Symphony International Holdings (SIHL) has released its preliminary results for the year ended 31 December 2021. During the period, SIHL’s NAV increased by 28.94%. The chairman, Georges Gagnebin, says that the improved operating environment particularly benefited SIHL’s investments in the hospitality, healthcare, and lifestyle sectors while ongoing disruptions to supply chains facilitated stronger margins in the logistics sector.
During 2021, SIHL made four new and six follow-on investments at a cost of US$23.47m and completed a full and two partial exits that generated US$56.90m of proceeds in addition to other income of US$1.43m. One of SIHL’s joint venture companies also entered into an agreement during 2021 related to a partial exit of land that SIHL says will generate total gross proceeds of US$23.25m once completed later in 2022.
The improved outlook for the hospitality and F&B sector allowed SIHL to monetise part of its interest in Minor International (MINT). SIHL’s chairman says that, with pent-up demand for travel and leisure and the more recent gradual opening-up of more geographies to tourism, MINT’s hospitality business reported a 49.29% increase in revenue in 2021 and positive earnings in the fourth quarter of 2021 for the first time in seven quarters. MINT’s F&B operations continued to be profitable and expanded total outlets by 19 during the year to reach 2,389 outlets. The improvement in business, which is expected to continue in 2022, has driven a recovery in MINT’s share price close to pre-pandemic levels. SIHL took advantage of this share price strength to reduce its exposure and lock in some gains by selling 49.25m shares and 12.34m MINT warrants that generated proceeds of US$50.03m. Symphony realized a return of 15.44 per cent per annum over a 15-year period and proceeds of 5.75 times its investment cost on the sale of these MINT shares.
During 2021, SIHL completed a small follow-on investment in ASG Hospital Private Limited (ASG). Despite the successive waves of Covid-19 and related government lockdowns, ASG and SIHL’s other investment in the healthcare sector, Soothe Healthcare Private Limited (Soothe), reported strong growth. ASG continued to expand organically and inorganically, following two acquisitions, which increased the number of its clinics from 33 to 43 over the past year. Average recurring revenue for ASG in December 2021 was 107.29% higher than the same period a year earlier. Similarly, Soothe also reported revenue growth of 86.01% on the same basis despite the challenging environment. During the past year Soothe also completed a fresh round of funding and facilitated a material secondary sale in its shares. These two transactions were completed at 1.88 times and 2.41 times Symphony’s blended average investment cost, respectively.
Investments manager’s update on investments at the year end
Indo Trans Logistics Corporation
“Indo Trans Logistics Corporation (ITL) was founded in 2000 as a freight-forwarding company and has since grown to become Vietnam’s largest independent integrated logistics company with a network that is spread across Vietnam, Cambodia, Laos, Myanmar, and Thailand. ITL has grown to national champion status in Vietnam.
“ITL has seen strong momentum across its key business lines that has facilitated growth in revenue and EBITDA by 104.08% and 209.32% in 2021, respectively. Aviation GSA and contract forwarding business almost doubled during the same period, which provided ITL with more operating leverage. The strong growth was driven by full consolidation of South Logistics Joint Stock Company (“SoTrans”), a strong domestic economy that has a growing local manufacturing base. The long-term outlook for the logistics sector in Vietnam is attractive and ITL’s management is focused on further upgrading its technology infrastructure, making new investments to grow the business and developing its real estate assets.
“The Company acquired a significant minority interest in Indo Trans Logistics Corporation (“ITL”) in June 2019 for US$42.64 million and has a net cost of US$42.14 million (2020: US$42.14 million). The fair value for Symphony’s interest in ITL at 31 December 2021 was US$143.99 million (2020: US$54.16 million).”
“Minuet Ltd (“Minuet”) is a joint venture between the Company and an established Thai partner. The Company has a direct 49% interest in the venture and is considering several development and/or sale options for the land owned by Minuet, which is located in close proximity to central Bangkok, Thailand. As at 31 December 2021 Minuet held approximately 180.75 rai (28.92 hectares) of land in Bangkok, Thailand.
“The Company initially invested approximately US$78.30 million by way of an equity investment and interest-bearing shareholder loans. Since the initial investment by the Company, Minuet has received proceeds from rental income and partial land sales. As at 31 December 2021 the Company’s investment cost (net of shareholder loan repayments) was approximately US$17.81 million (31 December 2020: US$19.26 million). The fair value of the Company’s interest in Minuet on the same date was US$69.81 million (31 December 2020: US$69.02 million) based on an independent third party valuation of the land plus the net value of the other assets and liabilities of Minuet. The marginal change in value of Symphony’s interest is due an increase in the valuation of Minuet’s land by 14.49%, which was partially offset by a depreciation in the Thai baht by 10.85% and the repayment of US$1.45 million in shareholder loans related to the sale of land during the year. Minuet entered into agreements for the sale of two parcels land that will complete in 2022 and generate gross proceeds of US$23.25 million.”
Minor International Public Company Limited
“Minor International Public Company Limited (“MINT”) is a diversified consumer business and is one of the largest hospitality and restaurant companies in the Asia-Pacific region. Anil Thadani (a Director of the Company) currently serves on MINT’s board of directors. Sunil Chandiramani (a Director of the Company) currently serves as an advisor to MINT’s board of directors. MINT is a company that is incorporated under the laws of Thailand and is listed on the Stock Exchange of Thailand.
“MINT owns 372 hotels and manages 155 other hotels and serviced suites with 75,621 rooms. MINT owns and manages hotels in 56 countries predominantly under its own brand names that include Anantara, Oaks, NH Collection, NH Hotels, nhow, Elewana, AVANI, Per AQUUM and Tivoli.
“As at 31 December 2021, MINT also owned and operated 2,389 restaurants under the brands The Pizza Company, Swensen’s, Sizzler, Dairy Queen, Burger King, Beijing Riverside, Thai Express, Bonchon, Benihana and The Coffee Club amongst others. Approximately two-thirds of these outlets are in Thailand with the remaining number in other Asian countries, the Middle East and the United Kingdom. MINT’s operations also include contract manufacturing and an international consumer brand distribution business in Thailand focusing on fashion and lifestyle retail (386 outlets), wholesale and direct marketing channels under brands that include Anello, Bossini, Esprit, Charles & Keith and Radley amongst others.
“MINT reported a strong rebound in core revenue and earnings before interest, tax, depreciation and amortisation (“EBITDA”) of 28.12% and 538.58%, in 2021 year-over-year, respectively. The performance was driven by reduced movement and travel restrictions that benefited MINT’s hospitality and F&B businesses. The higher sales together with a cost minimization program facilitated a larger increase in EBITDA during the same period.
“Pent-up demand and opening of countries to travellers fuelled a strong rebound in MINT’s hotel operations. Revenue from hotel and related services increased by 46.77% and EBITDA turned positive in 2021. Management are optimistic that the recovery will continue to gain strength with the further relaxing of border restrictions and higher vaccination rates.
“At the end of 2021, MINT’s total number of equity-owned and managed restaurants were 1,205 and 1,184, respectively. Minor’s food business continued to perform well and has remained profitable since Q3 2020. Despite the challenging operating environment in Thailand, 2021 group-wide total-system-sales increased by 3.1%, supported by business growth in China and Australia. Core EBITDA increased by 16.41% during the same period due to operational efficiencies and cost management initiatives. The operating environment continued to improve during the latter half of the year due to more dine-in traffic following the relaxation of restrictions in Thailand.
“Revenue from MINT’s retail trading and contract manufacturing businesses declined by 23.08% during 2021. The contraction was due to the challenging environment, including government mandated intermittent shop closures in Thailand to contain Covid-19 transmission. The situation continues to improve with the sustained opening of retail outlets and reduced disruptions to operations during the last quarter of 2021.
“Symphony’s gross investment cost in MINT was US$82.82 million (2020: US$82.82 million) at 31 December 2021. The net cost on the same date, after deducting partial realisations and dividends received, was (US$225.49 million) (2020: (US$175.46 million)). The negative net cost is due to the proceeds from partial realisations and dividends being in excess of cost for this investment. The fair value of Symphony’s investment in MINT at 31 December 2021 was US$67.97 million (2020: US$109.03 million). The change in value of approximately (US$41.06 million) is due to the sale of 49.25 million shares and 12.34 million warrants during the year that generated net proceeds of US$50.03 million and a depreciation in the onshore Thai baht rate by 11.54%, which were partially offset by an increase in MINT’s share price by 11.76%.”
“The Liaigre Group (“Liaigre”) was founded in 1985 in Paris and is a brand synonymous with discreet luxury, and has become one of the most sought-after luxury furniture brands, renowned for its minimalistic design style. Liaigre has a strong intellectual property portfolio and provides a range of bespoke furniture, lighting, fabric & leather, and accessories. In addition to operating a network of 27 showrooms in 12 countries across Europe, the US and Asia, Liaigre undertakes exclusive interior architecture projects for select yachts, hotels, and restaurants and private residences.
“Liaigre’s retail operations rebounded in 2021, partly driven by consumers upgrading and spending more on homes during the pandemic. Showroom orders and total orders grew by 43.38% and 25.70% in 2021, respectively. Asia continued to grow more quickly with orders increasing by 92.70% during the same period to account for 23.89% of total showroom sales, up from 17.78% the year before. The interior architecture business is performing well and the pipeline of projects continues to grow. Overall, the orders on hand at Liaigre at 31 December 2021 amounted to 43.70% of the group’s budgeted sales for 2022, providing strong momentum for the new year.
“Symphony’s gross investment cost in Liaigre was US$79.68 million (2020: US$79.68 million) at 31 December 2021. The net cost on the same date, after deducting partial realisations, was US$67.63 million (2020: US$67.63 million). The fair value of Symphony’s investment at 31 December 2021 was US$37.36 million (2020: US$22.27 million). The change in value since 2020, is due to a strong improvement in the business.
Property Joint Venture in Malaysia
“The Company has a 49% interest in a property joint venture in Malaysia with an affiliate of Destination Resorts and Hotels Sdn Bhd, a hotel and destination resort investment subsidiary of Khazanah Nasional Berhad, the investment arm of the Government of Malaysia. The joint venture has developed a beachfront resort with private villas for sale on the south-eastern coast of Malaysia and that are branded and managed by One&Only Resorts (“O&O”). The hotel operations were officially launched in September 2020.
“The One&Only Desaru Coast Resort saw a pickup in occupancies in the last quarter of 2021 following the lifting of interstate movement controls for vaccinated travellers in October. The domestic demand alone for luxury leisure trips raised the resorts occupancy to EBITDA break-even levels. The gradual opening-up to international travel with vaccinated travel lanes with Singapore in January 2022 and potentially Thailand is positive news for the domestic tourism market that should benefit this property. The management team is preparing to launch the marketing for the luxury villa sales on the property that will provide incremental value to Symphony in the coming years.
“Symphony invested approximately US$58.78 million (2020: US$58.78 million) in the joint venture at 31 December 2021. The fair value for this investment based on an independent third-party valuation on the same date was US$28.96 million (2020: US$35.30 million). The change in value from a year earlier is due to a decline in the value of the land by US$1.37 million, a depreciation in the Malaysian ringgit by 3.63% and an increase in liabilities related to the financing structure for the development.”
“Soothe Healthcare Pvt. Ltd. (“Soothe”) was founded in 2012 and operates within the fast-growing consumer healthcare products market segment in India. With growing disposable income, the demand for consumer healthcare products is expected to grow rapidly over the coming decades. Soothe’s core product portfolio includes feminine hygiene and diaper products. Symphony completed its equity investment in Soothe in August 2019 and became a significant minority shareholder in the company. Symphony subsequently made investments through convertible notes in 2020 and 2021. The total investment cost is less than 5% of NAV.
“Soothe has seen sales increase by 86.01% during 2021 compared to a year earlier. The strong growth has been driven by an expanding distribution network, successful market initiatives and launch of new products. In June 2021 Soothe complete a Series-C capital raise at a valuation equal 1.88 times Symphony’s cost. Later in the year, a material secondary transaction was completed by a third-party institutional investor at 2.41 times Symphony’s cost. The higher valuation for Soothe is reflective of the strong growth profile, prospects, and quality of this business. Management continues to focus on growing the business while improving margins by bringing the manufacturing of some new products in-house.
“Symphony’s gross and net investment cost in Soothe was US$8.88 million (2020: US$6.88 million) at 31 December 2021. The fair value of Symphony’s investment at 31 December 2021 was US$27.86 million (2020: US$11.09 million). The change in value is due to an increase in investment by US$2.0 million during 2021, a material secondary transaction in the shares of Soothe by a third party at a higher valuation and strong growth in the business.
“ASG Hospital Private Limited (“ASG”) is a full-service eye-healthcare provider with operations in India, Africa, and Nepal. ASG was co-founded in Rajasthan, India in 2005 by Dr. Arun Singhvi and Dr. Shashank Gang. ASG’s operations have since grown to 43 clinics, which offer a full range of eye-healthcare services, including outpatient consultation and a full suite of inpatient procedures (cataract, retina surgeries, Lasik, glaucoma, cornea and other complicated eye surgeries). ASG also operates an optical and pharmacy business, which is located within clinics.
“The management team of ASG has been successful in scaling the business organically and inorganically. Sales grew by 107.29% in 2021 while normalised EBITDA grew over four-fold during the same period as clinics continued to ramp-up operations and gained efficiencies from newly acquired operations. In February 2022, ASG was approved by creditors to acquire Vasan Health Care Private Limited, which has around 90 clinics mainly in southern India. The acquisition is subject to regulatory approval and if successful, will add considerable scale to ASG’s operations.
“Symphony’s gross and net investment cost in ASG was US$20.67 million (2020: US$20.13 million) at 31 December 2021. The fair value of Symphony’s investment at 31 December 2021 was US$24.72 million (2020: US$18.98 million). The change in value is due to the purchase of additional shares of ASG for US$0.54 million during 2021 and a strong improvement in the business.
“In addition to the investments above, Symphony has 14 additional non-material investments, at 31 December 2021. Pending investment in suitable opportunities, Symphony has placed funds in certain temporary investments.”