Electra Private Equity : Annual Report & Accounts 2020

Electra Private Equity PLC

Annual Report and Financial Statements

30 September 2020

Contents

Strategic and Business Review

1	1	About Electra Private Equity PLC
2	Chairman's Statement
	6	Strategic Report
	12	Portfolio Review
	22	CFOO's Review

2

3

Financial Statements

25 Consolidated Income Statement

1. Consolidated Statement of Comprehensive Income
2. Consolidated Statement of Changes in Equity
3. Company Statement of Changes in Equity
4. Consolidated Balance Sheet
5. Company Balance Sheet
6. Consolidated Cash Flow Statement
7. Notes to the Financial Statements

52 Independent Auditor's Report

Corporate Governance

1. Directors' Report, including Corporate Governance Report

1. Directors' Remuneration Report

1. Report of the Audit and Risk Committee

1. Statement of Directors' Responsibilities
2. Board of Directors

Further Information

4	88	Alternative Investment Fund Managers Directive (Unaudited)
89	Information for Shareholders
91	Glossary
IBC	Contact Details

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 30 September 2020, its net assets were £135.3 million or 353.4p per share.

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 £2.0 billion to shareholders through ordinary dividends, special dividends and a share buyback.

Statements Financial Review Business and Strategic

Governance Corporate

Information Further

Electra Private Equity PLC | Annual Report and Financial Statements 2020

1

Chairman's Statement

"In the most challenging circumstances, our management teams and their employees have worked tirelessly to protect their businesses and put them in a strong position for future growth. Whatever the course of the pandemic over the coming months, I am confident that we have strong and effective management teams in place, improved product offerings and above all the determination to deliver value to shareholders consistent with our declared strategy.

"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 ("Fridays"), Hotter Shoes ("Hotter") and Sentinel Performance Solutions ("Sentinel"), by £58.4 million (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."

At the time of writing last year's Chairman's Statement, we

had recently completed a period of significant positive changes across each of our main portfolio companies - strengthening our management teams and putting in place clear business strategies and plans for implementation in 2020. This allowed us to look forward with confidence to the prospect of finalising the implementation of our portfolio realisation strategy by the end of 2021. Shareholders will recognise the headwind which the Covid-19 pandemic has subsequently generated across all sectors and perhaps particularly in hospitality (Fridays) and retail (Hotter) sectors. Both of these major retained portfolio businesses utilised the first period of 2020 lockdown to successfully restructure and emerged stronger and more agile. They traded well as restrictions were gradually lifted and continue to do so within the constraints of the new restrictions enforced from October onwards.

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 advisers 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.

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 £53.9 million in March 2020 to £66.8 million 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.

Larger Controlled Assets: TGI Fridays

Note: portfolio company data other than at period ends is unaudited and based on management information subjected to internal verification.

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 £58.4 million (31%) from their valuations in September 2019. Whilst each of these businesses has made significant progress in the implementation of their

	September	March	September
	2020	2020	2019
As reported at	£m	£m	£m
Valuations	106.6	118.8	141.4

In parallel with last December's appointment of Robert Cook as Fridays' new CEO and the assembly of a new senior leadership team under him, we conducted an in-depth review of the business, its product, its customers and its opportunities for growth. This has resulted in focus from the new team on the rejuvenation of Fridays as a current and relevant brand and the delivery of significant improvements across each area of the core Fridays offering: quality food, drinks and service. At the same time, we have commenced the implementation of a range of additional revenue streams and extensions to the Fridays brand that increase resilience and will support the core restaurant product in delivering future growth.

2 Electra Private Equity PLC | Annual Report and Financial Statements 2020