The past year has been highly challenging for Electra Private Equity (ELTA). In its annual results announcement this morning (covering the period to 30 September 2020), chairman, Neil Johnson, noted: “The emergence of the pandemic and the resultant impact on equity market values has had the effect of reducing the combined valuation of our three larger investments, TGI Fridays, Hotter Shoes, and Sentinel Performance Solutions, by £58.4m (31%) from their valuations last September. Both Fridays and Hotter utilised the first period of lockdown to successfully restructure and have emerged as stronger and more agile businesses. With significant improvements now implemented, a return to 2019 levels of market activity should provide an opportunity for combined value realisation in excess of pre-COVID-19 valuation levels.”
It is noted that ELTA continues to target realisation of its remaining investments by the end of 2021. It has advisors in place engaged on preparation for realisation of each of its investments when conditions are more optimal.
‘Plans in place to mitigate the impact of a no-deal Brexit’
Neil adds that “It remains our intention to complete realisations of portfolio companies in 2021. We are engaged in early preparation for the realisation of our investments and have advisors in place in relation to each of our larger portfolio companies. We are also committed to ensuring the optimal financial outcome for shareholders and the timing of the launch of any sales processes will be determined over the coming months as trading patterns normalise. Should factors outside our control, such as continued pandemic constraints on trading, indicate that a delay of some months to the current targeted timescale would be financially advantageous, we will consult with shareholders to establish their views on the time/money equation.
Notwithstanding the excellent responses to the COVID-19 crisis as it emerged, from each of our management teams, we acknowledge that in combination with support from Electra where needed, Government and other stakeholder support to our portfolio companies during the pandemic to date has been significant. UK Government financial support has been particularly significant and has helped to preserve the jobs and livelihoods of over 4,500 UK employees. The quantum of support expected to be received across our three larger portfolio companies by the end of the calendar year is equivalent to approximately 75% of all taxes paid by these companies to Government institutions in 2019.
The impact of the pandemic on equity market values reduced the combined valuation of our three larger investments (Fridays, Hotter and Sentinel) by over £58.4m (30.6%) from their valuations in September 2019. Whilst each of these businesses has made significant progress in the implementation of their strategies over the last six months, the COVID-19 crisis has limited their abilities to translate this progress into demonstrable financial results. As such our September valuations reflect a broadly similar position to March 2020, with the businesses having utilised some of their cash reserves in the intervening period. The combined net debt for our three larger investments has increased from £53.9m in March 2020 to £66.8m in September 2020, after adjusting for COVID-19 related tax and rental payment deferrals.
Each of our businesses is adequately funded to withstand continued COVID-19 disruption beyond the level we have already seen since March 2020 and we remain confident in their ability to perform strongly as we come out of COVID-19 disruption, whenever that is. With significant structural improvements now implemented in each business, a return to 2019 levels of market activity should provide an opportunity for value realisation well in excess of combined 2019 valuation levels.
Our businesses are all prepared for the possibility of a “no-deal” Brexit. Whilst this would result in additional cost and working capital requirements in the short term (as outlined below), these impacts have been mitigated by other efficiencies already implemented. Should a “no-deal” Brexit happen we would anticipate recovering the direct cost increases through supply chain adjustment over time.”
ELTA: Electra Private Equity continues to look to end-2021 for full realisation