TIDMELTA
RNS Number : 9122C
Electra Private Equity PLC
04 October 2018
FOR IMMEDIATE RELEASE
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR PART,
IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A
VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
4 October 2018
Electra Private Equity PLC
("Electra" or the "Company")
The Board of Electra today announces:
-- The agreement for the sale of its larger non-controlled
assets, Photobox and Knight Square at 103% of adjusted 31(st) March
2018 carrying value^
-- The outcome of the third phase of its strategic review
-- A general meeting to be held on 30 October 2018 to consider
the adoption of a revised investment objective and policy
-- The intention to distribute excess cash as an initial special
dividend of GBP140m (GBP3.65 per share) in December (subject to the
completion of the Photobox transaction and adoption of the revised
investment objective and policy) ('the Initial Special Dividend'),
with a subsequent special dividend in respect of the GBP21m
(GBP0.54 per share) proceeds of the sale of Knight Square ('the
Subsequent Special Dividend', and together with the Initial Special
Dividend, 'the Special Dividends'). The Subsequent Special Dividend
is subject to completion of the disposal of Knight Square, which is
conditional on receipt of regulatory approval which is anticipated
to be received in the first quarter of 2019
-- Its strategy for the remaining portfolio of assets, of which
the value of the two larger corporate investments are both over 97%
owned by the Company, with aggregated last 12 months unaudited
EBITDA of GBP31m and net debt of GBP65m. An additional pro forma
GBP28m of cash will be held by the Company following settlement of
the transactions announced today and distribution of the Special
Dividends
-- Future distribution policy comprising intended annual
dividends of GBP10m pa pending further material disposals
Sale of certain non-controlled assets
-- Electra has agreed the sale of its larger non-controlled
assets, Photobox and Knight Square to funds advised by Lexington
Partners L.P. ("Lexington") ('the Lexington Transaction').
-- The sale of Electra's interests in Photobox is expected to
complete in October, with an expected cash receipt of GBP98m. The
sale of the interests in Knight Square is subject to regulatory
approval, which is expected to be received in the first quarter of
2019. Upon completion of the Knight Square disposal the Company
will receive a further GBP21m in cash. This is in addition to a
receipt of GBP13m from a Knight Square loan note repayment in
August 2018.
-- On a proforma basis the transaction once fully completed will leave the portfolio comprising:
-- TGI Fridays GBP 149m^
-- Hotter Shoes GBP. 50m^
-- Others GBP. 15m^
-- Cash GBP 189m
GBP403m
^ 31(st) March carrying value adjusted for subsequent
transactions
Outcome of Phase 3 of the strategic review and implementation of
recommendation
-- The Board also announces the outcome of the third phase of
its strategic review as first announced on 24 May 2018.
-- The Board considers that each of the remaining corporate
investments represents an opportunity for value creation within an
acceptable timeframe. However, the concentration of the portfolio
and the structural inefficiency in reinvesting in a listed private
equity vehicle with a significant market discount to NAV make it
inappropriate to seek to do this within the existing investment
objective and policy of the Company.
-- The Board has therefore concluded, and recommends, that it is
in the best interests of shareholders to conduct a managed
wind-down of the portfolio over a period of time, allowing
optimisation of returns, the return of cash to shareholders, and
ultimately the winding up of the Company (the 'Recommendation').
The Board intends that until it is finally wound up, the Company
will continue to be listed on the London Stock Exchange in its
existing listing category and will pay annual dividends funded by
cash generated by the portfolio.
-- Implementation of the Board's Recommendation will require
shareholder approval of a new investment objective and policy. A
general meeting of the Company to consider an ordinary resolution
to approve the Board's proposed strategy through an updated
investment objective and policy will be held on 30 October 2018
(the 'General Meeting').
-- Subject to (i) the completion of the sale of Photobox; and
(ii) shareholder approval of the revised investment objective and
policy, the Board intends to pay the Initial Special Dividend of
GBP140m (GBP3.65 per share) in December. Payment of the Initial
Special Dividend will be confirmed by the Board following the
General Meeting.
-- Subject to completion of the Knight Square transaction (which
is conditional on the receipt of regulatory approval), the Board
intends to pay the Subsequent Special Dividend in respect of the
proceeds of GBP21m (GBP0.54 per share).
-- A circular containing further details of the proposed changes
to the Company's investment objective and policy and related
matters and the notice convening the General Meeting will be posted
to shareholders tomorrow. Copies of that circular will be available
shortly at www.electraequity.com.
Remaining portfolio, management and realisation strategy and
distribution policy
Following completion of the Lexington Transaction announced
today and distribution of the intended Special Dividends totalling
GBP161m, the Company will be left with a portfolio comprising:
31(st) March Last 12 months to end
Valuation^ August 2018 (unaudited)
Revenue EBITDA
------------- ------------
TGI Fridays GBP149m^ GBP210m GBP27m
--------------- ------------- ------------
Hotter GBP50m^ GBP97m GBP4m**
--------------- ------------- ------------
Others* GBP15m^ N/A N/A
--------------- ------------- ------------
Cash GBP28m***
--------------- ------------- ------------
GBP242m
--------------- ------------- ------------
^ Adjusted to reflect subsequent transactions at 31(st) March
value. Updated valuations as at 30(th) September year end will be
prepared through the Company's normal valuation process and
announced with the annual results in December
*Others includes:
-- Sentinel, a UK based producer and international distributor
of heating system related products with LTM EBITDA of GBP3m (March
2018 valuation: GBP6m);
-- SPC, a US based manufacturing business with LTM
pre-exceptional EBITDA of $2.5m (March 2018 valuation: GBP3m)
and;
-- other assets expected to be realised within the next 12 months
** Pre-exceptional
*** Pro forma based on settlement of the Lexington Transaction
and the Special Dividends
The Board considers that each of the remaining corporate
investments, represents an opportunity for value creation within an
acceptable timeframe. The larger two investments, TGI Fridays and
Hotter Shoes, both operate in the UK consumer market where current
challenging trading conditions are reflected by low market
multiples. We have reduced leverage in both businesses in order to
allow them to focus on medium term operational optimisation.
TGI Fridays has followed a strategy of sustainable growth for
several years with revenue and EBITDA CAGRs of 11% and 16% between
2010 to 2017. Whilst the business has been impacted by the heavy
discounting that has been prevalent in the casual dining sector
over recent months, TGI Fridays' focus on differentiation, customer
experience and maintenance of brand value has allowed it to
continue to perform well at EBITDA level and the company is now
well positioned for growth following its return to like for like
sales growth.
TGI Fridays' recent and future growth is expected to be
self-financing with strong free cash generation following
improvement of cash conversion from 33% to 63% from 2010 to
2017.
Hotter Shoes has performed well through direct marketing in a
niche market segment for many years. The business grew strongly
through an aggressive retail expansion from 2010 and 2016 and
development of a customer acquisition focused US business. Over the
last five years EBITDA has fluctuated between GBP13m and GBP8m.
Prior to the debt reduction in the current year, investment in
product and infrastructure necessary to stabilise the business and
provide a platform for sustainable growth was constrained by the
need to service financing payments. The required investment is now
in progress and whilst the business continues to be impacted by the
UK retail environment progress is being made towards optimising the
retail estate. Medium term development into adjacent customer
segments and development of the US business also present
significant growth opportunities.
The Board will continue to work with the management teams of
these companies and the other assets to implement their strategic
plans and optimise the timing and proceeds of future exits.
Cost Base and Board
In recognition of the reduced scale of the portfolio and the
proposed change to the investment objective and policy the
operating cost base of the company will be reduced further
(including a reduction in the number of Board members). Details
will be given in our December annual results announcement.
Distribution Policy
Subject to the adoption of the proposed revised investment
objective and policy and completion of the Photobox transaction
announced today the Board intends to pay an Initial Special
Dividend of GBP140m (GBP3.65 per share) in December. It is intended
that this will be followed by the Subsequent Special Dividend
following completion of the disposal of Knight Square, which is
anticipated to take place in the first quarter of 2019.
Further distributions will then be considered following
subsequent realisations.
Pending further material disposals it is the Board's intention
that annual dividends of GBP10m pa will be paid.
Commenting on the sale and conclusion of the Strategic Review,
Neil Johnson, Chairman of Electra Private Equity PLC, said:
"The Board is pleased to announce agreement for the successful
realisation of its larger non-controlled assets.
Having carefully considered all options the Board now believes
that given the size of the portfolio and the structural
inefficiency of the listed private equity model that is accentuated
by making new investments, it is now in shareholders' best
interests to announce the controlled realisation of the remaining
portfolio over an appropriate period. The remaining assets have
opportunity for value creation from current levels and the Board
will actively work with portfolio company management to optimise
realisations over time.
The Board unanimously recommends that shareholders vote in
favour of the proposed change in investment objective and policy,
and if these are approved, will manage the Company's cost base and
size of the Board to a scale appropriate for the Company's future
needs."
The person responsible for arranging for the release of this
announcement on behalf of Electra Private Equity PLC is Gavin
Manson, Chief Financial Officer.
For further information, please contact:
Electra Private Equity PLC
Gavin Manson, Chief Financial Officer 020 3874 8300
Greenhill
David Wyles / Brenlen Jinkens / Michael
Lord 020 7198 7400
Brunswick Group
Gil Ackers / Kim Fletcher 020 7404 5959
Further information
Greenhill & Co. International LLP ("Greenhill") is
authorised and regulated by the FCA in the United Kingdom.
Greenhill is acting exclusively as financial adviser for the
Company and for no one else in connection with the matters referred
to in this Announcement and will not be responsible to anyone other
than the Company for providing the protections afforded to clients
of Greenhill, or for providing advice in relation to the matters
referred to in this Announcement. Neither Greenhill nor any of its
subsidiaries, branches or affiliates owes or accepts any duty,
liability or responsibility whatsoever (whether direct or indirect,
whether in contract, in tort, under statute or otherwise) to any
person who is not a client of Greenhill in connection with the
matters referred to in this Announcement.
A copy of this announcement is also available on Electra's
website at www.electraequity.com.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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