rmbms conference · 2020. 9. 16. · presentation 17 september 2020 brait se (registered in malta...
TRANSCRIPT
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RMBMS
conference
INVESTOR
PRESENTATION
17 September 2020
Brait SE(Registered in Malta as
a European Company)
(Registration No. SE1)
Share code: BAT
ISIN: LU0011857645
Bond code: WKN: A1Z6XC
ISIN: XS1292954812
Bond code: WKN: A2SBSU
ISIN: XS2088760157
LEI code: 549300VB8GBX4UO7WG59
(“Brait”, the “Company” or “Group”)
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FIRST SIX MONTHS - PERFORMANCE REVIEW
2
PORTFOLIO COMPANY STRATEGIC & OPERATIONAL POSITIONING
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
• New / refreshed strategies to optimize value in the 3 to 5-year 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 approved and being progressed towards completion
– Consol increase in debt facilities
– DGB sale completed in April
• Consideration of R470 million equal to March 2020 carrying value
• 1st tranche of R370 million proceeds received 1 June 2020
• 2nd and 3rd tranches of R50 million each to be received by 31 March 2021 and 31 March 2022 respectively
– Sale of Iceland Foods in May
• Consideration of £115 million represents an 83% premium to 31 March 2020 carrying value
• 1st tranche of £60 million (R1,275 million) proceeds received 8 June 2020
• £48.5m proceeds (R1,074 million) received 15 September, as agreed early settlement for 2nd and 3rd tranches (due July 2021 & July 2022)
– Total proceeds of R2.9 billion received since March 2020 (including R150 million Premier shareholder loan repayment)
– Outline of exit strategy for remaining portfolio agreed with Board
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FIRST SIX MONTHS - PERFORMANCE REVIEW
3
LIQUIDITY MANAGEMENT
BRAIT OPERATIONS
– Significant reduction in Brait net debt:
• BML debt reduced from R4.6bn (31 March 2020) to R2.7bn (15 September 2020)
• Interest saving of c.R310m on an annualised basis
– Increased headroom of covenants on both BML facility and the 2024 Convertible Bonds
– Repayment / redemption of 2020 convertible bonds:
• Savings of c.R66m through early settlement offers and tender process
– Team integration complete
– Significant reduction of c.R493m of cash costs on an annualised basis
– Progress on redomiciliation from Malta to Mauritius; subject to shareholder approval at EGM, process envisaged to complete by
March 2021
GOVERNANCE
– Appointment of new Board at AGM in August (5 new members; 3 re-elected); new Board committees constituted;
significant (c.50%) reduction in Board costs
– Given impact of COVID, Advisory Fee and Board Fee reductions of 25% for Q121
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PORTFOLIO COMPANY PERFORMANCE OVERVIEW
4
Portfolio company overview
– Clubs re-opened in Italy, Thailand, Singapore, Australia (3 closed in Melbourne / Sydney) and UK (7 remain closed in
London)
– Early indications are positive: usage levels above; freeze / terminations in-line with management’s forecasts
– South Africa re-opened on 24 August, terminations (6%) lower than management estimates, usage up to 35% in week 2,
free freeze until end October so levels remain elevated (27%)
– 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 c.12% and c.20%
respectively driven by volume growth
– Management highly focused on enhancing operational efficiency and dealing with COVID 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 £115m; a premium to the March 2020 carrying value of £62m
• Early settlement discounted payment of £48.5m received on 15 September (total proceeds received £108.5m (R2.349bn)
– Operational turnaround plan was on track, however significantly impacted by COVID with store closures
– Approved a capital restructuring and CVA process to reduce costs
– Strong 2019 performance halted by COVID and impacted by the renewed alcohol ban in South Africa; operations have
reopened and will take time to ramp up to full capacity
(1) Consol is an investment held through Brait IV, and included in Brait’s ‘other investments’ portfolio
1
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6.3
2.9 2.9 2.9
6.4
4.63.5
2.7
Sep 19 (prerestructure)
31 March 2020 19 June 2020 Adjusted
Total Group debt (R billion)
2020 Convertible Bond
2024 Convertible Bond
Drawn BML RCF
33%
25%4%
28%
8%2%
BRAIT LIQUIDITY & CASH COST SAVINGS ANALYSIS
5
ILLUSTRATIVE CASH COST SAVINGS (realised since 1 March 2020) DEBT & COVENANTS
12.8
6.4
5.6
7.5
– Chart excludes 2020 Bonds for periods Mar-20 onwards, given
settlement of the £132.5m outstanding balance on 18 Sep 2020
– Adjusted reflects the drawn balance outstanding on the BML
RCF, post the 15 Sep 2020 receipt of the early discounted final
payment of Iceland sales proceeds of £48.5m
– The conversion price on the 2024 Bonds is £0.5219 (R11.21 at 30
June 2020)
– Brait is in compliance with all debt covenants
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
Annual interest rate
savings
BOND 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 289bps reduction in SA Base Rates and a 60pbs reduction in Margin following the receipt of the Iceland
proceeds; (3) Reduction of Advisory fee from R215 million to R100 million p.a.
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6
PORTFOLIO COMPANY OVERVIEW
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VIRGIN ACTIVE
7
Update on club openings
ITALY
– Re-opened 4 clubs on the 20th of May, 18 clubs on the 25th of May and the remaining 13 clubs on the 1st of June
– Current usage levels are slightly above management forecasts:
• Clubs opened on 20 May = 66% usage, clubs opened 25 May = 66% usage, clubs opened 1 June = 56% usage
– Active membership numbers 14% below prior year due to c.7% of members on freeze with total membership numbers
10% lower than prior year due to terminations
AUSTRALIA
– Re-opened 8 of its 11 clubs in mid June (2 Melbourne clubs and 1 Sydney club closed)
– Current like-for-like usages levels are at 82%; suburban clubs are delivering close to 100% usage, with inner city clubs
remaining quiet as businesses work through their return to office strategies
– Active membership numbers are 16% behind prior year with 15% of members on freeze and total membership numbers
8% down on prior year
THAILAND &
SINGAPORE
– Re-opened all 8 clubs in Thailand on 2 June and all 6 clubs in Singapore by the 25 June, 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% below prior year with total
membership numbers 13% and 18% down respectively
UNITED KINGDOM
– Re-opened 36 clubs on 26 July, 7 London clubs remain closed
– Current usage levels are at 53% of the prior year.
– Overall active membership numbers are 36% down on prior year due to higher number of members on freeze (16%) with
total memberships down 26% due to higher terminations
SOUTH AFRICA
– Re-opened all clubs on 24 August, two clubs in Namibia and one in Botswana re-opened in June.
– Usage has steadily improved to 35% of prior year in week 2 (from 13% at opening)
– Active membership base down 30% with 27% of members on freeze but total membership only down 6%
– Contract structure for SA membership base remains a positive for Virgin Active
21%
13%
28%
38%
= % of 2019 revenue
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PREMIER
8
Quarter ended 30 June 2020 performance
OPERATIONAL
PERFORMANCE
– Premier’s MillBake portfolio and CIM in Mozambique (which contributed 80% and 10% of FY20 revenue,
respectively) performed strongly
– c.12% revenue growth continued in Q1 FY21 (over prior year) driven by
• wheat price inflation
• overall volume growth in MillBake business (sales volumes were up 8%)
– EBITDA growth of c.20% for Q1 FY21 (over prior year)
• MillBake continued the strong momentum from H2 of FY20 after a weak H1 in FY20 where MillBake EBITDA was
down 10% compared to H1 FY19
• Benefited from efficiency gains and operating leverage from higher volume throughput
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 EFFICIENCIES
– Weak Rand to continue raw material inflation, requiring a continued focus on operating cost containment
– COVID related costs of R43m for Q1, mainly for transport, screening and additional labour costs for staff bonuses and
to cater for employees in self isolation
– Benefited from reduced fuel costs for distribution and production of R8m per month
CASH GENERATION AND
DEBT
– Capital expenditure in line with budget for FY21
– Net 3rd party debt was R2.2bn at the end of Q1 FY21 (vs FY20: R2.2bn)
– Significant investment in working capital (inventory at seasonal high due to high level of wheat imports)
– Savings from lower interest rates
1
2
3
4
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PREMIER
9
Strategic considerations and outlook
STRATEGIC CONSIDERATIONS
OUTLOOK
Strategic initiatives
– Construction of the brownfields Pretoria bakery which is part of a multi-phase development project to upgrade
Premier’s inland bakeries
– Will drive significant operational cost efficiencies and profitability
M&A activity
– Premier has assessed a number of strategic opportunities of complimentary businesses that would significantly
bulk up its existing presence in currently underweight categories
– Premier’s trading in July and August has remained strong and ahead of prior year
– The main concern for Premier is the impact of rising unemployment and a recession on the affordability of its
products
– Based on an anticipated 2020/21 white maize crop, Premier expects maize to remain the most affordable staple
food in the market for balance of FY21
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Restructuring update and impact
NEW LOOK UPDATE
UPDATE ON NEW LOOK RESTRUCTURING
– Significant focus on New Look’s e-commerce channel delivery resulted in strong online sales throughout
lockdown which has continued post reopening
– Sales, profitability and liquidity in line with management’s plans since the store reopening
– The financial recapitalisation of the business is being progressed towards completion
• Requisite support from secured financial creditors has been received
• Requisite majority (>75%) of unsecured creditors approved the CVA on 15 September
• Extension of the Operating Facilities and RCF to 2023 and 2024 respectively
• Fresh capital of GBP40m to be raised to provide further liquidity for New Look to implement its strategic plan
– Brait to inject GBP7.3m to “follow its rights” under the recapitalisation
IMPACT OF RESTRUCTURING
– The restructuring will significantly reduce operating costs and leverage in the business:
• Full equitization of the GBP440m of SSNs reducing senior debt from GBP550m to GBP110m (excluding
Operating Facility) with significant reduction in interest costs
• Reduction of rental costs through turnover based model and write off of deferred rentals due to the lockdown
• Significantly reduced operating cost base
– Capital structure post recapitalisation:
• Operating Facility of GBP60m, overdraft of GBP10m and RCF of GBP100m
• GBP40m PIK Facility (16.5% PIK coupon with 80% voting equity interest) plus GBP40m Shareholder Loan (no
interest coupon and 20% non-voting equity interest)
– Brait will retain its 18.3% stake through its participation in the restructuring and will retain its position on the New
Look board
Capital structure pre and post restructure:
PRE POST
Cash interest (£m)
RCF 100 100
Overdraft 10 10
Operating Facility 60 60
SSN 440 -
Non-cash interest (£m)
PIK Facility - 40
Shareholder Loan - 40
10
Pre restructuring Post restructuring
RCF Overdraft
Operating Facility SSN
PIK Facility Shareholder Loan
£610m
£250m