Electra Private Equity : Half Year Report & Accounts 2021

Electra Private Equity PLC

Half Year Report 2021

Contents

Strategic and Business Review

1	2	About Electra Private Equity PLC
3	Chairman's Statement
	6	Portfolio Review
	7	Key Investments
	9	CFOO's Review
2	Accounts
11	Consolidated Income Statement (Unaudited)
12	Consolidated Statement of Changes in Equity
		(Unaudited)
	13	Consolidated Balance Sheet (Unaudited)
	14	Consolidated Cash Flow Statement (Unaudited)
	15	Notes to the Accounts
	24	Auditor's Independent Review Report to Electra Private
		Equity PLC
3	Corporate Governance
25	Half Year Report
26	Responsibility Statement
4	Further Information
27	Information for Shareholders
29	Glossary
	31	Contact Details

Accounts Review Business and Strategic

Governance Corporate

Information Further

Electra Private Equity PLC | Half Year Report 2021

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About Electra Private Equity PLC

Electra Private Equity PLC ("Electra" or the "Company") is a private equity investment trust which has been listed on the London Stock Exchange since 1976. The Company is managed as an HM Revenue and Customs approved investment trust and invests primarily in the private equity mid-market. As at 31 March 2021, its net assets were £196.9 million or 514.3p per share.

Since 1 October 2016, the Company has distributed over £2 billion to shareholders through ordinary dividends, special dividends and a share buyback.

Investment objective and policy

• Electra's investment objective is to follow a realisation strategy, which aims to crystallise value for shareholders, through balancing the timing of returning cash to shareholders with maximisation of value.
• The Company will not make any new investments but will continue to support its existing investments to the extent required in order to optimise returns.
• The Company will retain sufficient cash to meet its obligations and to support its portfolio assets, with cash from realisations being invested in AAA-rated money market funds, pending utilisation or return to shareholders.
• Should it be appropriate to utilise gearing in order to optimise the balance between timing of returning cash to shareholders and maximisation of value, the Company will maintain gearing below 40% of its total assets.
• Since 1 October 2016, the Company has distributed over £2 billion to shareholders through ordinary dividends, special dividends and a share buyback.

Accounts Review Business and Strategic

Governance Corporate

Information Further

Electra Private Equity PLC | Half Year Report 2021

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Chairman's Statement

"With the recent sale of Sentinel, we enter the final stage of our strategy with confidence, having returned over £2 billion to shareholders since October 2016. The new management teams at our two remaining larger portfolio assets, Fridays and Hotter, have performed admirably through the pandemic, not just sustaining their businesses in the most difficult circumstances, but also transforming them. In light of this, and their potential for further significant longer term value creation, the Board has decided that the optimal outcome for shareholders is likely to lie in a capital market solution for both businesses. It is our intention to demerge Fridays onto the FTSE Main Market late in the third quarter of this year and, subsequently, in the fourth quarter, to bring Hotter on to AIM through reclassification of the Electra entity. Plans are well advanced for both listings."

Accounts Review Business and Strategic

Throughout the 14 months since the emergence of the Covid-19 pandemic we have remained focused on ensuring that each of our portfolio businesses emerges stronger from the pandemic, with a strategy and implementation plan in place for sustainable growth and the creation of shareholder value. Through the focus and agility of our management teams the March valuation of our three core investments together has returned to pre Covid-19 levels. Following the successful exit from Sentinel in April at a multiple of seven times the carrying value in September 2019, immediately after we gained control in July 2019, we are confident that both TGI Fridays ("Fridays") and Hotter Shoes ("Hotter") will demonstrate incremental value as we emerge from Covid-19.

Both these businesses have plans in place that will deliver long-term value creation. Fridays is a rejuvenated business with a strategy for sustainable growth and the opportunity for acceleration in the opportunity-rich casual dining market, whilst Hotter has delivered the early stages of its plan following the accelerated delivery of its targeted operating model last year.

A key consideration of the Board in managing the delivery of our realisation strategy has been to seek the optimal outcome in the balance between timing of returning cash to shareholders and maximisation of value. The public markets are currently reflecting post Covid-19 value for well positioned consumer businesses, and as such, it is our intention to demerge Fridays onto the FTSE Main Market late in the third quarter of this year and subsequently to bring Hotter onto AIM through reclassification of the Electra entity in the fourth quarter.

We believe that through this strategy we can deliver further growth for our shareholders, bringing the implementation of our strategy to a successful conclusion whilst leaving two strong and well managed businesses to drive further value creation.

The strategy to optimise value through capital market solutions for Fridays and Hotter leaves our existing executive Share of Value Plan ("SoVP"), which would be settled in cash, potentially out of alignment with corporate strategy. Following consideration by the Board's Remuneration Committee and in light of recent strength in the Electra share price subsequent to the period end, agreement has been reached to ensure continued alignment of shareholders' and executives' interests through the vesting of SoVP awards in May, with the full net proceeds of £3.7 million being reinvested through subscription by the executives for new shares in Electra. The executives have undertaken to retain their shares for not less than six months following each relevant transaction. It is

anticipated that the subscription for new shares will take place as soon as practically possible following release of these Interim Results at the higher of net asset value ("NAV") and market price.

As we continue our preparation for the transactions planned for the second half of the year, we recognise that as a result of market disruption since March 2020 our valuations as at March 2021 reflect a higher than normal degree of judgement. The disruption to the historical earnings of the comparator companies used in our valuation process has resulted in us having to utilise published forward earnings multiples for our comparator companies and estimated but conservative forecast earnings for our portfolio companies in establishing enterprise value. Having considered the resultant valuations carefully and after discussion with our auditor and with input from other advisers, the Board is comfortable that the published valuations are a reasonable reflection of Fridays as it prepares to emerge from Covid-19 lockdown, and of Hotter as it demonstrates early delivery of its new business model.

Further information in relation to our larger remaining assets is given below:

Larger Controlled Assets: Fridays

	March	September	September
	2021	2020	2019
As reported at	£m	£m	£m
Valuations	146.2	106.6	141.4

Fridays is emerging from lockdown a much stronger and more rounded business. Its market has been equally transformed as a result of the reduction in competitor supply - through the closure of an estimated 21%* of direct competitor restaurants. These factors combined give us confidence in Fridays' ability to demonstrate further material value creation.

Following the initial imposition of lockdown on 23 March 2020, Fridays has traded continually from the launch of its "click & collect" and delivery services on 7 May 2020. Its restaurants have traded whenever local restrictions have allowed, with new, permanent outside space, with capacity equivalent to approximately four additional restaurants, opened on 12 April 2021. This focused and agile approach has allowed Fridays not only to demonstrate its improved customer offering to many new customers but to also optimise cash generation and maintain its supply chain throughout the disruption to date.

* Source: Jefferies note on UK Leisure: 11 April 2021.

Governance Corporate

Information Further

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Chairman's Statement continued

Larger Controlled Assets: Fridays continued

Through the impact of the material disruption to trade throughout most of the six-month period since September 2020, Fridays' net debt position after reflecting all pandemic related accruals has increased from £39 million in September 2020 to £62 million in March 2021, with cash holdings at the period end of £21.5 million. With partial reopening in April, Fridays became immediately cash generative.

Whilst sustained consumer confidence and any future Covid-19 restrictions are outside our control, Fridays' restaurants and team members are ready to serve their customers and rapidly build on the success of recent months.

Early indications of post reopening trading are very positive with Fridays' Scottish stores recording sales of 14% like for like ("LFL") growth vs 2019 levels in the three weeks following reopening on 26 April 2021, despite being unable to serve alcohol and closing at 8pm. The first three days of business following reopening across England and Wales on 17 May has shown LFL growth of 76% vs 2019, reflecting release of pent-up demand following the national lockdown, as well as highlighting the opportunity from spreading demand throughout the week.

With this positive start Fridays will continue its strategic growth through delivery of its "4D" Strategy, all underpinned by its 5th D of Development through the addition of brands or markets utilising the Fridays platform to drive profitable growth:

1. Dine-in: the core offering of quality food and drinks in an American-themed environment within its developing Fridays and "63rd + 1st" estate;
2. Delivery: prepared food and drinks delivered to your home at the time of consumption;
3. Digital: expanding the reach of Fridays through the delivery of prepared but uncooked Fridays meals with accompanying drinks nationwide for at home dining and summer barbeques; and
4. Drive-in: opportunity for future growth in drive-through locations aligned to sustainable travel.

The sustainable development of the Dine-in offering continues with the opening of Fridays in Lincoln and the first "63rd + 1st" in Cobham immediately on reopening, resulting in a trading estate of 87 restaurants. A further three Fridays and four "63rd + 1st" are in the pipeline for opening over the coming months.

The development of Fridays' Delivery and Digital channels was accelerated during Covid-19 disruption and will continue to form part of Fridays' development strategy going forward. "Jailbreak Chicken", a new delivery-only brand, was launched on a trial basis during lockdown and is now available in 19 towns and cities across the country. This builds on the growth of Fridays' range of drinks and "cook at home" meals launched over the last year.

Fridays is also in early exploration of opportunities for future strategic expansion through:

• the development of quick service restaurants through a capital‑light approach aligned to Drive-in sustainable transport infrastructure; and
• opportunities to Develop its existing brands in new markets or additional brands in the UK.

Each of the core activities and future opportunities mentioned will be built around the efficient and highly digitised Fridays' infrastructure platform which has been implemented over the last year, and which allows the Fridays customer facing team to focus on providing great customer service and experiences.

Given the uncertainty of the post Covid-19 trading environment, this efficient platform will be a key factor in helping to drive future value creation. The table below indicates actual performance in 2019 and, on a pro forma basis, the performance we would expect on recovery to 2019 levels of demand and market share, reflecting the structural changes made to Fridays' cost base and portfolio (0% LFL growth). The table also indicates the estimated pro forma impact of a range of growth / market share gains reflecting the opportunity from competitor contraction, product improvement and the strategic developments outlined above. This pro forma table has been updated from that published in December 2020 to reflect the impact of the Brexit deal and other updated data.

	Actual		Pro forma
	2019	Market demand at 2019 level
Fridays LFL growth	-	0.0%	5.0%	7.5%	10.0%
Sales (£m)	214.8	226.6	237.9	245.6	249.3
EBITDA (£m)	25.6	32.7	36.5	38.9	41.3
EBITA (£m)	15.0	21.9	25.7	28.1	30.5

With these developments and Fridays' continued focus on the delivery of quality food, drinks and service we are excited by the opportunity for growth and value creation.

Larger Controlled Assets: Hotter

	March	September	September
	2021	2020	2019
As reported at	£m	£m	£m
Valuations	19.2	5.8	33.0

Coinciding with the implementation of its new operating model, in October 2020 Hotter launched its "freesole", "cushion +" and "stability +" product ranges which incorporate differentiating technology to meet customers' needs beyond the core brand promise of uncompromising comfort and fit. Hotter's product has continued to develop in 2021 with further focus on differentiating technology in the spring/summer range launched in late February.

The optimisation of its operating model improves Hotter's situation and gives it the opportunity for growth as a digital direct to consumer business serving its existing UK and US markets, supported by a small, strategic UK retail estate. This leaves it free of the significant constraints imposed previously by its large retail network and the consequential impact on product range, margin erosion across channels and working capital inefficiency.

Performance since the October operating model and product strategy launch has been highly encouraging despite the impact of Covid-19 on Hotter's remaining retail estate. In the seven months from October UK online sales have grown 30% on the prior period whilst sales from digital partnerships have grown 44%. Online sales in the UK and US contributed 68% of total sales over this period, up from 54% in the prior year on an LFL basis. The growth in online sales reflects a shift from retail sales (retained stores only) with the offline direct to consumer business unchanged at 22% of total sales.

Accounts Review Business and Strategic

Governance Corporate

Information Further

Electra Private Equity PLC | Half Year Report 2021

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