ETHOS CAPITAL INVESTOR PRESENTATION - 28 SEPTEMBER 2020
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ETHOS CAPITAL INVESTOR PRESENTATION 28 SEPTEMBER 2020
1 Executive summary
CONTENTS
2 Portfolio overview
3 Liquidity analysis
4 Outlook
EXECUTIVE SUMMARY
Financial year ended 30 June 2020 headlines at a glance
NAV per share: NAV per share:
Brait investment
R9.12 R6.65 and R750m Ethos Capital
Rights Issue completed in
on an aggregate basis on an accounting basis with the Brait
with Brait assets at NAV investment at the Brait share price
February
Brait disposals:
Carrying value of invested Capital
as at June 2020: Total capital invested Disposal of DGB &
R1.9bn R1.3bn Iceland Foods
99% of total assets invested during FY2020
for a total of R2.9bn
Estimated annualised
savings to Brait’s cash costs of Ethos Capital currently* trades at a Unlisted portfolio valued at
discount to the R9.12 NAVPS of
R493m 7.0x
through actions taken since
1 March 2020
c.62% LTM EBITDA
* As at 25 September 2020
© Ethos | 3
PERFORMANCE REVIEW
PORTFOLIO PERFORMANCE
– 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 LIQUIDITY
– 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 | 4
PERFORMANCE REVIEW
BRAIT PORTFOLIO
– 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
INVESTMENTS AND DISPOSALS
– 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 | 5
PERFORMANCE REVIEW
BRAIT DEBT
– 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 OPERATIONS
– 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 | 6
PORTFOLIO COMPANY PERFORMANCE OVERVIEW
Overview of Ethos key unlisted portfolio companies
– 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 | 7
PORTFOLIO COMPANY PERFORMANCE OVERVIEW
Brait portfolio company 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 | 8
BRAIT LIQUIDITY & CASH COST ANALYSIS
Brait cash cost savings, debt and covenants
CASH COST SAVINGS DEBT & COVENANTS
Total Group debt (R million)
CB REPURCHASE PREMIER LOAN REPAYMENT
12,750
Liquidity management: Liquidity management:
Repurchase of a portion R150m of shareholder loan proceeds
of 2020 Convertible from Premier (interest saving)
Bonds at a discount
3%
INTEREST RATES 6,402
8% 7,527
Refinancing of BML
30% facility (annual interest 6,448
DISPOSALS saving – including Base 5,531
Rate reduction) (2)
Asset disposal
process, resulting in
R493m 4,602
3,597
29% 2,680
annual interest rate cash cost
6,348
savings reduction (1)
2,925 2,851 2,851
5% 26% Sep 19 (pre 31 March 2020 30 June 2020 30 June 2020
restructure) (Adjusted)
OPERATING COSTS ADVISOR FEE
– Re-domiciliation from Reduction in the BML
Malta to Mauritius Advisory Fee (3) 2020 Convertible Bond 2024 Convertible Bond Drawn BML RCF
– Reduction cost of the Brait
Voluntary reduction in Q1
Board Jun-20 Adjusted reflects the illustrative drawn balance
Advisory Fee
– Voluntary reduction in Q1 outstanding on the drawn RCF, post receipt of the remaining
directors’ remuneration Iceland deferred sales proceeds of GBP48.5m and NL
investment
(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.
© Ethos | 9
1 Executive summary
CONTENTS
2 Portfolio overview
3 Liquidity analysis
4 OutlookETHOS CAPITAL NAV ANALYSIS
Changes in NAV since June 2019
Impact of the Rights Issue
Audited Illustrative Proforma Audited
and Brait investment
30 June Equity Brait 30 June 30 June
2019 raise investment 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 | 11PORTFOLIO OVERVIEW
31 December 2019 vs 30 June 2020
Pro forma at 31 December 2019 – adjusted for Rights Issue and Brait investment
Capital EV / EBITDA # of Portfolio Ethos Capital Ethos Capital
Invested (unlisted) Companies all-in Brait NAVPS
entry price
R2.7bn 7.4x 24 R7.99 R9.89
COVID-19 PANDEMIC
At 30 June 2020
Carrying value of EV / EBITDA EV / EBITDA Ethos Capital Ethos Capital
Capital (unlisted) (Brait portfolio based on its NAVPS @ Brait NAVPS @ Brait
share price)
Invested NAV (R8.27) share price
R1.9bn 7.0x 6.7x* R9.12 R6.65
* Ethos Capital’s unlisted
portfolio is valued at 4.6x
based at EC’s share price
© Ethos | 12TOTAL ASSET CONTRIBUTION
The largest 10 assets constitute 90% of total assets
29%
7%
90% of total assets
53%
40%
13%
South Africa
Rest of sub-Saharan Africa 9%
International 8% 8%
6% 6%
4% 5%
3%
2% 2% 2%
1% 1% 1%
Other * MTN Chibuku Autozone New Look Twinsaver TymeBank Gammatek Primedia Synerlytic Kevro Vertice Premier Echotel Virgin Channel
Vas
© Ethos | 13PORTFOLIO COMPANY PERFORMANCE OVERVIEW
The majority of companies (by value) grew both revenue and EBITDA
LTM SALES GROWTH BY UNLISTED COMPANY INVESTMENT RETURN
Value - R'm Number %
7 1 Change
ChannelVas 146.8 35%
Vertice 27.7 22%
4 562 548 Echo 16.9 11%
Synerlytic 10.5 10%
223 3
43 MTN (19.5) (48%)
< -15% -15% to < 0% 0% to < 15% 15% and greater
Eazi (21.7) (64%)
LTM EBITDA GROWTH BY UNLISTED COMPANY Gammatek (25.0) (26%)
Value - R'm Number Autozone (28.5) (55%)
3 Other (40.9) (26%)
Twinsaver (41.0) (56%)
2
6 4 588 Primedia (80.6) (49%)
250 246 292 Kevro (111.9) (49%)
Brait (603.0)
(58%)
< -15% -15% to < 0% 0% to < 15% 15% and greater
© Ethos | 14NAV MOVEMENT ANALYSIS
Decrease in NAVPS and NAV since 30 June 2019
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:
NAVPS (Rand): BY VALUATION DRIVER NAV (R’millon): BY VALUATION DRIVER
22
102
(1.55) (106)
(114) (640)
735 (38)
0.08
0.40
(0.41) (35)
(0.44) (2.49)
(0.15)
11.34
1,786 1,712
(0.13)
6.65
June 19 Rights Realised EBITDA Multiple Debt FX Listed Net June 20 June 19 Rights Realised EBITDA Multiple Debt FX Listed Net June 20
NAVPS Issue gains impact and expenses NAVPS NAV Issue gains impact and expenses NAV
other* other*
– 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
* Brait, MTN, Chibuku and TymeBank © Ethos | 15PORTFOLIO COMPANY IMPLIED VALUATIONS
Ethos Capital share price implies the following EV / LTM multiples
7.9x
- - - - EV / EBIAT average
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
EV/EBITDA
5.4x 5.5x 5.4x 5.4x
5.3x 5.2x 5.2x
5.1x
4.8x
4.2x 4.6x
4.0x
average
3.5x
3.3x
2.8x
1.5x
Channel Echotel Vertice Kevro Synerlytic Primedia Gammatek Twinsaver Autozone Ster Eazi Bevco Neopak Waco RTT
Vas Kinekor
Fund VI / VII Ai Fund Mid Market Fund Implied
© Ethos | 16NAV COMPOSITION BY PORTFOLIO COMPANY
The combined NAV of the top 2 assets exceeds EC’s market capitalisation
Attributable NAV (Brait at 30 June NAV) 636
62%
NAV (Brait at 30 June share price) 73 16
84
114
115
153
47%
178
431
Current market
capitalisation (3)
548
Channel Vas Brait listed value Echotel Vertice Kevro Synerlytic Primedia Gammatek Other Brait NAV
(1) (4) increase (2)
(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
© Ethos | 17CHANNEL VAS UPDATE
% of Total Assets Value (Rm) TMB Ethos stake
29% 548m 1.52x 20%
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
YoY growth
– Strong growth continued across all territories and most customers
• LTM revenue growth of 48% in ZAR 48%
40%
LTM • ACS advances increased by 19% year on year in USD
PERFORMANCE • LTM EBITDA growth of 40% in ZAR 20%
– Revenue growth a result of 12 new deployments and increased penetration of existing 15%
deployments
– Business largely unaffected by COVID although impact on Nigerian economy has an indirect impact
Revenue EBITDA
on profitability (due to FX conversion)
IMPACT OF – COVID had an impact on new deployments and marketing efforts US$ ZAR
COVID-19
– Constant adjustment of credit scorecards to take account of the impact on consumer spend
Valuation change *
– Innovative approach to mitigating potential currency risks in certain countries
548
– Business continues to experience strong demand for its products
OPERATIONAL 423
– Focused on further operational efficiencies and new product / customer deployments
OUTLOOK
– Early indications of positive progress in MFS
– 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%
VALUATION
– No change to EV / EBITDA multiple (same as Ethos entry multiple) 2019 2020
– No debt in the business, R22m of dividends received by Ethos during the year
* 2019 adjusted for current year investment; dividends of R22m received during the year © Ethos | 18VIRGIN ACTIVE UPDATE
% of Total Assets Value (Rm) TMB Ethos stake
13% 243m n/a 10%
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
EBITDA change (GBPm)
– Current usage levels for clubs at 61% usage, higher at clubs opened first, lower in inner city gyms 140
ITALY – Active members are 14% below prior year with total membership numbers 10% lower as a result of
increase in members on freeze 108
– Current like-for-like usages levels are at 87%; suburban clubs close to 100% usage, with inner city
AUSTRALIA 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
– 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
THAILAND & 2019 2020
• Singapore clubs at 89% usage with 21% of members on freeze
SINGAPORE
– Overall active membership numbers for Thailand and Singapore are 13% and 29% down on prior
Valuation (GBPm)
year with total membership numbers 12% and 18% down
897
– Opened 36 clubs (6 remain closed) - current usage levels are at 53% of the prior year
UNITED
KINGDOM – 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
422
– 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
SOUTH AFRICA
base 30% down however, total membership base down only 6%
– Contract structure of SA membership base remains a positive for Virgin Active 2019 2020
© Ethos | 19ECHO UPDATE
% of Total Assets Value (Rm) TMB Ethos stake
9% 178m 1.12x 62%
Echo is a corporate Internet Service Provider, providing Information and Communications Technology (”ICT”) services through an aggregation of
third-party networks
YoY growth
– 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
LTM 22%
– Investment in sales force paid off with the weighted sales pipeline increasing 37% YoY
PERFORMANCE
– Focus remains on converting the pipeline to revenue and scaling the business to benefit from
operational leverage
20%
– Echo has a broad range of customers across a number of industries
IMPACT OF
– To date the impact on the debtor book has been limited
COVID-19
– Integration of the Gondwana business has been impacted to some extent by the travel ban Revenue Gross Profit
– 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 Valuation change *
STRATEGIC enables it to compete for business with larger regional customers
OUTLOOK 178
– Management continue to consider potential in-fill acquisitions in certain geographies
– Focus on driving operational leverage in the business as it continues scale up
161
– 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
VALUATION
– R133m of capital injected to fund the Gondwana acquisition which completed in October 2019
– Core Echo valuation increased by 15% 2019 2020
* 2019 adjusted for current year investment © Ethos | 20PREMIER UPDATE
% of Total Assets Value (Rm) TMB Ethos stake
8% 157m n/a 13%
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
Q1 21 growth
– 12% revenue growth continued in Q1 FY21 (over prior year) driven by Milling (growth of 20%),
Baking (12%) and Grocery and International (3%) 20%
OPERATIONAL
– EBITDA growth of c.20% for Q1 FY21 (over prior year) driven by Milling, Baking and Grocery and
PERFORMANCE
International
12%
– Strong performance has continued into Q2 FY21
– 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
MARKET SHARE – Wheat share market share of 30.0% (31 Mar 2020: 26.1%)
Revenue EBITDA
– 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%)
Valuation range
– Increased unemployment, consumer spend pressure and rising raw material costs require continued
focus on operating cost containment
OPERATIONAL 145
– Covid-19 related costs of R43m mainly for transport, screening and additional labour costs
AND STRATEGIC
– Benefited from reduced fuel costs for distribution and production
– Management considering strategic in-fill acquisitions of complementary products 65
CASH – Strong cashflow generation, net third party debt of R2.2bn at the end of Q1 FY21
GENERATION – Investment in working capital due to increased inventories and wheat price increases
AND DEBT – Beneficiary of lower base rates @ share price @ NAV
© Ethos | 21VERTICE UPDATE
% of Total Assets Value (Rm) TMB Ethos stake
8% 153m 1.25x 88%
Vertice sells medical technology and supplies across a wide range of applications predominantly to support
emergency and critical procedures
YoY growth
– Strong organic and acquisition-led growth over the past 12 months:
86%
• Revenue up 73%
LTM • EBITDA up 86%
PERFORMANCE – 3 bolt-on acquisitions of complementary products leveraging the same customer base and operating
platform 73%
– Significant progress made on supplier, customer and product diversification
IMPACT OF – COVID resulted in a slight slowdown in the revenue growth rate as elective procedures were delayed
COVID-19 – Likely to pick up again as COVID hospitalisations decrease Revenue EBITDA
– New product development and increasing use of data is enhancing the value-add aspect of the
business Valuation change *
OPERATIONAL
– Additional bolt-on acquisitions to further extend the value-add / IT services component of the
OUTLOOK
business should result in further revenue growth 153
– Focus on adding complementary product offerings / services to the existing platform
– Maintainable EBITDA more than doubled - reduced slightly to account for COVID
126
VALUATION – EV / EBITDA multiple largely flat despite larger, more diversified business
– Net incremental capital of R65m injected to fund acquisitions
2019 2020
* 2019 adjusted for current year investments
© Ethos | 22KEVRO UPDATE
% of Total Assets Value (Rm) TMB Ethos stake
6% 115m 0.57x 29%
Kevro is the largest supplier of corporate-branded clothing and promotional
products in South Africa
– 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
LTM • Distribution centres consolidated into one site resulting in significant operational and cost
PERFORMANCE 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 – Impact of initial lockdown on supply chain particularly from China
COVID-19 – Supply side issues resolved and impact is now indirectly through impact on customer spend
– Significant cost reduction program (c.14% of total cost base) will drive operational efficiencies Valuation change *
OPERATIONAL – New IT system and distribution centre efficiencies should improve operating performance and 227
OUTLOOK customer service
– Management succession (replacement for interim CEO) has commenced
115
– Reduction in maintainable EBITDA (11% reduction)
VALUATION – EV / EBITDA multiple decreased to reflect post COVID reality
– Increase in net debt as a result of COVID lockdown and operational issues
2019 2020
* 2019 adjusted for current year acquisition
© Ethos | 23SYNERLYTIC UPDATE
% of Total Assets Value (Rm) TMB Ethos stake
6% 114m 1.26x 89%
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)
YoY growth
– Solid operational performance with organic and acquisition-led growth in revenue 5%
• Strong performance from AFS (recent acquisition) in WearCheck resulted in strong cross
selling and revenue growth
LTM • Solid growth in the AMIS business
PERFORMANCE
• Strategic changes in Set Point Labs business also showing early positive signs
– Recent SANAS accreditation likely to unlock new contract opportunities
Revenue EBITDA
– Strong cost focus resulted in 5% growth in maintainable EBITDA
– The business was impacted by COVID with many of its clients closed during the lockdown
-3%
IMPACT OF COVID- – Business performance has picked up sharply since the lockdown restrictions eased
19 – Unlikely to be a material long term impact on the business (impact larger on smaller Valuation change *
competitors) 114
– Operational changes and cost reductions will benefit the business as volumes normalize
OPERATIONAL to pre COVID levels
OUTLOOK
– Further in-fill acquisitions being assessed to leverage the platform 104
– Maintainable LTM EBITDA increased by 5% accounting for the impact of COVID
VALUATION – EV / EBITDA multiple increased slightly
– Slight increase in net debt as a result of COVID
2019 2020
* 2019 adjusted for current year realisation © Ethos | 24PRIMEDIA UPDATE
% of Total Assets Value (Rm) TMB Ethos stake
5% 84m 0.56x 24%
Primedia is one of the leading South African broadcasting and outdoor advertising businesses
Advertising spend
change
– Operational performance significantly impacted by low GDP growth environment and the impact of Radio Outdoor
COVID on advertising spend
LTM • Radio advertising spend fell 15% in LTM
PERFORMANCE • Outdoor advertising spend fell 22% in LTM -15%
-22%
– Advertising spend has started to improve significantly post lockdown but still well below prior
years
-40%
– Very significant impact on general advertising spend across all media -50%
IMPACT OF – Radio adspend decreased 15% YTD (40% decrease in Q2 20) with Outdoor adspend falling 22% YTD Q220
COVID-19 YTD (c.50% in Q2 20)
– Will take some time for adspend to return to pre COVID levels
Valuation change
– Significant focus on renewed line-ups in the talk radio stations to drive market share and audience
ratings
165
OPERATIONAL – Cost cutting across all divisions to drive operational efficiencies given top line pressure
OUTLOOK
– Changes to executive management at head office and divisional level
– Business remained cashflow generative throughout the lockdown period 84
– Maintainable EBITDA decreased by 21%
VALUATION – EV / EBITDA multiple reduced by 15%
– Slight reduction in group net debt over past 12 months 2019 2020
© Ethos | 25PORTFOLIO COMPANY PERFORMANCE OVERVIEW
Overview of other Ethos unlisted portfolio companies
% of
Total Assets
– Leading distributor of mobile accessories and low technology products
4%
– 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
2% – 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
1%
– 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)
1%
– 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
2%
– 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
1%
– Turnaround strategy implemented 12 months ago yielding positive results despite difficult trading environment
© Ethos | 261 Executive summary
CONTENTS
2 Portfolio overview
3 Liquidity analysis
4 OutlookLIQUIDITY PROFILE
Sufficient liquidity to fund outstanding fund commitments
137
Realisations
Existing outflows
Available liquidity
2,728
3,245 3,108
460
32 (112)
Total Fee provision Net Invested Base facility Treasury Commitment FY21 FY22 FY23 FY24
commitments commitments capital shares gap
* Available liquidity = Cash plus Debt Facility less Net Investment outflows / Realisation inflows
© Ethos | 281 Executive summary
CONTENTS
2 Portfolio overview
3 Liquidity analysis
4 OutlookOUTLOOK FOR ETHOS CAPITAL
Significant uncertainty remains regarding the impact and longevity of COVID, particularly the effects of a second lockdown in
various 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 / realise
value 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
© Ethos | 30DISCLAIMER 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 1940,AS AMENDED; (B) WITHIN THE EUROPEAN ECONOMIC AREA WOULD FALL WITHIN THE CATEGORY OF "PROFESSIONAL CLIENT” AS THAT TERM IS DEFINED IN THE MARKETS IN FINANCIAL INSTRUMENTS DIRECTIVE 2014/65/EU; AND (C) WITHIN THE UNITED KINGDOM WOULD FALL WITHIN THE CATEGORY OF A “PROFESSIONAL CLIENT” AS THAT TERM IS DEFINED IN THE MARKETS IN FINANCIAL INSTRUMENTS DIRECTIVE 2014/65/EU. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THIS DOCUMENT DOES NOT CONSTITUTE AN INVITATION OR INDUCEMENT OF ANY SORT TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN INVITATION OR INDUCEMENT IS NOT PERMITTED OR WHERE WE ARE NOT QUALIFIED TO MAKE SUCH INVITATION OR INDUCEMENT. THIS DOCUMENT IS INTENDED TO BE COMMUNICATED ONLY TO SUCH PERSONS AS WE ARE LEGALLY ABLE TO SEND IT AND WHO ARE LEGALLY ABLE TO RECEIVE IT IN THEIR JURISDICTION OF RESIDENCE. NO PERSON HAS BEEN AUTHORISED TO MAKE ANY STATEMENT CONCERNING THE FUNDS OTHER THAN AS SET FORTH IN THE OFFERING MEMORANDUM AND ANY SUCH STATEMENTS, IF MADE, MAY NOT BE RELIED UPON. THE INFORMATION CONTAINED HEREIN MUST BE KEPT STRICTLY CONFIDENTIAL AND MAY NOT BE REPRODUCED OR REDISTRIBUTED IN ANY FORMAT WITHOUT THE APPROVAL OF THE FUNDS. NOTWITHSTANDING THE FOREGOING, EACH INVESTOR AND PROSPECTIVE INVESTOR (AND EACH EMPLOYEE, REPRESENTATIVE, OR OTHER AGENT THEREOF) MAY DISCLOSE TO ANY AND ALL PERSONS, WITHOUT LIMITATION OF ANY KIND, THE TAX TREATMENT AND TAX STRUCTURE OF THE FUNDS AND ITS INVESTMENTS AND ALL MATERIALS OF ANY KIND (INCLUDING OPINIONS OR OTHER TAX ANALYSES) THAT ARE PROVIDED TO SUCH INVESTOR OR PROSPECTIVE INVESTOR RELATING TO SUCH TAX TREATMENT AND TAX STRUCTURE, PROVIDED, HOWEVER, THAT SUCH DISCLOSURE SHALL NOT INCLUDE THE NAME (OR OTHER IDENTIFYING INFORMATION NOT RELEVANT TO THE TAX STRUCTURE OR TAX TREATMENT) OF ANY PERSON AND SHALL NOT INCLUDE INFORMATION FOR WHICH NON DISCLOSURE IS REASONABLY NECESSARY IN ORDER TO COMPLY WITH APPLICABLE SECURITIES LAWS. 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 TRANSFERS AND WITHDRAWALS OF INTERESTS IN THE FUNDS, AND THE INVESTMENT PERFORMANCE OF THE FUNDS MAY BE VOLATILE. THE FEES AND EXPENSES CHARGED IN CONNECTION WITH AN INVESTMENT IN THE FUNDS MAY BE HIGHER THAN THE FEES AND EXPENSES OF OTHER INVESTMENT ALTERNATIVES AND MAY OFFSET PROFITS. BEFORE DECIDING TO INVEST IN THE FUNDS, PROSPECTIVE INVESTORS SHOULD READ THE OFFERING MEMORANDUM AND PAY PARTICULAR ATTENTION TO THE INVESTMENT CONSIDERATIONS CONTAINED IN THE OFFERING MEMORANDUM. INVESTORS SHOULD HAVE THE FINANCIAL ABILITY AND WILLINGNESS TO ACCEPT THE RISK CHARACTERISTICS OF THE FUNDS’ INVESTMENTS. 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 COSTS, AND THE TIMING AND MANNER OF SALE, ALL OF WHICH MAY DIFFER FROM THE ASSUMPTIONS ON WHICH THE VALUATIONS CONTAINED HEREIN ARE BASED. THE INTERNAL RATE OF RETURNS (THE “IRRS”) ARE PRESENTED ON A “GROSS” BASIS DO NOT REFLECT ANY MANAGEMENT FEES, CARRIED INTEREST, TAXES AND ALLOCABLE EXPENSES BORNE BY INVESTORS, WHICH IN THE AGGREGATE MAY BE SUBSTANTIAL. ALL IRRS PRESENTED ARE ANNUALISED AND CALCULATED ON THE BASIS OF MONTHLY INVESTMENT INFLOWS AND OUTFLOWS. NOTHING CONTAINED HEREIN SHOULD BE DEEMED TO BE A PREDICTION OR PROJECTION OF FUTURE PERFORMANCE OF THE FUNDS. PROSPECTIVE INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND EVALUATION OF THE INFORMATION CONTAINED HEREIN. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN ATTORNEY, BUSINESS ADVISER AND TAX ADVISER AS TO LEGAL, BUSINESS, TAX AND RELATED MATTERS CONCERNING THE INFORMATION CONTAINED HEREIN. EXCEPT WHERE OTHERWISE INDICATED HEREIN, THE INFORMATION CONTAINED HEREIN IS BASED ON MATTERS AS THEY EXIST AS OF THE DATE OF PREPARATION OF THIS DOCUMENT AND NOT AS OF ANY FUTURE DATE. THE INFORMATION PROVIDED HEREIN WILL NOT BE UPDATED OR OTHERWISE REVISED TO REFLECT INFORMATION THAT SUBSEQUENTLY BECOMES AVAILABLE, OR CIRCUMSTANCES EXISTING OR CHANGES OCCURRING AFTER THE DATE HEREOF. CERTAIN INFORMATION CONTAINED IN THIS DOCUMENT CONSTITUTES “FORWARD-LOOKING STATEMENTS, ”WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD- LOOKING TERMINOLOGY SUCH AS “MAY,” “WILL,” “SHOULD,” “EXPECT,” “ANTICIPATE,” “TARGET,” “PROJECT,” “ESTIMATE,” “INTEND,” “CONTINUE” OR “BELIEVE,” OR THE NEGATIVES THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. DUE TO VARIOUS RISKS AND UNCERTAINTIES, ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE REFLECTED OR CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS. DUE TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THOSE SET FORTH UNDER “RISK FACTORS” AND“ POTENTIAL CONFLICTS OF INTEREST” IN THE OFFERING MEMORANDUM, ACTUAL EVENTS OR RESULTS OR THE ACTUAL PERFORMANCE OF THE FUND MAY DIFFER MATERIALLY FROM THOSE REFLECTED OR CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS. ETHOS, THE FUND AND ITS GENERAL PARTNER AND THEIR RESPECTIVE AFFILIATES BELIEVE THAT SUCH STATEMENTS AND INFORMATION ARE BASED UPON REASONABLE ESTIMATES AND ASSUMPTIONS. HOWEVER, FORWARD-LOOKING STATEMENTS AND INFORMATION ARE INHERENTLY UNCERTAIN AND ACTUAL EVENTS OR RESULTS CAN AND WILL DIFFER FROM THOSE PROJECTED. THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED ON SUCH FORWARD-LOOKING STATEMENTS AND INFORMATION. A PRIVATE OFFERING OF INTERESTS IN THE FUNDS WILL ONLY BE MADE PURSUANT TO A CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM AND THE FUNDS’ SUBSCRIPTION DOCUMENTS, WHICH WILL BE FURNISHED TO QUALIFIED INVESTORS ON A CONFIDENTIAL BASIS AT THEIR REQUEST FOR THEIR CONSIDERATION IN CONNECTION WITH SUCH OFFERING. THE INTERESTS IN ANY FUTURE FUND OR INVESTMENT VEHICLE SPONSORED BY ETHOS WILL NOT BE APPROVED OR DISAPPROVED BY ANY SECURITIES REGULATORY AUTHORITY OF ANY U.S. STATE, BY THE U.S. SECURTIES AND EXCHANGE COMMISSION, OR ANY SIMILAR AUTHORITY IN ANOTHER JURISDICTION, AND ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENCE. CERTAIN INFORMATION CONTAINED IN THIS DOCUMENT IS BASED ON OR DERIVED FROM INFORMATION PROVIDED BY INDEPENDENT THIRD-PARTY SOURCES. ETHOS BELIEVES THAT SUCH INFORMATION IS ACCURATE AND THAT THE SOURCES FROM WHICH IT HAS BEEN OBTAINED ARE RELIABLE. ETHOS CANNOT GUARANTEE THE ACCURACY OF SUCH INFORMATION, HOWEVER, AND HAS NOT INDEPENDENTLY VERIFIED THE ASSUMPTIONS ON WHICH SUCH INFORMATION IS BASED. THIS DOCUMENT IS BEING PROVIDED ON A CONFIDENTIAL BASIS. ACCORDINGLY, IT MAY NOT BE REPRODUCED IN WHOLE OR IN PART, AND MAY NOT BE DELIVERED TO ANY PERSON WITHOUT ETHOS’ PRIOR WRITTEN CONSENT.
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