Thursday, March 12, 2020 at 8:00:00am GMT

TEXT version of Transcript


Corporate Participants


* Peter Hayward-Butt

EPE Capital Partners Ltd - CEO


Conference Call Participants


* Tinashe Hove;Laurium Capital




Operator [1]


Good day, ladies and gentlemen, and welcome to the Ethos Capital interim results. (Operator Instructions) Please note that this call is being recorded.

I would now like to turn the conference over to Peter Hayward-Butt. Please go ahead, sir.


Peter Hayward-Butt, EPE Capital Partners Ltd - CEO [2]


Thank you very much, and thanks to all investors for logging in. I know it's a busy time out there. I'm sure many of you are looking at your screens this morning, so I will try and keep it relatively short and very happy to answer questions either on the call or afterwards.

In terms of the presentation for the day, what we want to cover, we'll just give you an introduction and an overview. Obviously, it's somewhat historic looking back to the 31st of December. A lot has happened since then, as you all know. And we'll also try and touch a bit on what are the ramifications for the Ethos Capital portfolio and what we've seen over the last couple of months. We'll give you a quick portfolio overview pre and post the Brait transaction, which was completed in February; a brief look at the valuation of the portfolio and what's happened since June to December; and probably an outlook going forward from there. As usual, just -- we'll touch on the liquidity analysis post the Brait transaction, and then just give you -- there are a couple of slides which we'll touch on, on what's happening with the Brait transaction and where we are in that transaction.

So moving on to the slide an overview of the last 6 months and the market outlook. Yes, I don't think we need to tell anyone just how difficult it's been in SA between load shedding, obviously the recessionary environment and consumer and producer confidence at not quite all-time lows but pretty much all-time lows. And also, coupled with continuing cost inflation, which hasn't gone away, has made, obviously, the second half of last year and, to be honest, the start of this year, an extremely difficult operating environment in SA. We'll touch on the implications of that for the portfolio.

Outside of South Africa, however, growth rates have been -- remained strong. Our assets that are in those regions have benefited from that. That said, I think with the risk-off nature of the markets in the last couple of months, currency volatility and lower oil prices have obviously increased the risk profile for some of those territories. And again, we will touch on those for the individual assets.

In terms of NAV, the NAV was largely flat, grew 1% since June, which, in the current environment, is probably not the worst result. EBITDA actually grew on an attributable basis by about 3.2%. And again, a lot of that was from cost cutting and repositioning initiatives in the various portfolio companies. So between EBITDA and de-gearing, as you will see in -- later in the presentation, the gearing of the portfolio fell from about 1.9x EBITDA down to 1.6, which was pleasing. So those 2 had a positive impact on valuations. We brought the valuation multiples down to December. And again, I'll touch on what's the outlook for that post December. We reduced the multiples, and I think the average on the portfolio reduced from 6.9 to 6.7 as of June, which resulted in around about a 1% NAV growth.

Post the Brait transaction, we will be -- completely invested the capital that we've raised at about ZAR 2.7 billion of total assets. We have an RMB facility, which was finalized in the last quarter of last year, which gives us additional firepower. But as it stands today, we are now finally 100% invested at about ZAR 2.7 billion of total assets.

The focus on the funds really has moved probably over the last 6 months to monetization, and this applies not just to the funds but Ethos Capital's Board's view on what we should be doing given the current discount to NAV. And I think it's important to say to shareholders that the resolution of the Board really is to focus on monetizing the current portfolio before making any new commitments to any new funds. So getting capital back to shareholders is an absolute priority for the Board and the funds.

Obviously, no one is unaware of coronavirus and the impact that's had, not just the direct impact, but the indirect impact it's had on companies globally. We are not averse to that. We have companies that are in different sectors. Obviously, some are impacted directly, and I'll try and touch on that when we touch on some of the more -- the sizable assets in the portfolio, but obviously the second-degree impacts of this coronavirus, whether it be oil prices, whether it be the impact it has on the consumer, et cetera and I think -- but all -- our entire portfolio will be impacted both from a profitability perspective but also going forward from a rating perspective by the last couple of months on what's happened on the coronavirus side. But again, I'll touch on that during the course of the presentation.

Just a high-level overview of the results. We currently have 19 portfolio companies. We will have 24 portfolio companies post the Brait transaction. So as of today, we have 24 companies in the portfolio. Importantly, 8 of those companies make up 80% of the portfolio. And today, I'm going to focus pretty much our presentation on the 8 as opposed to the tail of the portfolio companies.

As I said, NAV per share at the end of December was ZAR 11.48, which resulted in a 1% increase in NAV over the 6 months. EV/EBITDA decreased over that time. We reduced the multiples. Effectively, we increased the discount to the peer group. Again, I'll touch on that later. The multiples reduced from 6.9 to 6.7x EBITDA with net debt-to-EBITDA falling from 1.9 to 1.6x with some de-gearing in the portfolio.

I will touch later on, on what's happened to multiples in the course of the last 2 months post December. But broadly, what we would expect is around about a 10% reduction probably in the EV/EBITDA multiples but only probably for 50%, 5-0 percent, of the portfolio. Some of the portfolio companies remain remotely -- somewhat unaffected by the ratings. But again, we'll touch on that data. But certainly, there's been some compression in multiples since December.

The capital invested as of December was ZAR 1.7 billion, which increased, on the right-hand side, to ZAR 2.7 billion post the Brait transaction. And as I mentioned before, from a total assets perspective as of December, that number was just under ZAR 2 billion at ZAR 1.96 billion, has increased to ZAR 2.7 billion post the Brait transaction.

From an invested capital perspective, as of December we were at 86% invested, and that number is now 100% post the Brait transaction. As I mentioned again, there's a liquidity facility that allowed us to draw up to ZAR 700 million from RMB.

Talking about the portfolio. Over the last 6 months leading up to December, there was investments of about ZAR 253 million on a net basis across the portfolio. So as of June, we had ZAR 1.4 billion invested at the end of December. That number had grown to just under ZAR 1.7 billion. So ZAR 253 million of investments made. Predominantly, that was in Channel VAS. So Channel VAS net increased by ZAR 20 million. But it's probably important to say we used dividends that we had received during the course of the 6 months to increase our stake from 17% to 20%. So the ZAR 20 million that you see as an increase there, actually the number is about ZAR 85 million that we increased our stake there. But we actually used the dividends that we received for ZAR 65 million to increase our stake plus an additional ZAR 20 million. So we're now a shareholder of 20% in Channel VAS. And very excitingly, that was done at the valuation we agreed 18 months ago on the transaction. So much lower in price for us to increase our stake in that business, and it continues to perform well.

Echo, the ZAR 133 million there, was the Gondwana transaction which happened and completed just before December, which was an acquisition of 9 portfolio companies across -- sorry, 9 companies across 9 jurisdictions in Africa, has given -- Echo really has given them a sub-Saharan African presence. The transaction probably took 12 months to close. There are 1 or 2 jurisdictions which still remain subject to the internal competition commission issues, but predominantly the main part of the transaction closed during the back end of last year.

Vertice. We invested about ZAR 58 million in Vertice. Effectively 2 new acquisitions but also some product growth. We'll touch on that later. It's been very pleasing, the growth in that business both from the acquisition but organically as well.

And then the rest is -- particularly around the portfolio, there were a number of companies which we required putting more capital in for growth projects, and that got us to an NAV of ZAR 1.68 billion invested capital as of December.

Post December, the -- you would have seen the Brait transaction, we raised capital. The transaction completed -- the ZAR 750 million rights issue completed in February. We invested about ZAR 1 billion into the Brait transaction. And again, I'll touch on that later. We have had some proceeds back from Eaton Towers since the end of the year, but our invested capital will be around about ZAR 2.7 billion on a pro forma basis.

If we touch on the makeup of the portfolio pre the Brait transaction, and I won't dwell too much on this because, obviously, it's somewhat historic looking, it gives you a flavor for which are the key assets in the portfolio. And on this page, what we also try and show is which of those assets have we owned for less than 2 years and which have we owned for more than 2 years, giving some indication of where they are in the value accretion and realization cycle.

Around about 55%-odd of the assets we've owned for less than 2 years. About 30-odd percent of the assets we've owned for more than 2 years. The rest, obviously, results in cash.

And if you look at the distribution of the portfolio, 60% of the portfolio economics reside in South Africa with about 40-odd percent in sub-Saharan Africa.

If you do the same analysis for the Brait -- post the Brait transaction, you'll see that the portfolio composition changes quite significantly. The 2 key assets in the Brait portfolio really are Virgin and Premier, which together would be 23% and 10% of the portfolio. And quite pleasingly, that -- about 70%, call it 80-odd-percent of the total asset base resides in 8 portfolio companies. I mean we'll talk to that later. I'll give you some indication of how those 8 portfolio companies are performing. Obviously, they're relatively large tail to the business.

If you look from a diversification perspective, 63% of the portfolio is SA based in terms of the economics; about 24% sub-Saharan Africa; and around about 13% international, which effectively is the U.K., Asia Pacific and Europe.

From a diversification perspective, obviously there are a number of our assets which are major beneficiaries of a weaker rand, whether that be against the dollar or the pound. Brait's assets in the form of Virgin in particular, obviously, is a major beneficiary of a weaker ZAR-pound, and Channel VAS is obviously a beneficiary from a weaker rand-dollar. So the movements we've seen over the last quarter would obviously have a positive impact on those, everything else status quo.

Just a quick update on some of the key portfolio companies. Channel VAS is around about 23% of total assets pre the Brait transaction, about 17% post the Brait transaction. The business continues to perform well. If you look at the bottom of the page, the EBITDA performance was about 17% year-on-year growth in dollars up to December. That was largely as a result of new deployments and obviously further -- a higher penetration. And the scorecards improved in some of the credit rating models, we're able to penetrate higher into the customer base of those MNOs.

If you look at the daily advances, the daily advances grew to about $1.82 billion from $1.36 billion over the last 12 months, which is around about a 35% growth, which is very pleasing. So we've added about 5 (sic) 6 new deployments over the last 6 months, and the business continues to perform well. In the quarter -- or the last 6 months, sorry, we increased the valuation by ZAR 38 million. That was moderated significantly by a strengthening rand, surprising in the current environment, which in the last quarter strengthened around about 7.5%, down to ZAR 14 to the dollar as of December. So that, obviously, had a moderating impact on the valuation of Channel VAS. Since -- obviously, since the 31st of December, there's been about a 16% depreciation in the rand, which would, obviously, in the next quarter have a positive impact on Channel VAS's performance.

So again, we -- we're positive about the asset to continue to grow. There's been some decent progress in the mobile financial services part of the business, which quadrupled its revenue, albeit off an extremely low base, so don't get too excited. But we're starting to see some benefits there. And as we said, if we can get that right, this really would be a great asset in time to be able to monetize real value from.

There were around $6 million of dividends declared on the 31st of December, which we haven't -- which we will receive during this quarter. So positive performance from Channel VAS.

If you look at Kevro, Kevro is actually probably the opposite of that. It's been a very, very tough second half of the year but equally pertinently probably the first 2 months of this year. There have been supply issues really around warehouse migration and the IT system. So getting that right. We always said trying to get all of our -- stocked into one warehouse was a strategic imperative for the business. That has now happened. It's not without its issues, but it's now happened. And we are positive that now we're under one roof, which will be done by the end of this month, that really will help the efficiencies in the business. And we spent a huge amount of money -- well, for this business' case, a significant amount of money on the IT systems. There have, as usual in these sorts of things, been some teething problems. But we would hope that towards the end of March and April, by being in one warehouse with the IT systems in place, that really will have a positive impact on the business and the efficiencies.

The demand side of the business has held up relatively well, to be honest. We -- the demand side is probably above where we were last year. Really for us, the key issue at the moment is sourcing stock. Obviously, it has -- it's also -- a lot of it, stock from China that for 3 or 4 weeks came to a grinding halt. It has started again, but it will have an impact on our ability to supply our customers over that period of time.

So demand remains relatively good and actually up on last year, which is a positive. But the business has had supply issues, which will impact profitability and EBITDA during the -- it has already over the last 6 months but will continue to do so.

This is one business which I think, from a multiples perspective, we have our eye on. I do think its peers have also come under pressure. And this is probably one asset that will -- we will need to relook at the multiple we hold the debt during the -- at the end of March.

If you take Primedia, Primedia actually, from a perspective of market share, has held up well. It's increased its market share again pleasingly in the last 6 months. That said, across outdoor and radio, those markets have both been under significant pressure. I think the radio market was down about 4% year-on-year. We were down about 1%, so effectively increased our market share. But we've seen advertising spend across all of our customers come under pressure, whether that be in the outdoor business or in the radio business. We spent a huge amount of time with management. They're focusing on optimizing the cost base and ensuring we have a platform there that's fit for purpose, and that will have significant implications going forward.

If you look at Primedia's EBITDA, probably it was down 7%. If you include Ster Kinekor, year-on-year Ster Kinekor actually had a very positive performance in the 6 months to December.

There has been deleveraging in the business which continues, and the cost optimization program will obviously help alleviate some of the issues. But Primedia, as we've always said, is a GDP play. It remains under pressure both on the revenue and an EBITDA basis in the current environment.

If you look at Echo, Echo is the corporate ISP business that I referred to earlier. We bought the Gondwana business, which completed just before the end of the year. So if you look at the Ethos Capital invested capital in this, it's about ZAR 159 million. The current valuation sits at about ZAR 170 million. So we wrote that slightly during the 6 months.

The performance really has been very strong in the business. You'll see on that page we talk about -- the real measure of performance in this business is the sales growth. And if you look, they achieved nearly 150% of their target in the first 9 months of the year, which is very pleasing. Clearly, turning those -- that pipeline into revenue is a key actionable item for the management team, and they continue to work on that. So there's probably a 6- to 12-month lag from getting a -- from winning a client to actually getting money into the tills. But EBITDA year-on-year was up 24% very pleasingly. So again, the business is performing well from a core perspective. We would hope now that the Gondwana transaction is complete that we can play in the bigger field regarding some of the MNO, MNCs in this country and elsewhere, providing their services across the continent. So a pleasing performance. We wrote the valuation up slightly really just because EBITDA was up and gross revenues are pointed in the right direction.

Touching on Vertice. Vertice is the medical technology business that we started probably 2 years ago. For those of you who remember, they probably had ZAR 30-odd million of EBITDA when we bought it. I think the target for this year will be ZAR 120 million. So the business really has performed well.

There were 2 acquisitions completed during the last 6 months, which added new verticals to the business. We completed a BEE deal. It's imperative in this industry to have BEE. We are now Level 4, I think, which is very positive and will give us a significant competitive advantage across most of our competitors.

And as for the integration of the acquisitions in warehouse and logistics, consolidation has happened. This has been successfully done and with significant savings in the business. And a lot of new products have been started between stents and wound care, which have had great -- made great progress organically in the business. So the growth has not just come from acquisition but equally from organic growth. And if you look at the organic growth, it's been around about 23% in turnover year-on-year and nearly 40% from an EBITDA -- from an EBIT perspective. So like-for-like, the business continues to perform well, 3 new deals concluded over the last 6 months and a decent pipeline looking forward.

Quite exciting in this business was we launched our first AI-driven diagnostics product in the cardiology segment, which has been very, very well received from doctors and the like. And it's, again, an example of where we can work with our AI team with Roger and Nic on really helping this new business move on to greater things.

If you look at the change in value, it's about ZAR 29 million up on the 6 months, and it now contributes around about 8% of Ethos' total assets.

Last one I'll touch on of the major assets is Synerlytic. Synerlytic, we bought just over a year ago. The Wearcheck, which is predominantly 80-odd-percent or was 80% of the business, really has continued to perform strongly in line with our expectations at the time of the acquisition. We also acquired Anglo Field Services as a business -- a complementary business adjacency to put into Synerlytic. It's integrated very well, lots of cross-sell opportunities and it's outperforming our expectations in the first 8 months of ownership, which is very positive. And AMIS, which is the referencing materials business, very strong EBITDA growth, probably ahead of our expectations when we bought the business. And then finally, there was a decent rationalization of the head office costs that we inherited from Torre. So across all of those, the business continued to perform well. The last 6 months, we marked it up by ZAR 18, 1-8, million, and it now constitutes around 6% of Ethos' total assets. This is also looking at a couple of acquisitions, small bolt-on acquisitions, similar to the Anglo Field Services, which are complementary adjacencies to the current portfolio.

Just briefly moving on to valuation. If you move to Page 15 of the presentation. In terms of the NAV, the NAV is currently, as we said, ZAR 11.48 as of December. As of December, we were 86% invested. As I said, it's now 100% invested post the Brait transaction and the rights issue. The current discount as of December when the share price was at ZAR 7.50-odd was about 34% to NAV. That's obviously blown out, and I'll touch a bit on that later.

The key valuation metrics across the portfolio on an attributable basis, the EV/EBITDA came down from 6.9 to 6.7; net debt dropped from 1.9 to 1.6, showing some deleveraging in the portfolios. The discount increased to 34% from 31%, I think it was as of June. But equally importantly is, the discount to the peer group has blown out to 46%. And the reason for that is as of December, the peer group multiples pre the coronavirus, it actually all increased quite substantially. We took a call in December not to increase. In fact, we increased the discounts to all of those and reduced our multiple. And as I said, post the coronavirus, many of those peers have come back by at least 10% to 15%. So we believe we made the right call in December. But clearly, there could still be some impact on valuation multiples post -- in the last quarter.

In terms of markets, looking at it from a market perspective, as I said, the current peer group valuations would suggest if they did suggest a rand value of 100, we apply 46% discount to the peer group, that's increased from 31% as of June. So we've increased the discount to the peer group, which I think was the right thing to do, which would imply our valuation has held at ZAR 54 compared to the ZAR 100. At December, the valuation -- the discount was 34%, so the market was valuing that at 35%. Currently, obviously, the discount has blown out closer to 50% with the current share price, which would mean that the market is currently valuing the portfolio at around ZAR 25 compared to the peer group at ZAR 100.

On an NAV perspective, you can see the makeup there of the EV/EBITDA of 6.7x, which we talked about, 5.1x of added equity with 1.6x of debt, giving you a composite multiple of 6.7. If you assume the share price at ZAR 7.53 and you do the same assumption, you get to an assumed or an implied valuation multiple of 4.7% -- 4.7x on the portfolio. Just to give you some idea, that gives you a PE ratio of around about 11x at 6.7 or 8x at 4.7. If you put the current share price in, which is a simplistic assumption, admittedly, the 4.7x goes to 3.8, so the market's implying a 3.8x EV/EBITDA multiple on the business or a 6x PE ratio on the business at the current share price.

Just looking briefly on the performance of the portfolio as a whole. Despite being relatively down beaten in the last quarter, we were positively surprised about the portfolio performance in the last 12 months. So on the top left is the last 12-month sales performance by portfolio company. And as you can see, 75% of our companies by value or 70% by number actually increased revenue year-on-year, which in a difficult environment is positive. It took -- on an attributable basis, revenue grew by about 5.3%. And on a value attributable basis or if you weighed everything by our valuation -- sorry, our share in those companies are around about 7%. So somewhere between 5% and 7% revenue growth across the portfolio in relatively difficult times was, in our opinion, not a bad result.

If you talk about the LTM EBITDA, which is the chart below that, 60% of our companies by number and 67% by value actually increased their EBITDA year-on-year. And again, in a tough environment where you've got inflationary costs increasing it in line, as we said, with inflation, we didn't think that's a bad result. That resulted in about 3.8% growth, attributable, of EBITDA across our portfolio. Or if you're talking weighted by value, that number is closer to 5%. So somewhere between 3.8% and 5% growth in EBITDA across the portfolio.

If you look at net debt, the top right-hand side, we said many of the companies have de-geared. 32% of our companies have no debt, which we think is a positive in this environment. When things are tough and you have these exogenous factors like we're having at the moment, these sorts of shocks, having less debt is obviously better than more. As I've said, 32% of our companies have no debt and nearly 60% have some -- less than 1.5x EBITDA.

If you turn over the page on to the portfolio company, what we try to show here is the valuations as implied by the market. So very simply, this -- we took ZAR 7.53 as of December as the share price and therefore implied what were the valuations that the market is imputing onto our various portfolio companies. And we show here both an EV/EBITDA number but equally above there effectively the PE ratio, EV over EBIAT. Just to pick 1 out of the hat, obviously Channel VAS, the market's sort of implied valuation is around about 5x EBITDA or 6.8x PE ratio. And again, you can read across the portfolio of companies, the main ones, obviously, Channel VAS, Kevro, Primedia, Synerlytic, Vertice and Echotel. That's 80% of the portfolio value.

As I said, if you take the current share price into account, the 4.7x goes to 3.8, and the effective PE ratio falls from 8.1 to around 6.5. So that's what the current market valuation of the portfolio is.

Just in terms of liquidity analysis, we showed this chart before, and many shareholders appreciated it, what we wanted to show is liquidity post the Brait transaction. So simply, if you take our net commitments of ZAR 3.5 billion, we have invested capital of ZAR 1.6 billion as of December, the cash as of December was ZAR 277 million. We've completed the rights issue and raised ZAR 725 million, but there was some flowback, so call it ZAR 733 million of capital at the Brait transaction, and those would have been used. If you add those 2 together, that's effectively the money that was invested in the Brait transaction.

We talked about a base facility here of ZAR 500 million. We can draw up to ZAR 700 million. But for now we assume a ZAR 500 million facility from RMB, which gives us a commitment gap today of ZAR 290 million. Just to repeat, what that actually means is all of the funds which we had commitments to as of today to give us money, we would be short ZAR 290 million. We obviously recognize that's unlikely to happen as drawdowns happen over a 5-year period.

So what we show on the right-hand side is our best estimate today, including the Brait transaction of our drawdown profile. So you'll see that for the rest -- second half of the year, we're talking drawing down ZAR 770 million. That's predominantly the Brait transaction and an equalization in Fund VII. And the key number to focus on, on this page is the blue dots, which is effectively the available liquidity. So at full year 2021, so June 2021, there will still be ZAR 380 million of surplus liquidity available. That said, the Board remains very focused on, as I said at the beginning, ensuring we can follow a strategy of monetization of the assets before we make any new commitments to any new Ethos funds.

I briefly just want to touch on the Brait transaction and what's been happening since the transaction was announced.

For those of you who don't know, Ethos only took over the management company on the 1st of March. That said, a significant amount of work has happened over the last 3 months. I'll break it broadly into 3 buckets.

First is the management company, ensuring that we could integrate those members of the Brait team who are going to join Ethos. That has happened. The entire team has joined. We -- we're all now working seamlessly as part of one organization. So those members that we chose to stay on in Brait have joined Ethos.

The other thing we needed to do was talk to the underlying portfolio company management teams to ensure there was stability and clarity as to the underlying purpose of the transaction, and we spent a huge amount of time, both in South Africa and across in the U.K., with the managements of those portfolio companies during the courses of December and January and February.

In terms of the portfolio companies themselves, the key for us is to get stakeholder alignment around the value realization strategy. So ensuring that between us, management and the Board, we're all absolutely aligned on what we want to achieve in these portfolio companies. Those processes have started. We intend to have strategic game plans agreed by the time we have the next Brait Board meeting in June. So we need to have agreed and align management behind the strategy by then, and then talk to what's our execution strategy over a 3- to 5-year period to monetize the portfolio.

From a Brait perspective, there were many things that we've been focusing on over the last 3 months. Many of these have been achieved already or are soon to be done. Firstly was creating alignment between the shareholders, the Board and the adviser to ensure we were strategically aligned, and I can confirm that this has happened. We had a Board meeting, Brait Board meeting, in February, which went very well.

There's a cost optimization plan. I think we all recognize that the costs -- operating costs in the Brait model were significantly above what we think they could be, and we've started that process of rationalization, the first part of which is a re-domiciling Brait Malta to Mauritius, which will inform us -- which will inform our reconstitution of the Brait Board. That is all work in progress as we speak.

Then finally on the debt, we've finalized debt terms with the bankers, Standard Bank and RMB. We've completed the convertible bond, which was finally priced yesterday. I think it was certainly at the back end of last week. And what we've looked to is how do we ensure that we have a de-gearing focus on the ZAR facility that we have, and that -- again, that process has started, and we're well down the track on that.

So turning to the next page, in terms of resource allocation, what we've done is prepare senior people across our -- the Ethos portfolio together with the people that we've taken on from Brait to manage the various assets: Anthonie and Bruce Baisley will be the 2 key individuals driving the Virgin asset; Jonathan Matthews, who's a senior partner at Ethos, together with Rolf Hartmann from Brait will be driving Premier; Stu Mackenzie and Rolf on the Iceland account; myself, Stuart and Bruce Baisley on the New Look, DGB & Consol. So again, ensuring that we have continuity, we understand the business as well through having the Brait guys on Board but objective and some fresh thinking, hopefully, from the Ethos team members.

Just from a valuation perspective, I just want to show this page, which I think we showed at the time of the rights issue. If you start on the left-hand side of the page with the Brait NAV, that was the Brait NAV as of September, which was ZAR 38 a share. Post the rights issue, that number would be ZAR 17 a share just because of the new issuance of shares that has happened. The rights offer happened at ZAR 6.60, and the in-price from Ethos Capital, pre any fees that we got back, and there were fees that we got back of around 2%, was ZAR 7.99.

So what the right-hand side of the chart shows is effectively what the in-price multiples were for Ethos Capital in Virgin of around 8x, Premium of about 6.9x and Iceland of around 6. And therefore, the implied discounts to the Brait NAV, you'll see at the top.

I said at the beginning, from a Brait perspective, one of the key things that we need to do is work on what's -- what are the valuations that those assets are worth on a net realizable basis, and we continue to work with the Brait Board on that.

Just a final slide just to give people an idea of how we're approaching the Brait assets. The first thing we need to do is to sit with managements, understand their key strategies, understand their financial performance, both historic and forward looking, to determine, are these businesses that we should be exiting now or in 3 or 5 years' time. Simply put, now the business is growing at 25% a year. You obviously have the capacity to hold on to that asset for a significant period of time to grow shareholder value. If I've -- on a free cash flow yield and EBITDA growth basis, it's growing at less than, for example, your cost of debt, well, that also gives you an example of what you -- an idea of what you should be doing: Are you selling the assets sooner rather than later?

In terms of the competitive market positioning, we've been very crystal clear about which of these businesses have a sustainable right to win and how do we invest behind those strategies and to ensure that we have a view of is the competitive dynamic in this industry going to be more benign, better or worse over a 3- to 5-year period.

From a strategic implementation, many of these businesses have been driving certain strategies for some time. We need to, again, consider, are these strategies still aligned with the current exit or monetization strategy? If they are, are they monetizable over that period of time? And if they are, how do we invest behind those?

And then finally, from a management and Board perspective, I think it's imperative, one, we ensure we are all aligned with management but most pertinently aligned economically and put the right incentives in place to get the right results.

On the right-hand side, the caveat to all of that is on -- from a valuation outlook perspective, I think we need to baseline each asset to say what's the net realizable value today, what do we believe the net realizable value will be in a 3- to 5-year period and compare those 2. And I think it talks to what's the outlook for the key valuation drivers, whether that be profitability, cash flow yield, multiples, et cetera, and I think ascertain where we are in the business cycle. So for example, U.K. retail, at an all-time low from a multiples perspective, you would assume that there's potentially some upward bias there. That may be different in other parts of the Brait asset portfolio. And so again, from a valuation perspective, we'll look asset-by-asset on that.

And then finally, I think, and most importantly probably, is are the other assets actually exit-ready today? And actually, is there a market for the assets, whether it be the -- whether universe is open to doing this or the market available to IPO some of the businesses. So a lot of this thinking has happened. We will finalize this with management over the course of the next 2 months to present something to the Brait Board early in June.

I think that put -- brings to an end the slides that I have, and I'm very happy to answer any questions.


Questions and Answers


Operator [1]


(Operator Instructions) We have a question from Tinashe Hove from Laurium Capital.


Tinashe Hove;Laurium Capital, [2]


Just 2 questions relating to the Brait portion of your assets. So clearly, you've taken over as a management company. So hopefully, you might share some more insights as to the situation within there. So from the rights issue, a lot of the debt at center has come down quite a bit. But clearly, the sort of operating environment we're in with coronavirus and such, looking from the outside in, there's a bit of a concern as to what will happen with the debt within the portfolio companies themselves. So while there might be more time at center, I think, the refinancing, what is the situation for the individual portfolio companies like the debts at, say, at Virgin Active or Premier Foods or in Iceland Foods? Can you give us a feel for what the covenants they require and also the pressure you have seen for the individual portfolio companies?


Peter Hayward-Butt, EPE Capital Partners Ltd - CEO [3]


Sure. So let me just touch a bit on that. Obviously, it's new days for us. I mean, obviously, we only took over. We have been working with the asset for 3 months. We -- from a strategic perspective, obviously we need to agree to stuff with the Brait Board before we can go out publicly and have a view on strategy. We are just the adviser to the Brait Board, as you know.

But just talking about the points that you raised, it's an absolute focus of ours. I mean did we see coronavirus coming? No. I mean unfortunately, we'd love to say that we saw it coming. Does it have implications for the businesses directly or indirectly? For sure. More directly probably for say, a Virgin who -- for example, if you take at least some of their clubs that had to be closed given some of the restrictions that the Italian government had placed there, particularly around Northern Italy.

And the second-degree impacts could be, for example, on a -- lesser. Iceland gets -- actually, Iceland's issue is probably less around China and more around Italy from a sourcing perspective, but it's not particularly an issue for Iceland. Obviously, New Look sources a significant amount of its stock from China. So that's a second-degree impact it can have on the business. And if I take Premier as a case in point from the coronavirus, it's probably less directly impacted by it. But clearly, consumer sentiment, and we don't know what might happen and might unfold in this market if coronavirus does arrive in droves.

So from a covenants perspective, if you look at -- let's take it one by one. Premier is relatively lowly geared. It's about 2x net debt-to-EBITDA. It's de-geared again and probably will be able to pay down some form of shareholder loan back to Brait. So from an individual company perspective, that's not one that should be of concern.

If you take Iceland, Iceland's liquidity really is in the form of the cash that it currently holds in the business, which is relatively significant. It doesn't have any capital repayment other than a GBP 40 million repayment, which it's got the cash for, which, I think, is in June. The rest of its bonds are 2024. That said, as we all know, when liquidity dries up and credit insurers have a view, we need to manage that business for liquidity. But again, from -- at a high level, that is being managed, and we don't see any liquidity issues per se.

And New Look has been managing this process since it did its CVA back 18 months ago and literally manages the cash flows on a day-to-day basis. We were extremely impressed by the way the management team there look at their business and particularly look at this liquidity issue. So can it have an impact, coronavirus? For sure. But I would say it's slightly less of a concern there.

The one that I think you need to look at it is obviously Virgin. We -- it depends how long Italy continues as it is. There are certain things in which I won't go into here, but certain mitigants to what's happened in Italy, whether it be government support or actions that you can take with the landlords and staff, et cetera. So there are certain things that the team are working on which can mitigate it. But we're not overly concerned, to be honest, about the levels of debt there. But if it continues for an extended period of time, that situation could be different. We've made a lot of progress on a number of the liquidity initiatives that we talked about at the time of the rights issue. Clearly, this coronavirus has an impact on some of them. But if it does come off, it will resolve many of the issues that you've quite rightly raised. So do we see (inaudible). Is it something that's top of mind for all of us? Absolutely.


Operator [4]


We have no further questions on the audio line.


Peter Hayward-Butt, EPE Capital Partners Ltd - CEO [5]


Okay. Should we wrap it up? If there are no other questions, again, guys, very much appreciate the time that you've taken. I know there's many things happening in the markets that are probably more important to everybody than this. So we appreciate your time.

I'm absolutely available to answer any questions whenever. Feel free to shoot either Rohan or I an email. I'll get -- endeavor to get you an answer as soon as we can. I know it's tough times for everybody, and we'll be keen to share as much information as we can. So feel free to reach out to us if there's anything we can do that can be useful to you.


Operator [6]


Thank you. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.