EPE Capital Partners Ltd (EPE.JO) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Ethos Capital interim results presentation. [Operator Instructions] Please note that this call is being recorded. I'd now like to turn the conference over to Peter Hayward-Butt. Please go ahead, sir.

Thanks, Claudia. And thanks very much to all our investors and interested parties, stakeholders who've [ taken time ] to listen in this morning. I'll try and go through the presentation in about 45 minutes or so and hopefully leave some time at the end for any Q&A on behalf of the investors. Just moving on to the -- if you go to the summary slide, so on Page 3. I think we all know that 2020 has been an extremely difficult year for most businesses in South Africa and probably globally. But what has been really pleasing to see, particularly in the last 6 months, but probably most pertinently in the last quarter of the year of last year, is how quickly most of our unlisted portfolio companies have bounced back. I'll touch on it during the presentation, but I would say in the majority of our unlisted companies, we've seen a much better-than-anticipated reversion from where they were in the lockdowns up until June, and we'll touch on that during the presentation. Most of the businesses across the portfolio have shown very strong last 12 months growth, but a large component part of that has come at the back end of the year. Clearly, COVID has -- continues to have an impact on the portfolio. The 2 or 3 key assets that have been impacted the most are the Virgin Active business, which we'll touch on during the presentation; Kevro, which, again, we will touch on in a bit of detail; and then an asset which has been in the media of late, which is Ster Kinekor Theatres, which, whilst not being particularly large in our valuation context, it obviously is a high-profile business in South Africa that went into business rescue. What's also been pleasing in the last 6 months is the strong realizations that we've seen out of the portfolio. ZAR 3 billion of that is across the Brait portfolio, and we'll touch on that in a bit of detail. But probably equally pleasing is about ZAR 159 million to ZAR 160 million worth of exits from our existing portfolios, and it's been very pleasing to see that those have happened at a -- nearly a 25% IRR in terms of a realized return. Again, if we look back to the thesis of Ethos Capital, it was to turn assets, both from a TMB perspective and an IRR perspective, and achieve returns of more than 25%. And certainly, on the realizations to date, we've seen that. And also, what we have seen is a very significant uplift on the valuations that we've had prior to any of the sale of those assets, which, again, talks a bit to the robustness, I think, of our NAV per share. So what is that -- what impact has this had? Obviously, from an NAV per share perspective over the last 6 months, there was a slight reduction in the NAV per share from ZAR 9.12 down to ZAR 8.65. Probably 3 component parts of that: Firstly, Kevro and Ster Kinekor in the unlisted businesses have had an impact. Virgin Active within the Brait portfolio was written down as at September, which had an impact of NAV. And then from a perspective of the unlisted assets, Channel VAS was -- has performed very, very strongly and continues to perform strongly. But the rand strengthening during the course of November, December last year had a pretty significant ZAR 85 million impact on the valuation of Channel VAS in rands. Obviously, it's reported in dollars. Very pleasingly, EBITDA growth has happened across most of the portfolio companies. We'll talk about that later in the presentation, which has lifted the unlisted valuations. We have obviously seen an impact on the Brait share price. And again, we'll touch on that, particularly with respect to Virgin Active later. Somewhat depressingly, the valuation discount has increased to over 60%, and the current portfolio is valued at around about just over 4x EBITDA from a market value perspective. Just moving over to a slightly more detailed portfolio review. The portfolio performance, obviously, as I mentioned, a slight reduction in the NAV per share from ZAR 9.12 to ZAR 8.65. I mentioned, largely, this was due to a decrease in Virgin Active's valuation in the NAV in the Brait valuation, which reduced from ZAR 8.27 to ZAR 7.71 as of September. The foreign exchange movements that I mentioned in Channel VAS -- that's a U.S. dollar-based business. The rand strengthened, as I mentioned, in November, December had around about ZAR 85 million impact on the valuation, i.e., if the rand had stayed the same as it was in June, the valuation of Channel VAS would have been around about ZAR 85 million or ZAR 0.33 per share higher than it was as of December. And then there were some reductions in the valuations of the unlisted portfolio, notably around Kevro, Primedia and Ster Kinekor. The 3 of those combined had a negative valuation impact of ZAR 86 million, also around ZAR 0.33 per share. From an NAV per share perspective, including Brait at its current -- or as at December share price, that remained flat at ZAR 6.65, so pretty much the same as it was as at June. Maintainable EBITDA in the portfolio grew. We'll touch a bit later on how that is a bit of a dichotomy across the portfolio. Some of our larger assets grew very, very significantly, which is very pleasing. But obviously, there were some negative impacts, particularly around Kevro and Primedia that had an impact on EBITDA growth. On multiple, we've remained constant at the March valuations ironically of -- March 2020 valuation. So we haven't increased our multiples across the portfolio companies. And the reason for that, as we mentioned in our interim report, we still want to make sure that, a, the market has re-rated and is sustainable and that the EBITDA of the businesses remain sustainable. So we haven't increased our multiple pretty much since March, despite the fact that in the majority of sectors, valuation multiples are back to or at least as high as they were going into COVID. From a liquidity perspective, Ethos Capital remains almost fully invested, 97%, I think, invested at ZAR 1.8 billion. We still have the RMB facility, as I mentioned, of ZAR 500 million. It's currently unutilized. We haven't accessed it. And the current net undrawn commitments, again, we'll touch on that in the liquidity slides later, is ZAR 300 million. So as you can see, we have very significant headroom over our undrawn commitments. The partial sale of Channel VAS, which was achieved in December, obviously helped improve the liquidity position as at the year-end -- as at the December end. From a COVID perspective, you will have heard me talk both in -- I think, when we had it in November. And now obviously, COVID has a very significant impact on the portfolio. 18 of our 22 portfolio companies were fully closed during lockdown, and that had an impact on 3 things: obviously, the EBITDA in the businesses, the multiples that we now apply to those businesses and the sustainable levels of net debt. I think very pleasingly, though, is the operating leverage impact that we're now seeing now that COVID lockdowns have been reversed, and I think that comes from a number of things: We've put these companies on a better financial footing. The operating leverage has been improved significantly through cost reductions. And as soon as you then start to see top line turn, which we've seen over the last 6 months, we've had a 15% growth in our top line, you see it materially impacted on your EBITDA. So just to give you some -- one -- but one example across Fund VI. On a like-for-like basis, EBITDA growth in the fourth quarter of 2020 versus the fourth quarter of 2019, which was pre-COVID, was up somewhere between 15% and 20% across just about all of the portfolio companies, which talks to the fact that we're seeing a very significant re-rating and improvement on EBITDA. That hasn't manifested yet in our valuations just because we use an LTM multiple and LTM EBITDA, but we were very pleased to see across the majority of our portfolio growth somewhere between 15% and 20% over the previous year, which is a pre-COVID number. So I think that talks to the operating leverage perspective. Moving on to investment and disposals. And if I had to say probably what the most pleasing part of the last 6 to 12 months has been, it has been on this part of the business. Over the last 6 months, there's been a relatively small number of new investments across the Ethos Funds, around about ZAR 150 million of which our contribution was relatively small at ZAR 10 million, largely because a large number of those assets were in Fund VI. So we put some more money into Eazi and Vertice for recapitalization and M&A purposes. But from the last 6 months, as I mentioned, has been relatively small from an investment perspective. We achieved a partial sale, a very small part, 14% of our stake in Channel VAS that was completed to Convergence Partners as at December. It achieved a 25% IRR and 1.6x money back over the -- just under 2 years that we held the asset. We continue to hold the other 86% of that business, and we're very, very pleased with the performance of that business, and we'll touch on that later. We've received disposal proceeds from some repayments in Neopak and Autozone, relatively small in the context of the greater scheme of things for Ethos Capital. But they were relatively large in the context of Fund VI. The sale of Eaton Towers, as I mentioned, was completed during the course of the last 12 months, and that also achieved a 2.5x money back and an IRR in rand of around 22%. The Douglas Green Beverages sale that happened out of Brait was achieved in May, and it was done in line with the current -- the prevailing NAV at the time. And the other proceeds of significance in Brait were Iceland Foods, which we sold for GBP 115 million, which at the time, constituted an 83% premium to our NAV in the books. Post the year-end, there's been a partial realization of a sale of Waco's International business in the U.K., again, at multiples and valuation significantly above where we were holding that asset in the books. And the very important thing from our perspective, again, in delivering on the mandate is if you look at the majority of these disposals, they've been achieved at very high TMBs and IRRs. And the average, as I mentioned, across these is about 25% and a decent prevailing -- sorry, premiums to the prevailing Ethos valuations. From a strategic perspective, the focus on the Ethos Funds is largely on portfolio optimization and exits. Many of those assets, particularly in Fund VI, are in realization mode, and we would look to the next 12 to 18 months to see some of those realizations come to fruition. From an Ethos Capital Board's perspective, the focus remains on maximizing valuation and returning capital to shareholders before we start to contribute to any new funds in the greater scheme of things from an Ethos perspective. Just moving on -- at a very high level to the portfolio company overview. I'll go into this in high level because we've got more detail later on in the presentation. But dealing with Channel VAS, first, very strong growth in the portfolio from an operational perspective, which is very pleasing to see. So nearly 19% growth or 20-odd percent growth in rand LTM EBITDA. The -- from a valuation perspective, as I mentioned, this was partially -- the valuation was partially offset by ZAR 85-odd million due to strengthening of the rand across -- in exchange of the dollar by about 16% in the last pretty much 2 months of 2020. The pipeline for the business remains very, very good, and we look forward to seeing the further rollout of mobile financial service deployments in the course of the next 12 months. So a very strong performance, and we'll touch on that in a bit more detail. Echo, similarly, sales growth, very, very strong, north of 22% year-on-year and very strong improvement in gross margin, which is great. So we're starting to see the benefits of operational leverage in the business. In this business, the thesis has been one of [indiscernible]. The integration of the Gondwana acquisition is ongoing. And we look forward to a couple of acquisitions, one of which has already happened, of complementary businesses across the Echo portfolio. So that really remains the focus, sales growth and integration of the bolt-on acquisitions in Echo, but a very strong performance over the last 6 months. Vertice, obviously, was a business that was impacted by COVID. The impact on electives did have an impact on that business. We'll talk about it on a couple of pages time. But we still continue to see very strong growth, both in revenue and EBITDA, which is driven by 2 things: one, organic growth, which is pleasing; but also by a number of infill acquisitions, some of which we've concluded in the last quarter. Talking to Synerlytic. Very strong cost management in that business since we acquired it as Torre Industries. Credit to management on that. WearCheck's performance through, which is circa 75% of the business through COVID, was extremely solid. Despite obviously the pressure it was under from some of its customers, it performed very well, probably slightly ahead of our expectations. And a number of the acquisitions that the business has undertaken over the last 12 months are really starting to come to fruition and add some operating leverage to the business. Gammatek had a very tough first half of the year, as you will remember what I spoke to in November at the first half of the results as to June. We've seen a very, very strong pullback in that business, which is very pleasing and probably even more pertinently, a very strong fourth quarter of the year over the festive season. And I think that's been driven by a number of things: new channels, new customers and obviously, new market share gains given that a number of their competitors have fallen by the wayside. And then lastly on this page is Kevro. Kevro has had a tough time. We mentioned that as at June. Pleasingly, the performance has started to turn around. It still remained a very, very tough 2020, and we took some pretty drastic measures when you talk to valuation, and we'll talk a bit about it later on. We've got new management in there, and the performance really has started to improve, which we think will continue. But it's a business that's got a long way back to get back to its pre-COVID levels. Just talking quickly on the Brait portfolio assets on Page 7. Virgin, we'll talk to in a bit more detail. As you know, it's a business that's been massively impacted by COVID. The South African business, which is a separately ring-fenced business from its European and APAC business, the South African business has been open pretty much since August. Membership engagement really had started to come back. As at December, it was up -- we had membership engagement and utilization up in the mid-70s. Clearly, with the lockdown level 3 that happened in December, January, February, it has had an impact, but very pleased to see how quickly that business seems to be bouncing back now that we're back in level 1. That's very different from the Virgin Active Europe business, which you will have seen Brait announced this morning a very, very significant restructuring of the Virgin Active Europe business. I'll touch on that during the presentation. It really does give a lifeline to that business and gets it back on a footing, both across operational and financial leverage, to get back to where it was on a pre-COVID basis. So I think that's a very significant positive for the business. I'll touch a bit of detail on that later on. Talking about Premier. Premier has had a very, very strong performance. I mentioned as at November, its first half of the year had been very pleasing, growth up at 18 odd -- 18% to 20-odd percent from an EBITDA perspective. Very pleasingly, that has continued into the third quarter and into the last quarter of its year. It's got a March year-end. Largely driven by the MillBake division, but also pleasingly, not just that division. All of the other divisions have started to contribute very [indiscernible]. And management have succeeded in its first infill acquisition since we've been in situ as Ethos. And we think when that gets announced, it will be very positively received, hopefully, by the market. From a New Look perspective, New Look went through the CVA process and restructuring pretty much at the back end of last year. It's just as well it did. It has been significantly impacted, obviously, by the national lockdown since November in the U.K. But very pleasingly, its online channels have continued to grow very strongly. Its cash position has remained strong. And I think it will be a business that comes out of this, pretty much due to the CVA that we went through, in a much stronger position commercially than it went into the lockdown. Consol's performance has been very, very strong. It's bounced back extremely quickly, not just in its SA business, which -- where you would expect it to, but across pretty much all of its African businesses as well. So that's been relatively pleasing. Moving on to the NAV. I won't dwell too much on this slide. We do it in 2 ways. We show the unaudited numbers using Brait's net asset value as at September, and we also show what the unaudited numbers, on the right-hand side in the brown box are, with Brait at its share price. So if you take the differences in the last half year, the main one, that Brait NAV, ZAR 72 million difference really reflects the write-down that we took to Virgin Active in September in the Brait NAV. There was strong growth in Premier, offset by valuation write-down in Virgin Active. Channel VAS, you see at minus ZAR 90 million. ZAR 76 million of that is the realization. So you obviously need to take that into account. We had ZAR 16 million, 1-6, of dividends, which if you add those 2 together, shows that the valuation of Channel VAS was relatively flat in the last quarter. Remembering that, that is including a circa 16% strengthening of the rand. So without that, there would have been about an ZAR 85 million uplift to that valuation if the exchange rate had been the same as it had been as at the 30th of June. Working your way down. The only other major change is really around other investments. The ZAR 101 million you see there, ZAR 86 million of that is contributed by Premier, Kevro and Ster Kinekor in terms of the valuation write-downs we took across that portfolio. That means that the Brait NAV per share as at December 2020 is ZAR 8.65. And as I mentioned, many of the assets that we have in the portfolio through the current realizations or partial realizations that we've seen, I think, are valuations that probably undervalue the portfolio. So I think we are very convinced that the ZAR 8.65 is a conservative valuation for the portfolio. Moving on to just a quick, brief overview of the portfolio as a whole, and again, I won't dwell on this. The bottom post -- as at December 2020, the carrying value of capital invested is ZAR 1.8 billion. The current EV/EBITDA of the unlisted portfolio is maintained at 7x EV/EBITDA. The current valuation of the EV/EBITDA for the Brait portfolio at its current market value is around 6.9x. And if you take the unlisted portfolio of Ethos Capital, it's currently being valued by the market at around about 4.3 or 4x EBITDA. In terms of the portfolio as a whole, to give you the constituent parts. As we've mentioned before, the largest 10 assets contribute around 88% of the total assets. Those are the ones we will focus on during this presentation. Channel VAS has reduced slightly from 30% to 24% odd, largely as a result of the disposal. Virgin and Premier together constitute 25% of our NAV. And you can see the valuations of the rest of the -- the contributions of the rest of the portfolio from there. Pleasingly, 58% of the portfolio is SAB-based earnings, about 36%, the rest of sub-Saharan Africa and about 6% of our earnings come from international. Moving on to the growth of the portfolio. If you look on the left-hand side, the LTM growth, about 75% of the portfolio grew over the last 12 months. I would say just about all of the portfolio grew over the last 6 months, but certainly over the last 12 months. And 51% of the portfolio by value grew at more than 15%. Again, this is over the last 12 months. From an LTM EBITDA growth perspective, around 65% of our portfolio companies by value grew EBITDA over the last 12 months. Probably 40-odd percent of them grew by more than 15%. Those were Neopak, Waco, Channel VAS and Twinsaver, being the 4 companies there that you see that grew. And we're very pleased to say, as I mentioned, that over the last quarter, if I take the fourth quarter leading up to December, a very, very significant increase in our growth rates across the portfolio companies. Looking to the left-hand side of that chart, though, there are companies that have underperformed, gone backwards by more than 15% on an EBITDA basis. Those -- 5 of those reflect Kevro, Ster Kinekor, Primedia, Autozone and Eazi Access. And again, I'll touch on that during the presentation. From an investment return, so this is the valuation increase or decrease over the last 6 months. Brait share price increased, so that led to a ZAR 50-odd million increase, as you see there, 12% growth. Vertice valuation increased by 16% by about ZAR 25-odd million, Synerlytic by 10%, Gammatek by 12%. And Autozone, very pleasingly, which has been a problem asset we've seen for a long time, the turnaround in its performance, that we start to see, saw a very significant increase in its valuation over the last 6 months. If you take Channel VAS, Channel VAS was broadly flat over the last 6 months, but it was about 16% up in U.S. dollars. Obviously, there was a strengthening of the rand, as I mentioned. The 3 assets that you see at the bottom, Primedia, Ster Kinekor and Kevro contributed about ZAR 86 million negative to valuations. And again, I'll touch on that during the next couple of slides. In terms of the contribution by value, as you see, Channel VAS and the Brait listed value, that's at its current share price. Just the 2 of those together contribute more than the current market cap of the business. And then you can see the constituent parts leading up to the full NAV of the business as at the 31st of December. Just taking the assets, the key assets in turn. Talking about Channel VAS. Channel VAS had a very, very strong operational performance, which continued to December very pleasingly. It had about 12% increase in advances in its ACS business year-on-year, and this led to about 21% sales growth in rand and about a 19% increase in EBITDA. And that's very pleasingly, given that the business was impacted, albeit indirectly through COVID particularly around new deployments and the like. So it's very pleasing to see how well this business has continued to perform, and that has continued into the new year. Obviously, the business was impacted by weaker exchange rates across some of its key countries, including Nigeria, South Africa and Syria. Obviously, South Africa, you've got to take an average of the year in terms of its EBITDA contribution. It strengthened in the last month of the year, but obviously, you don't see that as a benefit in your LTM EBITDA, but you do see that as a negative across your valuations. So a very credible performance, very strong performance despite, obviously, some weaker exchange rates in its key territories. The outlook remains very strong, very strong demand for its ACS product. That has continued across new deployments and new customers. And it's great to see that we're starting to get traction around this MFS, mobile financial services (sic) [ Micro Finance Services ] product, which, as I mentioned before, really is a game changer for this business. The valuation over the past 12 months is up by 20-odd percent year-on-year despite the fact that the strengthening of the rand, and we've seen a pretty significant dividend flow back in this business throughout the year. So again, a very credible performance, and credit to management on this. We remain very robust. We currently hold it at 1.5x money back in our portfolio, and some of that obviously takes account of the fact that we've taken the disposal proceeds off the table already, some disposal of proceeds. Moving to Virgin Active. Here, I suppose there's really 2 different stories. The first one is on Virgin Active South Africa. That business has been operational, as I mentioned, since August. It's -- very pleasingly, it got its utilization rates up to about 75% coming up -- leading into December. And the membership engagement was at -- really had positively contributed to the business' performance. Obviously, we had a lockdown starting in December, which has continued up until a week or so ago, level 3 lockdown. The gyms were opened, but they were limited to 50 people per gym. And clearly, that has an impact on your ability to sell new contracts, and obviously, some terminations resulted. So we had a tough start to the year. But as I mentioned in the beginning, pretty pleasingly, we've seen since level 1 lockdown, and that was only sort of 10 days or so ago, a very significant uptick in both utilization and sales. And we would hope to see that positive trajectory continue. The opposite can be said for the European business, U.K., Italy and Asia Pacific. That business across the U.K. and Italy has been closed pretty much since November. We took a decision in December that we needed to restructure this business holistically. This wasn't a case of just restructuring the debt and putting in new capital. And very pleasingly, we announced this morning, the agreement has been reached around a restructuring plan of that business. It has the support of more than 75% of the creditors, the secured creditors and many of the landlords. And that process will now go through the U.K. courts. To the extent it comes to fruition, there will be a very significant operating leverage benefit to the business, and that comes across a number of different parts. About GBP 24 million benefit would come through the license fees, the restructuring of the license fees with Virgin, which is a very significant contribution from them. From the landlords' perspective, there's 5 categories of landlords from A to E, depending on their profitability contribution to the business. Clearly, we are looking to keep all landlords on board, but we need to do it in a way that makes economic sense to the business. And the restructuring benefit of that will be around about GBP 35 million based on what's currently projected in the restructuring plan. And then very importantly, we had good engagement with the lenders. We've reached agreement with them to extend their terms out to 2025. It was going to be refinanced in June 2022. And very pleasingly, there are a number of resilience features that we've managed to agree with the lenders to ensure that there's sufficient liquidity for the business going forward out to 2025. And we really do believe this, plus the shareholder contribution of GBP 45 million, which our share is GBP 36 million, will very significantly set this business up for success. So we're very pleased with the outcome of that. It still needs to go through the court process, as I mentioned. But we think the restructuring of the Virgin Active Europe business will be a very significant positive, both on an EBITDA and from a contingent and actual liability perspective in that business going forward. Touching quickly on Premier. As I mentioned, Premier's very strong performance has continued, 21% growth in EBITDA for the first half of the year, which has continued, and that has come as a result of 2 things: firstly, market share growth pretty much across this portfolio other than probably the Lil-lets business and also cost containment. So there's continued to be a focus on costs. And those results are despite the incremental costs that we've incurred, which is about ZAR 80-odd million, which are COVID-related costs. So I think a very, very significant and strong performance across the business. The performance has really been driven by MillBake, which is obviously the core component part, but all divisions have contributed. And particularly in the second and third quarters of Premier's year, remember, it has a March year-end, have seen really significant contributions from across all of its various business units. We continue to spend CapEx on the Pretoria bakery, which will be commissioned probably in August. And that again will have a very significant impact on the bakery side of the business, a very positive one, we believe. And we've also signed recently an infill acquisition of a complementary business in the confectionery space. And both those 2 initiatives should add to new growth for the business going forward. So very strong operational organic growth, supplemented by new CapEx on growth facilities plus M&A. So we think this business is well set up to continue to perform strongly, and it's a credit to management how they've positioned the business. Moving on to Echo. As we mentioned, there has been investment over the last 12 months in the sales team in particular. And if you look at the new contract wins and the circa 22% sales growth, we really do believe that's starting to pay off. There has been a COVID impact on the business, really around new deployments, and also the impact on some of the customers that we're targeting in the mid-tier segment. But despite that, we -- to have 22% sales growth and a very strong pipeline going forward, we really do believe this business continues to perform and is well set up to see the operating leverage that we've invested behind. If you take the new acquisitions, the Gondwana acquisition, plus there's a new acquisition called Witel, they are now in implementation mode. We're seeing the benefits of integrating those into the business. The Zimbabwean component part of the Gondwana deal has yet to go through. We haven't paid the proceeds for that yet. There's some issues needed to be resolved around that. But other than that, we're very pleased with the integration of the portfolio and the ability that, that gives us as the company to market ourselves on the front foot to potential MNCs. The outlook remains very strong. The pipeline looks good. We've only increased the valuation by 5%. I think it probably is on the conservative side, given the 22% growth year-on-year in revenue, and we're looking forward to seeing that and the operational leverage benefit of that manifest itself in EBITDA going forward. Moving to Vertice. Vertice, which is around about 9% of our total assets, and we currently hold at just under 1.5x TMB, had a very strong organic growth, around about 12% like-for-like revenue growth despite COVID. And COVID did have an impact on this business if you think about the elective procedures that have been, across the hospitals, delayed. And you can see this was evident. If you look at April to August, we were averaging there around 70% of budget. That bounced back very quickly in September, November to back to 90% of budget. But obviously, since the level 3 impact, it's gone back -- probably closer back to the 70%. So we would expect that, that would bounce back. We don't think that COVID will have a material long-term impact on this business. And many of the parts of the business has actually been a beneficiary of COVID. So EBITDA on a like-for-like basis, up 26%, largely through organic growth of 12%, but also through acquisitions. There's been 6 bolt-on acquisitions in this business, the last 1 of which was concluded in December. A relatively large business that they bought called PSSG, really an IT services -- based services company to have value-add to this business. And we really do think that that's a complementary part of the business. So the investment over the last 12 months in this business around people and infrastructure has started to benefit the business, both in terms of revenue and EBITDA. And what we're starting to see through the M&A pipeline is diversification, both in terms of suppliers, customers' product, but now with the PSSG acquisition also into the IT services component part of the business. The increase in the business there, the valuation of ZAR 151 million to ZAR 176 million, you will need to take account of the fact that some of that was new money going in. So we didn't increase the valuation that significantly as we had to put in new capital to partly fund the PSSG acquisition. But a very strong performance by Vertice, which we're very pleased with. On to Synerlytic, a very solid performance in this business, despite, obviously, the impact on the WearCheck, which I mentioned is, call it, 75% of the business here. WearCheck's customer base obviously was impacted by COVID. Volume growth did fall. But despite that -- the business activity falling, despite that, WearCheck really did have a solid 12-month performance. So with revenue around about flat and EBITDA up 6% talks a bit to the cost containment measures that we've seen in the business, and we started to see the business in terms of cash flows start to repay some of the existing debt. So that's why we've seen around about 12% increase in the valuation, 6% of that through EBITDA growth and the rest through a decrease in net debt. A number of bolt-on acquisitions have driven growth. We're looking at a couple of extra ones to add to the portfolio, both of which -- both of those, I think, would be very complementary to what we've managed to achieve to date. On Gammatek. As I mentioned, Gammatek was a business that was very significantly impacted by COVID, but we see a very, very strong recovery in this business, especially in the fourth quarter, leading up to Christmas. And I think I talked to a couple of things. As I mentioned, it's around new channels, new products. So MTN is a new channel that had been closed to us. We've reached agreement with them to reopen that, which is very positive for them and for us. We've had new products really around Samsung. And I also think it's around market share gains. Many of the competitors -- the smaller competitors in the space have fallen by the wayside. And we're very pleased to see that the start of the year has looked pretty good for this business, and we've seen the cash generation start to come through. So the valuation has increased slightly, largely a reflection of the fact -- the net debt improvements as opposed to any changes in multiple. We actually reduced the EBITDA multiple slightly in this business to reflect the impacts of COVID. Then moving to a business that hasn't performed particularly well during 2020. As we've mentioned before, 2020 was a very disappointing year for Kevro. The changes to the IT systems, the distribution centralization program were quite frankly a disaster and doing them together was even more of a disaster. But the very important point is that has been stabilized. We've got a new management team in place. We had an interim CEO who spent the last 6 months stabilizing the business in the form of Ian Russell, which we're very pleased that he agreed to do that. We now have a new CEO in situ. And the business really has started to improve. We do think it's going to take some time to get back to where it was. But the changes to the IT systems and distribution centralization have genuinely provided this business with a massive competitive advantage, the benefits of which we will hopefully see over the next 3 to 4 years. Cost cutting has happened. As you see there, we cut the cost base there by 14-odd percent. But if you look from a valuation perspective, we took the EBITDA, maintainable EBITDA was down. We decreased the multiple pretty significantly. And the debt increase during the course of the last 12 months meant that the valuation went down by more than 50%, 5-0%, from a -- on a 6-monthly basis. Maybe just quickly on to some of the smaller assets, and I won't dwell on all of this. Primedia has been impacted by the impact on ad spend. That did pull back leading up to December. I think the last -- the first 2 months of this year have been slower again based pretty much on the level 3 restrictions. But it does show how quickly it pulled back in October, November, December that this business remains a barometer for GDP and growth. And we do believe that certainly, the sectors that we target in this business will be the first to come back, and we think that Primedia will be a beneficiary. Ster Kinekor, whilst it's relatively small. I think we wrote it to 0, and it's about ZAR 15 million, 1-5, of value. Obviously, that business is relatively high profile in an SA context. It was put into voluntary business rescue. We continue to work with the business rescue practitioner there. And we do believe there's a chance that the business will come out of this, but it needs to be restructured pretty much along the lines, as we've talked about in the Virgin Active Europe business. Twinsaver, very strong year-on-year volume growth, which has been fantastic. This is a business that had been underperforming. And so we've seen growth in volumes and EBITDA. So that's been a positive. TymeBank. You will have seen an announcement relatively recently of a new capital raise done in TymeBank. They raised ZAR 1.6 billion from 2 new investors. And very pleasingly, the first tranche of that was pretty much at our in price, which again, firms up our valuation on that. But secondly, the second tranche will come in at a 30% premium to where we entered into this business. So we should in time see some value uplift towards that number from TymeBank. Autozone and Eazi were 2 businesses that have been perennial underperformers in our portfolio. And what's very pleasingly, particularly in Autozone, is how quickly the turnaround strategy has started to yield positive results. And we've seen this trading. It's had its best month of trading recently ever, which is not something I thought I would be saying about this business coming out of COVID. And similarly, with Eazi, the growth trend has really kicked up to a different level. We restructured the balance sheet on this business, and we remain pretty convinced that the business now really is on a trajectory that can see it return to sustainable growth and valuation. Moving on to just -- onto liquidity. Again, there's one slide on this, which is much easier to explain this time around. If you take our net undrawn commitments -- and to remind people what that is, it's -- we've got commitments to various funds. We take out the fees that are owing under those funds because we don't pay it directly to the fund. We pay it separately. So our net undrawn commitments of ZAR 298 million, call it, ZAR 300 million are really the number that if all of our funds commitments today were drawn, it would be ZAR 300 million. The current capacity that we have through the RMB facility is around, as I mentioned, ZAR 500-odd million. It's currently undrawn completely. And if you take the treasury shares that we could sell, we effectively have commitment surpluses, i.e., if all of our commitments were drawn today and we use the liquidity facilities and the treasury shares, we would be sitting on a net cash positive position of ZAR 168 million. And if you look on the right-hand side, the key bubble to focus on, those little brown ones, which is the available liquidity going out based on our current forecast. As you can see, we would forecast '23 and '24, but predominantly '24 being a year where we get into realization mode. I would hazard a guess that's probably conservative based on the current pipeline of potential exits, but that's the current model. And on all of those scenarios, we have more than enough available liquidity. So in conclusion, and I understand I'm running behind schedule, from a portfolio perspective, we've seen a very, very strong rebound since COVID. It's been very positive, certainly ahead of our expectations, ahead of budget in probably most of our businesses. As I mentioned, our Fund VI portfolio was probably 20% ahead of the last quarter pre-COVID last -- in 2019 -- in 2020. So that's a very pleasing indicator, and I think it is a lead indicator on valuations in the portfolio. So I think on the unlisted portfolio, we are remotely positive, conservative, but I think remotely positive. Clearly, COVID has had an impact, and we've lowered the valuations on Kevro by 50%, as I mentioned. Primedia, we've reduced the valuation. Ster Kinekor is in business rescue, and we reduced it to 0. And Virgin Active's impact on Brait's NAV also impacted our NAV. We do think that we are past the worst of all of those, and we look forward to some of those returning to positive valuations, hopefully, as soon as they can. We've seen strong maintainable EBITDA growth across most of the portfolio companies. And very pleasingly, about ZAR 160-odd million of realizations across the unlisted portfolio at TMB and IRRs of sort of 25-odd percent and very pleasingly, ZAR 3 billion of exits coming out of the Brait portfolio. So I think over the last 12 months, to have achieved those exits in pretty difficult circumstances at multiples and IRRs north of 25%, we think it does talk to 2 things: one, the conservative valuations that we have in our portfolio; but secondly, the ability to extract value from, on a realized basis, from the assets that we own. We remain of the view that economically, South Africa is still going to remain muted. We don't see any massive pickup. But I do think the businesses, having gone through the massive cost restructurings and reformatting most of the businesses, that they're well positioned to benefit. And we're starting to see it already from the positive operational leverage. From a liquidity perspective, we've got current commitment surpluses of ZAR 168 million with a positive cash balance. And I think many of the Ethos Funds are in realization phase, which should see an increase in reverse flows from the portfolio. And then finally, on strategic intent, the Board remains myopically focused on creating shareholder value. I think the Board believes that the share price massively under-reflects the value of the portfolio, and that -- it takes into its account in its own strategies, and we'll develop those over time. But I think we can give all the shareholders absolute confidence that the Board is absolutely focused on increasing shareholder value. And if that takes buybacks once there's liquidity in the portfolio or whatever it takes to ensure that, that happens, the Board will ensure that -- it gives a commitment to investors that's what it will continue to look at. The current focus does remain on getting capital outflows from the various portfolio companies so that we can return those to investors prior to making any new fund commitments. So that's 45 minutes. I appreciate it's a quick run through. I know we're going to spend some time with some of the investors later over the course of next week. But I'm very happy to take any questions from anybody now, either on the phone or online.

There are no questions on the phone line at the moment. [Operator Instructions] May I hand over to you for questions from the webcast.

Okay. We can work the machine. The first is from [ Paul ]. Could you please indicate what EV/EBIT (sic) [ EV/EBITDA ] multiple you pay for the Premier infill acquisition and Gondwana compared to the multiples you used for fair value? [ Paul ], the multiple that we are paying for the business is around about 5.5x LTM. But just so that you're aware, we believe that there's synergies -- very significant synergies in putting it onto our operational platform, which would probably reduce that valuation to about 4x. It's a much smaller business than Premier. It's had its own issues, which we think we can work on. So partly, that was taken account in the valuation. But that gives you some indication. From a Gondwana perspective, we paid a discount to NAV of that business. It wasn't valued. It wasn't making EBITDA or very small contribution to EBITDA in dollars. We valued it at on a revenue basis relatively similar basis to how we value Echo on a sales multiple. So we -- probably at a slight discount to where we valued the Echotel business but not miles from it. What has happened to the -- sorry, question 2. What's happened to the large gym competitors in the U.K. and SA and Italy? Has any capacity left the market? Any corporate activity, capital raise in the gym industry? And any color on multiples? [ Paul ], lots of questions in there. The competitive landscape has changed dramatically, less so in South Africa. I think South Africa has always been dominated by ourselves and Planet Fitness, and I think will be -- continue to be so. We've seen some of the boutique operators fall over, but they were never very big in the context of South Africa. And there's never really been a low gym -- low-cost gym market here of any of any substance. So we haven't seen that much change in South Africa. But in the U.K. and Italy. Italy, we're such a dominant player in that market. We've always had a significant market share. And there, we absolutely have seen both low-cost and boutique operators falling off a cliff. So I think when that business does emerge as the market leader, it will be a beneficiary of COVID. In the U.K., we've probably seen the top end of the market, so the boutiques -- and largely those are based in London. That's probably why lots of them have fallen over, but we've obviously taken pressure in our London business as well. What we have seen is some of the low-cost operators who've gone and raised capital, they're still around. And I actually think their membership engagement was better than ours, i.e., their members came back quicker than ours. And I think that's largely reflective of the fact that it's a younger audience that they attract; but secondly, at a different price point. So in the U.K., we haven't seen the same impact on the low-cost end. We think they're going to survive and equally thrive, but we definitely have seen it at the top end of the market. There's been quite a lot of corporate activity, capital raisings done in the gym industry, [ Paul ]. The Gym Group raised some capital. As you see now, we've raised capital. Through this process, we've received lots of indications of interest from people. As you can imagine, everyone and their dog has been all over us around this. And the one thing it has given me is a massive confidence of the valuations that we put on these businesses. And by that, I mean both the interest and the levels at which people are prepared to participate show that people have -- do believe that there's valuation -- sorry, there's value in gyms, and certainly, where we might be compared to our competitors. And just to give you one stat, [ Paul ]. If you look at the gym groups, and there's probably 6 of them in our peer group, if you took them at their market cap as at December 2019, pre-COVID, and you marked that at 100, they went all the way down to 58 from recollection. They are now back at 103. And that's not because the EBITDA has come back. It's not because [indiscernible] come back. They're all impacted by the same things as us. But the market is valuing them at a higher valuation today than they were pre-COVID. We are currently valuing our business at a 60% discount to where it was at December, which gives me -- sorry, December 2019. So it gives me a huge amount of comfort that the market has rebounded much quicker than we are reflecting in our valuation of that business. Question 3, would management consider increasing EPS stake in BAT at these valuations if you sell other small assets? As I mentioned, [ Paul ], it's a good question. The Board looks at all of these options. I think it is a reflection and a liquidity issue. If there was a realization, and I think there are some in the offering, we would absolutely look at the potential to do so. So it's driven by liquidity. I think at these valuations, I can give my personal perspective and I think the Board's as well, we think that the Brait valuation is thoroughly, and I'll repeat that underlined, cheap at this current valuation. So I think the answer would be yes to your question, [ Paul ]. Do you believe the tail of investment is too long and needs to be addressed? Anything can be -- well, on the tail of the investments, [ Paul ], that's largely a reflection of the fact that we are a very small investor into Fund VI, and we're a 1-odd percent investor in Fund VI. So when we look at the tail, Fund VI has got 10 or so assets in them, 8 of which are very inconsequential in our lives. So it's not really something that we can change. We didn't go into that. We bought into a portfolio of assets in Fund VI. So I don't think there's any ability for Ethos Capital to change that. From a perspective of Fund VI, as I mentioned, the portfolio has really started to perform well in the last quarter. And I think there are some exits on the horizon, which would address your point. And the last question you had, why is management -- why have management not been buyers of EPE stock? I don't know where you got that impression. Certainly, I have personally been a buyer of EPE stock. It's a very, very significant part of my portfolio. I obviously can only do that outside of a closed period. You will have seen Black Hawk over the last 12 months has invested again very significantly in buying it. So -- and I think you'll remember that the Chairman followed her rights as part of the rights issue. So I don't think that question is correct. There have been very significant followers and buyers. Moving on to [ Charles ] from Titanium Capital. Virgin royalties, please clarity in the -- please clarify, in the restructure, are the royalties being deferred or waived? It's a combination of both, [ Charles ]. Predominantly, what it is in the U.K. and Italy and APAC is a minimum royalty payable. Now obviously, with the impact on revenues that the businesses have had and the membership base, we've removed those minimums out until 2024, which are actual savings to the business. Then there are royalties -- and whatever the royalties are have been deferred, again for a future period of time. So I would suggest most of -- or the majority of, if not most of, the GBP 24 million of their contribution is in the context of the minimum royalties being waived, which are actual savings to the business. Please explain the terms of the Black Hawk loan. Should EPE not be raising a provision on recoverability of the loan? So if you look at the current -- it's got that already, [ Charles ], in the thing. So if you look at -- how the current loan works is Black Hawk put in ZAR 30 million at inception of 2016 and borrowed ZAR 100 million. Effectively where it is today is the equity is underwater from Black Hawk's perspective. So they've effectively written off all of their equity. So that loan and those shares are effectively owned by the company, and you see that reflected in the group accounts. So if you look at our NAV per share, it's already in there in terms of the recoverability of the loan. It's fully taken account of in there, [ Charles ]. Since listing, EPE shares have declined by approximately 65%, and it trades below its NAV. It seems that the investors do not like the structure. It is clear that Ethos values the permanent capital, but isn't the performance of EPE causing brand damage to Ethos? Isn't there a conflict of interest as Ethos wants to keep the permanent capital, where the EPE shares would prefer capital redemptions? Shouldn't EPE explore an option to go private? So [ Charles ], again, thank you very much for the question. It's a very good question. I just want to reiterate, and I want to make this point very clear to everybody. Ethos Capital is totally, 100% independent of Ethos Private Equity, 100% independent of Ethos Private Equity. Mike Pfaff; Derek Prout-Jones; Yvonne; and the 2 Mauritian directors, Kevin and Yuvraj, are the ultimate arbiters of what Ethos Capital does. It's got nothing to do with Ethos Private Equity. So if Mike and Derek, as the Investment Committee and the rest of the Board, decided that they shouldn't make any future investments and they should wind it up, it is 100% at the election of the Board. The Board continues to look at all options, including the ones that I've mentioned. So could Ethos Private Equity go into public to private? Yes, it could. It would have to go to the Board and convince the Board that is the best alternative for Ethos Capital's shareholders. So I just want to repeat, Ethos Private Equity has no say, no say over what happens at Ethos Capital. It is 100% at the point -- the Board is 100% of the view that the discount needs to be addressed. And I think all of the way it's trying to address that is in what I mentioned during the presentation. Moving on to [ Nick Krecker ] at [ Signal ]. You spent a lot of time discussing the earnings power of the assets, which seem to perform very well. Based on the good performance of the assets, this part of the business model is clearly working. The problem with the business model is the cost of equity. Given the 60% discount to book, Ethos has to swap ZAR 100 million for ZAR 40 million to fund an asset. Clearly, the economics of the swap do not work no matter how good the asset. The expensive funding used by Ethos stands in stark contrast to the business model promoted by Warren Buffett, where free float is used to -- used as a source of cheap capital to fund assets. Do you admit that the business model is not working? And what actions are you taking to correct it? So I can only repeat what I said around, it's not Ethos' view, it's the Board's view. The Board is 100% of the view, like yours, [ Nick ], that the business is undervalued. Yes, the portfolio companies perform well. At the end of the day, the proof will be in the pudding. The only proof we can say is on all assets that we've realized to date, and there have been 4 of them, we've -- and these are full realizations. We received a cash-for-cash IRR of 25%. So that's ZAR 100 going in, times about 25% over 4 years is cash coming out. That cash will be returned to investors. So the business model, you almost need to say, yes, the share price doesn't reflect it today. But if we take the current portfolio and we achieve anything like those returns on the current portfolio and we turn it into cash, which is what private equity does, and to your point, that cash is returned to shareholders, we will see multiples of the current share price and value. So whilst I do agree with your point on the discount, the fact of life here is what needs to happen is we need to turn the current assets and their performance into cash, return that cash to shareholders either in the form of dividends or buybacks. And in doing so, that will return multiples of the valuation. So the current NAV, as I reflected today, is what we think is the current portfolio valuation today. It's not where we think we will exit the portfolio, which is definitely at a premium to that. So if we can, as Ethos Private Equity, exit that and return that capital to Ethos Capital's shareholders, it will result in multiples of the current share price in valuation. Are there any other questions? No. Sorry, that's all the questions that I have. I'm very happy to take any other on the call if we haven't addressed anyone's questions because I know last time we missed 1 or 2 from people.

We have no questions on the audio line, sir. Can I perhaps hand back to you for closing comments before we conclude?

Yes. Thanks very much, Claudia. And again, thanks very much to all of our investors. I think those questions were -- hit the nail on the head. I think we're all massively fixated on how do we, a, turn this NAV into cash; and how do we return that in the best and optimal manner to shareholders. And that's something that, as I mentioned, the Board is myopically focused on. We continue to believe that the NAV per share, as we see it today, is factually what we think the valuation of those portfolio companies is today. We think we will realize them at a premium to that, but that needs to be reflected in the share price in time, and that will only come once we get realizations. I do want to point out though that, as I mentioned, we have had 4 assets, the only 4 that we've realized fully that have achieved more than 25% IRRs and very significant TMB. So it does show that the private equity model on realizations does work. We need to get more of those assets and return more of that capital to shareholders. But we very much appreciate the support. We're very pleased that the company's performance of the portfolio companies has started to improve. But you can take it as read, both as Ethos Private Equity and as at the Board, we continue to find ways to optimize value here for all stakeholders. Thanks very much.

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