UPDATE E FOR IN INVE VESTOR ORS 6 July ly 2020 20
1 Introduction C O N T E N T S 2 COVID-19 response 3 Portfolio update 4 Valuation overview 2
1 Overvie view w of the last ast six months nths and outlook look Extremely difficult operating environment has continued: economic activity has declined substantially in the wake of severe lockdown initiatives, low confidence and productivity levels and weak private sector investment P e r f o r m a n c e a n d o u t l o o k COVID- 19 crisis has materially affected many of the portfolio companies’ short -term profitability and resulted in sharp declines in peer group multiples… …significantly impacting the value of the unlisted portfolio ( -17%) and Brait (-53%) in the quarter ended 31 March 2020 - Ethos Capital’s NAVPS at 31 March 2020: R8.91 (using Brait’s NAV) and R6.65 (using Brait’s share price) The focus of the funds and Ethos Capital has been on value and liquidity preservation and strategies to position each portfolio company for a post COVID world Recent disposals of Iceland and DGB demonstrate traction on the execution of Brait’s new strategy of focusing on maximising value through the realisation of its portfolio over the next three to five years 3
1 Introduction C O N T E N T S 2 COVID-19 response 3 Portfolio update 4 Valuation overview 4
COVID ID-19 9 respon onse se: : What at have we done? 2 Key focus on business continuity, liquidity requirements, cost-saving initiatives, solvency and engagement with lending banks WEEK EEK ONE: WEEK EEK TWO: WEEK EEK THREE+ EE+: BUSINES INESS CONTINU INUIT ITY Y PLANS NS LIQUIDI IDITY STRES RESS-TES ESTING TING LENDE DERS & EXITING TING LOCKDO KDOWN Portfolio companies assessed against a Stress testing the impact of a total / partial loss Ongoing monitoring of liquidity & cash flows, Business Continuity Framework to ensure that of revenue on free cash flow in each portfolio engagement with lending banks regarding best practice implemented across Financial, company, pre and post management cash and liquidity, solvency & debt support for the C O V I D - 1 9 r e s p o n s e Operational, Commercial, HR & Legal levers cost savings initiatives businesses and planning for exiting lockdown Ethos developed a Business Continuity Plan (‘BCP’), Liquidity stress-testing focused on free-cash-flow at various MONITOR providing our portfolio companies with a framework to ensure levels of revenue decline; pre & post management initiatives Continue to monitor cash-flow and available liquidity – that their businesses remain a going concern through this to cut costs / generate cash – and available facilities through daily crisis-meetings period of crisis (i.e. lockdown & economic disruption) This provided an indication of: ENGAGEMENT WITH LENDERS This framework of 55 questions was compiled by considering: The split between fixed and variable costs – Where liquidity support is required, proactive engagement – a. Best global practice in a crisis environment The highest impact cost-saving levers identified • with the lending bank is essential b. Individual COVID-19 responses from each of the portfolio through this analysis include salaries, rental and third- Engage gemen ment t with third-party party lenders ers is focused ed on: companies, presented to the respective Boards – party debt repayments Assessment of short-term liquidity needs (3 months) • Each portfolio company was assessed against this framework The level & timing of funding support required – Determining optimal sources of funding • to identify gaps in their response plans. In addition, this (debt/equity) allowed for cross-learnings between portfolio companies Review of refinance risk • Output included in a heat map that is reviewed daily by • the COVID-19 crisis management team Medium-to-longer term covenant positions • FINANCIA IAL & COMMER ERCIAL OPERATIO IONAL Key to determine where shareholder support is required and Engagement on capital and interest restructures / • LIQUID IDITY ITY 10 Question ons: 7 Questions ons: prioritise where this should be provided delays, where applicable 14 Question ons: engagement with supply chain, keeping cost rationalisation, customers, retention work force operational, EXITIN ING G LOCKDOWN EXAMPLE: Liquidity stress test output; FCF at various levels of revenue decline available liquidity, strategies, lease dynamic shift models, Focus has now shifted to how our portfolio companies will engagement with agreements & leveraging automation, – Impact of revenue on 3 month FCF pre and post initiatives banks, key KPIs & business training on new SOPs operationally exit lockdown; including what an immediate 250 FCF 40% salary/staff cuts rationalisation vs. a gradual exit from lockdown would mean 20% LEGAL & INSU SURANCE HUMAN RESOU OURCES GENER ERAL As part of this process, management teams have started 50 0% – 4 Questions ons: 5 Questions ons: 15 Question ons: working on the assessment of longer-term working capital -20% cybersecurity, Leave policies, intensify hygiene -150 requirements (i.e. ‘start - up’ capital) in order to resume -40% Pre initiatives regulations, insurance managing staff measures, travel bans, FCF (3 months) -60% operations Post initiatives coverage, legal working from home, quarantine Available facilities -350 -80% implications of force identifying key procedures, WFH LTM -10% -20% -30% -40% -50% -60% -70% -80% -90% -100% LTM -10% -20% -30% -40% -50% -60% -70% -80% -90% -100% majeure actions personnel and high- policies, postpone risk employees non-essential events % of revenue lost % of revenue lost 5
COVID ID-19 9 respon onse se: : What at are we f focu cusi sing ng on over r the next quarter? r? 2 Focus has shifted to exiting lockdown and resetting balance sheets & management incentives to ensure long-term sustainability WEE EEK K FOUR+: +: HOW W WAS THE PORTF TFOLIO LIO POSITIO ITIONED ED PR PRE-COVID ID AND D PREPARING FOR THE ‘NEW NORMAL ’ HOW W HAS IT BEEN N IMPACTED ED BY THE E LOCKDO DOWN? N? Net debt to EBITDA DA pre-CO COVID VID (Feb) Continued ed liquidi dity ty manageme ement: t: KEY PRIOR ORIT ITY FOCUS Splits based on 2020Q1 NAV Daily monitoring of liquidity with focus on AREAS FOR THE – 10% 10% liquidity levers: rent deferral, UIF TERS support PORTFO FOLIO IO OVER THE Going into the COVID crisis, the Ethos C O V I D - 1 9 r e s p o n s e for employment costs, Section 189 processes NEXT QUARTER Capital portfolio was relatively ungeared, (where required) with 57% of the portfolio at a net debt / 1. Liquidity management EBITDA less than 2.5x and an average and monitoring Managing capital tal allocati ation: : 33% 33% leverage ratio of 1.6x. 2. Balance sheet A framework has been developed that assesses – 57% 57% restructure post crisis each company on a set of quantitative and qualitative measures, applying a weighted score 3. Preparing for the ‘new to each specific measure. This will allow us to normal’ score each company and rank the portfolio 4. Management team when assessing the attractiveness of injecting incentive structure additional capital < 2.5x 2.5 - 3.5x > 3.5x Balan ance e sheet t restru ructu ture res: s: Top-to-top meetings with key lending banks; – Abili ility ty to contin tinue e tradin ding g durin ing g lockd kdown these presentations included an overview of Splits based on 2020Q1 NAV each portfolio company, the impact of COVID on valuations and our current view on liquidity / 17% 17% debt support required While the majority of Ethos Capital’s Currently focused on delaying balance sheet portfolio (54%) has been operational – restructures as far as possible in order to during lockdown, there are certain determine the sustainable earnings level post- businesses that are still unable to crisis and in so doing ensure sustainable capital operate; most notably Virgin Active and 54% 54% structures across the portfolio Ster Kinekor Theatres 29% 29% Portf tfolio Compa pany y Manageme ement t incentives: es: Working to develop a loose framework for – management incentives; ensuring alignment through a difficult and uncertain period Yes Partial No 6
1 Introduction C O N T E N T S 2 COVID-19 response 3 Portfolio update 4 Valuation overview 7
Total l ass assets ts contrib tribution ution at at 31 March ch 2020 20 3 Portfolio company updates in the following slides focus on the eight largest contributors (82% of total assets) 9% 9% 28% P o r t f o l i o u p d a t e 53% 53% 38% 38% 82% % of total al assets ets South Africa 13% Rest of sub-Saharan Africa International 9% 9% 7% 6% 5% 5% 5% 4% 1% 1% 1% 2% 2% 2% Other MTN Chibuku Ster Twinsaver TymeBank Iceland Gammatek Primedia Kevro Synerlytic Vertice Premier Echotel Virgin Channel Kinekor Vas 8
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